Over the past few months I have poked several companies in the eye for the appalling quality of their clinical communication. I have specifically paid attention to Novogen (ASX : NRT), Benitec (ASX : BLT), Regeneus (ASX : RGS) and a few others. It is my position is that there is a consistently low quality and sensationalist ethos regarding clinical communication by ASX-listed healthcare companies. I also got a lot of feedback on my last post on BLT, most of it confusion as to why I even care, which speaks volumes really…
I will try to keep this post fairly perfunctory, but as a caveat I would like to make two comments:
The first comment is that I am willing to disclose that I am personally the worst offender when it comes to the issue of chit-chat about clinical trials. By this I mean that over the years I have led a few excellent regulatory/clinical people to drink (you know who you are) by my desire to communicate progress to the public. I have driven a couple of communication firms to despair with my incessant whining “but the data is good, GOOD – and we have a conference coming up – why don’t we just issue a press release?!?” I get it. Every CEO wants to push exciting progress out there, to engage with shareholders and potential investors, to boost the profile of the company. Hell, I will be the first to admit that it simply isn’t enough to go home and crack open a bottle of champagne when you get a good data point, you want to send that ROC curve, or that histology image or that graph to everyone that supported you (and ram it up the arse of those who didn’t).
Unfortunately, most of the time that is exactly what should be done (champagne that is, not chit-chit) and over the years I have had it pummeled into me by people who are wiser and smarter than me, and know better.
The second caveat is that I do appreciate that the ASX is a little bit of a different beast. It is a much more early stage commercial environment, so communication of an early clinical inflection point is perhaps far more critical. It’s frothy. It’s fickle. People have the attention span of a gnat (including me). It has a large retail-centric dynamic that, for the avoidance of doubt, is actually something I really like about the ASX – but it poses additional challenges too. As I have previously written, in some ways the ASX has become a substitute for venture capital in Australia and I am very positive (excited!) about the public taking ownership in biotech, medtech, cleantech, etc. – industries where the capital needs are significant, investment horizons are long, and where there is generally a poor fit with private ownership. The challenge is that if you have a retail market that is ill-informed or is susceptible to misleading behavior, then quality drops because people realise very quickly that exploitation isn’t too difficult and you have a lot of companies that waste capital and do little else (like Patrys – ASX : PAB). Lack of quality in turn results in fewer shareholder exists and poor returns, which then undermines the whole system as a viable way of raising capital and taking good technology forward. A very big part of the reason why I choose to pick on underwhelming ASX companies (like Novogen), is because the public claims and media stunts are designed to engage with the public but have little or no intrinsic quality or scientific integrity behind them. In the US, biotech is a fairly established asset class. Unfortunately in Australia, it is not, and we need to fix this by focusing on quality. This also means being more grown-up and robust about how we communicate to the market.
There are 5 topics I would like to cover that should help to convey my position on why, for example, BLT’s patient-by-patient rundown isn’t helpful or even appropriate. To be clear, I am sympathetic and I am not going to “pick on” BLT in this post (I have done enough this past week). Rather I will use BLT as a case study of the wider sector “pathology”.
With very few exceptions, international investors view our practice of disclosing the minutae of clinical trials as ridiculous and tedious. Over the years I have often been mocked about this practice, simply by virtue of my nationality. This behavior is viewed as redolent and intrinsic to the ASX, and it is erodes the credibility of our biomedical industry (by the way, patent filing announcements fall into the same category). This is not to say that small-cap companies don’t do it in the US, they do. But they are usually NASDAQ or even OTC bottom-feeders that are desperate for anything that will suck a buyer in to keep their head above the water. Just about any US healthcare analyst will tell you that this is a behavioural warning sign of a failing company, not a successful one. By that metric, we are a disaster.
The biggest problem with this practice (through the lens of the entrepreneur), is that it makes it incredibly transparent – practically real-time – how a company executes. A substantial part of diligence for an investor is whether a company can responsibly utilise capital and execute a clinical trial plan. Of course nothing ever goes according to plan (I have personally had many stressful experiences explaining delays to investors, whether a manufacturing glitch, or an IRB delay, the communication challenges of an onerous consent form, or slow recruitment because of a holiday season… whatever…) but when you put it out in the open the way that (for example) BLT does, it very rapidly establishes the perception of incompetence if you are not 100% on the ball. This in turn closes a lot of doors right up front, and instead of walking into an investor meeting and vigorously pitching a venture, the entrepreneur/CEO already ends up on a perceptual back-foot.
