What happened

Shares of Clearside Biomedical (NASDAQ:CLSD) are down 26% at 12:47 p.m. EDT after the company announced what it called "positive topline results" from the phase 2 Tybee trial testing its steroid treatment, CLS-TA, in patients with an eye disease called diabetic macular edema.

Investors clearly had a different interpretation of the data.

Man with clenched fists on head looks at stock charts

Image source: Getty Images.

So what

Technically, they're both right.

The trial tested CLS-TA in combination with Regeneron Pharmaceuticals' Eylea, measuring patients' ability to read letters on an eye chart called the Early Treatment of Diabetic Retinopathy Trial (ETDRS) scale. Patients taking the combination gained an average of 12.3 ETDRS letters from baseline over six months. That's "positive."

But there was a control arm of patients who got Eylea alone, who gained an average of 13.5 ETDRS letters, which is a greater improvement than the combination, although it's probably still within the variance of the test, so let's call it similar efficacy.

Clearside Biomedical wants to call the tie a win because the combination treatment was give at the start of the trial and at month three, while Eylea alone was given as four monthly treatments. Fewer injections -- especially into the eye -- is something patients and their doctors can get behind, but Clearside Biomedical will have to prove that the less-frequent combination really has similar efficacy to monthly Eylea in a larger trial.

In addition to efficacy, there's also the issue of side effects, where the combination appears to be inferior -- again, keeping in mind this is a phase 2 trial with just 71 patients. Elevated intraocular pressure occurred in 8.3% of patients taking the combination compared to 2.9% of patients taking Eylea alone. Similarly, the frequency of cataracts was higher, with 5.6% of patients taking the combination developing cataracts, compared to 2.9% of patients taking Eylea alone.

Now what

Clearside Biomedical is evaluating whether to take the drug into phase 3 development, but based on the quotes from management in the press release and the "positive" headline, it seems likely the biotech will press on with the high-risk, high-reward phase 3 program.

Investors are right to discount the shares today, reducing downside risk from here until the company can show similar efficacy and that the side effects are nothing to worry about. Today's lackluster results may also be giving investors pause regarding upcoming data testing CLS-TA plus Eylea in patients with retinal vein occlusion, although the eye diseases are different enough that it's hard to make a firm conclusion on how much read-through there should be.

Brian Orelli 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.