Drug Stock Poised to Lose Half its Value After Dismal Data

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.