REMEMBER THIS: The "Feuerstein-Ratain Rule" worked
I like 50% of what Feuerstein publishes, but this piece should be put to memory by EVERY biotech investor.. (we are just over the threshold, by the way..WITH an approved drug no less..)
The "Feuerstein-Ratain Rule" worked.
For those unfamiliar, University of Chicago oncologist and professor Dr. Mark Ratain and I correctly predicted perifosine's failure last October based on a theory we developed which directly correlates the market value of a company developing cancer drugs with the outcome of phase III studies.
I won't rehash all the details of our "rule" here, but essentially, after examining 59 phase III clinical trials of cancer drugs going back 10 years, we found companies with micro-cap market valuations (i.e market caps less than $300 million) had no chance of producing positive phase III study results.
By contrast, almost 80% of cancer drug companies with market values greater than $1 billion conducted positive phase III studies. Ratain and I looked at market values of cancer drug companies four months prior to the release of phase III results. Our findings were published in the Journal of the National Cancer Institute.
Keryx's market cap was about $200 million in October, so Ratain and I felt reasonably confident that the perifosine phase III study in colon cancer would fail. [For the record, Kery'x market cap on Dec. 4, 2011, exactly four months ago, was $188 million.]
Many investors ridiculed our theory last fall because they mistakenly thought we were simply predicting the outcome of phase III cancer drug trials based on market cap. That's not true.
Ratain and I recognized that one reason micro-cap cancer drug had a perfectly dismal record with phase III trials is because the drugs being developed had already been vetted by both the market (i.e., investors) and larger, more successful cancer drug companies and found to have a low probability of success.
Cancer drugs are scarce and valuable commodities. Larger drug companies are way more likely to acquire, or at least partner with, a smaller drug company if that smaller company has a cancer drug in development with a strong shot at being successful.
Keryx's low market value meant that investors and larger companies had already examined the previous perifosine phase II data and found it lacking. Market cap, therefore, becomes a reliable and accurate proxy for predicting cancer drug trial outcomes.
Keryx was the first prospective test of the "Feuerstein Ratain Rule" and we nailed it.
But don't almost all small market cap biotech companies have to pass through the $300 million dollar mark on their way to over $1 billion? Maybe the reason these $300 or less million dollar market cap companies tend to get denied is because their science is not good. So if your market cap is $300 million or less does it mean your automatically a poor prospect according to your rule?
Feuerstein & Ratain should have looked at how many small caps got bought out after developing a great drug and before reaching $1 billion cap. Many were probably strapped for cash and vulnerable to an easy buyout supporting a skewed and perhaps biased theory.
More than just an effective drug, CRIS has developed a revolutionaly concept that has the potential to be effective on many types of cancer. Anyone thinking this is a 1 trick pony should re-read the tests taking place.