I'm slowly getting into biotech stocks. To get started, I looked at charts of cheap stocks, generally below $10, to see how they trade.
A few stocks on my list experienced dramatic losses in the past. So, I researched why this had happened. Some of the tickers** are listed below with a brief explanation of the events at the time. My conclusions at this point are:

1. Biotech stocks drop massively when a late-stage clinical trial fails unexpectedly. Promising data from earlier trials and hope have pushed the price up in anticipation of the trial results. When analysis reveals that the drug is no better than placebo or the existing treatment, the share price plummets.
2. This drop is exacerbated for young biotechs that do not have a mature pipeline. If the lead drug fails, there is nothing else to fall back on and big-name collaborators pull out.
3. Minor redeeming facts, such as a positive balance sheet or an early-stage pipeline, barely have an impact on softening the blow.
4. Recovery after a massive drop can be slow to non-existent.
5. Sometimes a severe price reaction does not require extreme news. It is worth keeping an eye on competitors and wider sector performance.

OMED

Jan 2016; -46%

• interim data suggest that tarextumab will fail mid-stage study; indication: pancreatic cancer
• co-development with GSK, deal now at risk

Apr 2017; -35%

• Phase 2 trial of demcizumab failed; indication: metastatic pancreatic cancer
• another phase 2 trial is ongoing; indication: small cell lung cancer
• another phase 2 trial is ongoing with tarextumab is ongoing; indication: small cell lung cancer
• aside from the above, Bayer decided not to license two phase 1 drugs from OMED's pipeline for strategic reasons
  

CMRX

Dec 2015, -80%

• Phase 3 trial of promising lead drug brincidofovir failed; indication: CMV infection prevention during haematopoietic cell transplantation
  

TTPH

Sep 2015, -78%

• Phase 3 trial of promising lead drug eravacycline failed; indication: complicated UTI
• eravacycline = next-gen antibiotic
• no other compounds in pipeline beyond preclinical stage

Feb 2018, -60%

• Phase 3 trial of eravacycline for complicated UTI failed again
• TTPH awaiting regulatory approval for other indication (complicated intra-abdominal infection)
  

OPHT

Q1 2016, -50%

• OPHT launched a trial in Jan which failed to excite investors. Some insider selling in March spurred more sell-off. However, biotech stocks overall weren't too well off. Thus, it can be speculated that OPHT was just a victim of wider market conditions.

Dec 2016, -84%

• two phase 3 trials of promising compound Fovista failed; indication: wet AMD
• results will mean loss of lucrative Novartis deal
• another pipeline drug (Zimura) in phase 2/3 trial and positive cash balance
• price drop had begun in late summer when a competitor's compound failed to achieve trial targets
  

APTO

Nov 2015, -50%

• Phase Ib trial of APTO-253 on hold after voluntary suspension of dosing over safety and quality concerns
  

ARQL

Oct 2012, -50%

• Phase 3 trial of tivantinib was stopped due to disappointing interim results; indication: non-small cell lung cancer
• price drop began in summer when another trial in Japan had stopped enrolling new patients due to safety issues
• no other late-stage pipeline compound
• positive company balance sheet
  

ECYT

May 2014, -62%

• Phase 3 trial of flagship compound Vintafolide was halted unexpectedly; indication: platinum-resistant ovarian cancer
• positive company cash balance; big pharma partner Merck
  

**Some loss percentages are taken from the linked sources, others are approximations based on the chart.

source