What happened

Shares of biopharma MediciNova (NASDAQ:MNOV) rose sharply today, after the company announced that the ongoing phase 2 trial evaluating its drug candidate tipelukast as a treatment for non-alcoholic steatohepatitis (NASH) will be terminated early.

Why? An interim analysis found the drug to be highly effective in lowering levels of triglycerides circulating in the blood of patients taking the drug compared to those taking placebo. Reduction of serum triglycerides was a primary endpoint in the study.

Stopping the trial early will allow MediciNova to "accelerate further development" of tipelukast, although investors and Wall Street analysts will have to wait to review the data in more detail until they're presented at a conference on April 13.

As of 2:21 p.m. EDT, the stock had settled to a 18.6% gain.

A man standing on a column holding a cut-out arrow pointing upward

Image source: Getty Images.

So what

Volatility has been a common theme for MediciNova shares in 2018. In February the stock took a hit after the company announced the pricing of a secondary offering that Wall Street thought was uncomfortably low. And shares tumbled again just last week, after management announced a failed phase 2 trial for a drug candidate aiming to treat methamphetamine dependence. At least today's volatility is spiking in a more favorable direction for investors.

It's not difficult to see why. In the now-terminated phase 2 trial, tipelukast reduced triglyceride levels 29% in just eight weeks of treatment. That's noteworthy since high triglyceride levels are considered to be a biomarker for NASH, which is characterized by fibrosis (scarring of the liver) and thought to contribute to liver disease, liver cancer, and the need for liver transplants. The pharma industry has circled future treatments for the disease as the next big blockbuster market.

That may very well be true, but there's some uncertainty to consider too. While lowering triglyceride levels is often a primary endpoint for drug candidates being tossed at NASH, the scientific community isn't actually in agreement about whether that will result in meaningful treatment for NASH or other fatty-liver diseases.

Nonetheless, the drug candidate could potentially be used more generally to treat high triglyceride levels, which are widely considered to be a contributing factor in heart disease. The uncertainty also may not matter much to larger pharma companies that have been gobbling up NASH treatments in recent years, and that's likely influencing MediciNova shares today.

Now what

MediciNova now has two drug candidates ready to begin phase 3 trials: tipelukast, and another in multiple sclerosis. While that should change Wall Street's calculus for the stock, the market has also realized that the pre-revenue company only had about $65 million in cash on hand after a stock offering in February. That won't be enough to fund two late-stage trials and any marketing and commercialization activities; at the same time, the current $500 million market cap may not fully represent the pipeline's value. In other words, investors should expect more volatility in the months and quarters ahead.