Companies can run into a variety of issues that trip up drugs that look good in early trials but fail later trials. From placebo effect, to small clinical trials, to uncontrolled trials, it can be hard for investors to gauge future successes on early clinical trials.
XOMA (NASDAQ:XOMA), for instance, ran into trouble testing its drug candidate, gevokizumab, when patients with erosive osteoarthritis of the hand improved despite getting placebo. XOMA couldn't prove that gevokizumab worked when the comparator also improved.
In the video below, Fool contributor Brian Orelli and Motley Fool Health-Care Bureau Chief Max Macaluso discuss classes of drugs that don't run into those issues, mainly antiviral drugs and antibiotics. In general, those drugs tend to translate well from early to late clinical trials because the drugs attack viral or bacterial proteins that have less variability than humans.
As Brian and Max discuss, the exception to that rule are different genotypes of a virus. Gilead Sciences' (NASDAQ:GILD) Sovaldi, for instance, is able to cure some hepatitis C genotypes on its own, but requires help from other drugs for other genotypes. Fortunately, there's a simple diagnostic to determine the genotype of the virus, making it easy for Gilead to show efficacy.