What happened

For clinical-stage biotech companies, trial results are critical. On Monday, NGM Biopharmaceuticals (NGM -0.52%) reported very disappointing results from an investigative hepatitis drug and was summarily punished by investors, who drove the stock's price down by 41%.

So what

NGM's discouraging news concerned aldafermin, which was being evaluated for use in patients with biopsy-confirmed nonalcoholic steatohepatitis (NASH), a form of fatty liver disease. 171 individuals took part in the study.

In the trial, the drug did not meet its primary endpoint of significant fibrosis improvement, although it did achieve statistical significance against its placebo on a number of secondary endpoints. These included the reduction of liver fat content.

"The lack of significant fibrosis improvement was unexpected given the consistency of histology findings previously seen with aldafermin in our adaptive four-cohort Phase 2 study," NGM quoted its CEO David Woodhouse as saying, in reference to an earlier-stage trial of the drug.

Medical professional mixing liquids in a lab.

Image source: Getty Images.

Now what

While investors understandably soured on NGM stock Monday, some observers continue to be bullish on the biotech. One is BMO Capital analyst Matthew Luchini, who is maintaining his overperform (read: buy) recommendation despite nearly halving his price target to $20 per share.

Characterizing the latest aldafermin study as "clearly disappointing," the analyst sees much potential in the biotech's pipeline, which is robust and filled mainly by cancer drugs. "We also see aldafermin's failure as a potential clearing event, allowing investors that avoided NGM due to NASH to revisit the story," he wrote in a research note.