What happened

Shares of the clinical-stage biotech Atea Pharmaceuticals (AVIR 5.12%) closed the week down by a whopping 68.6%, according to data from S&P Global Market Intelligence. The biotech's stock plummeted last Tuesday after announcing that its oral antiviral pill, known as AT-527, badly missed the mark in a phase 2 trial called MOONSONG for patients with mild or moderate cases of COVID-19. 

AT-527 is being co-developed with pharma heavyweight Roche (RHHBY -1.92%). Atea and Roche, per their press release, said the drug failed to reduce the amount of circulating SARS-CoV-2 virus in patients with mild or moderate cases compared to patients who received a placebo. The drug, however, reportedly did exhibit a clinical benefit in high-risk patients with underlying health conditions. 

A person with a shocked expression on their face while looking at a cellphone.

Image source: Getty Images.

So what

Atea and Roche had mega-blockbuster (greater than $5 billion in annual sales) aspirations for AT-527, as it's an easy-to-swallow treatment for mild to moderate COVID-19 cases. Although the drug was putatively set to compete against alternative therapies from pharma heavyweights such as Pfizer and Merck, the market may still have been large enough in early-to-mid 2022 to easily support all three oral COVID-19 therapies.

That investing thesis for Atea's stock, however, took a big blow following these unexpectedly poor phase 2 trial results. On the bright side, Atea and Roche did note that they are looking into redesigning the drug's ongoing phase 3 MORNINGSKY trial to include more high-risk patients. 

Now what

Is Atea's stock worth buying on this hefty downturn? This is a tricky question, to be sure. This phase 2 trial had some major problems from a design standpoint, such as the inclusion of vaccinated patients. Merck's pivotal trial for its oral COVID-19 treatment called molnupiravir, by contrast, did not include vaccinated patients. So, in short, investors probably shouldn't take this phase 2 miss too harshly. There is still a chance for late-stage success for AT-527 after all. However, this small-cap biotech stock is probably only suited for the most aggressive of investors at this point.