Short sellers shy away from biotech

Some stocks in the sector have seen massive gains this year, causing shorts to back off.

By Benzinga Sep 13, 2012 3:33PM
Droplet Falling from Pipette into Test Tube -- Andrew Douglas, Radius Images, Getty ImagesBy Nelson Hem

Short sellers are retreating from earlier gambles on biotech stocks.

Companies from Gilead Sciences (GILD) to Onyx Pharmaceuticals (ONXX) saw less interest from short sellers in August. A few notable exceptions were Amgen (AMGN), for which short interest rose by 8.8% to 12.8 million shares by Aug. 31; Arena Pharmaceuticals (ARNA), which saw short interest increase 2.7% to 43.9 million shares; and Illumina (ILMN), which saw short interest rise 7.2% to 23.6 million.

Here is a closer look at the biotech stocks which saw the largest declines in short interest between Aug. 15 and Aug. 31.

Biogen Idec (BIIB)

This S&P 500 component saw short interest fall 5.6% to 2.1 million shares. Biogen Idec develops and markets therapies for the treatment of neurodegenerative diseases, hemophilia and autoimmune disorders. It has a market capitalization near $36 billion and a return on equity of nearly 22%. Biogen Idec set a deal with Regulus Therapeutics in late August identify biomarkers for multiple sclerosis. Shares are up about 34% this year and trading near a multiyear high.

Celgene (CELG)

Short interest in this maker of therapies to treat cancer and immune-inflammatory related diseases declined 8.4% to 5.8 million shares. The return on equity of this S&P 500 component is a healthy 26%, and the long-term earnings per share (EPS) growth forecast is more than 22%. The company said in late August that it may increase its stake in Globelmmune. About 23 out of 28 analysts polled by Thomson/First Call recommend buying shares of Celgene; none recommend selling.

Gilead Sciences (GILD)

Shares sold short in Gilead Sciences dropped 10.4% to 18.8 million. This maker of therapeutics for the treatment of life-threatening diseases such as HIV and hepatitis has a market cap near $45 billion. It too is an S&P 500 component and has a return on equity is more than 36%. The company received FDA approval of hits HIV drug Stribild at the end of August. Out of 29 analysts surveyed, 22 rate the stock a "buy" or "strong buy;" none recommend selling shares.

Onyx Pharmaceuticals (ONXX)

Short interest in Onyx Pharmaceuticals fell 6.7% to 5.35 million shares. This South San Francisco company develops therapies that target the molecular mechanisms that cause cancer. Its long-term EPS growth forecast is more than 19%, and the mean price target is about 18% higher than the current share price. Its market cap is near $5 billion. Back in August, Onyx filed for FDA approval of its drug regorafenib as a treatment for certain gastrointestinal tumors.

Vivus (VVUS)

This Mountain View, Calif. biopharmaceutical company saw short interest fall 4.2% to 15.7 million shares. That is about 15% of the float. The market cap is more than $2 billion. The long-term EPS growth forecast is about 51%. The mean price target of analysts is about 40% higher than the current share price and would be a multiyear high. But shares have traded mostly between $21 and $23 since July, though they are up more than 126% this year.

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