Roulette Table:Excerpt: The End of Medicine, "The Med Conference"
Per today's DealBreaker Interview, below is an excerpt from Andy Kessler's new book, The End of Medicine
I was back in New York again. The American Airlines shuttle across the U.S. – another 3 mrems of radiation.
The Grand Hyatt hadn’t changed much. Same crowded sidewalk next to Grand Central Terminal. Same bustling lobby. Same set of four or five escalators up and over and up and over until you reach the ballroom level. As with every investor conference, it is filled with scurrying mice in tailored suits, all looking for the next greatest thing. And for days, every thirty minutes in six different tracks, companies endlessly pitch their golden prospects. Every damn one of them sounds like the next greatest thing, so the mice scurry some more, discuss amongst themselves and probe and prod CEOs with insightful questions until the mice are so confused, they just ask someone else what they should buy.
I’ve been to so many tech conferences, I could tell you where the bathroom and best cellular reception is in the leading hotels of the world. But this was a healthcare conference. I pulled some strings at Bear Stearns and wangled an invite. I figured it would be a great forum to get instantly up to speed on the healthcare industry. So I put on a suit, slogged to NY, sweated in 95 degree heat, and pretended to be interested in Phase 2 trials of monoclonal antibodies. What I learned was that healthcare investing was a bigger crap shoot then technology.
“What do you think of these guys?”
“Curagen?”
“Yeah.”
“Too early.”
“But they’re in Phase 2 on their cancer thing – PXD101 I think. I thought you like Phase 2?”
“I do, but it’s not theirs.”
“Sure it is.”
“Nope, they licensed it, not enough upside. No one is going to care.”
I was eavesdropping on two guys I recognized from the past. One guy used to run some tech money, I think I remember him getting blown out in 2000 for being long and wrong. But he’s obviously still in the business. I strained to read his name tag, without luck. The other guy was a classic popcorn hedgie. Always showing up where the action in, figuring out some angle and trading rapid fire looking for returns.
“For me, it’s just one thing.”
“Market size?”
“Nope, these are all billion dollar markets.”
“Management?”
“Nope, they’re all trying to hit fish with a baseball bat.”
“True. So what is it? Balance sheet? Partners? Their logo?”
“You just play the trials. I don’t give a shit what drug it is, it almost always works the same way.”
“Get out of here.”
“No, check it out. Preclinical is bullshit, you could get gum off the sidewalk to reduce tumor size in rats. So what? Even Phase 1 is a load. They are mostly bent around to get decent enough results so you can get to Phase 2. I’ve tried to time Phase 1 announcements, but no dice. You always wait until you are about a third of the way into Phase 2, then you buy the shit out the stock."
“C’mon.”
“It works. The first few press releases are almost guaranteed to be positive. Companies will do anything to get their stock up before the final results hit. Phase 3 is just so damn expensive, they want to sell stock or converts or something so they don’t have to give the damn drug away to big pharma.”
“OK.”
“Look, the stock almost always pops. I usually sell into it, unless the press release is blow-away efficacy numbers, then you can stick around. But not forever.”
“No?”
“Hell no, you almost always sell right before the Phase 2 trial is over. Everyone figures it’s gonna work, so the stock goes up until the day of the announcement. It almost always gets whacked when they announce the real results, people already know. The doctors have been trading the stock ahead of you and dump it on the news.”
“That’s it?”
“I sometimes do Phase 3, but that’s harder. Even if something works, the costs kill you. The stocks going
down.”
“But it pops on the news at the end of Phase 3.”
“Sometimes. Not always. You can get killed if the trial fails.”
“Can’t you play that?”
“Nah. I don’t like to gamble. Not even in Vegas.”
* * *
I spent several days walking the halls, popping into presentations, seeing if I could hear about some sea change in healthcare. Investors always hear about things first. Instead I heard about drugs that might or might not treat bone metastases, myelogenous leukemia, multiple myeloma, kidney inflammation, and on and on.
I didn’t hear about innovation – more like regimentation.
I don’t know how many times I heard the expression fully randomized, double blind, placebo trial. Every biotech and pharma company pitched some set of compounds in trials. They were rooting away, but had absolutely no idea if the damn thing really worked. Even big companies with billions in sales of some drug pitched their replacements when they went off patent. It seemed like a giant roulette table. If 17 black comes up, you win 35 to 1, else, zippo.
Even the popcorn hedgie didn’t like those odds, settling for smaller returns with a bet based on knowing how fast the wheel spins. Jeez.
