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From thinking about your answer #1, about duration of Phase III trials, the most appropriate place to start to find a specific answer for a specific drug, might be the drug company doing the research. Have you ever pursued this topic with a drug company? Is this something that a company's "investor relations" might disclose?

Some companies will give you projections for when they plan to file applications for drugs that are in phase III. For instance, MRK gives guidance on their planned filings for 2005 here:

You can call or e-mail an IR department and they should tell you when they plan a filing if it has already been disclosed in a press release or at an analyst meeting, but if they haven't made that information public already they will not (and should not) tell you just because you asked.

As you appear informed, is there a book or article on investing in pharmaceutical companies that might answer this question?

I don't know of any book that teaches how to invest in pharmaceutical companies. There are a lot of books about how specific products were developed (e.g. Magic Cancer Bullet about Gleevec) or biotech company (e.g. The Billion-Dollar Molecule about Vertex) and mega pharma company histories (e.g. The Merck Druggernaut) but personally I have found these to be a mixed bag at best. I have benefited more from books that are slightly critical of industry. I am currently enjoying reading The Aspirin Wars but I can't say that any of the above has made me a better investor. The best things to read to improve your investing skill are the letters of Warren Buffett and company annual reports.

In a smaller company, is there a pattern that stock follows throughout the research process, as it is communicated?

Cynically, the pattern for a small company is this: Company hypes preclinical test tube results and announces entry into phase I of their new miracle drug "unlikelycillin". Stock jumps because small investors are convinced the preclinical results guarantee unlikelycillin will be a blockbuster. Stock price gradually fades as there is no news until company excitedly announces that phase I has been completed (if you are careful about the dose, you could get cyanide through phase I). Stock price really jumps as investors are now sure the drug will be on the market soon. This is the best time to sell. Phase II, which takes up all of the small company's capital, starts with a bang. Now unlikelycillin has to show efficacy at some dose below its toxic dose and this is unexpectedly difficult. It turns out people are a little more complicated than testtubes. Phase II results are poor, or never seem to get announced (unlikelycillin always seems to be tried in new therapeutic areas without any announcement of the results of the prior targeted indication) and the small company fades from the scene as it becomes delisted.

The realistic view is that you should pay no attention to preclinical or phase I results. They have no meaning for an investor. If a product is positive in phase II it begins to become interesting but there is still only a 50% (or, recently, less) chance of a product midway through phase II eventually reaching the market. If a major firm in-licenses the product that should encourage you because it means someone has taken a very careful look at data you cannot see and was duly impressed. Nonetheless, I don't think most investors should begin to pay attention until they have some phase III results. If phase III looks good then approval is likely (although still not guaranteed). In any case, investing in small pharma companies is a gamble because you are betting on an uncertain future. Remember that taken as a whole the biotech industry has lost money for investors.

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