What happened

Shares of Axovant Sciences (NASDAQ:AXGT) dropped over 29% today after the company announced that nelotanserin failed a phase 2 clinical trial investigating its potential to treat REM sleep disorder in patients with a certain type of dementia. It was the company's lone small-molecule drug candidate remaining after it went all-in developing gene therapies for psychological ailments in summer 2018. 

In that context, today's news isn't as much of a setback as the stock's plunge seems to indicate. The biopharma's future will be determined by the success or failure of its entirely new pipeline of early-stage assets, although with the most mature program in phase 1 development, it will take years to know whether the bold bet on gene therapies is going to pay off.

As of 12:46 p.m. EST, the stock had settled to a 25.7% loss.

A businessman holding out his hand with a declining stock chart hovering over it.

Image source: Getty Images.

So what

Axovant Sciences began the year at a market cap of nearly $600 million, but that plunged below $150 million in the months following the clinical failure of intepirdine. The small molecule drug failed a phase 2 trial, which prompted the company to discontinue its development. At the time, the business decided to continuing developing nelotanserin, but today's news closes the book on the biopharma's legacy pipeline.

Now investors can focus all of their hopes on the relatively diversified portfolio of gene therapy drug candidates. Four different therapies are being developed as potential treatment options for Parkinson's disease, oculopharyngeal muscular dystrophy (OPMD), amytrophic lateral sclerosis (ALS), and frontotemporal dementia (ALS). Axovant Sciences has only one drug candidate -- AXO-Lenti-PD for Parkinson's disease -- in clinical trials right now, while the others are still in preclinical or even earlier stages of development.

So although the business ended September 2018 with $90 million in cash, investors will be waiting quite some time before learning how things are going to shake out.

Now what

Investors have waned in and out of excitement over the company's new gene-therapy approach to neurological disorders. While it could prove lucrative, it's worth remembering that neurological diseases are notoriously difficult to treat and that gene therapies have a downright awful clinical track record. That's primarily because there isn't a full understanding of the underlying pathologies involved in neurological diseases and because scientists aren't entirely sure how to design gene therapies that work in a predictable manner. Therefore, it seems like a pretty big stretch to think Axovant Sciences will find success with its new pipeline. Investors should continue to stay away from the stock.

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.