Hope, Hype Buffet Stocks in AIDS Crisis : Health: Both market players and those threatened by the disease keep a watchful eye on about 41 drug research firms such as ICN in Costa Mesa. But the results are hard to decipher.
Just days before the sixth international conference on AIDS opened in San Francisco last month, something peculiar was going on at ICN Pharmaceuticals Inc.
The company’s stock started a mysterious trek upward in unusually heavy trading on the New York Stock Exchange, climbing 86% in just 12 days.
This was good news for investors, many of whom had bet for years that ICN’s antiviral drug ribavirin would prove the elusive elixir capable of stopping AIDS or at least the human immunodeficiency virus (HIV), which causes the fatal disease.
No one seemed to know why ICN was suddenly so hot. But speculation ran wild, including the possibility of a new scientific study proving ribavirin’s efficacy in fighting AIDS, something that several previous clinical trials had failed to demonstrate.
The company finally cleared things up with an announcement June 15.
The Republic of Ireland--with less than 1,000 people infected with HIV--had approved ribavirin as a treatment for the virus. The Costa Mesa-based company said it thought more countries would follow Ireland’s lead and sent a pile of press releases to the AIDS conference so the horde of reporters there could get the word out.
Everyone from U.S. Food and Drug Adminstration officials to financial analysts expressed skepticism. The market value of ICN, after all, rose a staggering $26,340 for every infected Irishman. The company’s stock has cooled off considerably since then and on Friday closed at $3.375, down from $4.875 on June 18.
As the trading in ICN shows, the interest in AIDS research appears to be as great on Wall Street as it is among those actually infected with the disease. Each group chases down every development looking for the slightest sign--however minuscule--that some drug might slow the plague.
For people with AIDS, this is a life and death pursuit.
For investors and many others, it’s a huge financial gamble.
The stock prices of companies doing AIDS-related research--particularly smaller outfits--rise and fall like see-saws, many times on grandiose expectations and unfounded rumors. The stocks of many firms, including ICN and Newport Pharmaceuticals International Inc. in Laguna Hills, leap and plummet by 50% or more on AIDS-related news and developments.
As a result, some savvy investors can double their money in just days; others lose nearly everything in just as short a time.
“It is not the stock market. It is the shock market,” said Tom Barton, a general partner in Feshbach Bros., a Palo Alto investment firm.
The stakes are high--and the potential profit so big--because AIDS is such a massive problem. The World Health Organization estimates that 6 million people will have AIDS by the year 2000, with another 15 million to 20 million infected with HIV. Six million to 8 million people worldwide--or one in every 400 adults--is presently infected with HIV.
About 41 companies--many of which are tiny--are working on 61 different drugs and vaccines to halt AIDS and its related disorders. A number of scientists have expressed doubt that one drug will emerge as the all-in-one cure, claiming instead that AIDS likely will be contained somewhat like cancer--with several different medications and treatments.
Trying to decide which AIDS-related companies would make good investments is already daunting.
But what really has stock markets in a tizzy--according to about 50 experts, government officials and company executives interviewed--is the combustible combination of corporate hype, fervent stock analysts, crusading AIDS activists and the media which often can’t tell the difference between a real breakthrough and a boondoggle.
“You would be hard-pressed to find a better example of high risk,” said Steven Gerber, a medical stock analyst with Bateman Eichler Hill Richards in Los Angeles. “The public should be very wary of the scientific breakthrough of the day.”
The FDA says it is so concerned about misleading information being spread by drug companies--including those working on AIDS--that it has decided to begin monitoring press releases as they are distributed. But the agency says it can only legally require firms with FDA approval--which most AIDS companies don’t have--to submit announcements for review at the same time that they are sent to reporters.
“It is quite obvious that these things (AIDS announcements) are basically promotional,” said Kenneth Feather, acting director of the FDA’s division of drug advertising and labeling.
AIDS is the first disease since polio to receive so much emotional public attention. Tiny breakthroughs in the treatment of heart disease or cancer don’t ordinarily result in major newspaper takeouts or terrific changes in stock prices.
“You don’t see the kind of issuances in cancer studies that you do with AIDS,” Feather said. “You don’t see press releases about these very preliminary and small studies done with just a few people. But there is so much interest in AIDS that these studies make big headlines.”
