What happened?

Neoleukin Therapeutics (NLTX), a clinical-stage biopharmaceutical company, is not ending the week on a positive note. Shares of the drugmaker are dropping sharply on Friday and are down by 10.9% as of 12:33 p.m. EST, after plunging by as much as 21.7% earlier today. The catalyst for these losses is the company's announcement that it has received a Clinical Hold Letter from the U.S. Food and Drug Administration (FDA) for its Investigational New Drug (IND) application for one of its pipeline candidates, NL-201.

So what

Before starting human clinical trials for their experimental medicines, drugmakers must submit an IND application and receive the FDA's green light. This process is costly, time-consuming, and rigorous, and it is something a company would rather do only once for a drug. If the IND application is not approved, the company will have to delay its clinical trials, which leads to additional costs. That is precisely what is happening to Neoleukin Therapeutics. 

Man holding letter blocks that spell "FDA."

Image source: Getty Images.

The company received news from the FDA on Thursday that several things are amiss with its IND application for NL-201, a potential cancer treatment. As a result, the health industry regulator is not allowing the company to move forward with its clinical trials for NL-201 yet. Neoleukin Therapeutics' CEO Jonathan Drachman vowed that the company would respond to the FDA's concerns "within the next several months." However, there is no timeline or official date for when Neoleukin Therapeutics will be allowed to move forward with the process.

Now what 

It is never a good thing for investors when a drugmaker runs into regulatory setbacks, but it is even more devastating for a company like Neoleukin Therapeutics, which has no products anywhere close to hitting the market. Neoleukin Therapeutics does have an interesting scientific platform. Still, lots of patience and risk tolerance are required of anyone interested in adding shares of this healthcare stock to their portfolios.