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Friday, June 20, 1997
Autoimmune,
Inc. HOW DID IT FIND TROUBLE? Autoimmune Inc. is one of many promising biotechnology companies that is developing revolutionary treatments for serious illnesses. Autoimmune products are based on the concept of oral tolerance, a principle whereby the body's immune system is altered through constant exposure to a small amount of an orally administered "drug." The idea is that through this mechanism, diseases that are caused by an altered immune response can be effectively treated. Through the fall and early winter the Autoimmune's stock price doubled on the hopes that Myolar, a drug aimed at multiple sclerosis, would have a successful Phase III clinical trial. Results were expected in April or May. There was one small hitch, though -- the drug didn't work. The stock tanked on that news and has not recovered. BUSINESS DESCRIPTION Autoimmune Inc. is a biopharmaceutical company that is developing oral drugs for the treatment of multiple sclerosis (the failed drug), rheumatoid arthritis (Phase II), diabetes, transplant rejection and uveitis. The company works with several prominent hospitals to conduct clinical trials, and has partnered with Eli Lilly. At this point, the company has no sales and is not anticipated to have sales in the near future. FINANCIAL FACTS Income Statement 12-month sales: N/A
12-month income: ($26.9 million)
12-month EPS: ($1.66)
Profit Margin: N/A
Market Cap: $31.7 million
Balance Sheet
Cash: $9.4 million
Current Assets: $43.9 million
Current Liabilities: $5.9 million
Long-term Debt: N/A
Ratios
Price-to-earnings: N/A
Price-to-sales: N/A
HOW COULD YOU HAVE SEEN IT COMING? There were some participants on the Fool's Autoimmune message board (now closed) who urged caution based on both the science behind the studies and the general principle of avoiding investments in pipe dreams. I find that the novice biotech investor is easily caught up in press release mania, and biotech companies are press release machines. The biggest misconception is what the various trials mean and their significance. In general terms, Phase I trials are used to establish that the drug is safe to give to humans. These trials are conducted on normal individuals so there is never any evidence of utility coming out from such trials. News of Phase I completion doesn't establish a hint of efficacy information. Phase II trials define toxicity and to some extent give a hint of disease response to a drug, but these trials are uncontrolled and, as such, do not prove efficacy. Only Phase III trials are controlled trials and even if they suggest efficacy, they must be reviewed by the FDA before the drug hits the streets. Many novice biotech investors hang too much credence on early Phase I and II trials. This is a recipe for trouble. WHERE TO FROM HERE? This company has no sales and no definite product. It is absolutely speculative and absolutely un-Foolish. Short of a successful Phase III trial of a significant new drug, there is nothing other than hope that can move this stock. If there is no such drug coming, the company could be in for further trouble. -Mark Weaver, MD ([email protected])
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