Despite scientific evidence to the contrary, many people still read every new study, thinking it might prove this or that drug is a cure for AIDS. Furthering everyone’s enthusiasm is the widespread belief--again misguided--that the FDA will allow such a drug to sail through its approval process because of the agency’s new fast-track approach to reviewing such medications.
“There is a certain amount of wishful optimism on the part of investors that some magic bullet for AIDS will be found,” said Craig Dickson, health care analyst for Rauscher Pierce Refsnes Inc., a Dallas investment banking firm. “What is known about AIDS would suggest that it is going to take more than one weapon.”
Carrington Laboratories is a small company in Dickson’s neighborhood whose stock changes direction like the wind, sometimes as a direct result of its public announcements. The Irving, Tex.-based company’s drug--Acemannan--is derived from the aloe vera plant, which also provides ingredients for shampoos and hand lotions.
Two weeks ago, Carrington issued its latest AIDS-related press release claiming that Acemannan “significantly improved” the effectiveness of the drug AZT in fighting HIV when the medications were taken together.
“This is a major milestone for the company,” said Clinton Howard, Carrington’s chief executive officer. The AZT/Acemannan findings were based on a six-month clinical trial in Belgium of 47 patients infected with HIV, the results of which were presented alongside hundreds of others at the AIDS conference in San Francisco.
Upon closer inspection, it turns out that only 12 of the 47 patients actually received a combination of the two drugs and the study is probably not sufficient to win FDA approval.
Frank Ingersoll, a securities analyst who has been recommending Carrington for three years, said a recent stock-price decline was because investors were disappointed that, as yet, there has been no attempt to have the drug approved for use against AIDS in Belgium.
The company’s press release said the company plans to market Acemannan, when approved, under the trade name Carrisyn.
“The press release on the basis of preliminary data is the worst culprit,” said Dr. Clyde Crumpacker, associate professor at Harvard Medical School and an AIDS researcher. “I really think companies should avoid doing this.”
Howard responds that he was just following regulations of the Securities and Exchange Commission, which requires that companies publicly disclose significant information.
“We not only should report it, we have to report it,” he said.
However, William McLucas, director of the SEC division of enforcement, said that unless the erratic movement of a company’s stock indicates that such information has been leaked to certain traders, the agency does not require the results of product testing to be disclosed in press releases. He said that updates of testing results could simply be included in the company’s quarterly and annual filings with the SEC.
Carrington has drawn criticism before. Two years ago, the company’s stock soared more than 50% after a Dallas doctor went on local television and told viewers that his patient--a convicted embezzler with AIDS--was being denied the “miracle drug” Acemannan in prison because it’s not FDA-approved.
The Belgium study didn’t have the same effect. This time around, Carrington’s stock didn’t go up--it fell in heavy trading.
“I think Carrington is one of the biggest hypes of them all,” said Martin Delaney, president of Project Inform, the country’s largest AIDS treatment-information clearinghouse. “For years and years and years, they have talked about studies they are going to do or about to do and used that to build credibility for the product. But I’m still waiting to see those studies published in the United States.”
Carrington has publicly claimed--including before Congress--that certain sectors including the press and so-called short sellers--professional traders who gamble that a stock will fall--are bent on destroying his company and preventing the release of a drug which he says “should be an important boon to mankind.”
Whatever the case, AIDS stocks clearly aren’t for the fainthearted. Those doing the investing seem to fall into one of two categories--short-sellers and true believers.
“There is a cult of investors who invest in these types of securities. Any time there is going to be a conference or possible news of any sort, they tend to move the stocks up in anticipation of what will be said,” suggested Larry Friend, an analyst with the investment banking firm of LH Friend Weinress & Frankson in Irvine.
“Even if nothing is said, stocks tend to go up too far. Then, when the reality sets in, they tend to go down more than they should.”
Marion Adams, 72, is one of the faithful. The retired insurance agent from Odessa, Tex., has purchased 15,000 shares of ICN since 1987 solely because the company was working on a drug for AIDS. He has stayed with ICN despite its numerous run-ins with the FDA--including chairman Milan Panic’s statement that then-FDA Commissioner Frank Young was a “jerk”--and its decision earlier this year to finally stop pursuing U.S. approval for ribavirin as a treatment for AIDS and HIV.
