Serious adverse events -- strong reactions to a drug that lead to dire complications or death -- can stop a clinical trial in its tracks. In the case of a new technology, that one event can cause major problems for all the companies using the drug technology.

It can also spell trouble for investors who backed the unproven sector in hopes it would become a huge success.

Last week, a small developmental-stage biotech company, Targeted Genetics (NASDAQ:TGEN), announced that the FDA had stopped its phase 1/2 arthritis clinical trial, because one of its subjects had died. It isn't clear at this point if the gene therapy product known as tgAAC94 caused the death, although the subject did become ill soon after the injection.

Gene therapy involves the introduction of DNA into cells, which is eventually made into proteins by the patients' cells. The distinct advantage of gene therapy over just giving the patients the protein as a drug is that cells generally don't take up proteins in the blood stream very well. The exceptions to this are protein drugs like Genentech's (NYSE:DNA) growth factor products or Amgen's (NASDAQ:AMGN) Epogen, which interact with proteins on the outside of cells and therefore don't need to enter the cell.

In the case of tgAAC94, the DNA is delivered by an adeno-associated virus (AAV). The virus is able to inject the DNA into the cells by infection, except that these viruses can't replicate. Once the DNA is inside the cell, it produces a compound that inhibits inflammation.

The death could lead to another setback in a long line of blows to gene therapy, including the death of a teenager in 1999. Other companies who have gene therapies in clinical trials, such as Introgen Therapeutics (NASDAQ:INGN) Cell Genesys (NASDAQ:CEGE), and Genzyme (NASDAQ:GENZ) will be keeping a sharp eye on the outcome of the case. It's possible that the death will be due to the specific gene in the tgAAC94 virus, or the death might be unrelated to the clinical trial, in which case other companies would be off the hook. However, if the AAV itself is responsible for the death, the FDA may take a closer look at all trials using viruses for delivery.

There's a certain inherent risk involved with investing in unproven technologies, a category into which gene therapy certainly falls. Investors need to do their homework and realize that it's often an all-or-nothing proposition -- either the technology works and the stock skyrockets or it fails and the investor loses everything. The development of gene therapy has been going on for more than a decade now, so it's unfortunately looking like it's going to fall in the latter category.

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Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. The Fool's disclosure policy is rock-solid.