I’m not saying don’t communicate clinical progress. I am saying design your clinical trials to have interim review points that are meaningful to investors, patients and partners. Of course everyone needs to go out and raise money and keep shareholders engaged, and of course you can’t just plunge into years of radio-silence, that’s just stupid. By way of illustration, I would have been quite happy for BLT to have issued a mid-trial progress update that confirmed that half of the study had been dosed, that the baseline cohort showed no adverse events, and that the dose escalation to therapeutic dosing levels was in progress. Especially if such a mid-trial review was part of the disclosed clinical protocol.
Absolutely no problems with that at all.
Prospective development partners (i.e. big pharma), on the whole, disrespect this behavior as well. The reason is because it creates a level of asset transparency that makes it tougher to go to management and shareholders to justify deal-making (or even a price premium!) on the basis is of privileged information. This kind of behaviour essentially gives the executive responsible for doing a licensing deal almost no wiggle room because the exact status of an asset is known to the public, including to analysts and competitors. So there is really no stealth possible in diligencing a tasty opportunity and picking up something valuable that may be flying somewhat under the radar. Remember that the strategic objective of “big pharma” is to pick up the innovations that drive leadership in the field, and to show their shareholders that they really have their finger on the pulse of the industry. As an analogy, after a while, nobody cares about the “naked guy” standing in the middle of the village square because everyone has seen it all – including public investors that will simply form their own opinion rather than rely on guidance from management. Information containment matters in order to maximise the strategic and competitive impact of a deal and the last thing a big pharma exec wants is the whole market second-guessing or ridiculing him/her on the basis of perfect information efficiency.
Far better to leave scope for speculation that … hmmm there must be something there that we didn’t know about. Or, put simply, you wouldn’t go out to a speed dating event and start your introduction to the potential love of your life with “I have genital herpes”.
So why do the communication equivalent with your company?
One other major issue about Pharma partners is risk perception. For example, BLT’s blow-by-blow account of patient enrollment simply highlights how slowly and painfully the study is recruiting. This could imply that the clinical investigators are having difficulty getting patients in the door, or talking patients through a tougher consent process (it is, after all, a gene therapy!). It also leaves far fewer tactical options when something goes wrong, and so this has the effect of deterring partnership deals from forming mid-trial, because the nightmare scenario for a conservative big pharma exec is that you do a deal and then a week later you have to explain to your board (and the market!) that a patient had a serious AE or died, which in turn completely tarnishes deal-making reputation.
Fundamentally pharma business development and partnering is a bit like a strip tease. People will pay to sit and watch, because they want access, they want to see the story unfold. But if everyone has the same information, then what is the point of paying to get preferential access, to perhaps get an early lead on an asset before someone else does? How can you possibly hope to establish a really competitive auction dynamic if there is perfect information? Baring all just doesn’t help and doesn’t create any of the frisson that (for an early-stage asset) could result in a pharma company throwing a few million bucks at you to get preferential access to your data, perhaps even as a simple collaboration or an option. In the case of BLT, wouldn’t it have been transformational to announce that they had entered into a confidential clinical data sharing agreement with one of the big boys? Even I would have difficulty picking on them. Yet this sort of possibly entirely disappears when your communication strategy is flawed.
3) Clinical Collaborators
Like executives in a biopharma company, many clinical investigators also want to see information go into the public domain ASAP. After all, it impacts the career of a translational researcher! Clinical investigators want to be able to peacock themselves at academic conferences, and show everyone how smart they are – it is only human nature and medicine is often a bit of an ego trip, as you probably know. But by the same token, the truly top-class investigators, the really good clinical trialists, the people you want out talking about your technology as a “key opinion leader” (KOL) care deeply about scientific integrity and it is often the bedrock of their career success. They want to be able to discuss a clinical accomplishment with robust statistics, a defensible safety profile, etc. As such the really good investigators also despise the patient-by-patient account, and I have had multiple instances where clinicians have told me how embarrassed they are when their commercial partner jumps the gun and makes a premature and over-hyped disclosure.
