Tetraphase Pharmaceuticals Inc. (NASDAQ: TTPH) has seen incredible success and gains over the past year. However, the stock is giving it all back in Wednesday’s session. Essentially, this massive pullback is based on the failure of a Phase 3 clinical trial in urinary tract infections.

When investors see a drop of almost 80% in a share price, the question of long-term viability is almost impossible to ignore. 24/7 Wall St. has taken a 360-degree review of what Tetraphase has had, has now and may have ahead.

Tetraphase announced that the Ignite2 Phase 3 clinical trial of eravacycline administered as an IV to oral transition therapy for the treatment of complicated urinary tract infection (cUTI) did not achieve its primary endpoint of statistical non-inferiority compared to levofloxacin.

For some background, Tetraphase is a clinical stage biopharmaceutical company developing novel antibiotics to treat life-threatening multidrug-resistant infections. And now we have a boat load of analysts downgrading the stock.

Earlier in September, 24/7 Wall St. picked this is a pivotal FDA announcement for the month of September in our monthly FDA calendar. It seems as though this is a reminder that “pivotal” can be extreme in both directions.

The company was downgraded to Neutral from Outperform at Wedbush Securities and downgraded to Hold from Buy at Stifel Nicolaus, Needham and Canaccord Genuity.

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Guy Macdonald, president and CEO of Tetraphase, commented on the trial:

We are disappointed that the Ignite2 trial did not achieve its primary endpoint. We plan to further analyze the data and provide an update after we have discussed the data and our plans for a path forward with the regulatory agencies. We previously announced positive data from the Ignite1 phase 3 clinical trial of Eravacycline administered intravenously in complicated intra-abdominal infections which did meet its primary endpoint, demonstrating high cure rates in prevalent Gram-negative pathogens and a favorable safety profile.

Tetraphase shares almost quadrupled the last five months of 2014, then it rose another 13% in 2015. The multiple Wall Street analyst downgrades were a natural result of this announcement, with the company’s future now called into question. Brean Capital noted that the company had over $240 million in cash at the mid-year mark, which should allow “sufficient to support operations through the first quarter of 2017.” Investors need to keep in mind that much of that cash burn may change now due to legal expenses that are likely to follow from expected class action suits after a drop of this magnitude.

Tetraphase had a capital raise in 2015 that bolstered its books. Needless to say, as you will see in detail, those investors who did not sell at higher share prices since that offering will be upset that they did not sell out of Tetraphase. The company sold some 4,945,000 shares of common stock at $35.00 per share in mid-March. The shares of common stock issued and sold in the offering at the closing include 645,000 shares for an overallotment option. The gross proceeds to Tetraphase from this offering were $173.1 million, before commissions and expenses.

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That March underwriting was from the likes of BMO Capital Markets, Stifel and Guggenheim Securities as joint bookrunning managers. Nomura Securities and SunTrust Robinson Humphrey were co-managers for that offering as well.

Another view would be to see how active the short selling community reading has been. Tetraphase has been averaging 2.7 million shares or so short for months. That may be multiple days worth of volume, but it is far from the short sellers being in total control.

Shares of Tetraphase were down 78.7% at $9.52 on Wednesday morning just after the opening bell. The stock has a consensus analyst price target of $53.20 and a prior 52-week trading range of $15.68 to $52.90. The current market cap is roughly $347 million, when it was previously over $1 billion.

To show how massive and watched this is, over 9 million shares traded hands in just the first 30 minutes of trading plus the pre-market volume alone. The average daily volume is 480,000 shares.

One last consideration is Tetraphase’s drug pipeline. The company claims to have candidates targeting $41 billion in unmet medical needs. That should come with a reminder that Tetraphase generated only $9 million in countable revenue in 2014, down from $10.5 million in 2013. Analysts were only modeling $12 million in 2015 revenues and almost $25 million in 2016 revenues.

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The problem with the targeted markets is that eravacycline was the company’s whole enchilada when you consider potential revenues in the coming years. Eravacycline is or was involved in three targets at various stages: complicated intra-abdominal infection, cUTI and pneumonia. It has two preclinical studies, listed in detail as follows:

• TP-271 is a novel antibiotic currently in preclinical development, being developed to combat respiratory disease caused by bacterial biothreats and antibiotic-resistant public health pathogens. As development continues, TP-271 is anticipated to protect against certain biothreats agents, including Francisella tularensis, which causes tularemia; Yersinia pestis, which causes bubonic plague; Bacillus anthracis, which causes anthrax disease; and bacterial pathogens associated with community-acquired bacterial pneumonia (CABP). We are developing TP-271 with the financial assistance of the National Institutes of Health’s (NIH) National Institute of Allergy and Infectious Diseases (NIAID), which awarded us a $36 million contract in October 2011 to support TP-271’s development, manufacturing, and clinical activities, from which we may receive up to approximately $13 million in funding.
• TP-6076 (2nd Generation Gram-negative Program): We are using our proprietary chemistry technology to pursue the discovery and development of additional tetracycline-derived compounds effective against the most urgent multidrug-resistant Gram-negative bacterial health threats identified by the CDC in a September 2013 report. Pathogens targeted include carbapenem-resistant variants of Klebsiella pneumoniae, Acinetobacter baumanni, Escherichia coli and Pseudomonas aeruginosa. We have generated compounds that have demonstrated potent activity against a broad range of these multidrug-resistant Gram-negative pathogens. We have identified TP-6076 as a lead preclinical candidate from these compounds and are currently evaluating it in IND-enabling studies.

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The endgame here remains very uncertain for Tetraphase. Implosions of this magnitude are very hard to ignore. The cash balance seems like a cushion on the surface, but a lot of that cash now likely will be burned up either on shareholder suits and legal expenses or if the company goes shopping for another drug candidate or another biotech/pharma outfit.

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