Why ArQule Shares Nosedived

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 cancer-focused biotechnology company ArQule (Nasdaq: ARQL  ) dropped as much as 28% after the company disclosed potential safety concerns with its lead drug candidate, tivantinib.

So what: In a federal filing made late yesterday, ArQule noted that its Japanese development partner Kyowa Hakko Kirin has indefinitely suspended its phase 3 clinical trial of tivantinib in Asia on the concern that some patients had developed interstitial lung disease which can cause scarring of the lungs and can be fatal. Those already enrolled in the trial there will continue to be treated while the safety review is conducted. The same trial in the U.S., Canada, and Australia has not reported safety issues. Tivantinib is currently being tested as a combination therapy with Roche's (OTC: RHHBY) Tarceva, and works as an oral medication that focuses on a specific enzyme, known as c-Met. ArQule has angled tivantinib for multiple indications including colon and liver cancer.

Now what: Battleship sunk? Maybe... it really depends on what the safety review yields. If there are serious side effects associated with tivantinib, it will put a big dent in ArQule's pipeline because so many of its future clinical trials revolve around the experimental drug. ArQule does have a good amount of cash so it's not a complete loss, but this is not a situation I'd want any part of as an investor on the outside looking in.

Craving more input? Start by adding ArQule to your free and personalized Watchlist so you can keep up on the latest news with the company.

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

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