More often than not negative results from clinical trials lead to a share price decrease for a company, but when the product is a company’s lead drug candidate, the drop can be extreme.
On Monday, (April 9) Menlo Therapeutics (NASDAQ:MNLO) announced that its drug candidate serlopitant showed no significant difference over the placebo to reduce atopic dermatitis (AD). Also known as eczema, the skin condition is characterized by red, itchy skin affecting about 35 million Americans.
As a result of the announcement, shares of Menlo dropped in dramatic fashion by over 76 percent after market close Monday.
“This is our third pruritus study of serlopitant. Reduction of pruritus has been demonstrated in two prior Phase 2 studies, one trial in patients with chronic pruritus and one trial in patients with prurigo nodularis,” Steve Basta, CEO of Menlo said in the release.
In this study the Atomik MTI-103 trial treatment showed a 5.9 percent and 4.2 percent response rate over the placebo treated group for the 1 mg and 5 mg dose, respectively. There was no serious adverse effects reported from the trial.
Serlopitant is a NK1 receptor antagonist, developed against psoriasis itch, prurigo nodularis itch and refractory chronic cough, aside from AD. It is the company’s only drug candidate, and was developed by Merck (NYSE:MRK) and licensed to Menlo in 2012.
Menlo’s share price decreased 76.80 percent after the announcement Monday from $53.22 to $8.17 at market close. From three analyst reports on Menlo released on Monday, two reiterated buy ratings and another downgraded to a hold.
Guggenheim analyst Rohit Vanjani said in an article, “We believe that the company’s strategy of pursuing multiple indications for pruritus is the correct one, since it is still not well understood which pruritus pathways are most active for an underlying disease.”
However, analyst David Steinberg with Jefferies downgrade the company to a hold.
While the big price share decrease may scare investors, some milestones to look forward to include Menlo’s Phase 2 results in refractory chronic cough in the fourth quarter of 2018 and Phase 2 results in pruritus associated with psoriasis expected in late 2018 to early 2019.
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Securities Disclosure: I, Gabrielle Lakusta, hold no direct investment interest in any company mentioned in this article.