Biotech Stocks Ride Roller Coaster of Publicity

A front-page story in the Sunday New York Times last May touted a possible cure for cancer being developed at a small biotechnology company. The next day, the stock market responded in a trading frenzy--boosting shares of EntreMed by as much as 600%.

But then came other, more skeptical news accounts, from the Los Angeles Times, television networks and others, about the company, which has drugs that shrink cancer in mice by cutting off a tumor’s blood supply but that have yet to be tested in humans.

Executives of the Rockville, Md., company watched helplessly as much of the stock’s gains melted away in a pattern that was to be repeated several times in the months that followed.

EntreMed is perhaps the most extreme example of how the reporting of medical developments can affect the shares of small biotech companies--particularly when the details are technical and their interpretations contradictory.

The phenomenon is most dramatic for companies like EntreMed that have staked their fortunes on powerful but unproven scientific ideas--and on drugs that seem to work miracles in animals but remain untested in gravely ill humans.

For both cancer patients and biotech investors, the questions raised are simple: What hope can be placed in an unproven technology? And with so much at stake amid the uncertainty, how can a company win the financial support it needs to bring a promising product to market?

There are no easy answers. These companies all too often appear only as promising as their latest burst of publicity. When it’s positive, patients with a life-threatening disease rush to their doctors asking for access to still experimental treatments. And on popular Internet message boards geared to specific stocks, hundreds of active traders

extract whatever clues they can from the news of the day.

For EntreMed, the news-inspired trading roller coaster has been unrelenting.

Just last month, the stock lost half its value overnight based on one discouraging news report in several papers, only to recover the next day after an encouraging article in the Boston Globe.

“It’s fair to call these Internet plays,” said Hambrecht & Quist analyst Richard A. van den Broek, drawing an analogy with the famously volatile Internet stocks. “People see news in the lay press and go unbelievably crazy about these small and illiquid companies.”

In the months following the New York Times piece, the Internet has been abuzz with EntreMed chatter. At Yahoo Finance’s popular site, for example, the number of messages skyrocketed on a special bulletin board devoted to the stock.

Before the burst of attention last May, the EntreMed “thread” averaged about 30 messages a month. In the 10 months since, there have been more than 9,000 messages.

Handling the PR Fallout

The exchanges include heartfelt hopes for a cure for cancer and angry debates about whether to sell the stock short, alongside sophisticated critiques of the underlying science and the quality of reporting at various newspapers.

Company officials say they have tried to avoid feeding the frenzy.

“We’ve never hyped this stock, and our CEO has lost three family members to cancer,” said company spokeswoman Mary P. Sundeen in a recent interview. “Getting a drug to cancer patients that may help them is our No. 1 driving force.”

Inundated by requests from cancer patients, the company has even hired a nurse to refer people to other companies that have similar treatments that are further along in their testing.

“We had 1,200 phone calls the first day [following the May New York Times story], plus 900 faxes and 900 e-mails,” Sundeen said.

The company, incorporated in 1991, has grown to 72 employees--largely on the strength of two anti-cancer drugs: angiostatin and endostatin. Both were discovered in the laboratory of Harvard’s Dr. Judah Folkman, who for decades argued that cancer could be treated by attacking a tumor’s ability to create its own blood supply.

The process is called angiogenesis, and the drugs that EntreMed licensed from Folkman’s lab are naturally occurring proteins--angiogenesis inhibitors.

In November 1997, Folkman reported in the scientific journal Nature that endostatin caused several types of cancerous mouse tumors to all but disappear.

Following the initial news reports, there was a brief surge of interest in EntreMed stock. The share price, which had languished around $10, rose to more than $15--recovering ground it had lost since the company’s initial public offering in June 1996.

The flurry of interest soon faded.

That changed on May 3, when the New York Times put endostatin and angiostatin on its front page. The story made clear that success in mice is not always reproduced in humans.

But the article quoted the director of the National Cancer Institute as saying that he had no higher priority than getting the drugs into clinical trials.

And then there was the quote from James Watson, who had won the Nobel prize for discovering the DNA double helix. Watson was quoted as saying that Folkman “is going to cure cancer in two years.”

Investors who posted their views on message boards at Yahoo Finance and Silicon Investor correctly predicted that the story and its placement on the front page of one of the country’s most influential newspapers would certainly send the stock price flying the following morning.

Questioning News Story’s Credibility

What happened exceeded all expectations: The stock, which had closed at $12.06 the previous Friday, reached $85 before settling down to $51.81 at Monday’s close. Cancer patients all over the country called the company, asking for treatment with the promising drugs, only to be disappointed.

