Is Axovant Sciences Stock a Bad-News Buy?

What happened

Shares of the clinical-stage biotech Axovant Sciences (NASDAQ: AXON) nosedived today following the late-stage failure of its experimental Alzheimer's disease drug intepirdine. Prior to the opening bell, Axovant reported that intepirdine failed to meet either of its primary co-endpoints in the study, with the drug performing about as well as placebo in terms of delaying the symptoms associated with this debilitating memory-wasting disease. As of 11:30 a.m. EDT, Axovant's shares are down a whopping 71.2% on over 30 times the average volume.

So what

Because nearly all Alzheimer's disease drugs have failed in the clinic (roughly 99% to date), this neurodegenerative disorder remains one of the most valuable therapeutic areas to this day. Even as a nondisease modifying treatment, for example, intepiridine was forecast to generate peak sales in excess of $2 billion, if approved.

A disease-modifying therapy such as Biogen's aducanumab, by contrast, has the potential to haul in some truly jaw-dropping sales on the order of perhaps $20 billion at peak -- illustrating why the pharmaceutical industry has stubbornly refused to quit developing Alzheimer's disease drugs -- despite their lack of any form of success in the past 14 years.

Now what

Axovant's stock was arguably grossly mispriced heading into this pivotal-stage readout. The chances for success, after all, were slim to none based on the clinical history of similar experimental-stage Alzheimer's disease drugs. So, if anything, Axovant is probably now fairly priced after this dramatic decline in its valuation, and in light of its remaining clinical assets. Put simply, there's no compelling reason to rush out and buy this bad-news biotech today -- even after this steep revaluation by the market.

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George Budwell has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Biogen. The Motley Fool has a disclosure policy.