Drug Stock Poised to Lose Half its Value After Dismal Data

Conatus Pharmaceuticals' fatty liver disease drug did not meet its main goals

Managing Editor
Dec 6, 2018 at 9:14 AM
facebook twitter linkedin

The shares of Conatus Pharmaceuticals Inc (NASDAQ:CNAT) are down a whopping 50% in electronic trading, after the drug developer's mid-stage study of a treatment for fatty liver disease failed to meet its main goals. In response, Stifel downgraded the stock to "hold" from "buy," while slashing its price target to $4 from $10. In addition, three other brokerages chimed in with cuts of their own, including to $10 from $14 at Oppenheimer.

Should today's price action pan out, this would be CNAT's worst single-day loss ever, and the shares will hit a new annual low. Prior to today's drop, the stock had seemingly found support near the $4.20-$4.50 area, home to its post-bull gap level from early April. Conatus shares closed Tuesday at $4.50.

Prior to today, analysts were overwhelmingly bullish. All five of the brokerages in coverage rated CNAT a "strong buy." Furthermore, it's average 12-month price target sits all the way up at $12, territory the security has not traded near since early 2014.

Pessimism has been ramping up in the options pits, though, despite limited absolute volume. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), CNAT stock's 10-day put/call volume ratio of 0.33 ranks in the 95th annual percentile. While this shows that more calls than puts have been bought to open on an absolute basis, the rate of put buying relative to call buying has been quicker than usual.


Stop leaving money on the table with the same old broken options trading approach...

There is no options strategy that more perfectly capitalizes during earnings season better than this simple call and put buying strategy. Perfect for aggressive traders looking to recover their suffering portfolios so far in 2022. With the simplest possible options strategy, Schaeffer's team with 100+ years of options trading excellence, target 200% gains on every single trade. So many trades are being beaten down by the market, but don't be one of them! Don't waste another second... join us right now before the next trade is released! 

Best stocks for October and worst stocks for October


Special Offers from Schaeffer's Trading Partners