Devastated: Paradigm Biopharmaceuticals Ltd share price plunges 55%

The Paradigm Biopharmaceuticals Ltd (ASX: PAR) share price dived 55% to $0.32 this morning, after the company announced a failure in its phase 2a hayfever trial.

While the company has not yet seen the results of its tests (which were conducted by an independent organisation), Paradigm was informed that the primary endpoint of its trial was not met. In other words, its hay fever treatment did not have the desired effect.

Management stated that the treatment formulation may need to be optimised, which could imply a different method of delivery, a stronger dose, or similar.

The company also has research underway into other illnesses such as Ross River Fever virus, so investors can also hope for a breakthrough in other treatments.

Despite the fall, Paradigm shares are still overvalued

Still, as we have written many times before, investing in drug companies in the early stages of their research is incredibly risky. At a guess, even if we assume that Paradigm’s underlying treatment is effective (and there are no guarantees of this) it could be 3 or more years away from commercialising its treatment and generating revenues.

This company only had $4 million cash in the bank at the end of March, and burned $1 million in cash in that quarter. It has a $40 million market capitalisation with no sales and is years away from being able to sell its products.

That’s not an attack on Paradigm, by the way, simply a reflection that owning shares in this sort of business is not a viable way of growing your wealth over time. Prudent investors confine this sort of business to a very small part of their portfolio, and I would also recommend avoiding companies that do not have at least a successful Phase 2 trial under their belt.

Forget about speculative biotechs, and check out these 3 blue chips paying growing dividends:

Top 3 ASX Blue Chips To Buy In 2017

For many, blue chip stocks mean stability, profitability and regular dividends, often fully franked..

But knowing which blue chips to buy, and when, can be fraught with danger.

The Motley Fool's in-house analyst team has poured over thousands of hours worth of proprietary research to bring you the names of "The Motley Fool's Top 3 Blue Chip Stocks for 2017."

Each one pays a fully franked dividend. Each one has not only grown its profits, but has also grown its dividend. One increased it by a whopping 33%, while another trades on a grossed up (fully franked) dividend yield of almost 7%.

The names of these Top 3 ASX Blue Chips are included in this specially prepared free report. But you will have to hurry. Depending on demand - and how quickly the share prices of these companies moves - we may be forced to remove this report.

Click here to claim your free report.

Motley Fool contributor Sean O'Neill has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.