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Do you like to follow the buying trends of smart money investors? These investors include institutional investors such as hedge fund managers, and because of their experience and access to sophisticated research, their reported stock purchases are very interesting to the rest of the market.

We ran a screen on the biotech industry for stocks seeing significant net institutional purchases over the last quarter, indicating institutional investors expect these names to outperform.

We then screened these hedge fund biotech stock picks for those also seeing significant short covering, or decreases in the number of shares shorted, month-over-month indicating short sellers are also more bullish on these names.

Interactive Chart: Press Play to compare changes in market cap over the last two years for the top six stocks mentioned below. Analyst ratings sourced from Zacks Investment Research.

Do you think these stocks will outperform like the smart money expects? Use this list as a starting point for your own analysis.

List sorted by net institutional purchases over the last quarter as a percent of share float.

1. Optimer Pharmaceuticals, Inc. (NASDAQ:OPTR): Focuses on discovering, developing, and commercializing hospital specialty products worldwide. Market cap at $622.71M, most recent closing price at $13.28. Net institutional purchases in the current quarter at 7.3M shares, which represents about 16.1% of the company's float of 45.35M shares. Shares shorted have decreased from 9.57M to 8.57M over the last month, a decrease which represents about 2.21% of the company's float of 45.35M shares. Days to cover ratio at 14.45 days.

2. China Biologic Products, Inc. (NASDAQ:CBPO): Engages in the research, development, manufacturing, and sale of plasma-based pharmaceutical products. Market cap at $242.43M, most recent closing price at $9.30. Net institutional purchases in the current quarter at 708.2K shares, which represents about 10.12% of the company's float of 7.00M shares. Shares shorted have decreased from 560.44K to 390.68K over the last month, a decrease which represents about 2.43% of the company's float of 7.00M shares. Days to cover ratio at 23.32 days.

3. VIVUS Inc. (NASDAQ:VVUS): Engages in the development and commercialization of therapeutic products for underserved markets in the United States. Market cap at $2.25B, most recent closing price at $22.52. Net institutional purchases in the current quarter at 5.2M shares, which represents about 8.77% of the company's float of 59.31M shares. Shares shorted have decreased from 16.48M to 13.60M over the last month, a decrease which represents about 4.86% of the company's float of 59.31M shares. Days to cover ratio at 1.78 days.

4. Nektar Therapeutics (NASDAQ:NKTR): Engages in developing a pipeline of drug candidates that utilize its PEGylation and polymer conjugate technology platforms. Market cap at $860.12M, most recent closing price at $7.31. Net institutional purchases in the current quarter at 7.9M shares, which represents about 8.31% of the company's float of 95.12M shares. Shares shorted have decreased from 21.56M to 19.67M over the last month, a decrease which represents about 1.99% of the company's float of 95.12M shares. Days to cover ratio at 15.08 days.

5. OncothyreonInc (NASDAQ:ONTY): Focuses on the development of therapeutic products for the treatment of cancer. Market cap at $123.55M, most recent closing price at $4.08. Net institutional purchases in the current quarter at 2.5M shares, which represents about 7.25% of the company's float of 34.50M shares. Shares shorted have decreased from 11.74M to 10.53M over the last month, a decrease which represents about 3.51% of the company's float of 34.50M shares. Days to cover ratio at 7.98 days.

*Short data sourced from Yahoo! Finance, institutional data sourced from Fidelity, all other data sourced from Finviz.

Source: 5 Hedge Fund Biotech Stock Picks With Significant Short Covering