What happened

Shares of the orphan drug specialist Retrophin (TVTX -1.53%) are down by 25.3% as of 12:44 p.m. EDT today. The culprit?

Retrophin's shares are sinking on the news that the pantothenate kinase-associated neurodegeneration (PKAN) drug candidate, fosmetpantotenate, failed to meet its primary and secondary endpoints in a pivotal trial. PKAN is an ultra-rare nervous system disorder that results in a range of movement abnormalities. 

Chalkboard chart showing a negative trend line

Image Source: Getty Images.

So what

Although fosmetpantotenate was reportedly well tolerated in the study, these disappointing efficacy results probably spell the end of the drug's clinical program. That's an unfortunate outcome for Retrophin's shareholders, as this orphan drug candidate had the potential to rake in a few hundred million in annual sales at peak. As such, it's easy to see why the biotech's shares are tanking today in the wake of this clinical setback. 

Now what

The market's reaction to this disappointing clinical update, though, might be a tad overdone. The long and short of it is that fosmetpantotenate was always considered a risky asset by industry insiders. In fact, Wall Street believes that Retrophin's long-term value proposition truly centers around the company's other late-stage candidate, sparsentan. 

Sparsentan is presently being evaluated as a treatment for two rare kidney ailments known as focal segmental glomerulosclerosis and immunoglobulin A nephropathy, respectively. Taken together, these two indications could push the drug's sales into blockbuster territory (greater than $1 billion in annual sales). Risk-tolerant investors, therefore, might want to consider taking advantage of today's dramatic sell-off.