The company’s statements in the late 1980s about ribavirin’s effectiveness in clinical tests against the onset of AIDS have prompted various investigations, including those by a House subcommittee, a federal grand jury and the SEC. No charges have ever been filed.
The SEC has focused on trading in the stock of ICN and its research subsidiary, Viratek, including allegations that the companies spread false information about ribavirin’s safety and efficacy in fighting AIDS. ICN spokesman Jack Sholl has said that the SEC investigation is finished and that the agency and ICN are negotiating a settlement of the matter.
“I am convinced that ICN has a good drug that is going to work,” Adams said. “I think the FDA and NIH (National Institutes of Health) are worthy of an investigation. They sit as judge, jury and prosecuting attorney,” he said. “I’m highly suspicious of both organizations.”
Some researchers and members of the AIDS community say that Adams is dreaming.
“It’s fair to say the efficacy or benefits of ribavirin for the treatment of AIDS hasn’t been shown” definitively, said Harvard’s Crumpacker, who just completed a NIH-funded study of the drug’s toxicity.
ACT UP--an acronym for the AIDS Coalition to Unleash Power, an activist group largely credited with getting the FDA to look at drugs like AZT and DDI--says the same thing.
“That (ribavirin as an AIDS treatment) is dead as far as we’re concerned,” said ACT Up/New York spokesman Peter Staley.
Not so, say some stock analysts who follow these firms.
“The rock is beginning to roll down the hill,” said Eugene Melnitchenko, a medical analyst with Legg Mason Wood Walker in Baltimore. “In my judgment, the drug will be approved even for AIDS.”
Dave Harvey, a retail broker with Dallas-based Eppler, Guerin & Turner, is recommending additional purchases of ICN stock for clients who are aware of the risks involved and are willing to hold onto it during the ups and downs. “This is not a stock for the faint of heart,” he said.
Nonetheless, Harvey said that he has “high confidence that this stock will pay the patient investor great rewards. I think long-term, the real value of ICN will be realized and it is much, much higher than it is right now.”
Short sellers scoff, saying the only sensible thing to do with smaller-sized AIDS research companies is bet against them. These traders agree to sell borrowed stock on the premise that they can buy some more later at a cheaper price, presuming the stock declines in value.
Barton, for instance, is shorting both ICN and Carrington. “We short them because we think they are terminal,” he said.
Some companies charge that shorting has worsened volatility and scared away needed, long-term investors. Newport Pharmaceuticals and Carrington each have had more than 10% of their outstanding shares shorted, an unusually high number.
Jim McCamant, editor of the Medical Technology Stock Letter in Berkeley, agreed that short-selling has damaged some companies. “I have no question based on my 30 years of watching stocks that they (short sellers) are sort of manipulating the stocks,” he said.
Besides short-sellers, the fortunes of AIDS companies often rise and fall on the opinions of activist groups responsible for thrusting some of the better-known AIDS drugs into the media’s spotlight.
“ACT UP does play a role in that we get approached by many of these small companies all the time and lobbied by them, especially the ones hurting on the stock market. They want us to push their drug,” said ACT UP’s Staley.
Nevertheless, using Staley’s organization or some similar group as a gauge for investment decisions might be a colossal mistake in the long run. ACT UP, for instance, was once a big supporter of ribavirin, a drug now gone from its FDA wish list.
“We’re walking a fine line between promoting a drug and promoting access to a drug,” Staley admitted.
Should someone want to invest in a company doing AIDS research, many analysts recommend much larger firms like Bristol-Myers or Wellcome-Burroughs, which makes AZT. These companies spend tens of millions of dollars every year researching new drugs and are major conglomerates with various products, so the failure of an AIDS drug wouldn’t cripple them.
“I would never buy stock in a company spending $1 million a year trying to cure AIDS and cancer,” Barton said. “A little firm somewhere might have an answer. But you have to make credible tests, have credible people, spend a credible amount of money and make credible press releases to the public.”
Newport Pharmaceuticals thinks it got some help restoring its reputation two weeks ago after the publication of a Scandanavian study of the company’s antiviral drug isoprinosine in the prestigious New England Journal of Medicine.
