Drug trial defies Wall Street's 'wisdom'

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Many in the financial industry want to believe that access to real-time data services like Bloomberg, Reuters and Thompson gives them an advantage over individual investors who lack access.

Perhaps this was true in the past, but today when the internet disseminates information quickly and virtually for free, access to information is no longer the competitive advantage it once was.

The real value no longer comes from having the news first, but in knowing how to interpret that news and therefore what actions to take. This takes good judgment, and in this regard individual investors often have an advantage over Wall Street.

We saw a great example of this in action earlier this week on news of a test of an important drug in development -- one which could offer hope to millions of Alzheimer's patients.

When the market opened Tuesday, both Elan (ELN, news, msgs) and Wyeth (WYE, news, msgs) traded up as much as 7% as the results of their Phase II trial for AAB-001 hit the newswires. Then Bloomberg ran a story with the headline, "Elan Wyeth Alzheimer's drug didn't meet study goal," and both stocks trimmed their gains.

The other side of the story

While Bloomberg's headline is accurate, it conveys a strong sense that AAB-001 -- also known as Bapineuzumab -- was a failure, and nothing could be farther from the truth.

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The drug showed a statistically significant beneficial effect on patients who don't carry the ApoE4 gene. Somewhere between 40% and 60% of Alzheimer's patients don't have the ApoE4 gene, so an equally accurate headline could have been "Elan Wyeth Alzheimer's drug found effective for many patients."

There were 240 patients in the Phase II trial, so in order for the beneficial effect to be statistically significant, it had to be a big effect. It is now clear why the Phase III trial was designed so patients who carry ApoE4 are tracked separately from those who do not.

If the Phase III trial confirms the results, AAB-001 will offer a potential treatment to the millions of patients who don't carry ApoE4. AAB-001 may be the first drug that can really alter the course of Alzheimer's disease for many patients.

Wall Street may think these results were mediocre. But those who read more than the headline came to a much different conclusion. Elan, a long-time favorite of mine and the biggest position in my Strategy Lab portfolio, closed at $30, up 10% for the day.

Smart investors read past the headline and found the real story.

That's why, when Wall Street disagrees with the judgment of the investors with the best track records at Marketocracy, it's easy for me to decide what to do. I am still not taking profits by selling.