What happened

Shares of Durect (DRRX 1.87%) were up 23% at 1:53 p.m. EDT on Tuesday. The gains followed the release of first-quarter results after the closing bell Monday and disappointing trial results for Genfit (GNFT -2.14%), a fellow biotech developing a potential competitor to Durect's nonalcoholic steatohepatitis (NASH) drug.

So what

It certainly wasn't Durect's financial report from the first quarter that has investors excited. The company only brought in $2.8 million in revenue and lost $9.9 million during the quarter.

Instead, investors are likely jumping on the pipeline update that the company is working with the Food and Drug Administration on plans for a phase 2 clinical trial testing its drug candidate DUR-928 as a potential treatment for COVID-19 patients with acute liver or kidney injury.

DUR-928 won't do anything to help fight off the coronavirus, but it could help with the organ damage caused by the viral infection. Durect noted that up to half of hospitalized COVID-19 patients have elevated liver enzymes, a sign of liver damage, and a third of hospitalized patients had kidney damage.

Doctor talking to a patient in an exam room

Image source: Getty Images.

Today's jump in the stock price may also be due to Genfit's phase 3 failure for elafibranor in patients with NASH. The drug performed better than placebo with 19% of patients achieving NASH resolution, compared with 15% of patients who were given placebo, but the difference wasn't statistically significant. Durect is also testing DUR-928 in NASH patients, with data expected in the middle of this year.

Now what

Investors should be careful ascribing too much value to Durect's recent news. There are no guarantees that DUR-928 will be able to help patients with COVID-19. And while it appears that Durect won't have to compete with Genfit for NASH patients, the failure (unfortunately so common in biotech) also exemplifies how hard it is to treat patients with NASH.