What happened

It's been a tough month for Aduro Biotech (ADRO). On Oct. 1, Johnson & Johnson (JNJ 0.66%) walked away from its global license to develop Aduro's ADU-214, ADU-741, and GVAX Prostate for all indications. And over the weekend, Merck & Co. (MRK 0.81%) reported less-than-exciting preliminary data on a drug that works similarly to ADU-S100, a drug Aduro has in phase 1 trials. Following Merck's announcement, Aduro lost 29.5% of its value today.

So what

The decision by Johnson & Johnson removes the chance for Aduro Biotech to benefit from milestones associated with developing its drugs for lung cancer and prostate cancer. According to their licensing agreement, J&J would have paid Aduro up to $817 million in lung cancer related milestones on ADU-214 and $365 million in prostate cancer milestones for ADU-741. It could have also received $2 million in milestones related to GVAX Prostate.

A man in a shirt and tie holding his head in his hands while sitting in front of a wall showing a declining share price chart.

Image source: Getty Images.

J&J's decision increases the pressure on Aduro for its other programs to pan out, including ADU-S100, an activator of the intracellular stimulator of interferon genes (STING) receptor that's licensed to Novartis (NVS -0.49%). ADU-S100 is in phase 1 trials for use as monotherapy or in combination with PD-1 checkpoint therapies in patients with cutaneously accessible metastatic solid tumors or lymphomas.

Today, Merck updated investors on its own STING agonist, MK-1454. Unfortunately, there was a 0% response rate for MK-1454 as monotherapy in patients with solid tumors or lymphomas.

Now what

Aduro has submitted abstracts on its STING agonist for presentation next month at the Society for Immunotherapy of Cancer (SITC) conference, including one relating to the use of ADU-S100 as monotherapy. Based on Merck's results, investors are clearly not expecting Aduro to present much in the way of good news.

However, Aduro is also presenting information regarding ADU-S100's use alongside Novartis' checkpoint therapy, and there's still a chance that data will be OK. While Merck's drug had a 0% response rate as monotherapy, 25% of patients did have a partial response to it when it was combined with Merck's PD-1 drug, Keytruda.

Regardless, until Aduro Biotech delivers a win, the risks associated with owning it appear too high. Most investors would likely be better served concentrating on other ideas for now.