Biotech investors’ magical thinking

A thing that happens in biotech is that a company cancels a scheduled appearance at some banking conference, and then a nonzero number of traders deduce that it must be about to get acquired, and the stock price goes up. The only problem with this phenomenon is that it has very rarely proved prescient.

The latest example is BioHaven. Back in April, Bloomberg reported that the company, developing treatments for migraine, was considering selling itself. Then, earlier this month, BioHaven pulled out of a speaking slot at the Goldman Sachs conference. This, thought some people, was a sure sign that a buyout was in the offing, and BioHaven’s share price rose 20% in a day. Finally, on Monday, came the letdown: BioHaven disclosed plans to raise $300 million in a stock sale. That is typically not the kind of thing you do when you’re about to get acquired, and so shares fell about 25%.

What’s weird about the persistence of conference-cancelation fever is that it has a terrible track record. Sarepta Therapeutics, Acadia Pharmaceuticals, and ZioPharm have all popped on cancelations only to reveal that the issue was a scheduling conflict, not a get-rich buyout. One time, shares of Alexion Pharmaceuticals rose on a cancelation, and the eventual news ended up being an internal investigation and management shakeup.