Why Allergan's stock went up after its antidepressant failed

Wednesday night, Allergan released news that an antidepressant it was developing failed in three clinical trials, and was likely to fail in a fourth. Harry M. Tracy, the president of NI Research and a long-time observer of the antidepressant space, told STAT's Matthew Herper it was "a brutal disaster." But on Thursday, Allergan shares didn't crater, as one might have expected after a massive clinical disappointment. Instead, Allergan's stock price rose 4 percent, or $5.49, on a day when pharmaceutical stocks were largely flat.

What were investors thinking? Well, Umer Raffat, the razor-sharp pharmaceuticals analyst at the investment bank Evercore/ISI, predicted this move right after the results came out. In a note to investors, he said that he was getting emails asking whether the stock could go up, and that stock buyers seemed extremely focused on unlocking the value of the company's aesthetics business, which includes Botox and Juvederm, from the rest of the pharma business, which has run into patent issues and pipeline failures.

Raffat admitted that his base case, that the drug would work in at least one study, wasn't playing out. But from a stock perspective, it doesn't seem to matter. The knowledge that Allergan isn't going to get bogged down in a costly but futile quest to get an antidepressant approved, as Alkermes did last year, is what investors like to call "a clearing event."