Nature Medicine | Spoonful of Medicine

Experts diverge on stock price flux ahead of cancer trial results


Posted on behalf of Madhumita Venkataramanan

The stock prices of companies that report positive results for cancer drug trials tended to increase before the first public announcement of the findings, according to a study published today in the Journal of the National Cancer Institute. But experts are split as to whether the trend points to illegal ‘insider trading’ by people who know the results of these trials in advance — including physicians and scientists — or simply reflect a bias in the analysis.

In the study, a team led by pharmacoeconomist Allan Detsky of Mount Sinai Hospital in Toronto identified 59 cancer drugs in US phase 3 trials and those awaiting FDA approval from January 2000 to January 2009. Of these, 23 trials were positive and 36 were negative. The scientists retrospectively examined the stock prices of the pharmaceutical companies for 120 days before and after the first public announcement of the drug trial outcome.

The results of the study showed a surprising trend. “Companies that made a positive announcement showed a trending up in [stock] prices 60 days prior that was different from companies with a negative announcement,” says Detsky. “And the difference is statistically significant.” The stock price for companies that were due to report positive trials showed an increase of 9.4% while prices for those anticipating negative results showed a decrease of 4.5%.

Detsky suggests that insider knowledge of the outcome of oncology drug trials is being unknowingly shared and could be driving these stock price changes in the cancer drug industry. “I think the news is getting out through word of mouth,” says Detsky. “And the market is reacting to it in a way that is not legal.”

Trading on the stock market using information that is not publicly available is punishable by a maximum sentence of 20 years in prison and a fine of $5 million.

But oncologist Mark Ratain from the University of Chicago questions whether the paper’s accusations of insider trading hold water. “The results have no credibility at all,” he told Nature Medicine. In an accompanying analysis of the paper, Ratain and his colleagues point to an alternate factor — namely, company size — as driving the changes in stock prices. They note that within Detsky’s study, the companies with positive trials had an 80-fold greater average market cap value than those with negative trials. Examples of drug developers with positive results listed in the original study include Pfizer, Novartis, Genentech and Wyeth, none of which are on the negative trials list. Of the 21 micro-cap companies analyzed in this study (those with a market cap of less than $300 million), none had positive trial results in the analysis.

Ratain explains that smart investors decide where to put their money in advance simply by looking at the track record of the company conducting the trial.

A recent real-life case of possible improper trading highlights complexities within the pharmaceutical sector. A piece in the New York Times earlier this month reports that Columbia University professor Andrew Bomback used his inside knowledge of the efficacy of a kidney drug, Acthar Gel, and allegedly made $1.5 million on the back of its success on the stock market. Bomback, however, has denied any wrongdoing. So although the scientific evidence in Detsky’s paper is arguable, the concerns it brings up — insider trading in the pharmaceutical industry — are not.

Photo by pameladrew212 via Flickr Creative Commons.


  1. Report this comment

    Alan Dove said:

    If the researchers failed to correct for market cap, then the findings are clearly uninterpretable. However, even if they had done that there are other factors that could make the market seem prescient. Analysts get paid comfortable salaries to delve as deeply as possible into biopharmaceutical companies’ development programs, and many of those analysts have training in the sciences.

    It’s often not too hard to read the writing on the wall and make an educated guess about a drug’s prospects, based on earlier trial data, trial design, and preliminary public reports. Just seeing a trend in the prices doesn’t mean insider trading is happening. It could simply mean that analysts are doing a good job.