Here's Why Kala Pharmaceuticals Got Crushed on Friday

MarketsMotley Fool

What happened

Shares of eye product specialist Kala Pharmaceuticals (NASDAQ: KALA) dropped over 32% on Friday after the company announced top-line data from two phase 3 studies evaluating its lead drug candidate, KPI-121, as a potential treatment for acute dry eye disease.

Continue Reading Below

While the trials met three of the four primary and secondary endpoints, they failed to show a statistically significant benefit in comfort for most patients, although those with severe cases did report a statistically significant reduction in discomfort.

As of 3:52 p.m. EST Friday, the stock had settled to a 29.1% loss.

So what

Wall Street had high hopes for KPI-121 becoming the sole treatment for acute cases of dry eye disease, which results in flare-ups that occur in random intervals, rather than sustained periods of time. That potential outcome looks less likely now, although it's possible Kala Pharmaceuticals could receive approval for treatment of severe cases of the disease based on results from the late-stage trials.

At least one analyst sees reasons for optimism beyond that. Wedbush analyst Liana Moussatos told Reuters the drug could still gain widespread approval, but that the U.S. Food and Drug Administration might require an additional study before the company can gain use of a broader label. She thinks peak sales could hit $1.9 billion by 2027.

Most of Wall Street clearly disagrees, or at least isn't sticking around to find out.

Now what

Running another trial may be the best-case scenario for Kala Pharmaceuticals. The good news is it ended 2017 with $114 million in cash, meaning share dilution isn't a near-term risk and it could likely handle the financial aspect of a clinical redo. The bad news is investors would have to wait quite some time to receive those results, and they aren't guaranteed to be any better.

10 stocks we like better than Kala Pharmaceuticals, Inc.When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Kala Pharmaceuticals, Inc. wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of January 2, 2018

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.