Editor

Wall Street, sometimes, just doesn't get it.

Contrary to what is often called the "increasing sophistication of biotechnology investors," stock prices that publicly held companies live by can react in strange and painful ways to news that appears positive - and to rumors or ideas about news that might not be.

Case in point last week: Palatin Technologies Inc., which dished up positive results from a Phase IIb trial with PT-141, its non-Viagra-like erectile dysfunction drug.

The melanocortin agonist seems not only to provide better erections but does so without the potential cardiovascular side effects known to accompany Pfizer Inc.'s sildenafil citrate product as well as another phosphodiesterase type-5 inhibitor that recently entered the ED field: Levitra (vardenafil), from Bayer AG, of Leverkusen, Germany, and GlaxoSmithKline plc, of London.

Data from the "at-home" study enrolling 271 men given nasally administered PT-141 for moderate to severe ED (all of whom had proved responsive to sildenafil) showed the drug achieved clinical and statistical significance in restoring erectile function at 10 mg, 15 mg and 20 mg, as shown by answers to the Index of Erectile Function-Erectile Function domain questionnaire. That was the primary efficacy endpoint.

The news got even brighter. PT-141 improved the quality of erections, as determined by the Global Assessment Questionnaire score, which Palatin described as "highly significant" for those three doses and the 5-mg dose, relative to placebo. Perhaps best of all, the cardiovascular profile was described as "very clean."

But on the day Palatin disclosed its news, the company's stock sank almost 20 percent, down 85 cents to $3.45. President and CEO Carl Spana spent hours on the phone with investors, trying to make the picture clear. He blamed a "jittery" market and a press release that could have been more succinct about the dose-ranging nature of the study and the satisfying "p" values it achieved - many "in the 0.001 or better" range, he said.

Spana conceded more drug-interaction studies likely would be sought by the FDA before PT-141 can be approved. At the same time, because of the way the drug works, he expected no problems using it with common cardiovascular drugs, nitrates or alpha-blockers. A few days after the confusion, Palatin held a teleconference and webcast to provide a more "comprehensive overview" of the data.

The fickle finger of fate struck more than once last week, with Wall Street again failing in a costly way to see the figurative heart of the matter, at least in the view of some companies and observers. Or perhaps they saw the truth and didn't like it.

In any case, Esperion Therapeutics Inc. lost 26 percent of its stock value at the beginning of the week on word that upcoming data from a 47-patient Phase II trial of the company's cholesterol-clearing drug would be negative, or not as strongly positive as some had hoped.

Shares fell to $17.66, sacrificing $6.21 of their worth. But when the data came to light, in a venue no less prestigious than the Journal of the American Medical Association, they were positive enough to be deemed "revolutionary" by analyst Martin Auster of Wachovia Securities.

Analyst: Beware Embargoes That Last Too Long

Auster said the slide in the stock price might have been caused by the higher hopes of some investors who felt disappointed by the results they heard by way of news leaks or rumors - or by results they simply read as subscribers to JAMA.

Positive preliminary results from the Phase II study were disclosed in June, but Esperion CEO and President Roger Newton said the company chose to honor JAMA's embargo on further details until the date specified by the journal.

"We understood the decision was not without risk," Newton said during a conference call to discuss the data, but said it seemed "the best way to represent the long-term interests of Esperion and its stockholders."

Could be. But the company ended up honoring an embargo after the issue of JAMA was already on the desks of subscribers, said Christopher Raymond, analyst with Robert W. Baird & Co.

"I don't recall there are any instances where this has happened, where there has been two full trading days that [the data] has been out there" before the company acknowledged and explained them, he said. In Raymond's view, it wasn't Wall Street that failed to "get it," but the company. Stockholders who wanted to see more efficacy in the data sold off before Esperion - feeling bound by the embargo - could make its case.

"The timing snafu that took place here could have been prevented by the company," he said. "This is a judgment call and hindsight is 20-20, of course. It's easy to criticize. But JAMA has a procedure and has a publication protocol. In my view, if you're going to publish through the [American Medical Association] you should understand what the logistics look like."

He conceded that Esperion was "in a tight spot once the die is cast." When a company violates its agreement with the likes of JAMA to stay mum, "you've caused some difficulties for yourself down the road."

Raymond's rating on Esperion is neutral.

"I downgraded the stock the week before all this came out, but that was a valuation call," he told BioWorld Financial Watch. "I said then and I'll say now there is a long, arduous clinical process ahead of these guys."

Recovery in Esperion's share price, he said, probably was not brought about by the same investors who had bailed out earlier.

"It's a pretty safe bet to assume a good portion of the action was retail buying," Raymond said. "You saw this huge piece of news, reportedly landmark results, some very positive comments by the principal investigator," Steven Nissen, who called the data "unprecedented" and "amazing."

The Esperion story - how its shares tumbled, and how the ultimately published (and fully discussed) news was hailed as groundbreaking - gained coverage by the Wall Street Journal and CNN, Raymond noted, speculating that retail buyers saw what they believed looked like a deal on a stock that could become valuable down the road.

The route in which the word first got out - whether through leaks, rumors among traders or through JAMA subscribers - "has been the vexing question," Raymond said, even if the outcome was the same whichever way it happened. Companies should be more cautious in their dealings with scientific journals, he said. All of them.

"Typically, biotech products don't get featured in JAMA, it's true," Raymond said. "It could be that [JAMA] is a little bit more stringent. But these societies break their own embargoes all the time."

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