Getting new drugs to market can be a tough business. Acceleron Pharma (NASDAQ:XLRN) is learning this the hard way, scrapping plans to continue development for its experimental drug, ACE-083, in treating patients who have facioscapulohumeral muscular dystrophy (FSHD). 

The drug showed initial promise for FSHD patients after it proved to increase muscle strength in patients who have disorders that impair muscle strength. Just over a year ago, in May 2018, the company was given fast-track status by the FDA to expedite development and bring the drug to FSHD patients, who currently don't have any available drug therapies to inhibit muscle impairment. 

However, earlier this month, Acceleron announced that in phase 2 trials, ACE-083 did not "achieve functional secondary endpoints." In other words, while it increases muscle volume, it's not actually helping FSHD patients by improving muscle function. This was, of course, a huge blow to the small company, which has invested a lot of time and energy into the product and has only a few candidates in its pipeline.

Woman wearing gloves and facemask holding up a pill with chemical symbols surrounding it.

Image Source: Getty Images

Another path to market 

Acceleron still has high hopes for ACE-083 in treating patients with Charcot-Marie-Tooth disease (CMT), a neurological disorder that causes muscle loss. It's moving forward with phase 2 clinical trials for this population.

CMT is the most common inherited neurological disorder and affects one in 2,500 people, or about 100,000 Americans. It's a progressive disease causing muscular atrophy in the legs, eventually moving to upper extremities. There are currently no treatment options, and it is generally managed with physical and occupational therapies and leg braces. 

Considering ACE-083's success in improving muscle strength, it may also benefit people who have other neuromuscular diseases, but the company has not started trials for other potential uses.

Other products in the pipeline

Acceleron is focused on developing treatments for serious and rare diseases that affect thousands of Americans. Other than ACE-083, the company has two other products in clinical trials and another one in development.

In 2011, Acceleron partnered with Celgene (NASDAQ:CELG), one of the largest pharma companies, to develop luspatercept, which is now the two biotechs' lead product candidate. Luspatercept is aimed at hematology patients and may be a game-changer in treating blood diseases. EvaluatePharma put luspatercept on its list of five biggest potential FDA approvals for 2019, and it expects the drug to generate annual sales of over $1 billion by 2024.

Earlier in September, Acceleron's hypertension drug, sotatercept, was given orphan drug status by the FDA. This designation, granted to medications that are in development for serious diseases that affect less than 200,000 people, provides funding, tax exemptions, and market exclusivity for companies that produce these treatments. 

Evaluating growth potential for small pharma

Investing in small pharmaceutical stocks always involves risk, because the companies usually have to spend millions of dollars in R&D on a small product line, and any product could fail at the clinical stage. They also need to go through years of clinical trials to evaluate their products and get them approved by the FDA before they can begin to make any sort of profit. 

How can investors assess Acceleron's viability, especially in light of its recent setback with ACE-083? Keep in mind the following:

  • ACE-083 isn't dead in the water. It has clear benefits, and it's already in tests for another condition. 
  • With two products in the pipeline, luspatercept and sotatercept, that both have the potential to earn billions of dollars in sales over the long run, the future still looks pretty bright.
  • As of its second-quarter report, Acceleron has over $500 million in cash and short term investments, almost double the numbers from 2018. This keeps the company moving steadily toward its goal of turning out a profitable finished product without having to worry about closing up shop midway because it ran out of funds. 

Specifically, nothing has changed for luspatercept, which is the primary reason for investors to like Acceleron's prospects. Failures such as the disappointment with ACE-083 in FSHD are bound to happen on occasion in the biopharmaceuticals industry, but Acceleron should still be able to achieve tremendous success.

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.