My position on this is quite simple, and even possibly a bit unkind. Any company that is doing a clinical trial – with very few exceptions – and makes the kind of blow-by-blow announcements that BLT, or NRT, or PAA does, is not working with the highest quality people. Why? Because the best people wouldn’t tolerate it. In rare instances, for example when I saw Bruce Levine at U. Penn give a very early (and humble) presentation on the clinical data they had for CAR-T patients with rare childhood cancers, it was acceptable because the technology is so new and unproven, and there was just as much science in the manufacturing and patient management process, as the clinical deployment of the technology (i.e. the whole challenge of developing an N=1 patient-customised therapeutic). But even then, the appropriate scientific and clinical caveats are made, and the “pudding is not over-egged”. And only when there is a complete set of patient data (preferably published in a peer-reviewed journal). I also note that when a trial is run as an investigator-initiated study, there is also a bit more lattitude for “ad hoc” communication but, in general, it is frowned on as well.
In some, but not all, disease settings – how a company chooses to communicate can have a significant impact on patient enthusiasm and recruitment success for a study. Patients are not stupid – a person with a life-threatening disease will go to the end of the earth to understand the options available to them, and to develop an informed opinion about the probability of success. Most patients understand that if they have a serious disease, then a drug that wipes out a serious disease is possibly not going to be the easiest road to travel. Therefore press releases where “nothing is seen” actually don’t contribute to the the positive value perception of a drug. Just like the pharma partner, patients also see “risk” in trial progress disclosure. For example, if you are suffering from metastatic melanoma and you only have a few months to live, do you want to join the clinical trial that has 2,000 people in it and going gangbusters (and big $s being thrown at it), or do you want to join some hokey trial that has dosed 6 people and doesn’t seem to have much traction?
It’s even harder when the standard-of-care gets to be so good, as is the case with HCV. You have to remember – you and me ain’t nothing but mammals. Herd mentality is a psychological reality of driving successful clinical trials and establishing traction with patients and patient advocacy groups*. By being a little less transparent, you actually have a better chance of recruiting patients. Investigators are under limited or no obligation to disclose to patients how many other subjects have been dosed, or what the prior adverse event (AE) profile is. All that really has to be discussed are the parameters of the consent form, unless there is a significant clinical experience that deviates from the scope of the consent form, in which case an IRB review is probably necessary anyhow and there are other issues of institutional patient ethics and safety at that point. That’s all normal stuff for a clinical site and doesn’t warrant comment here…
Personally, I think the biggest detractor of this type of immature clinical communication, is that it does not respect patient privacy. If you have a child with a life-threatening disease that recruits one patient every month (at a “discoverable” or even publicly disclosed site), that has a long monitoring period because it is a gene therapy or something “exotic” like a cellular therapy, the media finds you very quickly. If there is a direct correlation between your child getting treated and a public domain event, then this can be a significant deterrent for many parents who fear that their kid will end up on the cover slide of a corporate PowerPoint presentation or even the six ‘o clock news. Some people like that prospect, but most people don’t. The same goes with things like infectious diseases – these are intensely private matters and if patients think that a company is going blab every time a dose gets administered, it can absolutely deter study participation.
… and don’t get me started on those companies that set inappropriate patient expectations about durable cures (like Novogen). I don’t even need to go there. You don’t need to know anything about ethics to know that it is simply wrong.
This is where there may be some of the biggest issues, and where I think Australian healthcare companies are going to get burnt at some stage very soon. I will caveat that although I am legally trained, I am not a securities/corporate lawyer, though I believe my “opinion” (offered informally) is reasonably robust. Frankly, I think most ASX biotech/healthcare execs don’t understand what continuous disclosure is, and if they do, they don’t seem to care and they abuse it mightily. The ASX disclosure rules are designed to provide information efficiency around price-changing events. Therefore most of these micro-announcements around clinical trial progress don’t apply because the trial is already in the public domain (press release, TGA registry, clinicaltrials.gov, ANZCTR, whatever) and the scope/objectives of the trial have also been previously disclosed. Unfortunately, a lot of retail investors do view ASX disclosures as indications of a price-sensitive event and people do trade on it thinking that something significant has happened.
Why is this a problem?
Well, one day, someone is going to issue a press release like BLT did – which strongly implies a continued positive experience with the drug in patients, including a non-serious AE profile. But then at the end of the trial, when the data is fully collated and understood, the reality might be quite different. At which point, an unhappy shareholder or collection of shareholders could have a reasonable basis for a lawsuit on the basis of continued misleading disclosures from a company that should know better about the risks and challenges of clinical development. Australian class action laws are just ripe for this kind of thing and it is coming, I promise. I get periodically contacted by US litigation funds that are looking at the ASX with a lot of interest. For the avoidance of doubt, I do not return those calls, and this kind of opportunistic and damaging activity is not why I write this blog. But it absolutely warrants discussion and prophylactic measures being taken as a biomedical community.
