West Coast Editor
CHICAGO - The president and CEO of Renovis Inc. spoke out strongly at BIO 2006 on the subject of the company's mysterious "Pearl Harbor"-style stock plunge last spring, which came despite positive Phase III data with the company's stroke drug and a handsome deal with Pfizer Inc. for other research.
Corey Goodman blamed "intentional manipulation of the market" by short sellers, and walked his listeners through his firm's ordeal step by step, before co-panelists talked further about an insidious practice that may draw increased attention from the SEC.
In the first part of 2005, Renovis and partner AstraZeneca plc were on the verge of reporting data from the first of two Phase III pivotal trials with the neuroprotectant drug Cerovive against ischemic stroke. The SAINT I study involved more than 1,700 patients in Europe and other areas.
The brink situation made South San Francisco-based Renovis a perfect target for short sellers, investors who legally borrow stock 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.
In January, speaking at a dinner with colleagues, an analyst not named by Goodman called Renovis his "No. 1" candidate for short-position buying. The analyst admitted that, like most of the world, he knew nothing yet about the Cerovive data, but said he did not need to see the figures - he only needed to know that the trials were conducted in the failure-strewn area of stroke, and that London-based AstraZeneca, which had problems with other trials previously, carried them out.
"The shorts clearly made a big bet [in the following weeks]," Goodman said, "and that big bet did what market forces would do - it drove us from $14 dollars per share down to $6.50 per share on May 3. That's the lowest our stock has ever been. Perfectly fine. The only problem was that the shorts were on the wrong side of the fence."
On May 4, Renovis and AstraZeneca disclosed top-line data showing Cerovive had met its endpoints. That trading day ended with Renovis' shares (NASDAQ:RNVS) almost doubled in price, closing at $13.17, up $6.38, or 94 percent. (See BioWorld Today, May 5, 2005.)
Short investors "lost about $100 million in value in one moment on May 4," Goodman said, noting that they "had a tremendous incentive to try to do some gaming, to try to see if they could pull our price [back] down."
Near the end of the month, the head of the trial's steering committee, Kennedy Lees, detailed the Cerovive data at the European Stroke Conference in Bologna, Italy. On Saturday, May 28, company officials were "feeling pretty good," Goodman recalled. The presentation of "beautiful" data went well, and "not only were all the world's stroke experts there, you also had analysts covering us, major shareholders. It was a really big event for people involved in Renovis."
The following Monday was Memorial Day, with stock trading closed. On Tuesday, "the minute the market opened," Leerink Swann & Co. hosted a conference call with neurologist Marc Fisher and two "statistical experts," Goodman said, none of whom had attended the meeting in Italy or seen the widely hailed data.
"They just ravaged us," he said. "They claimed everything was wrong."
Renovis' stock tumbled 22.8 percent, or $3.90, to close at $13.20, despite word disclosed at the same time that the firm had signed a preclinical research deal with New York-based Pfizer Inc. worth up to $187 million or more for products that inhibit the vanilloid receptor. Targeted are pain, inflammation and urinary incontinence. (See BioWorld Today, June 1, 2005.)
Leerink could have "gotten any one of a hundred neurologists who were at that meeting, [but] they found the one guy back in a sleepy corner who hadn't gone to Europe. All he knew were some rumors he had heard from another colleague or two."
Goodman speculated that "the shorts are the ones who set this up" before, during and after the stroke meeting. "These guys live in the shadows," he said.
Peter Flynn, senior managing director and general counsel for Leerink in Boston, declined to comment on Goodman's claims.
"He's entitled to his opinion, and God bless him," Flynn told BioWorld Today.
Fisher, when he saw the Cerovive data the day after the conference call, recanted his opinion and called the trial's design the best he had ever seen, Goodman said.
"Many of our other shareholders and [Renovis officials] asked Leerink Swann, once the guy actually saw the data and changed his tune, 'Why don't you do another call? Why don't you have Marc Fisher and these guys once again get up and answer the questions?' Leerink Swann said, 'No, we don't want to have anything to do with it anymore.'"
What they meant was, "We've already done our dirty work. We've already dropped your price," Goodman alleged, adding that the conference call included "intentional lie after intentional lie."
The panel - titled "Short Selling: How Can the Biotech Company Cope?" - also included John Huber, attorney with Latham & Watkins LLP in Washington, who provided pointers for avoiding such problems with short sellers, counseling more disclosure to gain shareholder trust. Goodman urged company officials to listen to tip-off "noise" and "chatter" from Wall Street, as he failed to do the weekend before the Leerink call.
In December, Renovis said its second Phase III SAINT trial with Cerovive will continue as planned following an interim safety review. The trial's interim analysis followed AstraZeneca's decision to expand its size from 1,700 to 3,200 patients.