Here is a list of some stocks with high short interest. When stocks have heavy short interest, any positive catalyst for these stocks can trigger a short squeeze. Let's take a look at some of these stocks for potential
MannKind Corporation (MNKD) 2/3/11 pps: $2.17.
|Avg Vol (3 month):||796,258|
|Avg Vol (10 day):||1,391,520|
|% Held by Insiders:||39.32%|
|% Held by Institutions:||19.40%|
|Shares Short (as of Jan 13, 2012):||28.42M|
In a prior article, I remark that Mannkind has over 28 million shares short, so Mannkind easily makes this list. The short interest is over 35 percent of the entire float. Needless to say, this is high short interest here.
Mannkind has had to date, multiple setbacks to its drug Afrezza, with controversy surrounding the last FDA rejection of the drug.
CREW (Citizens for Responsibility and Ethics in Washington) claims Martin Shkreli, chief investment officer for The New York-based hedge fund, MSMB Capital Management LLC, has attempted to insert himself into the FDA approval process of at least four pending drugs, Alfrezza being one of them, in which he held a short position.
CREW goes on to claim that Shkreli contacted several FDA officials while working behind the scenes in an attempt to affect the outcome of the FDA regulatory process.
The FDA review process is supposed to be nonpublic information, but on December 25, 2010, CREW claims Martin Shkreli emailed 12 FDA officials including Margaret Hamburg, Janet Woodcock, Mary Parks among others asking that the FDA deny MannKind's Afrezza application. Coincidentally, three days later and one day before PDUFA, Mannkind was informed by FDA on December 28, that it needed 3-4 additional weeks to complete the review.
Then on January 18, 2011, MannKind received a Complete Response Letter from the FDA. The principal issue raised by the FDA concerned the data to bridge the Gen2 (Dreamboat) inhaler and the MedTone used in the phase 3 trials. This in itself is very concerning given that the FDA told MannKind in a meeting that it would accept the bioequivalence trial to bridge the two devices and when MannKind submitted the trial, the FDA accepted it.
I find the above information disturbing to say the least. My review of Alfrezza data suggest to me that it is a safe and effective inhaled treatment for Diabetes. The FDA seems to have been influenced in a bad way concerning Alfrezza, and a CRL was not warranted. In my opinion, Alfrezza should have been approved.
I expect before this controversy is settled, many shorts will begin to cover and the price per share should double sometime this year from its current price of $2.17. Mannkind is also in constant RegSho violation, which is an SEC regulatory effort instituted in 2005 to try to curtail "naked shorting."
My verdict: Keep an eye on Mannkind as there could be a nice short squeeze occurring soon. I believe that Mannkind will eventually succeed. Cautious buy.
Savient Pharmaceuticals (SVNT) 2/3/11 pps: $2.26
Savient engages in developing and commercializing KRYSTEXXA for the treatment of chronic gout in adult patients refractory to conventional therapy. The company also sells and distributes branded and generic versions of oxandrolone, a drug used to promote weight gain following involuntary weight loss.
|Avg Vol (3 month):||1,607,680|
|Avg Vol (10 day):||1,755,550|
|% Held by Insiders:||7.96%|
|% Held by Institutions:||99.30%|
|Shares Short (as of Jan 13, 2012):||27.32M|
|Short Ratio (as of Jan 13, 2012):||14.70|
|Short % of Float (as of Jan 13, 2012):||43.30%|
|Shares Short (prior month):||26.58M|
Savient recently had its CEO, John Johnson leave to go to Dendreon (DNDN). Obviously, investors never like to see a CEO step down. This would explain some of the current high short interest in the stock. Krystexxa (pegloticase), Savient's lead drug, is an enzyme that metabolizes uric acid into a harmless chemical that is eliminated from the body in urine.
Krystexxa is used to treat chronic gout. Pegloticase is usually given after other gout medications have been tried without successful treatment of symptoms.
Sales for Krystexxa in Q1, Q2, and Q3 of 2011 were $300,000, $1,400,000 and $1,900,000, showing nice growth here. This is a good sign as it appears sales of the drug are increasing quarter over quarter. Following this growth pattern, Q4 should report a good increase in sales, possibly a double of Q3 as Krystexxa gains more market exposure.
The company also produces and markets generic Oxandrin, (Oxandrolone) which is used with a diet and exercise program to cause weight gain in patients who have lost too much weight due to surgery, injury, or long-lasting infections, or who are very underweight for unknown reasons.
