The market in general and medical-related stocks in particular continue to be on fire. It's times like this when people tend to sell their losers and put more money to work in new stocks. This is a time when oversold stocks can potentially make for very profitable trades, especially among ones that have extra large short interest. Profit taking works in both directions, and shorts will often take their profits and cover during this time. With increased optimism, volume, and volatility in the markets and medical stocks, these bounces can be quite pronounced.
I performed a screen search for oversold medical equipment and biotech stocks that fell between 6% and 10% last week. By limiting the fall to under 10%, this filters out many of the stocks that had bad fundamental news since usually if a medical stock sells off that severely, there's usually a fundamental reason for it such as bad trial data such as seen with Celsion (CLSN), and those types we'd want to avoid. I then further filtered down my search to only stocks with a short ratio over 5 and eliminated the ones with low volume (under 300k shares average). There are 5 stocks that resulted from my screen. Use this list only as a mere first step for possible ideas warranting further research. They are sorted from largest to smallest short interest ratio.
(1) Savient Pharmaceuticals (SVNT) is a specialty biopharmaceutical company focused on developing and commercializing KRYSTEXXA® (pegloticase) for the treatment of chronic gout in adult patients who do not respond to conventional therapy. Savient has exclusively licensed worldwide rights to the technology related to KRYSTEXXA and its uses from Duke University ("Duke") and Mountain View Pharmaceuticals, Inc. ("MVP"). Duke developed the recombinant uricase enzyme and MVP developed the PEGylation technology used in the manufacture of KRYSTEXXA. MVP and Duke have been granted US and foreign patents disclosing and claiming the licensed technology and, in addition, Savient owns or co-owns US and foreign patents and patent applications, which collectively form a broad portfolio of patents covering the composition, manufacture and methods of use and administration of KRYSTEXXA. Savient also supplies Oxandrin® (oxandrolone tablets, USP) CIII in the US. SVNT fell 10% last week finishing off Friday at $0.94 per share. There was no fundamental news causing the sell-off, making the discount a potential opportunity to go long pending further investigation. It has a short ratio of 14.3 and short interest of 20.1 million shares.
(2) BioTime (BTX) is focused on regenerative medicine and blood plasma volume expanders. Its broad platform of stem cell technologies is enhanced through subsidiaries focused on specific fields of application. BioTime develops and markets research products in the fields of stem cells and regenerative medicine, including a wide array of proprietary PureStem™ cell lines, HyStem® hydrogels, culture media, and differentiation kits. BioTime is developing Renevia™ (formerly known as HyStem®-Rx), a biocompatible, implantable hyaluronan and collagen-based matrix for cell delivery in human clinical applications. BTX fell 6.5% last week, closing Friday at $4.30 per share. (Author's Note: BTX closed at $4.60 per share on 2/1/13 and finished the next week at $4.30 per share for decline of 6.5%. Not $6.30 per share as was originally written.) There was no fundamental news to cause the sell-off making the discount a potential opportunity to go long pending further investigation. It has a short ratio of 12.8 and short interest of 6.1 million shares.
(3) PharmAthene (PIP) was formed to meet the critical needs of the United States and its allies by developing and commercializing medical countermeasures against biological and chemical agents. PharmAthene's lead product development programs include:
- SparVax™ - next generation recombinant protective antigen (rPA) anthrax vaccine
- Recombinant BChE- novel bioscavenger for the prevention and treatment of morbidity and mortality associated with exposure to chemical nerve agents
- Valortim® - fully human monoclonal antibody for the prevention and treatment of anthrax infection
In addition, pursuant to a final judgment issued May 31, 2012 from the Delaware Court of Chancery, PharmAthene is entitled to 50% of the net profits over 10 years from all sales of SIGA Technologies' Arestvyr™ (formerly called ST-246®), a novel smallpox antiviral agent being developed by SIGA for the treatment and prevention of morbidity and mortality associated with exposure to the causative agent of smallpox, and related products, once SIGA receives the first $40 million in net profits from sales of Arestvyr™. PIP fell 7.9% last week closing Friday at $1.40 per share. There was no fundamental news to cause the sell-off making the discount a potential opportunity to go long pending further investigation. It has a short ratio of 10.6 and short interest of 4.4 million shares.
(4) SciClone Pharmaceuticals (SCLN) is specialty pharmaceutical company with a product portfolio of therapies for oncology, infectious diseases and cardiovascular, urological, respiratory, and central nervous system disorders. SciClone's ZADAXIN® (thymalfasin) is approved in over 30 countries and may be used for the treatment of hepatitis B (HBV), hepatitis C (HCV) and certain cancers, and as a vaccine adjuvant, according to the local regulatory approvals. Besides ZADAXIN, SciClone markets about 14 mostly partnered products in China, including Depakine®, the most widely prescribed broad-spectrum anti-convulsant in China; Tritace®, an ACE inhibitor for the treatment of hypertension; Stilnox®, a leading hypnotic for the short-term treatment of insomnia (marketed as Ambien® in the U.S.); and Aggrastat®, a recently-launched interventional cardiology product. SCLN fell 6.5% last week closing Friday at $4.76 per share. There was no fundamental news to cause the sell-off though there was a press release giving notice that SCLN will be presenting at an investor conference. Is there something related to the conference, perhaps something in the presentation or who is attending from management that has caused investors to get jittery? It has a short ratio of 9.0 and short interest of 3.9 million shares.
(5) Sangamo BioSciences (SGMO) is focused on research and development of novel DNA-binding proteins for therapeutic gene regulation and genome editing. The company has ongoing Phase II clinical trials to evaluate the safety and efficacy of a novel ZFP Therapeutic® for the treatment of HIV/AIDS. Sangamo's other therapeutic programs are focused on monogenic diseases, including hemophilia, Huntington's disease and hemoglobinopathies such as beta-thalassemia and sickle cell anemia. Sangamo's core competencies enable the engineering of a class of DNA-binding proteins known as zinc finger DNA-binding proteins (ZFPs). Engineering of ZFPs that recognize a specific DNA sequence enables the creation of sequence-specific ZFP Nucleases (ZFNs) for gene modification and ZFP transcription factors (ZFP TFs) that can control gene expression and, consequently, cell function. Sangamo has entered into a strategic collaboration with Shire AG to develop therapeutics for hemophilia, Huntington's disease and other monogenic diseases and has established strategic partnerships with companies in non-therapeutic applications of its technology including Dow AgroSciences and Sigma-Aldrich Corporation. SGMO fell 7.8% this week finishing off Friday at $8.805 per share following its earnings release that beat estimates but guided a range within expectations. The market apparently needed more to avoid any profit taking sell off being that shares were already up at the time 56.9% year-to-date. Perhaps more sell off could occur though given the volatility extreme caution is advised and extensive research is recommended before taking a position either long or short. It has a short ratio of 8.6 and short interest of 6.1 million shares.
Disclosure: I am long CLSN. I may go long BTX, PIP, SCLN, SGMO, or SVNT in the next 72 hours.