ASCO abstracts trigger trading

It's nearing the beginning of June, the traditional time for increased stock trading based on results presented at the American Society of Clinical Oncology (ASCO) annual meeting (1-5 June in Chicago). The meeting is often the first time that the general public learns of the progress of cancer drugs in development, often in companies for which many people hold stock. ASCO press releases dominate newspaper business sections during that week because the preliminary release of results influences stock prices.

ASCO released its abstract proceedings book early this week and, the Wall Street Journal reports on their Health Blog, that stock prices have already begun to move based on results to be presented at the meeting. Since the meeting doesn't begin until 1 June, ASCO wrote a whole series of conditions in their confidentiality policy on the outside of the proceedings wrapper that includes the statement:

You will not use the information contained in any Abstract for any purpose...including but not limited to trading in the securities of any issuer or providing the information to others who may use it for securities trading purposes.

A violation of your agreement not to use Abstract information for securities trading purposes or to provide it to others who may use it for securities trading purposes may constitute a violation of federal or state securities laws and may subject you to civil or criminal liability.

So, roughly 20,000 doctors became privy to clinical trials results this week but they are all expected to honor the trading and disclosure embargo for two weeks or more.

According to the WSJ Health Blog:

Despite ASCO's finger wagging, there's been some mighty curious trading in stocks of some makers of cancer drugs that will be discussed at the meeting. Shares of Imclone Systems have fallen 9% since Tuesday, Regeneron Pharmaceuticals is down 15%, Genentech is down 3%, and Onyx Pharmaceuticals is up 10%, Gregory Zuckerman and Geeta Anand write in this morning's [Friday's] WSJ.

"Oncology stocks consistently have shown unexplained volatility around the time ASCO releases data on embargo to its members," Steven Harr, an analyst at Morgan Stanley, told the WSJ. Harr was part of a group of investors and analysts that approached ASCO two years ago to complain about the issue. ASCO says they have tried waiting to release the abstracts, but this has proved inconvenient for the group's members.

This is an interesting conundrum on the interface of science and finance. Even if ASCO members are not supposed to disclose information to third parties, it has obviously happened. But does the publication of abstracts constitute dissemination insider information? Should ASCO make their abstracts available to the general public at the same time it does to members?

It does seem like there has been a selective disclosure of information that can influence stock prices not matter how noble ASCO may be in their confidentiality policy. Commenters like Fred on the WSJ Health Blog have certainly expressed anger at ASCO:

Small investors should file a class action lawsuit against ASCO. They are negligent with their handling of this material non-public information. Based on prior years, they knew full well insider trading would occur. Finally, there is no substantive reason to release the data the way they do. ASCO wants their members to have valuable inside info because it makes the memberships more valuable. Martha got prison for a pittance trade in Imclone. What will ASCO get?

Fred raises an interesting point and made me wonder if wise investors or analysts might try to become ASCO members just to get a copy of the abstract book (although one generally has to be working in the oncology field and be sponsored by an existing member to do so). In fact, ASCO's membership page notes, "ASCO membership is not available to physicians or others who are employed or primarily consult in the fields of financial analysis, sales, marketing, or the media."

Remember, of course, that abstracts are only reviewed by the program committee and do not constitute a full, peer-reviewed publication. However, meetings like ASCO are generally the first places that drug companies release their clinical trials findings and the market interprets their meaning well ahead of journal editorial boards and regulatory authorities (although in an odd move, FDA's Oncological Drug Advisory Committee held one of its meetings at ASCO last year).

Information asymmetry has always been a tool of the financial world. Memberships and newsletters have always charged a premium to provide investors with tips and advanced analyses. But who would've ever thought that a scientific society's proceedings would one day become a source and topic of alleged insider trading?