Here's Why AVEO Pharmaceuticals Inc. Jumped 40% Higher in August

What happened

Shares of AVEO Pharmaceuticals (NASDAQ: AVEO) jumped 40% in August, according to data provided by S&P Global Market Intelligence as investors jump in ahead of data from its phase 3 Tivo-3 clinical trial, which is expected in the fourth quarter.

So what

The Tivo-3 study is testing AVEO's tivozanib compared to Bayer's Nexavar as a third-line treatment for advanced renal cell carcinoma, a type of kidney cancer. The trial will be analyzed after the occurrence of 255 progression-free survival (PFS) events -- defined as the patient's tumor starting to grow or the patient dying.Shares fell in July after the company announced that the clinical trial results would be delayed, but the reason turned out to basically be a clerical error. At this point, the stock has regained all the ground it's lost, which seems about right.

AVEO has said that it plans to announce when the 255th event occurs and data will be released six to eight weeks after that since it takes some time to get all the data processed.

Now what

Even at this higher price, the market cap is under $500 million and investors can likely still profit from buying AVEO if the Tivo-3 results show tivozanib can increase PFS compared to Nexavar.

But an investment in AVEO is quite risky. With just $18.1 million in the bank at the end of the second quarter and the company having raised just $5.7 million last month, the Tivo-3 results are likely to be as binary as they come. If the clinical trial fails, it will be very hard for AVEO to recover.

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Brian Orelli and The Motley Fool have no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.