In the Q3 2011 10q from Savient in November, we read the following;
Sales of oxandrolone, our authorized generic version of Oxandrin, increased $0.1 million for the three months ended September 30, 2011 as compared to the three months ended September 30, 2010 offset by a $0.4 million decrease in net sales of our branded product, Oxandrin, for the three months ended September 30, 2011 as compared to the three months ended September 30, 2010. While gross sales of Oxandrin remained consistent from period-to-period, net sales in the prior year quarter benefited from recoveries in our sales allowances resulting in lower sales allowances for the three months ended September 30, 2010 as compared to the three months ended September 30, 2011. We expect that sales of Oxandrin and oxandrolone will decrease in future periods depending on various factors, including the pricing and number of competing products, overall demand in the marketplace and due to the expiration of our contract agreement with our third-party manufacturer which has manufactured both products on our behalf.
This means Savient basically has one drug with any kind of effective market share, Krystexxa. Krystexxa sales are increasing, but should the company's market cap be 158.65M?
|Profit Margin (TTM):||N/A|
|Operating Margin :||-1,452.65%|
|Cash Flow Statement|
|Operating Cash Flow :||-101.77M|
|Levered Free Cash Flow :||-112.05M|
EBITDA -98 million? Negative levered and Negative cash flow is not good. ROE/ROA are terrible. I can certainly see why The CEO left, as management has been doing a terrible job with the company bottom line. But was it his doing, or did he leave because he disagreed with the course of current management?
My verdict: Savient deserves its high short interest, and management needs to prove it can produce the margins, ROE/ROA, and get the EBITDA in line. While increasing sales growth in Krystexxa is one strong positive, until I see improvement in management effectiveness, I agree with the high short interest in the stock. A move down to $1.75 is not out of the question in the short term; consider shorting it, then covering it at the 1.75 level.
MAKO Surgical Corporation (MAKO) 2/3/11 pps: $35.87
MAKO Surgical Corporation is a medical device company, marketing its advanced robotic arm solution and orthopedic implants for orthopedic procedures in the United States and internationally.
|Avg Vol (3 month):||1,044,870|
|Avg Vol (10 day):||802,462|
|% Held by Insiders:||20.39%|
|% Held by Institutions:||72.70%|
|Shares Short (as of Jan 13, 2012):||12.54M|
|Short Ratio (as of Jan 13, 2012):||12.80|
|Short % of Float (as of Jan 13, 2012):||48.10%|
|Shares Short (prior month):||11.17M|
With more than 12 million shares short, Mako makes the list of companies with high short interest. Is the short interest justified in Mako? Let's find out;
Mako's lead product, MAKOplasty, is a restorative surgical solution that enables orthopedic surgeons to treat patient specific osteoarthritic disease. Its knee MAKOplasty surgical solution enables resurfacing of one or two specific diseased compartments of the joint preserving significantly more soft tissue and healthy bone of the knee.
Other products Mako offers are;
The RIO robotic arm interactive orthopedic system, which includes a tactile robotic arm utilizing an integrated bone cutting instrument; and a patient specific visualization component that offers pre-operative and intra-operative guidance to the orthopedic surgeon, enabling minimally invasive and tissue sparing bone removal and knee implant insertion.
RESTORIS, a family of implants for use in single and bicompartmental knee resurfacing procedures.
|Cash Flow Statement|
|Operating Cash Flow :||-24.86M|
|Levered Free Cash Flow :||-18.57M|
The Mako market cap is $1.49 Billion. In my opinion, this market cap is too high and not warranted based on the current balance sheet and statements by management in the company's most recent 10q;
We have incurred net losses in each year since our inception and, as of September 30, 2011, we had an accumulated deficit of $183.4 million. We expect to continue to incur significant operating losses as we increase our sales and marketing activities and otherwise continue to invest capital in the development and expansion of our products and our business generally. We expect that our general and administrative expenses will continue to increase to support the sales and marketing efforts associated with the growing commercialization of MAKOplasty, including our MAKOplasty total hip arthroplasty application, or MAKOplasty THA application, that we commercially launched in September 2011, and to support our continued growth in operations. We also expect our research and development expenses to increase as we continue to expand our research and development activities, including the support of existing products and the research of potential future products.
While Mako has been showing quarterly revenue growth while lowering the cost of revenue, it is still just priced a bit too high. Management remarks above show that Mako expects more increase in costs, but can this help to bring future profit? Will the demand for its products be enough moving forward to make up the increase in costs? Perhaps, but it needs to show some solid signs of this first before $36 is justified. I do think the company may be good in the long term, but a correction is needed here in the short term.
My verdict: Join the shorts down to the upper $20 dollar range, where the pps should be.
Disclaimer: This article is intended for informational and entertainment use only and should not be construed as professional investment advice. Always do you own complete due diligence before buying and selling any stock.