Is This High Risk/High Reward Biotech Stock a Buy?

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Biotech stocks pop and drop on the slightest whims and whispers, and that makes biotech one of the most challenging (and potentially rewarding) industries to invest in. This is particularly true of clinical-stage biotech companies, many of which are heavily reliant upon the success of one drug.

One such company is Inotek Pharmaceuticals , an emerging biotech company that has recently soared after reporting that it plans to move its lead (and only) product candidate into phase 3 trials for the treatment of glaucoma. If its drug succeeds in its late stage trial, then Inotek Pharmaceuticals could have a blockbuster on its hands. But if it fails, then its shares could collapse.

Improving therapyThere's little question that there's a significant need for new treatment options for glaucoma, a condition in which damage to the optic nerve eventually leads to vision loss.

People older than 60 are six times more likely to develop glaucoma than those who are younger, so the number of people suffering from it continues to climb as baby boomers get older. According to the Glaucoma Research Foundation, 3 million Americans suffer from glaucoma, and 120,000 people go blind every year because of it.

Because there's no cure for this condition, and lost vision tied to glaucoma can't be regained, early intervention in the form of treatment is critical to halting its progression. Currently, that treatment consists of medicine and surgery. Medicines used to treat glaucoma reduce the pressure in the eye that is the cause of vision loss by helping eye fluid drain, or by reducing the amount of fluid made by the eye.

Surgery is also performed to reduce intraocular eye pressure in patients when medicine falls short. In laser surgery, surgeons attempt to encourage more fluid to flow out of the eye by targeting the eye's drainage system. Microsurgery may also be performed to create a drainage hole that bypasses clogged drainage canals in that drainage system. Sometimes, these surgical procedures are repeated.

Inotek Pharmaceuticals hopes that it can improve upon these current treatment options with trabodenoson.

In phase 2 trials, patients receiving a 200 or 500 mg dose of trabodenoson via eye drops saw a statistically significant reduction in intraocular pressure versus placebo. Moreover, that benefit was maintained throughout the 14-day treatment period, and in the case of the 500 mg dose, benefits were maintained during a longer 28-day period.

The benefits achieved in the mid-stage study are similar to the benefits associated with currently approved therapies; however, trabodenoson may have a key advantage over existing therapies because trabodenoson has been shown to have a protective effect on neural cells in animals. If that protective effect carries over into humans, then trabodenson could become a new standard used in glaucoma treatment.

Lots left to doThe potential to reshape glaucoma treatment could be incredibly profit-friendly for the company; but investors ought to approach Inotek Pharmaceuticals stock carefully. Trabodenoson is the company's only significant product under development, and historically, 40% of drugs entering phase 3 trials fail to pan out.

Additionally, while trabodenoson could duplicate its phase 2 results against placebo, it remains uncertain whether or not the combination of similar efficacy, and a potential for additional protection, would be compelling enough to get doctors to switch from existing options. If not, then trabodenoson could be relegated to a niche status drug that has peak sales far shy of current best-case estimates.

The risk of trabodenoson's failure, either in trials or commercially, makes Inotek Pharmaceuticals an incredibly high-risk investment. And because late-stage trials won't begin until the fourth quarter, results from these trials won't come until 2016, and a potential FDA decision on approval likely wouldn't arrive until 2017.

That's a long time for investors to be waiting around for clarity. For that reason, I'm content to stay on the sidelines until I get more insight into whether or not trabodenoson is truly the game changer that management thinks it could be.

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Todd Campbell has no position in any stocks mentioned. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may have positions in the companies mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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