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Here's Why Adverum Biotechnologies Dropped as Much as 42.4% Today

By Maxx Chatsko – Nov 2, 2018 at 2:12PM

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The gene therapy developer has dropped its most advanced clinical trial.

What happened

Shares of Adverum Biotechnologies (ADVM -4.46%) fell over 42% today after the company announced that its lead drug candidate failed to demonstrate a clinical benefit in the earliest stages of a phase 1/2 trial. ADVM-043 was being studied as a potential treatment for alpha-1-antitrypsin (A1AT) deficiency, a rare disease in which the body doesn't produce enough of a key protein that protects the lungs and liver. Preliminary data show continuing development of the gene therapy would have been fruitless. 

Considering the early-stage company's next-most advanced drug candidate has yet to enter the clinic, Wall Street isn't taking the news very well. Further adding to the uncertainty over the company's future, Adverum Biotechnologies announced it will provide an update on its rare-disease programs in the first half of 2019. Will the new management team abandon that focus altogether?

As of 2:48 p.m. EDT, the stock had settled to a 29.3% loss.

A biotech researcher in the lab with a disappointed look on his face.

Image source: Getty Images.

So what

There might be some silver linings here for investors. First, Adverum Biotechnologies may be able to take what it has learned from the failure of ADVM-043 to develop stronger drug candidates in the future. There is another program for A1AT deficiency in preclinical study right now, after all.

Second, the business ended June 2018 with approximately $230 million in cash, cash equivalents, and short-term investments. That's a sizable amount of capital to deploy in any direction.

Third, Adverum Biotechnologies remains on track to initiate a phase 1 trial before the end of 2018 in an eye disease known as wet age-related macular degeneration (AMD). That could provide momentum heading into 2019.

Now what

Despite the silver linings, investors should acknowledge that Adverum Biotechnologies is an early-stage biopharma operating in a notoriously difficult and largely unproven space. Gene therapy may deliver on its promise one day, but the company's pipeline is still in the earliest stages of development. That means it will require a lot of time and a lot of money to determine whether the pipeline will yield even a single success. Investors are better off sitting on the sidelines until more information becomes available about the new direction.

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.

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