Investing as Shakespearean Tragedy: The Story of Ariad Pharmaceutical (ARIA)

Shares in Ariad Pharmaceuticals (ARIA) were up 10.78 percent on Veterans Day. Even for a small-cap like Ariad, coming in at a valuation just under a half billion dollars, that’s normally what one would consider a pretty solid bounce. That’s a day that, for a lot of investors, would stand out. However, for the battered shareholders of Ariad, it probably doesn’t even register any more. Okay, that’s not true, double-digit jumps always register. But after the Odyssey Ariad’s been on for the last month, it’s not difficult to imagine that days like Monday just get lost in the shuffle.

It’s not often you see a company go on a ride like Ariad just has, plunging sharply, appearing to rally, rinse and repeat. And it’s a drama that’s swept a lot of people up. Over the last 3 months, Ariad’s moved an average of 11.14 million shares a day, good to make it the 75^th most traded security over that period, one spot behind Elon Musk’s Tesla Motors (TSLA) , a battleground stock and the source of general market fascination. That’s a class that contains mostly mega-cap blue chips and high-profile ETFS, relatively few small-cap companies. And that’s not even the whole story. Ariad’s heavy volume is drawn mostly from the massive spike this last month. Over the last 30 days Aria has been moving an average of 20 million shares a day, meaning that more than 10 percent of outstanding shares are trading hands on an average day.

So what’s happening with this company? The story’s a simple one, but, for Ariad investors, it’s a tragic one.

Volatile Month

Lets start with the whole story: since the start of October, Ariad Pharmaceutical’s stock has lost over 85 percent of its value. No matter how specifically you pull things apart, that’s the simple fact one cannot avoid. Especially if you’ve owned Ariad for that whole stretch. But inside that one big sell-off is a series of daily price moves that could drive an investor insane. Here’s a timeline or the events that have brought Ariad so much grief:

October 8:

After market close, news gets out regarding the clinical trials for Ariad’s leukemia drug Iclusig and it’s bad. In fact, if you’re long Ariad, it’s positively awful. The drug showed blood clots developing in 11.8 percent of people treated with Iclusig after 24 months. This was a big jump from the 8 percent rate found after 11 months, and it prompts the FDA to block Ariad from enrolling any new patients to drug trials for Iclusig.

Like most small-cap pharma companies, Ariad’s future is tied mainly to just a couple of drugs, and the news that one of them might not be safe is pretty drastic. Especially when one considers that the nearly 800 percent gains from the start of 2010 to October 7 had a lot to do with the fact that Iclusig looked so promising, even getting accelerated approval based on its Phase 2 clinical data.

So it shouldn’t be surprising that the market’s reaction was swift and vengeful. As soon as investors got a crack at selling their position on October 9 shares plummeted over 65 percent.

October 10-18:

If the story ended there, it would be pretty much in line with a familiar narrative: small-cap pharma plummets on negative results of clinical trial. But, while nothing matched the degree of the move on the ninth, Ariad kept trading at heavy volumes and kept posting double-digit moves.

A series of analyst downgrades hit the company on October 10, with Barclays (BCS) downgrading the stock from overweight to underweight and cutting the price target from $25 a share to $4 (ouch). The stock kept falling, losing another 30 percent from October 10-16 but coasting into what appeared to be a bottom on October 16.

Then, on October 17, signs of life! Following comments from JP Morgan (JPM) analyst Cory Kasimov that physicians may not be all that concerned about the blood clots, the stock rebounded, posting a 10.78 percent gain and potentially giving hope to Ariad owners that the worst was behind them.

Except that it wasn’t. Not at all. October 18, word came out that Ariad and the FDA had agreed to halt testing of Iclusig entirely based on the rate of blood clotting incidences. The discontinuation of the late-stage trial dubbed Epic by Ariad caused shares to plunge more than 40 percent that day.

October 21-October 30:

After any stock gets hammered that hard in that short a period, one might expect it to bounce back. At least a little. Considering how steep the discount it’s trading at as compared to a mere two weeks ago, it has to garner at least a little interest, right?

And it did. The company staged a pretty substantial rally, gaining almost 50 percent in just nine days. It’s not much when one considers just how fall the stock fell prior to the rally, but at least the battered shareholders got a respite in the end, right?

October 31:

Only it wasn’t the end. Halloween was extra spooky if you had decided to wait out Ariad’s steep decline. Ariad announced that it would suspend marketing and distribution of Iclusig while it "continues to negotiate updates to the U.S. prescribing information." In retrospect, it certainly seems as though this shouldn’t have been all that surprised, but it clearly surprised at least some people as the company’s stock plunged nearly 45 percent.

And Beyond…?

Where Ariad’s going from here is unclear. Since the start of November, the stock’s up over 15 percent, including a 17.27 percent leap the day after Halloween and Monday’s double-digit gain. However, precisely what to expect moving forward is unclear. In the event that Ariad can return Iclusig to the market and ensure that it’s safe, there’s a pretty good chance the stock takes off. That said, there’s no real way to know whether or not that’s possible. In the meantime, the company announced that it was shedding 40 percent of its American-based workforce on November 7.