20 December 2012

Eight Miles High

Financial services isn't the only field of endeavour where blind allegiance to quants leads to disaster. In fact, another area where disaster, induced by quant blindness, is far more common (although, from a macro-economic view, thankfully localized) is drug development. For those not paying attention to drugs, the process of taking a compound (either new or reformulated in some way) from inception of consumers is said to take a decade and $1 billion. For myself, most of the money goes to line the pockets of non-productive management, so the true cost is somewhat lower.

As to the quants. This week brought yet another example of a failed trial. Once a compound is deemed fit for testing on humans, there are three general phases. The first phase is intended to confirm safety, the second to determine baseline efficacy in a small well defined sample population, and finally phase three, where a much larger population is used. This third phase (and often two PIII trials are required) is the basis for FDA approval.

This week brought yet another failed PIII trial in a cancer drug. The company was Oncothyreon, and the drug Stimuvax. Previous trials led many, even large funds, to believe that Stimuvax (a cancer "vaccine") was a slam dunk. The data convinced them. In the aftermath, many articles have been written, and I expect more yet. This one struck my as particularly apt, to this endeavour. This isn't a Monday morning quarterback, by the way. The author had laid out his thesis last year. This article is a short recap (pardon the expression).

The telling point:
A drug's mechanism of action is central to its effect. Do not ignore this! Clinical data can be misleading, innocently biased, meaningless, manipulated and sometimes even downright doctored. However, the question, "How does the drug work?" is always critical.

Much like the lemmings who dove over the housing cliff, those that chose to ignore the basic metric of house price and median income data which were in plain sight, quants will ignore the most basic question: what does this shit do?

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