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Biotechnology company's shares dive 67% after drug failure

BMJ 2000; 321 doi: (Published 28 October 2000) Cite this as: BMJ 2000;321:1039
  1. Roger Dobson
  1. Abergavenny

    The United Kingdom's emerging biotechnology industry has suffered another bruising, with the share price of Cantab Pharmaceuticals plunging 67% after trials found that its treatment for recurring genital warts was no better than placebo.

    A month earlier, shares in Scotia Holdings fell by 60% after it failed to get US regulatory approval for its leading drug for cancer. Last year in the wake of the first results from a programme of 10 randomised controlled trials of Marimastat, British Biotech's share price fell to an all time low.

    According to the industry, these huge falls illustrate how clinical trials are being closely tracked and the results used by financial analysts to make and destroy fortunes overnight. Analysts, they say, are now as likely to be found reading the BMJ and the Lancet, for clues about the progress of trials, as they are the Financial Times.

    Although London's stock market has responded to clinical trials in the past, the roller coaster ride that the biotechnology industry has been experiencing is being explained by three factors: firstly, the rapidity with which information now gets to the market; secondly, the lack of a broad product base; and, thirdly, the lack of profits.

    At 7 am on 17 October, Cantab issued a statement with the bad news about its new compound, known as TH-GW.

    “Before the market opened, and before analysts had talked to us, the market makers had marked us down. There was no discussion about the results,” said Andy Burrows, vice president of investor and media relations.

    “It is a very unforgiving environment. The downside is the vast swings in fortunes it can engender. We lost two thirds of our share price, but only one out of seven products in the clinic. That seemed to us to be a vast over reaction. We were hammered.”

    Analysts say that the volatility of biotechnology share prices is mainly because too many companies have too few products. Major pharmaceutical companies are also hit by adverse results from trials, they say, but a broad product base means that the loss is more easily spread and absorbed.

    The underlying problems for many of the fledgling biotechnology companies—and there are estimated to be more than 500 across Europe—is that so few of the drugs ever make a profit.

    The pharmaceutical industry has calculated that only one in 10000 research programmes make it to the market.

    As one major pharmaceutical company's chief executive said: “There is nothing wrong with going into early development. What in my mind is wrong is to take 10 programmes and hope that out of those 10 you are going to be totally different to anyone else and finish up with a product launch out of that 10. Statistically that is a dream, and only if you are a successful gambler will you succeed.”

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