CHICAGO - They call it "getting Fishered."
Renovis Inc.'s president and CEO Corey Goodman described to listeners at a panel discussion during BIO 2006 the dramatic ride taken by his firm's stock as a result of what he called manipulation for gain by investors who bet against Renovis' stroke drug, Cerovive.
Called "Short Selling: How Can the Biotech Company Cope?" the panel included guidance by legal experts, as well as Goodman's harrowing story, which he described in cinematic terms, as "Pulp Fiction" after Renovis officials chose to ignore "The Perfect Storm" brewing in the world of short sellers.
The remarks came during the annual meeting of the Biotechnology Industry Organization, which drew a record 19,000 attendees. Goodman outlined the up-and-down fortune of the neuroprotectant compound Cerovive, which began in January 2005 as the world awaited results from the first of two Phase III pivotal trials. Short sellers, believing the difficult ischemic-stroke indication too hard to beat and lacking trust in Renovis' partner, AstraZeneca plc, began taking a strong position.
By May 3, on the eve of top-line data for Cerovive, Renovis'shares had dipped from $14 to an all-time low of $6.50 - but the next day, the companies revealed a stock-jolting surprise: positive results from the trial, with a promise of complete data later. News of the met endpoints nearly doubled Renovis' stock, which ended that trading day at $13.17, up $6.38, or 94 percent.
The short sellers - investors who legally borrow stocks from holders in hopes the price will go down, so the shares can be bought back at a profit and returned to their original owners - "lost about $100 million in value in one moment on May 4," Goodman said. And they wanted it back.
The head of the trial's steering committee, Kennedy Lees, detailed full Cerovive data at the European Stroke Conference in Bologna, Italy, at the end of the month, on Memorial Day weekend. The following Tuesday, just as the markets opened, Leerink Swann & Co. sponsored a conference call featuring neurologist Marc Fisher and a pair of statistical experts.
Although neither Fisher nor the experts had seen the Cerovive data, the chosen experts "ravaged us" in the conference call, Goodman said, with Fisher claiming Renovis might be playing some statistical tricks to make the results appear better.
Company officials watched as Renovis' stock tumbled throughout the day, ending down 22.8 percent, or $3.90, to close at $13.20. News disclosed simultaneously of Renovis' potential $187 million deal with Pfizer Inc. for a different compound - an inhibitor of the vanilloid receptor - might have been a factor in keeping the damage down, but it was plenty bad enough. Renovis took six months to recover from the hit.
Goodman said 10 analysts now cover the company, eight of whom he described as "honest." The others, he said, are "clearly working for the shorts right now. One thing I can tell you, they never interview me. They never talk to management, because they need to have complete deniability on the intentionally false stuff they're putting out there. We think they're on the take. It's all working in the shadows."
Leerink Swann declined comment on Goodman's claims, other than to say he is entitled to his opinion.
"I'm sorry for Marc [Fisher]," who later recanted his first opinion of the Cerovive trial and said its design was the best he had ever seen. "He's actually become a good friend, I respect him, he's a good neurologist, but his name has now become part of an event, it's called 'getting Fishered.' "
A second pivotal Phase III trial with Cerovive is ongoing.
As for advice for other firms, Goodman cautioned the audience that the job of company leadership is "not to get down into the mud and sling it around," but to build value for the shareholders while accepting "some level of noise."
At the same time, "you can't do what I did, that Sunday and Monday" before the Leerink Swann call, which is to ignore the rumblings on Wall Street, he said.
"The data speak volumes," Goodman said. "One of the most important things is, you have to make sure you're being down to earth; don't over-hype your company. Just because they're going intentionally negative with rumors, don't swing to the other extreme. Your integrity's on the line, and if they can show you're wrong on something, it just opens up a world for them to eat away at you."
John Huber, attorney with Latham & Watkins LLP and former director of the SEC's division of corporation finance, urged companies to "adopt a disclosure policy up front, rather than react to something coming down the pike." Such a strategy will establish a "good will account" with analysts and investors, "so that when something like this happens, it's water off a duck's back."
Huber also suggested public relations people be directed not to put their often-habitual "spin" on trial results, but teach Wall Street that "you'e always there, in terms of full disclosure - more disclosure than you might want to have," and investors understand "you are not lying, you are not spinning, and you should not be the next hedge fund's target."
AstraZeneca was stunned as well that a hedge fund "would set this whole thing up," Goodman said, and Huber noted that a disclosure policy should be put in place as soon as the joint venture is established, "so that you don't have to invent the wheel" and can avoid a "hatchet job" rather than try to deal with one later. The disclosure policy, he said, should be put on the website.
"One of the points to keep in mind is that, if you're effective, this will never happen to you, because they'll go on to the next company," Huber said. "It doesn't mean the money, the time, the effort you spent wasn't worth it. It just means you were successful. Sometimes, nothing happening means success."
"I think we learned the hard way," Goodman said. "Hopefully, others will be more proactive about this."
The four-day BIO conference ended last Wednesday.