What happened

Clinical-stage biopharma Ignyta (NASDAQ:RXDX) fell nearly 22% this morning after announcing first-quarter 2017 earnings. There weren't any major updates provided by the pre-revenue company, which makes it appear as if investors were simply reacting to the stock's year-to-date gain of 69% as of yesterday afternoon. 

The company's lead drug candidate, entrectinib, continues to be evaluated in a phase 2/3 trial investigating its potential for treating cancers with specific genetic mutations, while the balance sheet sported $108 million in cash and cash equivalents at the end of March. Perhaps the relative health of the company forced investors to snap out of their initial knee-jerk reactions. As of 2:55 p.m. EDT, the stock had settled to an 8.3% loss. 

A businessman looking down a stock chart showing losses.

Image source: Getty Images.

So what

There are only two things that really stood out during the financial update. First, management decided to explore strategic options and renegotiate a license agreement with Eli Lilly for a major drug candidate called taladegib. While the move was accompanied by a $3 million payment to the partner, it will open up more bandwidth for management at Ignyta to focus on entrectinib -- and save future potential expenses related to development. It could also provide a minor infusion of cash should the company find a buyer for the asset. Of course, this was announced last month and wasn't a surprise to investors. 

Second, the company burned through $25 million in cash during the most recent quarter (or $22 million excluding the one-time Eli Lilly payment). That was driven by a 7% increase in research and development expenses from the year-ago period related to clinical development, which is to be expected as the lead drug candidate barrels through larger and more expensive clinical trials, and $12.8 million in additional charges related to amending the Eli Lilly agreement for taladegib.

For that reason, there's no reason to believe that Ignyta will continue to spend over $20 million in the next few quarters, which means the company has more than four quarters of cash remaining before it needs to find additional external financing.

Now what

If you believed in the prospects of the clinical-stage biopharma last week, then nothing has changed after yesterday's earnings release. That said, it's important to remember that there are inherent risks to investing in pre-revenue companies without marketed drugs.

Maxx Chatsko has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.