Shares of Avalanche Biotechnologies, Inc. [NASDAQ:AAVL] tumbled 56.20% to close at $17.03 per share on Tuesday, after the company announced its top-line Phase 2a results showing that 42.9% of patients who received AVA-101 gene therapy treatment and two or more additional injections of ranibizumab (Lucentis), developed and commercialized by Roche Holding AG [OTC-ADR:RHHBY], showed improved or maintained stable vision, compared with 9.1% of patients in the control group, which received just two ranibizumab injections during the first four weeks of the trial. 

The company also said that 23.8% of patients, that received two or more ranibizumab injections, showed some improvement in vision while no vision improvement was observed in patients in the control group. Although the study was not designed to show statistically significant differences between the patients with and without the AVA-101 treatment, one may conclude that improved and maintained stable vision can be achieved only with additional ranibizumab injections.

Wet age-related macular degeneration (AMD) is a chronic eye disease that causes vision loss in the center field of vision. Wet-AMD is generally caused by abnormal blood vessels that leak fluid or blood under the macula. Excessive amounts of vascular endothelial growth factor (VEGF), a signaling protein that promotes the growth of new blood vessels, is found to be responsible for Wet-AMD.

Avalanche’s AVA-101 gene therapy uses an adeno-associated virus (AAV), a small virus that infects humans but is not currently known to cause disease, as a vector to deliver and express, or transduce, a functional gene to the cells of the eye to promote continuous protein production. 

To create a safe therapeutic vector, the AAV2 vector, viral genes are removed from AAV and replaced with specific genes encoding sFlt-1, a naturally occurring anti-VEGF protein. When injected in the eye and expressed by the host retinal cells, the sFlt-1 protein inhibits the formation of new blood vessels and reduces vascular permeability by binding and blocking VEGF activity. According to Avalanche, AAV can infect a variety of retinal cell types and remain stable, resulting in long-term therapeutic protein expression. 

If Avalanche’s AVA-101 is approved by the FDA, it will be competing with FDA approved drugs, like Lucentis and Regeneron’s [NASDAQ: REGN] Eylea (aflibercept), which are injected directly into the eye. Genetech/ Roche’s Avastin (bevacizumab), which is not approved by the FDA, has recently been used by ophthalmologists in off-label treatments.

In April 2014, Avalanche signed an agreement with Regeneron worth more than $640 million to develop and commercialize gene therapies for eye diseases. On July 31, 2014, Avalanche raised $102 million in its initial public offering (IPO) of 6 million shares priced at $17 apiece. Development partner and shareholder Regeneron, who already held 8.2% of Avalanche before the IPO, agreed to buy an additional $10 million worth of Avalanche stock at the IPO price in a concurrent private placement.

In the first-quarter of 2015, Avalanche Biotechnologies reported revenues of $203,000, and a loss of $9.5 million, or $0.38 per share. The results exceeded the consensus estimates for a loss of $0.42 per share on revenues of $140,000.

From our technical viewpoint, AAVL completely sold off, down to the IPO price of $17.00 per share. The head resistance is at $22.00 per share. Thomas Chalberg, chief executive officer of Avalanche, said that the company plans a study of the effectiveness of AVA-101 in the second half of this year. Until the efficacy of the AVA-101 gene therapy is established, there could be more selling.

Disclosure: No position in AAVL. Long position in REGN. No positions in any other companies mentioned. No Recommendations.