Why the Factor Therapeutics Ltd (ASX:FTT) share price crashed 97% lower today

The Factor Therapeutics Ltd (ASX:FTT) share price crashed 97% lower today, highlighting the dangers of investing in small cap biotech shares…

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The worst performer on the Australian share market on Wednesday has been the Factor Therapeutics Ltd (ASX: FTT) share price.

The biotechnolgy company's shares have crashed an incredible 97% lower this morning after revealing the results of the Phase 2 Clinical Trial of VF001 for Venous Leg Ulcer Healing.

What were the results?

As you might have guessed from the share price reaction, the results of the randomised, placebo-controlled, multicentre Phase 2 study were a bit of a disaster.

The study evaluated the addition of VF001 applied weekly for up to 12 weeks, to standard care for patients with Venous Leg Ulcers (VLUs). A total of 157 patients were recruited at 21 sites across the United States and randomised to receive standard care plus either low (28 micrograms per mL) dose VF001, high (280 micrograms per mL) dose VF001, or placebo.

The study looked at VF001's impact on the reduction in wound size, the proportion of patients whose ulcers fully healed, and the time to achieve full healing.

Unfortunately for the company and its shareholders, the treatment with VF001 did not provide any additional benefit when compared with placebo plus standard care. As a result, the Phase 2 trial failed to meet all endpoints.

The company's CEO, Dr Rosalind Wilson, appeared to be very disappointed with the results.

She said: "We undertook this trial with the goal of determining whether VF001 could improve healing for patients with venous leg ulcers and we have answered that question; unfortunately, the results clearly demonstrate that it does not. Although the trial was well designed and executed, the outcome is that there is no clinical justification to progress further with the development of this asset, for this indication."

Dr Wilson will be stepping down as CEO once suitable transition arrangements are made.

What now?

Chairman of the board, Dr Cherrell Hirst, has advised that the company will now cease the development of VF001 in all indications and limit its activity to maintaining its existing intellectual property portfolio.

She added that the company's Australian directors have indicated that they will remain in place without remuneration while the board reviews all options available to it.

However, given its slender cash balance, the options appear to be extremely limited. In light of this, I would urge investors to stay well clear of Factor Therapeutics and focus on large cap biotechs such as CSL Limited (ASX: CSL) and Mayne Pharma Group Ltd (ASX: MYX).

Once again, this result demonstrates how risky it can be to invest in small cap biotech shares.

Motley Fool contributor James Mickleboro has no position in any of the 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 Scott Phillips.

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