What: After word that a high-profile study fell short of its primary endpoint hit the tape yesterday, shares in Theravance (NASDAQ:THRX) crumbled by 21% today.
So what: Theravance is the company behind GlaxoSmithKline's (NYSE:GSK) Relvar/Breo Ellipta drug for the treatment of chronic obstructive pulmonary disease, or COPD.
Theravance and GlaxoSmithKline received FDA approval of Breo Ellipta last year for use in COPD patients, and EU regulators followed shortly thereafter, with an approval for use in its markets under the name Relvar.
In the second quarter, Theravance received $13.9 million in royalty payments from GlaxoSmithKline, the majority of which was tied to Relvar/Breo Ellipta sales.
Because Relvar/Breo Ellipta accounts for such a big percentage of Theravance's sales, news of this trial failure sent shares reeling.
Specifically, a phase 3 trial designed to evaluate Relvar/Breo Ellipta's ability to reduce the risk of cardiovascular death in COPD patients failed to demonstrate that Relvar/Breo Ellipta is statistically and significantly better than placebo.
It's uncertain how big of a negative impact this failed trial will have on prescribing activity and, thus, Theravance's financials, following this outcome, which is why investors moved to the sidelines.
Now what: Obviously, this isn't the outcome that Theravance or GlaxoSmithKline investors were hoping for. If the trial had panned out, it could have led to a significant bump in Relvar/Breo Ellipta scripts.
Although it's disappointing, Theravance and GlaxoSmithKline will report more comprehensive trial data at upcoming conferences, and that data may provide insight that could inform doctors and positively shape future prescription trends. Regardless, given the uncertainty of the impact of this setback, I'm unwilling to step in and buy shares on this sell-off.
Todd Campbell has no position in any stocks mentioned. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may have positions in the companies mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.