Drug-Trial Previews Burn Investors -- WSJ

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (August 15, 2017).

Roche Holding AG shares jumped 6.5% on a single day in early March when the drugmaker said its new breast-cancer treatment, Perjeta, helped prolong average patient survival in a clinical study.

But the stock gave up nearly all those gains three months later, when the Swiss company disclosed full details of the trial at a medical conference. The study, dubbed Aphinity, showed what some doctors said was only a marginal benefit for Perjeta, and investors, initially hopeful of a big sales boost for the drug, lowered their expectations.

"The stock-market reaction was not joyful for shareholders," said Denise Anderson, vice president of research and investment management at Sit Investment Associates, a Minneapolis firm that owns Roche shares.

The episode throws light on the peculiar drip-feed way drug companies often disclose the results of clinical trials.

To comply with securities requirements of timely disclosure of material information, companies often issue brief "top line" news releases stating whether a study has met a goal, such as prolonging life in cancer patients or preventing heart attacks. Weeks or months later, however, companies often reveal the full details -- such as the magnitude of a new drug's benefit -- in medical-journal articles or at medical conferences.

If positive top-line results aren't borne out in the subsequent details, investors sometimes lash out. In the Roche case, the disconnect triggered a shareholder lawsuit, filed in New Jersey federal court in June, claiming Roche misled investors and violated securities laws when it didn't immediately disclose that Perjeta's benefit was only modest. The suit seeks class-action status on behalf of investors who bought Roche shares during the three months between the top-line and full reports.

Roche spokesman Nicolas Dunant said the company releases key information as soon as possible to comply with Swiss stock-market requirements and would defend itself "vigorously" in any lawsuit. He said Roche holds back details of clinical trials to satisfy medical journals' and associations' restrictions against making full reports until publication or presentation to the medical community.

A company that released full data ahead of a medical meeting could face less prominent positioning of its study, said Richard Schilsky, chief medical officer at the American Society of Clinical Oncology, whose medical conference featured the full report of Roche's Perjeta trial. Confidentiality is critical both to the peer-review process that takes place before studies are published and to scientific debate at a meeting, he said.

Meanwhile, a buzzworthy presentation of trial results and reprints of journal articles can be critical to a new drug's marketing.

Several Roche insiders -- a category that includes executives or board members -- profited on trades between the top-line Aphinity trial results announcement and the full report, according to Swiss stock market disclosures.

In that period, there were 10 Roche insider stock sales with a combined value of 12.8 million Swiss francs ($13.1 million) that weren't linked to the expiration of a share plan, and four insider purchases valued at a combined 1.8 million francs. In the same period a year earlier, there was one insider sale valued at around 2 million francs and one insider purchase of 304,200 francs.

The disclosures don't specify which executives or board members made the transactions nor whether they knew details of the clinical trial.

The window between top-line report and full disclosure is a risky time for drug-company insiders to trade shares. "To the extent that the executives are in possession of more material information regarding the clinical study that has not been disclosed yet to the investing public, then trading during that interim period is perilous," said Daniel Sommers, a securities-litigation attorney with Cohen Milstein Sellers & Toll in Washington. He said the two-step disclosure process runs counter to the logic of disclosure principles in federal securities law.

Roche's Mr. Dunant said the level of insider activity wasn't unusual. Some stock sales can appear as multiple transactions when an individual exercises options and then sells shares, or sells a mix of voting and nonvoting shares.

Roche restricted executives who had knowledge of the Aphinity results from trading shares immediately before the top-line results were made public and lifted the restrictions as soon as the top-line results were published, according to Ulrike Engels-Lange, a Roche spokeswoman. There were no Aphinity-related restrictions on insider trading between that moment and the study's full publication about three months later, she said.

Roche's American depositary receipts traded at $31.48 Monday, about 8% below the close of $34.37 on the last trading day before full results were released.

Guy Wilkes, a financial regulation lawyer at Mayer Brown LLP and former regulator at the U.K.'s Financial Conduct Authority, said if the second report about a clinical trial triggers a significant price swing, "there's a good argument that those details were also price-sensitive and should have been published initially." A Securities and Exchange Commission spokeswoman declined to comment.

Credit Suisse has identified at least nine instances since 2015 of drugmakers issuing top-line results followed by full data where the stock price moved significantly on both events.

In some cases, companies initially released negative top-line study news, followed by full results that were viewed more positively. In March 2016, shares of Portola Pharmaceuticals Inc. plunged 29% after the company said its experimental anticoagulant betrixaban didn't meet a main goal of reducing risk of blood clots in heart patients.

But in late May 2016, full results showed the drug benefited many patients, and the stock rose 4.6%. Portola Chief Executive William Lis said the company had an obligation to release some information immediately because it was material, and then more later as it further analyzed the data.

The stock price of Novo Nordisk AS rose last year on top-line news that the diabetes drug Victoza met a study goal, then dropped when full results showed what investors considered a modest reduction in patients' cardiovascular risk. Novo Nordisk declined to comment.

This year, Amgen Inc. shares seesawed after the company announced positive top-line results for cholesterol drug Repatha, then full results indicating the benefit might not be enough to loosen insurers' restrictions on the drug. Amgen said it often isn't able to share full study details in advance without jeopardizing its ability to present them at medical meetings or in publications.

Roche in March said the Aphinity study, which involved women who had undergone tumor-removal surgery, found Perjeta given along with Roche's older drug, Herceptin, reduced the risk of death or recurrence of invasive disease versus Herceptin alone.

In April, Daniel O'Day, Roche's pharmaceuticals unit chief executive, told analysts on an earnings call that the outcome was "terrific news for patients because we're really talking about a curative setting here with early breast cancer."

The full results of the Perjeta trial, presented at the American Society of Clinical Oncology's annual meeting in June, showed the absolute reduction in risk conferred by the therapy was less than one percentage point. The small improvement raised questions about whether health-care systems would pay for the Perjeta-Herceptin combination therapy, which cost more than twice as much as Herceptin alone.

Roche has said it plans to submit the study results to health regulators in hopes of gaining approval to market the results to doctors.

Write to Peter Loftus at peter.loftus@wsj.com and Denise Roland at Denise.Roland@wsj.com

(END) Dow Jones Newswires

August 15, 2017 02:47 ET (06:47 GMT)