Press release strategy and company’s reputation

by Alexey Bersenev on November 12, 2012 · 0 comments

in Uncategorized

The recent scandal with stem cell company Pluristem highlights the problem of hype-based business strategy. I’d like to voice my opinion here, because there were only few weak attempts to analyze the root cause of this case.

There are 2 sides of the story and I’m going to summarize it briefly. On May 9th of 2012, Israeli company Pluristem posted a press-release about successful treatment of 7 year-old girl with bone marrow failure by their experimental stem cell product under compassionate use program. The company did so with the next 2 cases (see press-releases here and here). So 3 patients = 3 press-releases within 4-months interval. It turns out that the first patient died on September 23rd, 2012. The news was not reported by a company, but somehow leaked to mass-media and was widely exposed by Bloomberg. Next day Bloomberg reported that second (or third – we don’t know) patient died in 1-2 months after the treatment. Bloomberg accused Pluristem in lack of transparency in reporting of the cases and in gambling on a stock for sake of profits. The company’s reputation was confounded and stock plunged.

The other side of the story includes company’s response and some analysis. Pluristem responded the next day after Bloomberg report. I’d like to quote this:

Pluristem has requested Bloomberg issue a correction specific to the article’s claim and implication that Pluristem knew of the death of this patient at the time of a recent capital raising transaction and withheld this information from its investors. This is not correct. The Company did not learn of this fact until after the financing was completed.

Pluristem wishes to emphasize that compassionate use cases are entirely experimental and last resort efforts in desperate situations and obviously not predictive of ultimate success or failure. Further, adverse results from causes unrelated to the subject therapy are also irrelevant in the evaluation of that therapy.

Later, BioMedReports posted an analysis of the case, where accused Bloomberg in distortion of facts and bad reporting.

I don’t want to comment on a stock gambling – I simply don’t care about it. I’d agree with Pluristem on severity patient conditions (“last resort”) in compassionate use programs and highly experimental modality of the treatment. Also, the causes of deaths could be unrelated to treatment. We frequently see this in the trials. This argument is well taken. Maybe company doesn’t have obligations for investors to report cases of death unrelated to treatment, unless it’s documented. Obviously, company knew about the cause of death as soon as it came up, but didn’t make this news public. Was this decision ethical? It could be, but only at circumstances of not reporting “success” stories initially. A quote from Globes:

Most life sciences companies at Pluristem’s stage of development do not announce compassionate use treatments. However, at the recent Journey conference, several investment bankers stood up and praised Pluristem, saying that the company was maintaining a wonderful relationship with the capital market and ensuring transparency.

Now we are getting to the real real root cause of the problem – the practice of press releases. As Globes noted, Pluristem is a subject of regulations of the US Securities and Exchange Commission (SEC):

Bloomberg” contacted the SEC to find out whether Pluristem’s announcements were misleading. The SEC would not comment on whether it was investigating Pluristem, nor would it discuss the practice of press releases describing early results from experimental treatments.

No wonder – few Nasdaq-listed companies are at such early stages of development in which a compassionate use announcement could be considered as dramatic. The Tel Aviv Stock Exchange (TASE) has recently tried to set standards for reports by early-stage drug development companies, but Pluristem, as a dual-listed company, is subject to SEC rules.

I don’t know if SEC really has any rules for press releases by early clinical stages companies. But, based on disordered practice of reporting in “stem cell business”, I doubt it. In this case, the executives decide how to portray the company for investors or public via press releases. Or could be mutual agreement with investors on reporting of data. In any case this is business strategy. It seem to me that Pluristem miserably failed on this strategy.

So, the wrong strategy, based on one-sided reporting of “successes” and the hype. What was a failure of Pluristem? First, if they choose to report each case of compassionate use program under the pressure of investors, they should do it in fully transparent manner, not in one-sided. Report all outcomes, especially in case of such adverse events as death. Obviously, it’s a game on a hype! Second, the decision on reporting such cases (aka being transparent) is wrong inherently. Don’t listen investors if they want you to do it! Reputation has more value than money! Bioethicist Leigh Turner commented on such reporting practice:

Such press releases risk misleading investors by creating overly optimistic account of scientific research. More importantly, press releases describing miracles and lifesaving cures are harmful because they give seriously ill individuals an unrealistic account of effectiveness of experimental stem cell interventions.
… I worry that science-by-press-release betrays vulnerable individuals by offering hope that is not justified.

Third, the problem of using “catchy words” rhetoric in press-releases. I’ve written about it here. Pluristem used such expressions as “life saving” and “medical miracle” in these press-releases. Even though it was quoted as doctor’s opinion, it is ethically wrong to use such rhetoric in business press release. Fourth, if Pluristem decided to comment and clean up this mess, please admit the mistake! I think (maybe naively), admitting strategic business mistakes can bring your reputation back!

To conclude, I think, we as a community and, especially “business guys”, can learn a lot from this case. Learn how to report the data and progress, how to choose business strategy wisely, how to be honest and transparent, how to write press releases. Unfortunately, Pluristem chooses the wrong business strategy on reporting at the first place. Lack of transparency and poorly written press releases cost company a reputation. Could the fear of the lack of investment justify such strategy? No.

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