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Biotech Stock Rally Is Crushing Short Sellers

Wayne Duggan

Benzinga’s Take

Biotech stocks are often high-risk, high-reward investments that have binary outcomes based on one or a handful of drug or device candidates in development. Shorting these types of stocks can be very risky due to the potential for unexpected positive testing data, regulatory approvals and buyouts.

Biotech Stock Rally Is Crushing Short Sellers

Biotech short sellers got off to a red-hot start to 2020, but the aggressive rally in biotech stocks has now all but erased what was once a $7.2 billion mark-to-market profit.

As of late last week, S3 Partners analyst Ihor Dusaniwsky reported that that massive 2020 profit was down to just $12 million for biotech short sellers. Dusaniwsky said the biotech sector currently has $49.2 billion in total short interest, and short sellers have covered only $612 million of their biotech positions over the past month.

Here are three most heavily shorted stocks in the biotech sector, according to S3:

  • AbbVie Inc (NYSE: ABBV), $5.95 billion short interest.
  • Gilead Sciences, Inc. (NASDAQ: GILD), $1.83 billion short interest.
  • Amgen, Inc. (NASDAQ: AMGN), $1.71 billion short interest.

Given the relatively small floats of many stocks in the biotech group, the average outstanding short percentage of float among biotechs is relatively high at 11.1%. Here are the three stocks with the highest short percent of float (minimum $50 million in short interest):

  • Ligand Pharmaceuticals Inc. (NASDAQ: LGND), 59.9% of float.
  • Precigen Inc (NASDAQ: PGEN), 50% of float.
  • Madrigal Pharmaceuticals Inc (NASDAQ: MDGL), 39.7% of float.

Short Squeeze Candidates

Dusaniwsky said short sellers are paying an average daily borrow cost of $1.3 million just to keep their positions open. In addition to the fees, short sellers are taking huge hits on a handful of biotech stocks that have skyrocketed in recent weeks.

For example, Moderna Inc (NASDAQ: MRNA), Novavax, Inc. (NASDAQ: NVAX) and Inovio Pharmaceuticals Inc (NASDAQ: INO) short sellers are all down more than 95% year-to-date.

“We will probably see short covering in stocks with over -50% returns over the last month as short sellers trim their exposure in order to cut their losses,” Dusaniwsky said.

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Latest Ratings for GILD

Date Firm Action From To
May 2020 SVB Leerink Maintains Market Perform
May 2020 Oppenheimer Maintains Outperform
May 2020 Morgan Stanley Maintains Equal-Weight

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