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This horrific one-day chart sums up why biotech investing requires nerves of steel
(Google Finance)
Shares of Aerie Pharmaceuticals erased more than two-thirds of their value in a few minutes late on Thursday.
The stock closed nearly 2% higher at $35.39 per share, giving the company a market value of $850 million. Then shortly after the end of trading, the company announced that Rhopressa, an experimental eye drop, failed a late-stage test.
In after-hours trading, shares crashed by more than 70%, and were more than 60% lower in pre-market trading.
Aerie has a market cap of $851 million.
In its statement, the company said Rhopressa was designed to treat patients with high eye pressure and glaucoma, a condition that could eventually cause blindness. But in the tests, it didn't reduce eye pressure as much as Timolol, a more widely used prescription drug.
CEO Vicente Anido wrote: ”We are obviously disappointed that we missed the primary endpoint for Rocket 1. We expected Rhopressa to demonstrate better performance based on the results we saw in the previous Phase 2b studies.”
Biotech is not for everyone
This news, quickly followed by the stock's nosedive, is precisely why the biotech industry is an entirely different beast compared to others in the stock market.
News about one failed test on one drug, sometimes the only product a company is selling, can make a company completely worthless.
But the opposite is also very much possible, and is why biotechs are among the best-performing stocks in the market.
For instance, Biogen surged by more than 9% to a lifetime high March 20 after the company announced results of a preliminary test for an Alzheimer's disease treatment.
Biotechs are up 16% year-to-date, and 49% over the past 12 months; the S&P 500 is up 2.6% and 13.3% respectively.
Even Aerie has performed well; based on Thursday's closing price, it's rallied nearly 137% over the last 12 months.
So, investing in biotechs is incredibly speculative, and like gambling, it can end extremely well, or wipe out nearly all of your investment in one day.
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