What happened

Shares of Axovant Sciences (NASDAQ:AXGT) continued their free fall today, declining over 21%, and have now lost roughly 40% of their value since June 11. There wasn't any specific news that caused the stock's collapse. But that doesn't mean this is a buying opportunity.

Mr. Market is simply adjusting the company's valuation after shares erupted higher following a big announcement in early June. That's when Axovant Sciences revealed a new direction for the pipeline involving two words investors can't get enough of lately: "gene therapy." Given the early stage nature of the pipeline, however, the fall back to Earth isn't all that surprising.

As of 11:56 a.m. EDT today, the stock had settled to a 15.2% loss. Shares are still up 127% in the last month alone.

A chart drawn on a chalkboard showing a steady rise, then an abrupt fall.

Image source: Getty Images.

So what

In the first week of June, Axovant Sciences made three announcements.

First, it hired a new chief technology officer to lead its gene therapy programs. It's difficult to argue with the choice: Dr. Fraser Wright, the co-founder of gene therapy pioneer Spark Therapeutics. Second, the biopharma received a $25 million equity investment to jump-start its new pipeline overhaul following devastating failures from a prior batch of drug candidates.

Third, and the biggest catalyst for the stock, was the announcement that Axovant Sciences had licensed a gene therapy that it intends to develop as a treatment for Parkinson's disease. A phase 1/2 trial is expected to begin by the end of 2018.

While that's all exciting, investors are realizing the company has a very long way to go before it proves it's worth a spot in their portfolios. Therefore, readjusting the market valuation to $350 million, which still might be a little high, seems more than fair.

Now what

The biopharma stock has taken shareholders on a wild ride in June. The good news is Axovant Sciences ended March with $154 million in cash (and that doesn't include the recent $25 million injection). The bad news is that the money will be used quickly to push its new gene therapy candidate through the first phase 1/2 clinical trial. If it doesn't deliver results that support further development, then the company will be back to where it was a few months ago: in a state of desperation.

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.