The number of shares short in the leading biotech and emerging pharmaceutical stocks surged between the August 14 and August 31 settlement dates, as volatility returned to in the markets in a big way.
Short sellers were especially drawn to Amgen, Inc. AMGN, Biogen Inc BIIB and Vertex Pharmaceuticals Incorporated VRTX in those two weeks.
Below is a quick look at how these three stocks have fared recently and what analysts expect from them, followed by a glance at short interest moves in other leading biotech stocks.
Amgen
This California-based biotechnology medicines company saw short interest rise more than 22 percent to about 9.24 million shares, or more than 1 percent of float. That ended a four-period streak of falling short interest. It would take nearly two to three days to cover all short positions.
The company develops and markets human therapeutics based on advances in cellular and molecular biology for grievous illnesses. Hedge fund manager Dan Loeb was bullish in late August. Amgen has a market capitalization near $116 billion and a dividend yield of about 2.1 percent.
Of the 20 analysts surveyed by Thomson/First Call, nine 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 17 percent higher than the current share price. That consensus target would be a new multi-year high.
The share price ended the two-week short interest period more than 9 percent lower, while the broader markets were down around 5 percent in that time. The shares now are down less than 4 percent year-to-date. Over the past six months, the stock has underperformed the likes of Gilead Sciences, Inc. GILD and Celgene Corporation CELG.
Biogen
This S&P 500 component saw short interest jump more than 44 percent during the two weeks to around 3.86 million shares. That was more than 1 percent of the float, but also the most shares short in at least a year. At the average daily volume, it would take more than a day to cover all short positions.
The company develops and markets therapies for the treatment of neurodegenerative diseases, hemophilia and autoimmune disorders. An equity investment in a collaborator closed in the period. The market cap is near $74 billion, and the long-term earnings per share (EPS) growth forecast is more than 15 percent.
The consensus recommendation of the 21 analysts polled is to buy shares. A move to their mean price target would be a more than 18 percent gain for the stock. However, note that Biogen shares traded higher than that consensus target as recently as July.
During the period, short sellers watched the stock plunge almost 14 percent, recover much of that loss, only to drift lower again as the month came to a close. Over the past six months, Biogen has underperformed not only the broader markets, but the other two stocks featured here as well.
Vertex Pharmaceuticals
After about a 12 percent gain in the previous period, short interest in this Cambridge, Massachusetts-based company surged almost 37 percent to total more than 5.61 million shares. That was nearly 2 percent of the total float. It would take more than two days to cover all short positions.
Vertex manufactures small molecule drugs for the treatment of serious diseases such as hepatitis C and cystic fibrosis. Piper Jaffray recommended buying shares in the period. However, note that its return on equity and operating margin are both in the red. The market cap is less than $33 billion.
Half of the 24 analysts polled recommend buying shares of Vertex, with five of them rating the stock at Strong Buy. The mean price target is more than 4 percent higher than the current share price. Note, though, that shares traded higher than that consensus target last month.
The stock ended the two-week period down more than 5 percent, in the same neighborhood as the S&P 500, though it has come back almost as much since then. Vertex has not only outperformed larger competitors Bristol-Myers Squibb Co BMY and Merck & Co., Inc. MRK over the past six months, but the Nasdaq as well.
And Others
The number of shares short in Alexion Pharmaceuticals, Inc. ALXN, Celgene, Gilead Sciences, Illumina, Inc. ILMN, Juno Therapeutics Inc JUNO and Medivation Inc MDVN also swelled by double-digit percentages in the final weeks of August, while the short interest in ACADIA Pharmaceuticals Inc. ACAD, Incyte Corporation INCY and Intrexon Corp XON grew more modestly.
Bucking the trend was Baxalta Inc BXLT, which saw a sharp drop in its short interest in the two-week period. Short sellers also shied away from BioMarin Pharmaceutical Inc. BMRN somewhat between the settlement dates.
At the time of this writing, the author had no position in the mentioned equities.
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