Snapback Rally Sends Axovant Sciences 10% Higher Today

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What happened

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One day after shares collapsed 70% in the wake of a disappointing trial failure in Alzheimer's disease, Axovant Sciences (NASDAQ: AXON) is bouncing back by 10% at 3:45 pm EDT today.

So what

Axovant Sciences' long-shot bet that it could profit from resurrecting the Alzheimer's-disease drug intepirdine has failed to pay out.

The company acquired intepirdine from GlaxoSmithKline's discard bin for $5 million, milestones, and potential royalties in 2015. Shortly thereafter, it launched a pivotal study of the drug in patients with mild to moderate Alzheimer's disease.

On Tuesday, management reported that despite carefully planning intepirdine's phase 3 trial for success, the drug failed to outperform placebo on two key Alzheimer's-disease rating scales.

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The disappointing news sent Axovant Sciences' shares reeling, but bargain hunters bid up shares today on the hope that two other ongoing studies might pan out better. The first is a phase 2b study evaluating intepirdine in patients who have dementia with Lewy bodies (DLB). A second phase 2 study in the same indication is evaluating a different drug, nelotanserin.

Now what

Dementia with Lewy bodies is the second most common cause of dementia in elderly Americans, and currently, there aren't any treatments for it approved by the U.S. Food and Drug Administration. The miss in Alzheimer's disease casts significant doubt on intepirdine's ability to help DLB patients, but there's always a chance that this study is a success. Results are anticipated prior to the end of this year.

Although it may be tempting to buy shares in Axovant Sciences following its big drop, the stock has become incredibly risky ahead of the DLB data. Also, despite the drop, the company's market cap is still more than twice the company's cash on its books, suggesting shares could still fall significantly still if the DLB trials disappoint. For this reason, most investors ought to focus on other less-risky stocks to buy.

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Todd Campbell has no position in any of the stocks mentioned. His clients may have positions in the companies mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.