Then came the debunking: The Los Angeles Times and others pointed out that an agent for the New York Times reporter was circulating a proposal for a book deal--raising questions about the story’s credibility.

The stories also pointed out that a number of other companies were working on their own angiogenesis inhibitors and that these substances were already being tested in cancer patients at UCLA and other medical centers.

Worse still, Nobel laureate Watson in a letter to the New York Times denied that he had predicted Folkman would cure cancer within two years, though he did regard Folkman’s research as “a remarkable step forward.”

That same week, NCI posted a list on its Web site of all the angiogenesis inhibitors already being tested in patients, and the attention of investors quickly spread beyond EntreMed.

Energized by the prospects for almost any company that produced an angiogenesis inhibitor, investors quickly bid up the prices of these stocks. The shares of one of these companies, Sugen, rose 20% in one day, with more than a million shares changing hands, compared with the daily average of just 72,000.

Officials with the Redwood City, Calif., company say they have been quietly testing their angiogenesis inhibitors on small numbers of advanced cancer patients and are preparing to move into larger clinical trials.

“Our view was not to hype our stock at that time,” said Sugen director of corporate affairs Kevin Kwok. “We were in [the earliest] phase of human trials; we had a long way to go before having a drug.”

Officials at Techniclone in Tustin were not quite so reticent. On Tuesday, May 5, the company issued a news release on work it was doing with University of Texas researchers on an antibody that “may destroy the tumor by attacking the tumor’s blood supply.”

Although the product worked on a different principle from that of the EntreMed drugs and had never been tested on patients, Techniclone’s share price tripled, with 19 million shares changing hands, 40 times their typical volume.

In the aftermath of the May trading frenzy, EntreMed has continued to receive intense scrutiny from the news media as well as investors.

The company’s stock, which had averaged 55,000 shares traded daily before all the publicity, has averaged almost 600,000 shares a day ever since, according to Nasdaq.

But news reports continue to shake the stock.

In November, the Wall Street Journal published its own front-page story that said researchers at the National Cancer Institute were unable to duplicate the shrinkage in mouse tumors with endostatin that Harvard’s Folkman had reported from his Boston laboratory.

And Bristol-Myers Squibb, EntreMed’s partner in the development of the second Folkman drug, angiostatin, was having trouble making the protein, the newspaper said. EntreMed’s stock price dropped 24% in a single day.

Over the next few months, the stock achieved some stability. Then on Feb. 9 came an announcement that Bristol-Myers was abandoning angiostatin, at least for the time being. The price of the stock dropped by half the next day.

NCI Researchers Replicate Findings

The following day, the Boston Globe weighed in with an exclusive story saying that researchers from the NCI, working in Folkman’s laboratory, had been able to reproduce his mouse experiments after all.

The same day, the institute posted a research report on the Internet that confirmed the Globe story. Using endostatin, the government researchers were able to show “striking inhibition of mouse tumors,” the report said. Moreover, the NCI was soliciting proposals for two trials to test the safety of the drug in humans.

The stock price doubled.

Just last week, a Duke University study showing how angiostatin works led to stories suggesting that other drugs could work even better. The stock dropped 16%.

Meanwhile, the company says it is hoping to win approval from the Food and Drug Administration to test both drugs in cancer patients later this year.

“I don’t follow the stocks,” said James Pluda, a senior investigator in charge of NCI’s endostatin trials. “We’ve been excited about angiogenesis inhibitors for a number of years as potential therapies.”

But he cautioned: “A number of other types of drugs that showed good activity in mice did not have as good activity in humans. We have to be careful about extrapolating what happens in the mouse to humans.”

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EntreMed’s Wild Ride

The stock price moves of EntreMed, a small biotechnology company in Rockville, Md., have been closely tied to news reports speculating about its anti-cancer drugs, starting with a front-page story that appeared in the New York Times last May. In recent months, dueling press reports have again led to sharp movements in the stock. Some highlights of the last year:

May 8, weekly close: $33.25

Los Angeles Times and others have deflated story and Nobel laureate denies “cancer cure” quote.

May 4: $51.81

Stock soars from $12.06 to $85 before closing at $51.81 after New York Times reports promising mouse experiments, quoting Nobel laureate as saying that key reserarcher “is going to cure cancer in two years”; 23 milllion shares change hands.

Nov. 12: $24.88

Wall Street Journal reports results can’t be duplicated.

Feb. 10: $12.88

Bristol-Myers Squibb pulls out of EntreMed partnership.

Feb. 11: $25.69

Boston Globe reports that National Cancer Institute researchers are able to reproduce tumor-shrinking effects in mice. NCI posts results.

Friday:

$21.63

Sources: Nasdaq, news reports