Short Sellers Wary Of Biotech Stocks
By and large, the number of shares short in the leading biotech and emerging pharmaceutical stocks shrank between the July 15 and July 31 settlement dates. The trend was particularly noticeable in Alexion Pharmaceuticals, Inc. (NASDAQ: ALXN) and Celgene Corporation (NASDAQ: CELG), which saw sharp declines in their short interest.
Bucking the trend was Illumina, Inc. (NASDAQ: ILMN), which had a sizable bump in its short interest in the final two weeks of the month.
Here we take a quick look at how these three stocks have fared recently and what analysts expect from them. That is followed by a glance at short interest moves in other leading biotech stocks.
The number of shares sold short in this biopharmaceutical company dropped more than 22 percent to around 4.88 million. That was less than half the peak short interest in mid-April and represented more than 2 percent of Alexion's total float. Days to cover remained at more than two.
This Connecticut-based company offers Soliris, a treatment for a blood disorder. Upcoming product launches garnered Alexion an analyst upgrade. It now has a market capitalization of less than $43 billion. The long-term earnings per share (EPS) growth forecast is almost 17 percent.
All but four of the 21 analysts surveyed by Thomson/First Call recommend buying shares, with the rest rating the stock at Hold. Their mean price target, or where analysts expect shares to go, is more than 16 percent higher than the current share price. That consensus target would be a new multiyear high.
The share price ended the two-week short interest period almost 5 percent lower, while the Nasdaq was up fractionally. Shares have retreated about another 4 percent since that time, as of Thursday's close. Over the past six months, the stock has underperformed Amgen but outperformed the broader markets.
The short interest decline of more than 21 percent in this biopharmaceutical company brought the total to around 11.20 million shares by the end of the month. That was less than 2 percent of the float, as well as the smallest number of shares short since February. It would take about two days to cover all short positions.
This maker of therapies to treat cancer and immune-inflammatory related diseases has a market cap of about $103 billion. It posted better-than-expected quarterly results during the short interest period. The price-to-earnings (P/E) ratio is greater than the industry average, but so is the operating margin.
All but four of the 22 analysts surveyed recommend buying shares, with 7 of them rating the stock at Strong Buy. They see room for shares to run, as the mean price target is more than 15 percent higher than the current share price. That consensus target would be a new multiyear high for the stock.
Short sellers watched the shares rise more than 8 percent but then give up most of that gain during the period. They are still up more than 16 since the beginning of the year. In addition, the stock has outperformed the broader markets and the likes of Johnson & Johnson over the past six months.
Short interest in this San Diego-based company grew more than 9 percent late in the month to almost 4.39 million shares, or about 3 percent of the float. That was the second highest number of shares short in the past year. However, the days to cover dropped to near two as the average daily trading volume increased.
Illumina makes life science tools and integrated systems for genetic analysis. Analysts are looking for this more than $30 billion market cap company to post double-digit percentage revenue growth this year and the next. But note that its P/E ratio is much greater than the industry average.
Of the 24 analysts polled, 10 rate the stock at Strong Buy and seven more also recommend buying Illumina shares. A move to their mean price target would represent a more than 12 percent gain for the shares. Here too, the analysts' consensus target would be a new multiyear high for the stock.
During the short interest period, shares pulled back more than 4 percent. They have retreated another 5 percent or so since, dropping below the 50-day moving average. Over the past six months, the stock has underperformed the others featured here but outperformed the broader markets.
See also: Is Tesla The Best Short In The Market?
Short sellers also shied away from biotech giants Amgen, Biogen and Gilead Sciences in the latter weeks of July, as well as Baxalta, BioMarin Pharmaceutical, Incyte, Medivation, Receptos, Regeneron Pharmaceuticals and Vertex Pharmaceuticals.
At the time of this writing, the author had no position in the mentioned equities.
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