What: 2015 was a rough year to be a shareholders of TetraPhase Pharmaceuticals (NASDAQ:TTPH). All was going well until September, when the company released disappointing clinical news related to its lead compound, causing shares to plunge. The stock ended up losing 74% of its value during the year, according to data from S&P Capital IQ.
So what: Results from the company's Phase 3 IGNITE2 clinical trial that did the company in. The trial was testing the company's next-generation antibiotic, called eravacycline, and its ability to treat complicated urinary tract infections. Although the drug performed well in earlier trials, it was unable to show statistically significant non-inferiority when compared with levofloxacin, a currently available generic antibiotic.
Given that so much of this clinical-stage biopharma's value was tied to the future of eravacycline, the news sent shareholders heading for the exits en masse.
Now what: Sometimes bad things happen to even the most promising of clinical-stage biopharma companies. Just ask shareholders of Chimerix (NASDAQ:CMRX), another company that had a dreadful year. Chimerix announced that its lead compound, called brincidofovir, missed its primary endpoint in a pivotal phase 3 study, causing shares to plunge 80% in a single day.
Stocks such as Tetraphase Pharmaceuticals and Chimerix should act as a reminder to all small-cap biopharmaceutical investors they are taking huge risks when they put money to work in these names, and that sometimes things can go very badly. It's for that reason that I continue to believe that if you choose to play in this arena, you diversify your holdings so that each company only represents a tiny amount of your total portfolio. That way you can live to play another day if something goes horribly wrong.
Brian Feroldi has no position in any stocks 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.