What happened

Shares of biotech company Mesoblast Limited (NASDAQ:MESO) tanked on Friday after the company released discouraging news regarding the clinical trials of its COVID-19 treatment. As of 3:30 p.m. EST, the stock was down a painful 33% for the day. And it's now tumbled a whopping 54% from 52-week highs reached back in August.

So what

Remestemcel-L is Mesoblast's solution to severe acute respiratory distress syndrome (ARDS), a potentially deadly outcome from the coronavirus. Mesoblast had previously partnered with Novartis to bring remestemcel-L to market. However, in today's announcement, the Data Safety Monitoring Board said, while there aren't any safety concerns with the therapy, it's not on pace to hit its primary endpoint (the desired success rate). While Mesoblast and Novartis can complete the trial with the 223 patients already enrolled to collect more data, it won't expand trials to 300 as originally planned.

A frustrated man lays his head on a table with a down,red stock chart in the background.

Image source: Getty Images.

This is the second time this week a Mesoblast trial failed to reach its primary endpoint, causing the stock to fall 20% on Tuesday. Revascor (rexlemestrocel-L), another cell therapy developed by Mesoblast, also failed late-stage clinical trials.

Now what

This is the risk investors take on with biotech stocks like Mesoblast. The company has more than doubled revenue in 2020, which is encouraging. But at just $31.5 million in revenue so far in 2020, it would certainly benefit from having more success in phase three trials. To that end, it still has another late-stage option designed to treat localized inflammatory diseases. And just having one successful late-stage trial could mean all the difference for Mesoblast.

If you still believe in Mesoblast's cell-therapy technology, there's nothing wrong with investing even though it's a risky stock. That said, it's important for investors to have a portfolio of stocks that includes some far safer alternatives.

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.