Big Swings in Biotech Short Interest

Biotechs continue to prove volatile this year. While

and

saw a sizable drops in

between the September 15 and September 30 settlement dates, short sellers loaded up on

. Other leading biotechs and emerging pharmaceuticals that saw declines in the number of shares sold short during the period include Alexion Pharmaceuticals, Amgen, Celgene, Medivation, Pharmacyclics and Seattle Genetics. Modest gains in the number of their shares short were also seen in Alnylam Pharmaceuticals, Biogen Idec, BioMarin Pharmaceutical, Incyte, United Therapeutics and Seattle Genetics. Below we take a closer look at how Gilead Sciences, Illumina and Vertex Pharmaceuticals have fared and what analysts expect from them.

Short interest in this biopharmaceutical company has shrunk in the past four periods to less than 48.00 million shares. That was the lowest number of shares short this year, as well as more than 3 percent of the float. It would take more than three days to close out all of the short positions. Gilead Sciences focuses on human therapeutics for the treatment of life-threatening diseases such as HIV infection and pulmonary arterial hypertension. The FDA cleared two of its HIV drugs during the period. The company has a market capitalization of almost $157 billion. The return on equity is more than 57 percent. All but three of the 26 surveyed analysts by Thomson/First Call recommend buying shares, with 10 of them rating the stock at Strong Buy. Their mean price target, or where analysts expect shares to go, is almost 12 percent higher than the current share price. That consensus target would be a new multiyear high. Short sellers watched the share price rise more than 5 percent during the two-week short interest period, but they have pulled back somewhat since. Shares have met resistance at $110 since late August. Over the past six months, though, the stock has outperformed larger competitors Pfizer and GlaxoSmithKline.

Short interest in this San Diego-based company tumbled about 26 percent late in the month to around 2.53 million shares, or less than 2 percent of the float. The number of shares sold short has been shrinking since April, when short interest stood at more than 21 million shares. Illumina makes life science tools and integrated systems for genetic analysis. Analysts are looking for this more than $21 billion market cap company to post double-digit percentage revenue growth this year and the next. But note that its price-to-earnings (P/E) ratio is much greater than the industry average. Of the 23 surveyed analysts, seven rate the stock at Strong Buy, and seven more also recommend buying Illumina shares. They see plenty of room for shares to run, as their mean price target is about 22 percent higher than the current share price. That consensus target would be a new multiyear high. During the short interest period, shares initially rose, but they ended up down more than 2 percent. They have retreated more than 6 percent since, breaking below the 50-day moving average for the first time in more than a year. The stock has still outperformed the broader markets in the past six months.

Short interest in this Cambridge, Massachusetts-based company grew more than 19 percent to total more than 9.15 million shares. That was the greatest number of shares sold short in the past year. Short interest was about 4 percent of the total float at the end of September, and days to cover was less than four. Vertex manufactures small molecule drugs for the treatment of serious diseases such as hepatitis C and cystic fibrosis. It now has a market cap of about $25 billion. Forecasts call for wider net losses in the most recent quarter and for the year. Also, the operating margin and the return on equity are in the red. However, the consensus recommendation of the analysts surveyed is to buy shares of Vertex, and it has been for at least three months. The mean price target is more than 7 percent higher than the current share price. But note that Vertex shares traded higher than that about two weeks ago. The stock rose nearly 22 percent during the two-week period, but shares have retreated more than 6 percent since then. Vertex has not only outperformed larger competitors Bristol-Myers Squibb and Merck over the past six months, but the Nasdaq and S&P 500 as well.

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