What happened

Shares of Aimmune Therapeutics (AIMT) closed down 11.2% on Monday after data from its phase 3 Palisade clinical trial testing its peanut allergy treatment, AR101, were published in the New England Journal of Medicine. AR101 works by increasing exposure to peanut protein, desensitizing the patients to the protein.

Aimmune Therapeutics characterized the trial as a "landmark" study. Investors clearly had a different opinion.

So what

The top-line results were disclosed back in February so shouldn't have been a surprise to investors. Treatment with AR101 allowed 67% of patients to tolerate peanut protein equivalent to a single dose of at least two peanuts. While kids with peanut allergies aren't going to start eating PB&J sandwiches, the treatment could be enough to protect patients in the event of accidental exposure.

Here's the bad news, and what investors likely reacted to: Fourteen percent of patients in the group taking AR101 had to use epinephrine to treat an adverse event, compared with 6.5% of the group receiving placebo. Fortunately, almost all of the adverse events were deemed mild or moderate, although 2.4% of the events in patients taking the drug were deemed serious, including one report of anaphylaxis.

The question will come down to whether patients and their parents will want to deal with the risk of mild reaction during the treatment for a chance at a reduction in reactions due to accidental exposure down the line.

Boy sticking his hand out refusing a bowl of peanuts.

Image source: Getty Images.

Now what

At a market cap of $1.5 billion, Aimmune Therapeutics doesn't have too much in the way of sales baked into its valuation. If the company can hit anywhere near its potential $1 billion market, investors will be substantially rewarded from here.

An approval seems likely, but estimating the market size is difficult because it's hard to know where families will draw the line for the risk-benefit analysis. Fortunately, investors won't have to wait too long to find out, as Aimmune Therapeutics is planning to submit its marketing application to the FDA next month, putting a potential approval in mid-to-late 2019.