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Why Adverum Biotechnologies Stock Sank in May

By George Budwell - Jun 7, 2021 at 10:00AM

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The uncertainty over the biotech's lead clinical asset weighed on its shares last month.

What happened

Shares of developmental gene therapy company Adverum Biotechnologies (ADVM -0.66%) sank by 11.3% during the month of May, according to data provided by S&P Global Market Intelligence. The biotech's poor showing last month is the result of two interrelated events:

  1. In late April, Adverum announced that its experimental gene therapy for diabetic macular edema (DME), known as ADVM-022, hit a serious snag in its ongoing midstage trial. Specifically, a patient in the trial reportedly developed hypotony (low intraocular pressure) and loss of vision in the treated eye, forcing the company to rethink its clinical program for ADVM-022.
  2. As a direct result of this unexpected clinical setback, Sonic Fund II, a major shareholder of the company, issued a scathing press release demanding the ability to appoint three new board members to oversee ADVM-022's clinical development. 
A close-up view of a strand of DNA.

Image source: Getty Images.

So what

This clinical setback could prove even more costly to Adverum and its shareholders down the road. In short, this experimental gene therapy was on track to become a game changer in a market currently valued at over $10 billion a year.

That's not to say that Adverum won't be able to find a path forward, but the company's core investing thesis is now in serious doubt. As such, the biotech's continued slide in May isn't altogether surprising. 

Now what

Is Adverum a bad-news buy? On one hand, this beaten-down biotech stock is now valued at almost $70 million less than its cash on hand at the end of the first quarter of 2021. That's normally bargain territory in the world of clinical-stage biotechs. 

On the flip side, the market's dire take may, in fact, be warranted. If Adverum can't get this closely watched gene therapy back on track soon, the company's braintrust may have to pivot to an earlier-stage asset -- an event that would undoubtedly set the biotech back years in terms of its march toward being a commercial-stage operation. 

All things considered, this small-cap biotech is probably best viewed as a potential watch list candidate for the time being. 

George Budwell has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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