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What happened

Investors in Ophthotech (ISEE), a clinical-stage biotech primarily focused on diseases of the eye, are having a brutal start to the trading week. Shares have utterly collapsed, falling by 84% as of 11:15 a.m. EST on Monday in response to disappointing results from two late-stage pivotal phase 3 trials.

So what

Ophthotech reported results from two phase 3 clinical trials, OPH1002 and OPH1003, on Monday. These trials were designed to test the company's experimental compound Fovista in combination with Novartis' (NVS -0.87%) Lucentis as a hopeful treatment for wet age-related macular degeneration, or wet AMD. 

The combined analysis from the trials showed that patients who received Fovista and Lucentis in combination only demonstrated a mean gain of 10.24 letters on a standardized eye chart at 12 months. Unfortunately, that was only slightly better than the 10.01-letter gain observed in the patient group that only received Lucentis as a monotherapy. The small difference in outcomes was not shown to be statistically significant, which led the company to conclude that it sees no benefit to adding Fovista to a monthly Lucentis regimen in treating AMD.

Ophthotech CEO Dr. David Guyer said that the company was very disappointed with the news and that it plans to "continue to analyze the data from these two studies to better understand the trial results." Investors pummeled the stock on Monday in response to the news.

Now what

There's no doubt that this news blows a hole in the bull case for owning Ophthotech's stock. Investors were banking on Fovista's success, which seemed like a smart bet given that phase 2b studies showed that the combination of Fovista and Lucentis resulted in a 62% improvement in eyesight when compared to using Lucentis as a monotherapy. That news led Novartis to sign a deal with Ophthotech that could have been worth up to $1 billion in milestone payments plus a healthy royalty on any sales, which would have been a windfall for investors. However, that deal appears to be dead now that it looks like Fovista is a dud.
If you're looking for a reason to hang on to the company's shares, it is worth pointing out that Ophthotech had more than $320 million in cash on its balance sheet as of the end of September. That's $100 million more than the company's current market capitalization. In addition, it has another drug candidate in its pipeline -- Zimura -- that is currently in phase 2/3 trials as a potential treatment for geographic atrophy, an advanced form of dry AMD. Thus, while the stock's drop today is deserved, it is possible that the markets are overreacting.
Of course, today's news completely changes the thesis for owning Ophthotech's stock, so none of the above really matters. Today is a sad day for investors and the wet AMD community alike.