Liquidity is a very important consideration for biotech stocks. Because many biotech firms do not generate earnings until after launching a successful drug, many have to rely on their sources of liquidity to continue operations.
To illustrate, we ran a screen on the biotech industry for highly liquid stocks, with current ratios above 3. The current ratio is current assets/current liabilities, so ratios above 3 indicate the company has at least 3 times the liquid assets to cover their short-term liabilities.
We then screened for those with bullish sentiment from short sellers, with significant decreases in shares shorted month-over-month representing at least 2% of share float. This indicates that short sellers are less bearish on these names than they were a month ago.
Interactive Chart: Press Play to compare changes in market cap over the last two years for the stocks mentioned below. Analyst ratings sourced from Zacks Investment Research.
Do you think these stocks have strong prospects? Use this list as a starting point for your own analysis.
List sorted by decrease in shares shorted month-over-month as a percent of share float.
1. OncothyreonInc (ONTY): Focuses on the development of therapeutic products for the treatment of cancer. Market cap at $122.64M, most recent closing price at $4.09. Current ratio at 13.84. Shares shorted have decreased from 10.53M to 9.09M over the last month, a decrease which represents about 4.14% of the company's float of 34.76M shares. Days to cover ratio at 7.51 days.
2. Illumina Inc. (NASDAQ:ILMN): Develops, manufactures, and markets integrated systems for the analysis of genetic variation and biological function. Market cap at $5.59B, most recent closing price at $44.95. Current ratio at 5.59. Shares shorted have decreased from 25.39M to 21.62M over the last month, a decrease which represents about 3.12% of the company's float of 121.00M shares. Days to cover ratio at 6.99 days.
3. Enzon Pharmaceuticals Inc. (NASDAQ:ENZN): Engages in the research and development of therapeutics for cancer patients with unmet medical needs. Market cap at $292.76M, most recent closing price at $6.02. Current ratio at 10.83. Shares shorted have decreased from 5.36M to 4.40M over the last month, a decrease which represents about 3.05% of the company's float of 31.51M shares. Days to cover ratio at 22.26 days.
4. Savient Pharmaceuticals, Inc. (OTC:SVNT): Focuses on developing KRYSTEXXA, a biologic PEGylateduricase in the United States. Market cap at $131.77M, most recent closing price at $1.61. Current ratio at 6.31. Shares shorted have decreased from 30.24M to 28.88M over the last month, a decrease which represents about 2.69% of the company's float of 50.54M shares. Days to cover ratio at 25.43 days.
*Short data sourced from Yahoo! Finance, all other data sourced from Finviz.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.