Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Reading Between the Biotech Management Lines

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

After my article on whom biotech investors should be listening to, Ron Renaud (@biotech69) sent me this nice note via Twitter: "Interesting piece on MF. In addition to the cautions of talking to patients, doctors, analysts (I used to be one) -- you forgot management!"

Yes, I did.

Investors should be listening to every conference call management gives outside of investment conferences, which -- with a few exceptions -- tend to be rehashed presentations without any new information.

Management is the best source of knowledge about a company and its drugs, but as with all the other disseminators of information, you have to look at the motives.

Job security
How often do you see a drug fail a pivotal clinical trial, and the CEO comes on the conference call and announces that the company is shutting down, selling all its assets, and returning the remaining capital to its shareholders? Can you name even one?

Instead, there's always one more clinical trial to run in a subset of patients for whom the drug worked -- one more backup plan. In a lot of cases, I think the plan has more to do with self-preservation than faith in the drug candidate. I can't really blame the management for doing this; I certainly wouldn't want to cause my own unemployment.

But that doesn't mean you have to stay invested in the company, watching the remaining capital wither away on a long shot.

They say you shouldn't fall in love with an investment. That goes for CEOs and their drugs, too.

Take Alfred Mann, for instance. As the largest shareholder in MannKind (NASDAQ: MNKD  ) , it's safe to assume his CEO job is secure. His hype of Afrezza appears to come from his love of the technology.

He just can't fathom that the company's inhaled insulin, Afrezza, wouldn't work or that patients wouldn't want to take it. A few years ago, when the company announced that it would have to run a clinical trial comparing its old MedTone delivery device to the new Dreamboat one, an analyst asked what the company would do if MedTone ended up being superior to Dreamboat. Mann responded: "First of all, the answer is it won't be superior. The Dreamboat device is clearly superior in many ways." There was no part two.

Admittedly, he was right, but with that kind of cocky arrogance, it's hard to know how much faith you should have in Mann's opinion.

Straight shooters
I wish more companies had a plan like Alkermes (NASDAQ: ALKS  ) had going into its phase 2b trial of opioid-induced constipation drug, ALKS 37. The biotech had pre-specified criteria that the trial had to meet to justify starting a late-stage program. The drug didn't meet those requirements, so the company decided to drop development.

Of course, ALKS 37 isn't Alkermes' lead drug; it has a few drugs on the market, so the failure wasn't a major issue for the company.

Renaud, who's the president and CEO of Idenix Pharmaceuticals (UNKNOWN: IDIX.DL  ) , had to make that difficult decision when Idenix dropped development of its lead hepatitis C compound IDX184. The FDA put the drug on clinical hold because of its similarity to Bristol-Myers Squibb's (NYSE: BMY  ) BMS-986094, which caused cardiac issues.

The company could have dragged it out, trying to convince the agency that IDX184 was different enough from BMS-986094 to justify lifting the hold, but the company decided to cut its losses and move on with the rest of its pipeline.

I'm sure it wasn't an easy decision, but it was probably the best decision for the company and should earn Renaud some trust with investors.

Game-changing biotechs
The best way to play the biotech space is to find companies that shun the status quo and instead discover revolutionary, groundbreaking technologies. In the Motley Fool's brand-new free report "2 Game-Changing Biotechs Revolutionizing the Way We Treat Cancer," find out about a new technology that Big Pharma is endorsing through partnerships, and the two companies that are set to profit from this emerging drug class. Click here to get your copy today.

Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2661771, ~/Articles/ArticleHandler.aspx, 10/1/2016 11:54:30 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 14 hours ago Sponsored by:
DOW 18,308.15 164.70 0.91%
S&P 500 2,168.27 17.14 0.80%
NASD 5,312.00 42.85 0.81%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/30/2016 4:00 PM
ALKS $47.03 Up +0.32 +0.69%
Alkermes CAPS Rating: ****
BMY $53.92 Up +0.05 +0.09%
Bristol-Myers Squi… CAPS Rating: ****
IDIX.DL $0.00 Down +0.00 +0.00%
Idenix Pharmaceuti… CAPS Rating: **
MNKD $0.62 Up +0.02 +3.63%
MannKind CAPS Rating: *