What happened

Shares of clinical stage biopharma Trevena (NASDAQ:TRVN) fell as much as 36% Tuesady morning after announcing top-line results from two phase 3 trials evaluating its lead drug, oliceridine, in treating moderate-to-severe acute pain after the removal of bunions (bunionectomy) or a "tummy tuck" operation (abdominoplasty).

The move may be confusing considering that the drug met its primary endpoints in all dosing regimens compared to morphine. The company even plans to file a New Drug Application with the U.S. Food and Drug Administration based on the top-line data. But investors are concerned that the drug's performance against secondary endpoints may limit the drug's market potential once approved by regulators.

A man with his face in his palm in disappointment.

Image source: Getty Images.

So what

The intravenously administered drug received Breakthrough Therapy Designation from the U.S. Food and Drug Administration, which demonstrated early potential to at least match morphine in efficacy and best it in reducing side effects. That's because oliceridine selectively binds to opioid receptors in the brain while sparing receptors that can trigger three uncomfortable side effects: depressed breathing, nausea, and vomiting.

Trevena announced that the drug achieved the primary endpoint of greater pain reduction (analgesic efficacy) compared to placebo for all three dosing regimens. Additionally, the middle and high doses demonstrated comparable pain reduction to morphine.

Beating the placebo and matching morphine in efficacy is great, but the data reported on side effects is less encouraging. The novel painkiller achieved dose-related trends on measures reducing two of the three side effects -- nausea and vomiting -- but the showings were not statistically significant across the board. All three doses also demonstrated an improvement in the occurrence of depressed breathing compared to morphine, but only the lowest dose achieved statistical significance.

Not achieving statistical significance for the secondary endpoints won't hurt Trevena for gaining approval because the side effects are not life threatening and safety isn't an issue for oliceridine. But it could hurt Trevena when convincing hospitals to use its more expensive option over generic morphine, thus affecting its market and sales potential. It also will likely result in watered down label from FDA, since the biopharma won't be able to make claims about clear-cut advantages in side effect reductions compared to the drug's chief competitor.

Now what

Investors are discouraged by the results because they're factoring in the possibility that what could have been an easy winner in the management of moderate-to-severe acute pain now faces a less certain path to market dominance. There's a real possibility that Trevena could struggle to convince doctors to use the drug instead of morphine, which could force management to offer the drug at a lower selling price than what could have been achieved if the two phase 3 trials were a home run for all endpoints. That's not the worst possible outcome, of course, but investors are right to reconsider stock's trajectory.

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