What happened

Sarepta Therapeutics (SRPT -1.27%), a midcap biotech specializing in the development of treatments for rare diseases, saw its shares plunge by a whopping 12.6% on Thursday before trading was halted at approximately 12:30 p.m. Trading resumed just before the close, and shares finished down just over 6.5%. 

Sarepta's shares hit the skids after the company's experimental gene therapy for Duchenne muscular dystrophy (DMD), which is known as SRP-9001, unexpectedly popped up on the Food and Drug Administration's adverse-event reporting system. A 7-year-old boy being treated with the therapy reportedly developed a condition known as rhabdomyolysis, which can lead to kidney failure. 

A man looks at a computer screen while clutching his head in apparent surprise.

Image source: Getty Images.

So what

While a single adverse event probably won't turn out to be a showstopper for a therapy designed to treat a life-threatening disease like DMD, the company did decide to withhold this 6-month-old safety event from investors during a program update earlier this year. The big deal is that Sarepta's experimental DMD gene therapy seemed to have a significant safety advantage over a similar product candidate from Pfizer. Now, there's the risk that this presumed safety advantage will ultimately turn out to be nothing more than a mirage. 

Now what

To be clear, the FDA's adverse-event reporting system doesn't delve into cause and effect -- not to mention that this particular safety event never should have popped up on a post-marketing system designed for approved therapies. In short, Sarepta's experimental gene therapy may not be the underlying cause of this worrisome safety event. More details are needed to draw any firm conclusions. 

All that being said, management arguably should have prepped investors for this news. Biotech stocks, after all, often wildly overreact to unexpected trial results, especially when they don't come directly from the company in a timely fashion.