What happened

Shares of the clinical-stage biotech Corbus Pharmaceuticals Holdings (NASDAQ:CRBP) fell by as much as 77% in pre-market trading Tuesday morning. The drugmaker's shares are tanking this morning in response to a negative late-stage readout for lenabasum in patients with a rare autoimmune disorder known as diffuse cutaneous systemic sclerosis (SSc).

Lenabasum, an oral synthetic endocannabinoid-mimetic that selectively binds to the cannabinoid receptor type 2, reportedly failed to outperform placebo on the trial's primary and secondary endpoints. The drug's other ongoing trials for dermatomyositis, systemic lupus erythematosus, and cystic fibrosis are unaffected by this late-stage miss, according to the company's press release.

A man getting punched in the face.

Image source: Getty Images.

So what

Lenabasum stood to become the first ever FDA-approved treatment for SSc. Corbus, in turn, would have more than likely had a blockbuster drug on its hands if the drug had passed this critical test. So, given the potential financial impact of this late-stage clinical failure on Corbus' future revenue, it's easy to see why shareholders are heading for the exits today.  

Now what

Should bargain hunters pounce on this biotech stock today? Lenabasum may ultimately redeem itself in another high-value indication. Corbus, after all, isn't that far off from releasing the drug's top-line results in cystic fibrosis. That's the good news. 

The bad news is that there's no reliable way to handicap the outcome of any clinical trial. So, unless you have an exceedingly high tolerance for risk and volatility, it's probably best to stick to the sidelines with this name for now. 

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.