Here's Why AVEO Pharmaceuticals Fell as Much as 17% Today

What happened

Shares of AVEO Pharmaceuticals (NASDAQ: AVEO) fell 17% today after the company announced first-quarter 2018 results and provided a business update. As a development stage biopharma company, there's wasn't much in the way of new financial details. However, the company did announce that it was delaying the expected readout of top-line data from the ongoing phase 3 trial of its lead drug candidate from the second quarter of 2018 to the third quarter of 2018.

While AVEO Pharmaceuticals is working with its contract research organization to compress the timeline for analyzing data, Mr. Market knows time is of the essence. After ending the first quarter with $27 million in cash and a burn rate of approximately $8.5 million per quarter, even a three-month delay has severe consequences.

As of 1:07 p.m. EDT, the stock had settled to a 12.1% loss.

A chart with a negative slope drawn on a chalkboard.

Image source: Getty Images.

So what

This is actually the second delay for the readout of top-line data for the U.S.-based phase 3 trial of its top drug candidate, tivozanib, as a potential treatment for advanced renal cell carcinoma. Results were originally expected in the first quarter of 2018, then the second quarter, and now the following quarter.

While AVEO Pharmaceuticals isn't in the best financial position, the drug was approved in the European Union in August 2017 -- much to the surprise of Wall Street -- under the brand name Fotivda. It may not generate robust sales figures, but given that approval was viewed as a long shot, investors have been dreaming of what approval in the larger American market might mean for the stock.

For better or for worse, they'll have to wait at least one more quarter than previously expected.

Now what

Wall Street was caught off guard the first time around, placing a sub-$100 million valuation on AVEO Pharmaceuticals just before European approval was recommended, but has raced to peg a more respectable market cap on the company in the year since. That said, the current market cap of $340 million may be placing too much faith in Fotivda's market potential. The results from the U.S. phase 3 trial could make or break this stock, but it remains a largely binary bet sitting on the line between success and failure.

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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.