Flunking good governance
One of my holdings is Northfield Laboratories (NFLD). When you see them on the front page of the Wall Street Journal, you know things aren’t going to be good. Northfield makes a blood substitute product that is near the end of a Phase III clinical trial. However, 5 years ago they quietly stopped a trial due to an increased risk of heart attacks. Where they flunked every adage and truism of a biotech company was not releasing that information when they knew about it.
It appears most of the risk was due to operator error—doctors were infusing too much fluid in patients. The trial covered patients with aortic aneurysms, while the current trial is for trauma patients who have lost a lot of blood. An independent review board has looked at the data four times in the current trial and believes the safety of the product is not an issue. So you have a potentially great product that may be a year from FDA approval whose shares are getting hammered today (down around 20% as I write this)--all due to something that happened 5 – 8 years ago.
The product hasn’t changed, but the market may be smaller. Still, if the trauma trial is successful, emergency medical services and the military would love to have a product such as this. Northfield’s CEO and board made a serious error in not publicly releasing the facts of the earlier trial’s stoppage. The stock would have taken a hit then, but the investing public would have known the risk when buying the stock. The good news is that getting this far in the current trial with no stoppage or modification is a major step. I have viewed today as a buying opportunity while everyone else panics. Despite the CEO and the board flunking good governance previously, it appears they currently have the product on track for approval next year. At least I now know who and what I’m dealing with.
Update:
The company has released a press release Northfield Laboratories Strongly Disputes Wall Street Journal Story Conclusions in which several key points are disputed. I don't think it fully absolves the company, but it does put a much more positive spin on things. At first blush, Wall Street agrees since the stock is up a dollar from where I purchased some more. We'll see how it goes...
It appears most of the risk was due to operator error—doctors were infusing too much fluid in patients. The trial covered patients with aortic aneurysms, while the current trial is for trauma patients who have lost a lot of blood. An independent review board has looked at the data four times in the current trial and believes the safety of the product is not an issue. So you have a potentially great product that may be a year from FDA approval whose shares are getting hammered today (down around 20% as I write this)--all due to something that happened 5 – 8 years ago.
The product hasn’t changed, but the market may be smaller. Still, if the trauma trial is successful, emergency medical services and the military would love to have a product such as this. Northfield’s CEO and board made a serious error in not publicly releasing the facts of the earlier trial’s stoppage. The stock would have taken a hit then, but the investing public would have known the risk when buying the stock. The good news is that getting this far in the current trial with no stoppage or modification is a major step. I have viewed today as a buying opportunity while everyone else panics. Despite the CEO and the board flunking good governance previously, it appears they currently have the product on track for approval next year. At least I now know who and what I’m dealing with.
Update:
The company has released a press release Northfield Laboratories Strongly Disputes Wall Street Journal Story Conclusions in which several key points are disputed. I don't think it fully absolves the company, but it does put a much more positive spin on things. At first blush, Wall Street agrees since the stock is up a dollar from where I purchased some more. We'll see how it goes...
posted by Dwight at
9:57 AM
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