New management took over Newport Pharmaceuticals a few years ago and officials there claim to have taken a low profile with isoprinosine to avoid repeating the sins of the past, including statements so grandiose that the FDA once formally rebuked the company.
But the publication of the study in the New England Journal presented a problem, because the company’s stock started soaring before the magazine’s release. President J. Robert Fosberg said the company was forced to decide whether it would keep quiet and possibly be accused of holding back information from investors or issue a press release and be charged with creating some hype.
“It’s a terrible dilemma for a small company,” he said.
The press release was put out a few days before the AIDS conference--two more related announcements were to follow--and Newport’s stock eventually doubled in price even though 85% of its revenue is from the mail-order pharmaceutical business.
What’s remarkable about the stock increase--and the media coverage which contributed to it--was that everything in the New England Journal was old news. The results of the Scandanavian study were released at the AIDS conference in Montreal a year earlier. This was something that more than a few reporters missed.
“The stock gets pumped once when the data is released and then pumped again when the journals publish those same results and the media is so dumb that it doesn’t know the difference,” said Delaney of Project Inform. “I see amazing things in the business sections which are so far from the truth that people who know about AIDS laugh out loud.”
Delaney is hardly alone in his criticism of the media when it comes to covering AIDS from a business perspective. He said that few financial journalists fully understand AIDS research and only a handful of newspapers have reporters assigned to AIDS as a business beat, although many cover health and drugs.
“Business reporters are good at understanding business and balance sheets. But what they’re less good at and not trained in is the FDA approval process, as well as some of the various scientific tests and criteria which a drug must meet,” said Dean Rotbart, editor of The Business News Reporter, a New York industry trade magazine. “Business journalists on the whole are vulnerable.”
If the FDA sees an inaccurate or imbalanced press release about a drug still undergoing clinical testing, the agency raises an objection. But it’s usually too little too late.
Wall Street often bases investment decisions on such stories because small AIDS research companies are lacking in factors such as profits by which more traditional firms are evaluated.
Carrington, for instance, lost $1.7 million on $8.15 million in revenue for the year ended Nov. 30, 1989. So its stock goes up or down less on earnings results and more on what-ifs.
The frantic need to report every latest development--particularly when the only source is an AIDS company--has some scientists worried that more than money will be lost.
“A potentially good drug may never get the chance to be fairly evaluated,” said Harvard’s Crumpacker, “because the company which owns the drug is doing things which make everyone distrustful.”
How AIDS announcments move stocks
Stock trading activity of ICN, Newport Pharmaceuticals and Carrington Labs increased just before and after AIDS-related announcements by the companies last month. The releases prompted an increase in ICN’s and Newport’s stock temporarily, but drove Carrington’s down.
ICN PHARMACEUTICALS DAILY PRICES
June 15: The company announces that the Food and Drug division of the Irish goverment has approved the sale of its drug, ribavirin, to people infected with the AIDS virus. The drug is available only to doctors with expertise in AIDS treatment, and not to general practitioners.
NEWPORT PHARMACEUTICALS DAILY PRICES
June 18: The company announces that an unnamed “prestigious medical journal” has agreed to publish a Scandinavian clinical study on the company’s proprietary drug, lsoprinosine.
June 19: The results of the study are presented via satellite to conferees at the Sixth Annual International AIDS Conference in San Francisco.
June 20: A press release summarizes the results of the Scandinavian double-blind study, which involved 866 patients exposed to the AIDS virus but showing no symptoms. The study’s authors said that lsoprinosine was effective in delaying the onset of AIDS symptoms for up to a year.
CARRINGTON LABS INC. DAILY PRICES
June 23: The results of a Belgian study on Acemannan, a plant-derived compound discovered in 1984 by Carrington Laboratories, are reported at the Sixth Annual International AIDS Conference in San Francisco. Among the results of the six-month clinical trial involving 47 patients infected with HIV:
* Acemannan increases the number of certain key immune cells normally destroyed by the virus.
* Acemannan, when combined with the drug AZT, results in “significantly greater” numbers of these immune cells surviving over the six-month course of the study than AZT alone.
Source: Dow Jones News Retrieval and companies listed.
