Contagious Speculation And A Cure For Cancer: A Nonevent That Made Stock Prices Soar(3)
(Gur Hubennan?Tomer Regev)
The cover of the November 27, 1997, issue of Nature prominently features the lead headline "Resistance-free cancer therapy" as well as a related image. Inside that issue, Boehm etal. (1997) report on a breakthrough in cancer re-search achieved by a team led by Dr. Judah Folkman, a well-known Harvard scientist. In a "News and Views" feature in the same issue, Kerbel (1997) ex-plains and comments on the findings, suggesting that, "he results of Boehm et al. are unprecedented and could herald a new era of cancer treatment. But that era could be years away." (p. 335) Reports on the discovery of Dr. Folk-man's team appeared also in the popular press, such as the New York Times and Newsday on November 27, 1997, as v}}ell as in the electronic media, such as CNN's MoneyLine and CNBC's Street Signs. It seems that an effort was made to bring the News to the attention of circles wider than the scientific community.The November 27 Times article appeared on page A28 (Wade (1997)). It, as well as CNN and CNBC, mentioned ENMD. On November 28, ENMD itself issued a press release that covered the news and the company's licensing rights to the proteins developed by the team of Dr. Folkman. The closing price of ENMD was 11.875 on November 26, and on November 28 it was 15.25; thus, the news caused a price appreciation of 28.4 percent, an observation made in the Business Section of the November 29 edition of the Times. (The stock market was closed on Thanksgiving, November 27.) The unusually high trading volume on November 28 and December 1 indicates that the market paid attention to the news. On the whole, an adherent of the efficient-market hypothesis would argue that the market digested the news in a timely and robust fashion.In the months between November 27. 1997. and May 3. 1998. ENMD's stock traded between 9.875 and 15.25, with annualized volatility (i.e.,(254* equal to 81 percentKolata's (1998) Times article of Sunday, May 3, 1998, presents virtually the same information that the newspaper had reported in November, but much more prominently; namely, the article appeared in the upper left corner of the front page, accompanied by the label "A special report." The article had comments from various experts, some very hopeful and others quite restrained (of the "this is interesting, but let's wait and see" variety). The article's most enthusiastic paragraph was??`Judah is going to cure cancer in two years,' said Dr. James D. Watson, a Nobel Laureate?Dr. Watson said Dr. Folkman would be remembered along with scientists like Charles Darwin as someone who permanently altered civilization." (p. 1) (Watson, of The Double Helix fame, was later reported to have denied the quotes.) ENMD's stock, which had closed at 12.063 on the Friday before the article appeared, opened at 85 and closed at 51.81 on Monday, May 4. The Friday-close-to-Monday-close return of 330 percent was highly unusual: bigger than all but two of the over 28 million daily returns of stocks priced at $3 or more between January 1, 1963, and December 31, 1997. Not surprisingly, the Times story, and ENMD, received tremendous attention in the national media (print and electronic) in subsequent weeks.In the May 10 issue of the Times, Abelson (1998) essentially acknowledges that its May 3 article contained no new news, noting that professional investors have long been familiar with cancer-therapy research and had reflected it in the pre-runup price of about $12 a share." (p. 6) (The Times did not question its own editorial choice of essentially rereporting the November 27 article, by a different reporter, with the label, "A special report," on the upper left corner of the front page. Gawande (1998) does that in the New Yorker's May 18 issue, which hit the news-stands on May 11.)Figure 1 gives the distinct impression that, although some of the May 4 price runup was temporary, a substantial portion of it was permanent. ENMD's stock price fell in the days following May 4e week at 33.25-still almost three times higher than its price a week earlier. More over, ENMD's closing price did not fall below 20 until late August 1998, and by late fall it had not closed below 16.94, which was 40 percent higher than its May 1 price. During that time, the S&P 500 lost almost 20 percent of its value between mid July and late August; the NASDAQ Combined Biotechnology Index lost almost 24 percent of its value in that period.On November 12, King (1998), in a front page article in the Wall .Street Journal, reports that other laboratories had failed to replicate Dr. Folkman's results. ENMD's stock plunged 24 percent to close at 24.875 on that day. But that price was still twice the closing price prior to the Times article of May 4!