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How Drug News Leaks to Investors

Genentech Inc. was riding high on Wednesday, Apr. 10. The biotech company had just reported strong first-quarter sales, and its stock rose 5% in response. Some investment analysts raised their ratings because of the company's promising experimental drugs, and its scientists were readying presentations for an all-important meeting of the American Society of Clinical Oncology (ASCO) in May.

On Thursday the 11th, Genentech's (DNA) world became a much colder place after an abstract of one of its planned presentations was posted to ASCO's Web site. These summaries are embargoed until the meeting, set for Orlando on May 18-21. Until then, the public can't read them. They're offered only to ASCO's 18,000 members, who must be oncologists or cancer researchers, so that they can plan which sessions to attend. Yet when word quickly leaked out that an abstract indicated possible safety problems with Genentech's Avastin--currently in late-stage clinical trials--the stock fell more than 12%, to $37.75.

By Friday, Bank of America (BAC) had issued a research report, based on the abstract, that lowered its price target for Genentech's stock to $45 from $53. "What happened to Genentech was just awful," says Lehman Brothers Inc. analyst Joseph Dougherty. "Genentech's investors lost almost $3 billion on the selective, slow trickle of data."

Other biotech companies were also caught in the trickle. Shares of Millennium Pharmaceuticals Inc. (MLNM) rose 9% that Thursday and Friday, to $22.17, on good reviews of an abstract on MLN341, the company's drug for multiple myeloma. Cell Therapeutics Inc. watched its stock sink 23% in a week because an abstract raised concerns that its experimental drug PG-TXL may not work as well as had been expected. Even beleaguered ImClone Systems Inc. (IMCL), whose stock has been in the doghouse ever since the Food & Drug Administration rejected its approval application for Erbitux in December, got a temporary boost on Apr. 11 thanks to positive reaction to an abstract about the drug's performance against head and neck cancer.

This is the dark side of one of medical science's largest and most prestigious meetings. Although not technically illegal, every year something closely akin to insider trading roils biotech and pharmaceutical stocks for weeks before ASCO's conference. Over 3,000 summaries of cutting-edge cancer treatments are made available to attendees a month before the meeting, but the reports are barred from the general public. Those abstracts, each only a few paragraphs long, are submitted in December, and ASCO wants news of their contents held until the actual presentations, which are more detailed and often contain updated data.

Because of this embargo, companies are not allowed to comment on abstracts before the meeting and reporters are not allowed to write about them. There is no apparent legal restriction, however, that stops doctors from trading on the reports or passing them on to analysts and friends.

As a nonprofit, ASCO is not subject to the Securities & Exchange Commission's full-disclosure rules about insider information. But its annual meeting, attended by more than 20,000 cancer specialists, isn't just about science--it's about a very big business. Billions of investment dollars are riding on the outcome of many of the clinical trials discussed, and investors are just as interested in those abstracts as doctors.

This year, the society required members to click on a confidentiality agreement before they accessed the research. But as one Wall Street trader comments, "just try telling 18,000 people to keep a secret." Companies presenting at ASCO were particularly caught off guard because some 6% to 8% of the abstracts were mistakenly posted to the Web site on Apr. 11, four days before they were supposed to be disseminated.

ASCO is not the only science organization wrestling with the disclosure issue. Medical journals routinely mail out copies before the embargo on publicizing data is lifted, and inevitably there is some advance trading. But The New England Journal of Medicine, for one, stands by the practice. "Medical data can be very complex and difficult to interpret," says Editor Jeffrey M. Drazen. The journal wants to give doctors and reporters time to understand its significance before telling the public.

Some people on the business side of biotech feel ASCO should simply release the abstracts to everyone at the same time, to avoid giving anyone an edge in the market. But ASCO's chief executive, Dr. Charles M. Balch, points out that the society's duty is to the medical community, not the investment community. ASCO restricts the data so that doctors--and the press--can gain a fuller understanding of its significance by questioning presenters and hearing from experts at the meeting. "Our overriding concern is with patient safety," says Balch. A noble goal, though cold comfort to those investors without an oncologist for a friend. By Catherine Arnst in New York

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