Why NewLink Genetics Corporation Shares Crashed

By Markets Fool.com

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

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What: Shares in NewLink Genetics Corporation collapsed by more than 25% earlier today after the company reported disappointing trial news for its pancreatic cancer drug, algenpantucel-L.

So What: NewLink Genetics Corporation is a clinical-stage biotech company that is working on novel therapies for important diseases, including cancer.

Yesterday, the company reported that independent monitors decided to continue a key phase 3 trial of algenpantucel-L in pancreatic cancer, rather than stop it early. The decision came at the second interim analysis point in the trial and could suggest that investor optimism over algenpantucel-L had gotten too high.

Algenpantucel-L is being evaluated in a 722 patient study of people who have had surgically removed pancreatic cancer, and the primary endpoint is for a benefit to overall survival. If the drug succeeds, then it would become the first and only approved drug for the treatment of resected pancreatic cancer.

Now What: The decision by independent monitors to continue the algenpantucel-L trial doesn't indicate that this drug will fall short of its primary endpoint. Instead, it suggests that more information is required before the monitors can determine its efficacy.

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Regardless, the continuation of the trial is disappointing to investors who were hoping for a quicker approval and potential profitability. On May 5, NewLink Genetics Corporation announced in its first quarter earnings release that it had accelerated spending on hiring and pre-commercial activities related to the drug, which could have sparked investor optimism for an early end to the trial.

Although shares are falling dramatically and algenpantucel-L could still put up positive trial results, I'm unwilling to step in and buy this slide. Admittedly, NewLink Genetics Corporation is an intriguing company, but with a billion dollar market cap and questions that still need answering, this stock is best suited for only the most risk-tolerant of investors.

The article Why NewLink Genetics Corporation Shares Crashed originally appeared on Fool.com.

Todd Campbell has no position in any stocks mentioned. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may or may not 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.