Posted by Elizabeth Spiers on July 24, 2006 01:03 PM
I was back in New York again. The American Airlines shuttle across the U.S. – another 3 mrems of radiation.
The Grand Hyatt hadn’t changed much. Same crowded sidewalk next to Grand Central Terminal. Same bustling lobby. Same set of four or five escalators up and over and up and over until you reach the ballroom level. As with every investor conference, it is filled with scurrying mice in tailored suits, all looking for the next greatest thing. And for days, every thirty minutes in six different tracks, companies endlessly pitch their golden prospects. Every damn one of them sounds like the next greatest thing, so the mice scurry some more, discuss amongst themselves and probe and prod CEOs with insightful questions until the mice are so confused, they just ask someone else what they should buy.
I’ve been to so many tech conferences, I could tell you where the bathroom and best cellular reception is in the leading hotels of the world. But this was a healthcare conference. I pulled some strings at Bear Stearns and wangled an invite. I figured it would be a great forum to get instantly up to speed on the healthcare industry. So I put on a suit, slogged to NY, sweated in 95 degree heat, and pretended to be interested in Phase 2 trials of monoclonal antibodies. What I learned was that healthcare investing was a bigger crap shoot then technology.
“What do you think of these guys?”
“Curagen?”
“Yeah.”
“Too early.”
“But they’re in Phase 2 on their cancer thing – PXD101 I think. I thought you like Phase 2?”
“I do, but it’s not theirs.”
“Sure it is.”
“Nope, they licensed it, not enough upside. No one is going to care.”
I was eavesdropping on two guys I recognized from the past. One guy used to run some tech money, I think I remember him getting blown out in 2000 for being long and wrong. But he’s obviously still in the business. I strained to read his name tag, without luck. The other guy was a classic popcorn hedgie. Always showing up where the action in, figuring out some angle and trading rapid fire looking for returns.
“For me, it’s just one thing.”
“Market size?”
“Nope, these are all billion dollar markets.”
“Management?”
“Nope, they’re all trying to hit fish with a baseball bat.”
“True. So what is it? Balance sheet? Partners? Their logo?”
“You just play the trials. I don’t give a shit what drug it is, it almost always works the same way.”
“Get out of here.”
“No, check it out. Preclinical is bullshit, you could get gum off the sidewalk to reduce tumor size in rats. So what? Even Phase 1 is a load. They are mostly bent around to get decent enough results so you can get to Phase 2. I’ve tried to time Phase 1 announcements, but no dice. You always wait until you are about a third of the way into Phase 2, then you buy the shit out the stock."
“C’mon.”
“It works. The first few press releases are almost guaranteed to be positive. Companies will do anything to get their stock up before the final results hit. Phase 3 is just so damn expensive, they want to sell stock or converts or something so they don’t have to give the damn drug away to big pharma.”
“OK.”
“Look, the stock almost always pops. I usually sell into it, unless the press release is blow-away efficacy numbers, then you can stick around. But not forever.”
“No?”
“Hell no, you almost always sell right before the Phase 2 trial is over. Everyone figures it’s gonna work, so the stock goes up until the day of the announcement. It almost always gets whacked when they announce the real results, people already know. The doctors have been trading the stock ahead of you and dump it on the news.”
“That’s it?”
“I sometimes do Phase 3, but that’s harder. Even if something works, the costs kill you. The stocks going
down.”
“But it pops on the news at the end of Phase 3.”
“Sometimes. Not always. You can get killed if the trial fails.”
“Can’t you play that?”
“Nah. I don’t like to gamble. Not even in Vegas.”
* * *
I spent several days walking the halls, popping into presentations, seeing if I could hear about some sea change in healthcare. Investors always hear about things first. Instead I heard about drugs that might or might not treat bone metastases, myelogenous leukemia, multiple myeloma, kidney inflammation, and on and on.
I didn’t hear about innovation – more like regimentation.
I don’t know how many times I heard the expression fully randomized, double blind, placebo trial. Every biotech and pharma company pitched some set of compounds in trials. They were rooting away, but had absolutely no idea if the damn thing really worked. Even big companies with billions in sales of some drug pitched their replacements when they went off patent. It seemed like a giant roulette table. If 17 black comes up, you win 35 to 1, else, zippo.
Even the popcorn hedgie didn’t like those odds, settling for smaller returns with a bet based on knowing how fast the wheel spins. Jeez.
Posted by Elizabeth Spiers on July 24, 2006 01:03 PM
