Why Prosensa Shares Were Skewered

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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Prosensa (UNKNOWN: RNA.DL  ) , a clinical-stage biopharmaceutical company focused on developing RNA-based therapies to treat genetic disorders, were eviscerated, losing as much as 76% of their value (not a typo!) after announcing that it and partner GlaxoSmithKline's (NYSE: GSK  ) Duchenne muscular dystrophy drug, drisapersen, failed to meet its primary endpoint in late-stage trials.

So what: According to the press release, the trial consisted of 186 patients of which 125 would receive drisapersen and 61 the placebo. The primary endpoint was a statistically significant improvement in the six-minute walking distance test. The data demonstrated that there was no statistical difference between the drisapersen and placebo cohort. Furthermore, the two companies noted no differences in any of the secondary endpoints, either, which included an assessment of motor function. Moving forward, Prosensa and Glaxo are expected to study the results further, although drisapersen's future is now up in the air.

Now what: I'm frankly amazed at what a short amount of time elapsed for the first breakthrough therapy designation to fail. Based on today's late-stage results -- which present very few, if any, glimmers of hope -- I'd say that drisapersen is done for. This means that biotech-savvy investors looking for a bargain may want to continue to keep their distance from Prosensa's small product pipeline, which is based on the same exon-skipping technology that appears to have not worked in the case of drisapersen.

This also presents both a positive and a negative case for rival Sarepta Therapeutics (NASDAQ: SRPT  ) , which has had the red carpet rolled out for it following today's phase 3 flop. On the bright side, a lack of competition means an increasing need for a successful treatment option and could equate to a lofty price and full market share should Sarepta's drug eteplirsen be approved.

Then again, as my Foolish colleague Keith Speights pointed out, Sarepta's eteplirsen works along the same pathway (exon-skipping) as drisapersen, and the Food and Drug Administration has already shown quite a bit of skepticism in the correlation between increased dystrophin production and improved DMD performance with regard to walking distance and motor function by denying Sarepta an expedited review. To add, eterperlisen's success is based on a 12-patient mid-stage trial. Given the failure of drisapersen in phase 3 studies, the FDA may suggest that Sarepta do further testing on its drug before it's approved. In other words, things just became considerably more complicated if you're a Sarepta shareholder.

Overall, it's a disappointing day for DMD patients and Prosensa shareholders, and a day of many questions for Sarepta shareholders.

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