Max Nisen is a Bloomberg Gadfly columnist covering biotech, pharma and health care. He previously wrote about management and corporate strategy for Quartz and Business Insider.

Seres Therapeutics is the kind of company that excites biotech investors -- and occasionally burns them.

It's a pioneer in developing drugs that focus on the microbiome, on modifying the millions of organisms living in your guts. It's a red-hot research area, being studied in relation to everything from infections to cancer.

After promising early results for its lead drug, Seres received an FDA breakthrough therapy designation (BTD). That status is reserved for medicines that treat life-threatening conditions and show potential to be better than existing therapies. The designation means a possibly faster approval process. 

Seres aimed to treat C. difficile infections with a pill containing good bacteria that attempted to re-balance patients' gut microbiomes. It would potentially supplant effective but (understandably) less-appealing fecal transplants.

But the company disclosed on July 29 that the drug failed in a Phase 2 clinical trial, showing no significant benefit over a placebo. A whole lot of optimism -- along with 69 percent of Seres' share price -- disappeared.

It's a reminder that there's a long way to go in understanding the microbiome and that a BTD can lead to excessive hype of early results and an illusion of safety. Biotech investors inclined to blindly jump on the BTD bandwagon should have a touch of indigestion.  

Seres Therapeutics saw more than two thirds of its share price go down the drain after reporting disappointing trial results for its lead drug.
Source: Bloomberg
Intraday times are displayed in ET.

Seres' story has become familiar lately. Two different cancer vaccines with BTDs blew up in similar fashion this spring: Celldex's Rintega for a brain cancer in March, and Aduro's GVAX (in combination with another drug) in May. Celldex's shares fell 53.7 percent, while Aduro's fell 16.7 percent. 

Breaking Bad
Celldex's brain cancer vaccine failed to live up to high expectations.
Source: Bloomberg

And the FDA in January rejected BioMarin's breakthrough-designated treatment for the deadly muscle-wasting disease Duchenne Muscular Dystrophy.

Clovis Oncology had a highly promising lung cancer drug that got the designation in 2014. It went on to produce badly disappointing data last November, cutting shares by 70 percent and its market cap by $2.8 billion. The company has since ceased work entirely on the medicine. 

Clovis Oncology's shares collapsed after its lung cancer drug produced badly disappointing data last year.
Source: bloomberg

Still, the rate of such designations may be accelerating. The program began in the summer of 2012. After remaining relatively constant in its early years, there were 34 designations granted this year through June 30, according to the FDA. That is six short of the the 40 granted in the entirety of 2015. The FDA's database hasn't been updated yet, but 5 more BTDs became public in July. If that pace continues, 2016 will easily be a record year. 

Ramping Up
As of June 30, the FDA had granted 34 breakthrough designations for drugs and vaccines so far this year. There were 40 total in 2015.
Source: FDA

One possible response to the BTD failures is to suggest the FDA should be more circumspect in handing the designation out, but that's a bit unfair. Science is always getting better, the program is maturing, and there's no reason the agency shouldn't give the designation based on promising early results. In spite of some prominent failures, 50 new drugs or expanded indications for existing medications have been approved by the FDA under the designation, including Gilead's hepatitis C cures. 

But the transition from small early studies to bigger trials can erase even the most exciting early results. A BTD is a marker of promise. But especially for early stage biotechs working on novel treatments, investors should remember it doesn't assure the drugs are a safe bet to succeed.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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Max Nisen in New York at

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Mark Gongloff at