Here's Why Ampio Pharmaceuticals Sank as Much as 13.5% Today

What happened

Shares of Ampio Pharmaceuticals (NYSEMKT: AMPE) dropped over 13% today after Adam Feuerstein of STAT explained why investors should think twice about owning the tiny biopharma company. He's not too impressed with the latest batch of clinical data for the lead drug candidate, Ampion, in treating severe osteoarthritis of the knee, which has yet to show significant improvement compared to a control.

Feuerstein's take brings an important counterargument to the unapologetically bullish view Mr. Market seems to be taking with Ampio Pharmaceuticals stock, which rose 352% in 2017 -- most of that piled on in December alone. As of 3:09 p.m. EST Wednesday, the stock had settled to a 13.5% loss and $200 million market cap.

So what

The stock has exploded since seemingly favorable results from a phase 3 trial were announced in mid-December showing that Ampion met both primary and secondary endpoints in treating severe osteoarthritis of the knee. However, Feuerstein digs deeper than the surface-level review to point out a significant flaw: Ampio Pharmaceuticals didn't compare its drug candidate to a neutral control (saline solution), but used a rating scale to compare patients taking the drug to their past responses. That probably won't be good enough to garner Food and Drug Administration approval.

While the company didn't disclose any results for the patient responses in the same settings using saline solution, it has done that in multiple past clinical trials evaluating Ampion -- three of four of which failed to show statistically significant improvement compared to the control.

Now what

It appears Mr. Market had the stock fairly valued for most of last year. That is, trading well below $1 per share as a warning for investors not to take it too seriously. Feuerstein's voice of reason reminds investors that Ampion faces an uphill battle with regard to gaining FDA approval. And with little else to brag about in the pipeline, investors should leave this one alone.

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