Here's Why Trevena Dropped 11.8% Today

By Maxx Chatsko Markets Fool.com

What happened

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Shares of clinical-stage biopharma Trevena (NASDAQ: TRVN) fell nearly 12% today after it reported full-year 2016 earnings. The pre-revenue company didn't announce any surprises one way or the other. However, investors appear to be considering the near-term consequences of swelling expenses that won't be offset by product sales anytime soon.

So what

On paper, Trevena had a pretty good year of progress. Its lead drug candidate, oliceridine, won Breakthrough Therapy Designation from the U.S. Food and Drug Administration due to its potential to provide similar pain reduction to morphine while avoiding some of its troubling side effects. That was followed by the successful completion of two phase 3 trials, which will allow the company to submit a New Drug Application by the end of 2017 for treating moderate to severe acute pain after the removal of bunions (bunionectomy) or a "tummy tuck" operation (abdominoplasty). The drug will go by the brand name OLINVO.

Image source: Getty Images.

The drug shouldn't have any problems gaining approval, but investors were recently stung by its failure to meet key secondary endpoints. As a result, OLINVO will not be able to make certain claims on its label and may struggle to be adopted over morphine in post-surgery settings. That could have devastating consequences for the drug's market potential.

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Full-year 2016 earnings appear to have reminded investors of that uncomfortable possibility. After all, conducting clinical trials is an expensive endeavor. Trevena's research and development expense more than doubled to $89.9 million in 2016 compared to the prior-year period, while its selling, general, and administrative expenses grew 26% to $16.1 million in the same comparison. Full-year 2016 net loss more than doubled to $102 million. Lower future revenue potential certainly doesn't make the large loss any more palatable.

Now what

The good news is that the company has a healthy amount of cash and is beginning new clinical trials in promising new indications, which could provide future catalysts for investors. The bad news is that growing operating losses have more significant consequences now that expectations for OLINVO have been lowered. Trevena was already a risky stock because the company has no major sources of revenue, and the added uncertainty of its lead drug's market potential isn't making 2017 a fun year for investors so far.

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Maxx Chatsko has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.