When is the exchange of scientific data a possible case of insider trading? When the safety and effectiveness of cancer drugs are tested in advanced clinical trials, says a study published Tuesday in the Journal of the National Cancer Institute.
In an unusual study that merged the worlds of medicine and finance, Canadian researchers have turned up an ethical and legal quandary for those who conduct and publish biomedical research: While scientific inquiry demands openness, fortunes ride on its findings, especially for those who can get those findings early.
The study looked at 59 clinical trials completed from 2000 to 2009 that involved drugs still considered experimental for the uses for which they were tested. In all cases, the medications were proposed — but not yet approved by the Food and Drug Administration — for the treatment of certain cancers. The study's authors also tracked the fluctuations in the stock price of the company sponsoring each trial in the months preceding the public release of a trial's findings and the 60 trading days after those findings were made public.
All of the clinical trials were considered "Phase III," which is the final step before a candidate-drug goes before an FDA advisory panel, and then before FDA regulators, for approval. A good showing in a Phase III trial usually, though not always, clears the way for the FDA to approve the marketing of the drug for a specific use in the United States. A negative result can, at this very late stage in a drug's development, doom its bid for FDA approval and represent a major financial setback for the sponsoring company.
Some 23 of the Phase III drug trials showed positive results — they shrank tumors, stabilized cancer progression, forestalled death or in some way, showed some clinical benefit to patients that was not offset by its risks. An additional 36 of the drug trials considered in the study failed to meet the expectations of researchers.
When the study authors looked at fluctuations of stock prices in the months before and after clinical trial results were revealed, they found a disturbing pattern: In the 120 trading days before the public announcement of a positive trial result, the sponsoring company's stock surged in value 13.7% on average. During that same period, the company that would soon publicly declare its drug's failure saw the price of its stock shares slump, losing on average .7% of their value.
That difference was found to fall short of statistical significance — it could have been the result of chance. But the difference became stronger — and statistically significant — when the researchers averaged stock prices over a crucial 60-day period that preceded the announcement of findings (a period during which speculation would likely be most intense).
"One explanation for the trends we observed in this study is insider trading, in which individuals make stock trades based on information before results are public or by providing nonpublic information to others ('tipees') who act on it in a similar fashion," wrote the authors, led by Dr. Allan S. Detsky of Toronto, Ontario's Mt. Sinai Hospital. It's happened before, the researchers observe, that trial sponsors, trial investigators, even trial subjects have revealed the results of a clinical trial, sometimes inadvertently but sometimes to give someone an unfair advantage.
In an accompanying editorial, the University of Chicago's Dr. Mark J. Ratain and Adam Feuerstein, who is a senior columnist at TheStreet, offer more innocent explanations for the findings. Among them: Companies that get positive results tend to be bigger, better established and better capitalized than the smaller firms more likely to sponsor drug trials that disappoint.
Just in case, however, the editorialists note that insider trading is illegal, punishable by as much as 20 years in jail and a fine of $5 million. Caveat emptor, they warn those whose knowledge or money is tied up in oncology micro-cap stocks: Don't do the crime if you can't do the time.