What happened

Up until yesterday, shares of Edge Therapeutics (NASDAQ:EDGE) had posted gains of 66% year to date as investors eagerly anticipated the results from a late-stage trial for its lead drug candidate, EG-1962. Today, the biopharma stock plunged 92% -- yes, 92% -- after the company announced it would be discontinuing the trial and laying off employees to preserve cash. 

The company's market cap dropped from $480 million to just $40 million on the news, which is equivalent to a vote of no confidence from investors. Considering that its next most advanced clinical trial is only in phase 1, and is also testing EG-1962, that may be a painfully accurate assessment of Edge Therapeutics' future.

As of 12:37 p.m. EDT, the stock was down 92.1%.

A chart drawn on a chalkboard originally showing gains, but the last half of the chart is poorly erased and redrawn to show a sharp decline.

Image source: Getty Images.

So what

One-day drops of 90% are incredibly rare. In this case, the market was clearly betting that a successful late-stage outcome was the most likely conclusion when top-line data were released in late 2018.

That's because EG-1962 turned in promising data from an earlier phase 1/2 trial for the delivery of the drug used to treat adults with aneurysmal subarachnoid hemorrhage (aSAH). The novel delivery method was expected to greatly decrease the negative side effects associated with traditional treatment methods and become the new standard of care for the brain injury.

But after conducting an interim analysis, the Independent Data Monitoring Committee didn't think continuing the trial would result in EG-1962 meeting its primary endpoint. Management decided to discontinue the trial as a result, which was completely unexpected.

The pipeline won't be bailing out shareholders any time soon. EG-1962 is being investigated in a phase 1 trial and an Investigational New Drug enabling study for treating similar injuries. A second drug candidate, EG-1964, is in preclinical trials. In other words, even if the drug candidates and approach can be proven to work, investors are looking at a very long road ahead. 

Now what

Late-stage trial failures are never welcome news. This stings a bit more for Edge Therapeutics because it was essentially a one-trick pony presenting a high-risk, high-reward investment opportunity.

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