Oops, Our Data Weren't That Good

Targacept (Nasdaq: TRGT) was a little off target with its initial analysis that its phase 2 trial testing TC-6987 in asthma passed both its co-primary endpoints.

It's kind of like being off with earnings estimates, except a whole lot worse. Investors expect that earnings estimates are just that -- estimates. They're not expecting top-line data from a phase 2 trial to be revised. The data is the data.

Except when there's an "error in the application of the agreed statistical analysis plan," as Targacept explained yesterday. Seems someone hit the wrong button on the computer program that calculates the statistics, or something like that.

TC-6987 was given along with an inhaled corticosteroid such as GlaxoSmithKline's (NYSE: GSK) Flovent, Teva Pharmaceutical's (Nasdaq: TEVA) Qvar, or Merck's (NYSE: MRK) Asmanex for 28 days. On the last day, the Forced Expiratory Volume -- or how much air the patient can blow out in one second -- was measured before and after the last dose administered. The new analysis revealed that the change from baseline to before the dose on the 28th day wasn't statistically significant. The post-dose measurement remained statistically significant -- improved, actually.

On the surface, hitting only one of the endpoints isn't a major issue. It was only a phase 2 trial and the drug just barely missed on the pre-dose measurement. A larger trial with the same increase in FEV1 would surely be statistically significant.

But investors should be a little worried about a company that can't get its data straight before presenting them to investors. Sure, mistakes happen, and I wouldn't exactly say this has reached the level of distrust as at Sequenom (Nasdaq: SQNM), whose employees allegedly flat-out faked data. But the company should be double- and triple-checking the data, because this mistake should have been caught before investors saw it.

The worry here is that this could become a systemic problem that might result in a sloppy regulatory application. An "error" at that point will result in a larger stock price drop than the 12% fall Targacept experienced yesterday.

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