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Small biotech and pharma's stock response so strongly to an event (clinical trial result or fda news) because such event is so important that a company can either gets into a multi-billion dollar company down the road or out of business or similar.
the real difficulty of betting biotech lies in the lack of complete information and beauracacy and uncertanity of FDA. No company makes a complete set of clinical trial information public. Few many have very brief summaries available to the public. Thus it is not possible for investor to made sound judegement and gambling is unavoilable. As you know, human clinical trial is a very lengthy, cost prohibitive processing. There are many major things one needs to consider:
1. overal study design
2. statistical methodologies
3. data handling rules
4. selection of primary and secondary endpoints
5. control of confounders and biases
6. interpretation
7. integrity and quality of data
8. credibility of investigators, etc..
9. whether a study is adequatedly powered by sample size or overpowered
10. whether a protocol is proved by FDA before a study begins.
...
there are too many major things. since no information is made public, it is impossible to investor to make a confident investment. Anyone who is involved in event-driven biotech/pharam has certain degree of gambling.
even though everything mentioned above is fine. what about manufaturing? If FDA believes a firm lack of adequate quality to make the drug, they will issue an approvable letter as well (check asco, if you do not believe).
conclusively, 95% of major things are in black box which make neither TA nor FA work. People who happen to be right one or two times are purely exercise their luck.
Given the fact that it is soooooooo difficult to make a drug into market due to so many hurdles and regulation, the probability of first time failure (including tempary failure) is much higher than that of sucess (gilead's approval this time is acually a failure). The only way to win is probably to think in statistical fashion - randomly PUT 10 biotech FDA news and every time, you inject same amount of money. By the end, you should win. However, you need to have gut to tolerate failures if any. The good thing for this kind of gambling is that if you win one time, the gain can afford you losing 9 times.
the real difficulty of betting biotech lies in the lack of complete information and beauracacy and uncertanity of FDA. No company makes a complete set of clinical trial information public. Few many have very brief summaries available to the public. Thus it is not possible for investor to made sound judegement and gambling is unavoilable. As you know, human clinical trial is a very lengthy, cost prohibitive processing. There are many major things one needs to consider:
1. overal study design
2. statistical methodologies
3. data handling rules
4. selection of primary and secondary endpoints
5. control of confounders and biases
6. interpretation
7. integrity and quality of data
8. credibility of investigators, etc..
9. whether a study is adequatedly powered by sample size or overpowered
10. whether a protocol is proved by FDA before a study begins.
...
there are too many major things. since no information is made public, it is impossible to investor to make a confident investment. Anyone who is involved in event-driven biotech/pharam has certain degree of gambling.
even though everything mentioned above is fine. what about manufaturing? If FDA believes a firm lack of adequate quality to make the drug, they will issue an approvable letter as well (check asco, if you do not believe).
conclusively, 95% of major things are in black box which make neither TA nor FA work. People who happen to be right one or two times are purely exercise their luck.
Given the fact that it is soooooooo difficult to make a drug into market due to so many hurdles and regulation, the probability of first time failure (including tempary failure) is much higher than that of sucess (gilead's approval this time is acually a failure). The only way to win is probably to think in statistical fashion - randomly PUT 10 biotech FDA news and every time, you inject same amount of money. By the end, you should win. However, you need to have gut to tolerate failures if any. The good thing for this kind of gambling is that if you win one time, the gain can afford you losing 9 times.
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