UPDATED: Investors trounce Aratana on dashed hopes for canine lymphoma drugs

Shares of Aratana Therapeutics ($PETX) fell nearly 39% to $10.67 on September 25, after the company announced that its two highly anticipated lymphoma drugs for dogs are unlikely to perform as well in the veterinary market as it thought they might. Investors had been looking forward to a full launch of both drugs--AT-004, which is approved by the USDA to treat B-cell lymphoma, and AT-005, which has a conditional approval for T-cell lymphoma--in 2016.

But in a product update released late Thursday, Aratana said the drugs, which are monoclonal antibodies, do not seem to be hitting their therapeutic targets as expected. In two trials of AT-005 in combination with chemotherapy, the drug is not adding to progression-free survival when compared with placebo, Aratana said. The company is still running trials of AT-004 in combination with chemo.

Although Aratana will continue to sell both products, the company is clearly not optimistic about their prospects. "Given the mixed clinical and scientific results, Aratana does not believe AT-004 or AT-005 in their current, first-generation forms will capture the desired lymphoma market opportunity," the release read.

This is an unexpected turn of events for Aratana's two lead products. The company had retained full commercial rights to AT-005 in the hopes of being able to offer veterinarians a lymphoma treatment that was designed specifically for dogs and therefore would be more effective than traditional chemo. It licensed AT-004 to Novartis ($NVS), but then regained the marketing rights earlier this year, after Eli Lilly ($LLY) bought Novartis' animal health unit.

There may still be hope for AT-004, Aratana said in its announcement. The company has received "encouraging results" from three independent studies and will release data from its own studies in mid-2016, according to the release. Still, the company warned that revenues and gross margins from both lymphoma products are expected to be "modest."

Prior to Thursday's announcement, Aratana had thrilled investors with a string of good news. In June, it announced positive trial results for capromorelin (AT-002), an appetite stimulator for dogs. Two weeks later, it said its drug for treating postsurgical pain in dogs, AT-003, also did well in a pivotal trial. The company's shares had risen 35% since May 1.

Aratana said on Thursday it expects to be able to launch three products in 2016, including capromorelin and AT-003, if they are approved, and the company is currently working on second-generation monoclonal antibodies to treat canine lymphoma. "Aratana has been aggressive in its pursuit of truly innovative therapies for pets and we have been remarkably successful from a regulatory perspective," said Aratana's CEO, Dr. Steven St. Peter, in the release. "From a commercial perspective, we only prioritize products that truly hit the mark with respect to addressing unmet medical needs. We will go back into development when we believe we need to optimize a product to capture a significant opportunity."

- here's the release

Editor's note: This story has been updated to reflect Aratana's closing share price on September 25.