What happened

Shares of biopharma Versartis (NASDAQ: VSAR) crashed nearly 87% Friday after somavaratan, the company's lead drug candidate, did not meet its primary endpoint in the phase 3 Velocity trial. The drug is a recombinant human growth hormone that was being evaluated as a treatment for growth hormone deficiency in children. It failed to spur height growth as well as Genotropin from Pfizer, the current standard treatment.

One biopharma's loss is another biopharma's gain. Shares of Ascendis Pharma (NASDAQ:ASND) soared as much as 51.4% Friday. The company is also developing drugs for pediatric and adult growth hormone deficiency, so Versartis' failure opens the door for Ascendis Pharma to take market share away from Pfizer pending the results of its recently initiated phase 3 trial.

As of 1:28 p.m. EDT, Versartis stock had settled to a 86.5% loss, while Ascendis Pharma stock had settled to a 27.4% gain.

A chalkboard with two arrows, one pointing up and one pointing down, side by side.

Image source: Getty Images.

So what

As the sharp move implies, the results from the Velocity trial caught everyone off guard -- including management. Versartis CEO Jay Shepard gave the following remarks,

"We are very surprised and disappointed to learn the outcome of the Velocity trial. Somavaratan showed height velocity in the range we had hoped, but it was not sufficient to demonstrate non-inferiority in this trial."

The primary endpoint was non-inferiority to Genotropin -- and it was close. Somavaratan resulted in height growth of 9.44 centimeters after 12 months, compared to 10.7 centimeters for Pfizer's drug. A formal corporate update on the future of the drug candidate will be provided before the end of 2017.

That leaves Ascendis Pharma to compete with Pfizer in the $3 billion market for growth hormone deficiency drugs. The pre-revenue biopharma has begun a phase 3 trial for the pediatric indication for its lead drug candidate, TransCon, and recently completed a phase 2 trial for the adult indication. Similar to somavaratan, TransCon is a recombinant human growth hormone designed to be long-acting, requiring just once-weekly injections. Genotropin injections must be administered daily, which means demonstrating similar or better efficacy with a once-weekly injection could steal significant market share.

Now what

Given that somavaratan is the only drug being developed by Versartis, Friday's nearly 87% drop may be an accurate representation of the biopharma's prospects. Meanwhile, Ascendis Pharma has a clear shot at Pfizer now that its main clinical rival is out of the way. That doesn't guarantee success, and investors won't learn the trial's outcome for nearly one more year, which means Friday's gains may be given back over time. Either way, this was another wild day in biopharma investing.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.