2 Biotech Stocks That Could Be Prime Candidates For The Short Seller

Includes: HEB, PX
by: Matt Schilling

The last few days for each of these companies have not been one of their finer moments and as a result I think a near-term short strategy may be the best bet to turn a profit before year's end. In this article I wanted to focus on the significantly negative developments that were announced in the past 24 hours.

Praxair (NYSE:PX), which is based in Danbury, Connecticut, currently "engages in the production, distribution, and sale atmospheric and process gases, as well as surface coatings in North America, Europe, South America, and Asia. The company offers atmospheric gases, such as oxygen, nitrogen, argon, and rare gases; and process gases comprising carbon dioxide, helium, hydrogen, electronic gases, specialty gases, and acetylene". (Yahoo! Finance)

From a fundamental perspective, shares of PX currently carry a market cap of $32.52 billion, have traded up 1.05% since July 1, and are also trading at a 2.20% premium to their 50-DMA and at a 2.88% premium to their 200-DMA.

PX Chart
(Click to enlarge)

PX data by YCharts

On December 20th it was announced that Praxair is initiating a voluntary recall of its Grab 'n Go Vantage portable oxygen cylinder units after becoming aware of a few isolated incidents of ignition inside cylinders that had been knocked over and subject to significant physical impact. The company plans to make a minor modification to the affected units as they come in for routine servicing and filling. Although Praxair has already communicated with many of its customers and the FDA, I still think this could end up being a major factor going forward and until the air is clear I'd remain cautious on the stock.

Hemispherx Biopharma (NYSEMKT:HEB), which is based in the Philadelphia, Pennsylvania, operates as "a specialty pharmaceutical company engages in the clinical development of new drug therapies based on natural immune system enhancing technologies for the treatment of viral and immune based chronic disorders". (Yahoo! Finance)

Fundamentally speaking, shares of HEB currently carry a market cap of $54.36 million, have traded down 11.57% since July 1, and are also trading at a 50.68% discount to their 50-DMA and at a 41.37% discount to their 200-DMA.

HEB Chart
(Click to enlarge)

HEB data by YCharts

On December 20th it was announced that an FDA panel had rejected Hemispherx Biopharma's chronic fatigue syndrome treatment Ampligen, saying it isn't ready for marketing. Several panel members struggled with their decisions because it appears the drug works in certain patients even if it wasn't strongly shown in the clinical data presented to the panel. Although, the drug may work on certain types of patients there are still many questions surrounding the drugs application and therefore, a short position may be the best long-term option.

Final Analysis

For potential investors looking to establish a short position in either Praxair or Hemispherx, I'd take a closer look at each company and keep in mind the primary positive and negative catalysts moving forward. Given the fact that both companies have experienced significant regression in the past 24 hours, I'd look to maintain my short position over the course of the next few months and then gradually look to cover more and more of that position as time goes on.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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