What happened
Shares of Zynerba Pharmaceuticals (ZYNE +0.00%) were crashing 18.3% lower as of 10:48 a.m. EDT on Wednesday after falling as much as 26.5% earlier in the morning. The big plunge came after Zynerba announced results from a phase 2 clinical study evaluating cannabinoid gel Zygel in treating children and adolescents with developmental and epileptic encephalopathy (DEE), a group of epilepsy syndromes linked with severe cognitive impairment and behavioral disturbances.
So what
CEO Armando Anido said that the company is "encouraged by the positive top-line results" of the Believe 1 phase 2 study of Zygel in DEE. How could the results be "positive" and Zynerba's shares fall so hard? It boils down to which part of the results receive the most attention.
Image source: Getty Images.
By the second month of treatment, patients in the Believe 1 study taking Zygel achieved a 44% median seizure reduction in focal impaired awareness and convulsive seizures. At least 42% of these patients experienced an improvement of 50% or more through the sixth month of treatment with Zygel.
Zynerba stated that Zygel "was well tolerated, and the safety profile was consistent with previously released data from Zygel clinical trials." But that statement doesn't sound as encouraging when you consider the detailed safety findings from the study.
Through six months of receiving treatment with Zygel, 96% of patients in the study experienced a treatment-emergent adverse event; 60% of patients experienced a treatment-related adverse event. Although Zynerba said that most of these adverse events were mild to moderate, 10 of the 46 patients reported serious adverse events. Many investors appeared to focus more heavily on the negative aspects of the safety profile for Zygel rather than the positive efficacy results.
Now what
It's quite possible that today's sell-off was overdone. Zynerba could bounce back some over the next few weeks. The company plans to complete its analysis of the data from the Believe 1 study and meet with the Food and Drug Administration sometime in the first half of 2020 to discuss a potential pathway to approval.
But investing in biotech stocks comes with plenty of risks. That's especially the case for biotechs like Zynerba that don't have a product on the market yet. Most investors will want to watch its progress with Zygel from the sidelines.
