How Shorts Could Fuel the Biotech Bonanza

Short sellers may be getting nervous on Neuroderm Ltd (NASDAQ:NDRM), Osiris Therapeutics, Inc. (NASDAQ:OSIR), and ImmunoGen, Inc. (NASDAQ:IMGN)

by Alex Eppstein

Published on Jul 16, 2015 at 12:26 PM

The Nasdaq Composite (COMP) is creeping closer to all-time-high levels at midday, and one big reason why is the red-hot biotech sector. Currently, the MarketVectors Biotech ETF (NYSEARCA:BBH) is up 1.5% at $143.97, leading its peers. In terms of individual stocks, three biotechs are fresh off their own highs -- Neuroderm Ltd (NASDAQ:NDRM), Osiris Therapeutics, Inc. (NASDAQ:OSIR), and ImmunoGen, Inc. (NASDAQ:IMGN) -- and they could see even more gains on potential short-covering activity.

After the company last night priced its secondary public offering at $17 per share, NDRM has soared 9.4% to trade at $18.94, and earlier hit a record high of $19.74. Year-to-date, the stock has now rallied nearly 35% -- a fact analysts have recognized, with 100% doling out "strong buy" recommendations. However, short sellers piled on during the latest reporting period, with short interest soaring almost 30%. Considering Neuroderm Ltd's bull gap, these bears may be wallowing in regret.

Elsewhere, OSIR is fresh off an annual peak of $22.02, adding roughly 10% today. So far in 2015, the shares have surged more than 35%, helped by a recent bounce off their 10-week moving average. Short sellers may be thinking about throwing in the towel right about now. Almost 19% of Osiris Therapeutics, Inc.'s float is dedicated to short interest. At the stock's typical trading volume, it would take close to four weeks to buy back these bearish wagers.

Lastly, IMGN touched an annual high of $18.95 this morning, and was last seen up 9.1% at $18.44. In fact, so far in 2015, the shares have tripled in value. While short sellers have been hitting the exits -- with short interest tumbling 13.2% during the latest reporting period -- nearly 14% of the equity's float is still shorted. At ImmunoGen, Inc.'s average trading level, it would take about eight sessions to cover these positions -- meaning there's plenty of sideline cash available to fuel additional gains.

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