Novartis's failed trials sent shares of mid-cap biotech company Dyne plummeting. The two companies have similar drugs.

Shares of mid-cap biotech company Dyne Therapeutics plummeted by more than 16% on the Nasdaq on September 8. This came after pharmaceutical giant Novartis reported the failure of trials for its experimental drug to treat muscular atrophy. Dyne’s drug in development for the same condition is based on similar technology. The pharmaceutical giant’s failure caused the market to lose confidence in it.

Dyne's stock fell more than 16% on the Nasdaq on September 8, to $20.3. This is the lowest level since late June. Trading volume in the biotech stock was 7.7 times the average daily volume, according to Yahoo Finance. In premarket trading on September 9, the stock price fell another 3%.

The market reacted sharply following an announcement by Swiss pharmaceutical giant Novartis: its experimental drug del-desiran, intended to treat a form of myotonic dystrophy, proved to be no more effective than a placebo in the final phase of clinical trials. This is a hereditary disease characterized by both difficulty relaxing certain types of muscles and the atrophy of others. The setback led to a plunge in the manufacturer’s stock price.

Dyne, like Novartis, is developing a treatment for the same type of myotonic dystrophy. The mechanism of action is the same: the drug targets the toxic RNA of a specific gene—a mutation in which causes the disease—which should lead to its “shutdown.” Dyne’s drug is currently undergoing final-stage trials in patients who also have diabetes, as well as mid-stage trials in a larger group.

Against this backdrop, Dyne issued a press release on the same day, September 8, announcing that it would present additional trial data for its drug in late September or early October. The company promised to disclose results, including those for the specific endpoint on which Novartis was unable to demonstrate efficacy.

Wall Street has not yet revised its forecasts regarding Dyne's prospects. All 16 analysts covering the company recommend buying its stock. The average price target is $39.9, which is 96.5% higher than the most recent closing price.

Novartis' setbacks caused shares of other pharmaceutical companies to plummet on September 8. For example, shares of Sarepta Therapeutics, which is developing its own RNA-based treatment for myotonic dystrophy, fell by nearly 7%. Investors are skeptical of the technology itself, which targets toxic RNA, according to a report by the Proactive portal.

Shares of biopharmaceutical giant Amgen plummeted 10% on September 8. For the company, it was its worst day in more than two decades—since October 2000, according to The Wall Street Journal. The trigger was yet another setback for Novartis. On Friday, September 4, Novartis announced that its RNA therapy for cardiovascular disease, called pelacarsen, also failed to outperform a placebo. Amgen is using similar technology in the development of its experimental drug, Olpasiran.

Shares of Ionis Pharmaceuticals, which discovered pelacarsen and subsequently sold the rights to it to Novartis, fell 2.7%.