And don’t get me started on the kind of informal chit-chat from the likes of Uscom. It’s one of the reasons why I despise a lot of the blatantly manipulative information and colluding communications on forums like HotCopper. The “bar” (in legal parlance, the “threshold test”) of material information is the perception of a “reasonable person”. Well, in the ASX retail market, that is arguably a very low bar. It’s only a matter of time before someone trips up and discloses a little something in an imperfect way, the stock price goes into chaos, and a lawsuit happens.
The impact could be absolutely devastating for our publicly-traded healthcare sector.
Finally, it is worth briefly mentioning the dual-listing issues, given that many Australian companies are now at least offering ADRs, if not outright jumping onto the NASDAQ bandwagon in the epic search for capital. There is actually a very significant mismatch between US and Australian disclosure rules that can create risks for Australian companies if they behave too much like cowboys. For example, in the case of BLT, because of their history of making patient-by-patient announcements that someone has been successfully “dosed”, under the ASX listing rules, any deliberate deviation from that practice could arguably constitute a price-sensitive event because of the information expectations of shareholders. Supposing that BLT elected to skip patient #7 because of a clinical glitch, and just go to patient #8, they would quite possibly have ASIC breathing down their neck very quickly, as illustrated by Rhinomed’s recent little fine. In the US situation, it is potentially even more serious – especially going into an IPO. The US does not have continuous disclosure legislation per se – it has “timely” disclosure and director/officer “duty to disclose”, both of which are well-understood corporate governance concepts that have been extensively litigated over the years. But what the SEC does have is the concept of “business as usual” communication in the lead up to, and during an IPO (and certain other regulated periods). Therefore companies have to be extremely careful going into an IPO about how they establish their communication profile and, more critically, how they might deviate from prior communication patterns.
You may be asking yourself, who cares?
In the case of BLT, their historical communication pattern is to (rapidly and blandly) disclose every patient rather than blind/suppress a study and wait until it is finished (or has at least reached a prescribed interim point) to announce a clinical outcome. Therefore as it goes out the door on its US IPO it will have little choice but to be consistent with “business as usual” communication. When you are out raising money, even a fairly inconsequential piece of public domain information can unnecessarily raise questions and turn-off investors. Since BLT’s HCV study is now just going into therapeutic dosing levels, it is possibly the worst time for that disclosure burden to be present. I am not saying that there isn’t an ethical obligation to disclose any issues to a potential investor irrespective of regulatory matters, anyhow. There is. Rather I am suggesting that it is better for management to be in control of that disclosure process rather than information sitting in the public domain, and for open interpretation by all and sundry. Plenty of good public companies have hiccups with their clinical trials (including serious matters like major AEs and even deaths) but at least put themselves in the position where they have control over how to communicate their speed-bumps. By virtue of their behavior, BLT has not only missed the opportunity to redefine its communication strategy, but it has essentially relinquished control of public disclosure around its lead clinical program at a very critical and information-sensitive time.
At the core of this post, is the concept of quality. Quality data collection, quality clinical end-points, appropriate disclosure and respect for patients. Quality, quality, quality.
I don’t think these are inappropriate objectives and my personal viewpoint is that if Australia really wants to be taken seriously as a powerhouse for biomedical research, we need to get our shit together. This means lifting our game in terms of culture, style and tolerance of poor behaviour. It probably means revising the continuous disclosure rules and reconsidering their appropriateness for different sectors (this will happen anyhow once the first class action takes place). It also means educating the public investor base about the realities of biomedical research and collectively taking a more consistent stance with retail investors. Unfortunately, medicine takes time to execute, and “Mum and Dad” investors poking CEOs on HotCopper are going to simply have to start accepting that the really good companies just get their head down and get on with it, and that there isn’t going to be a press release every other week.
Commercialising biomedical research is a hard enough task as it is without undue levels of noise and distraction… or ill-informed market pressure.
Awesome Photo Credit: Ryan McGuire. http://www.gratisography.com/
*… and sometimes building successful investor syndicates too… 😉