What happened

Shares of Savara Pharmaceuticals (NASDAQ:SVRA) fell nearly 76% on Thursday after the company reported that molgradex failed to meet the primary endpoint in a phase 3 study. The pipeline's lead drug candidate was being evaluated as a treatment for autoimmune pulmonary alveolar proteinosis (aPAP), a rare disease in which proteins and fats build up in the alveoli of the lungs, resulting in poor oxygen transfer to the blood and difficulty breathing. 

Molgradex didn't meet the study's primary endpoint of improving oxygen gradients in patients, but did meet a key secondary endpoint in improving scores on the St. George's Respiratory Questionnaire, which measures quality of life. Savara Pharmaceuticals intends to meet with the U.S. Food and Drug Administration (FDA) to determine the next steps for the experimental treatment that earned Fast Track designation only a month prior, but Wall Street isn't waiting around.

As of 11:24 a.m. EDT, the stock had settled to a 75.4% loss.

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

Image source: Getty Images.

So what

Molgradex is an inhaled formulation of recombinant human granulocyte-macrophage colony-stimulating factor (GM-CSF), which plays a role in clearing the protein and fat mixtures that clog up alveoli in aPAP. Individuals with the autoimmune disease produce immune cells that block the production of GM-CSF. However, the phase 3 data suggest replacing GM-CSF through an inhaler might not be a viable stand-alone treatment option.

The late-stage failure of molgradex is having such a devastating effect on shares of Savara Pharmaceuticals because the data doesn't appear to support the hypothesis that the drug could effectively treat aPAP symptoms.

Now what

Savara Pharmaceuticals once thought its two lead drug candidates had the potential to generate combined peak annual sales of $1 billion. That possibility now appears to be off the table following the poor showing for molgradex in aPAP. It's too soon to say whether the drug candidate can be salvaged, but with the company's market cap now roughly in line with its cash position at the end of March -- approximately $105 million -- Wall Street doesn't seem interested in waiting to find out.