3 Zika Stocks to Watch

GlaxoSmithKline plc (ADR) (NYSE:GSK), Inovio Pharmaceuticals Inc (NASDAQ:INO), and Sanofi SA (ADR) (NYSE:SNY) are all reportedly working on a vaccine to treat the Zika virus

Feb 5, 2016 at 12:35 PM
facebook twitter linkedin

Earlier this week, the World Health Organization (WHO) declared the rise in birth defects, such as microcephaly, which have been caused by the Zika virus a global emergency. In the wake of this designation, the race is on for the first drugmaker to develop a vaccine for the mosquito-based virus -- although one Indian company may have beat them to it -- with signs suggesting GlaxoSmithKline plc (ADR) (NYSE:GSK), Inovio Pharmaceuticals Inc (NASDAQ:INO), and Sanofi SA (ADR) (NYSE:SNY) are all in the running.

GSK, for instance, has reportedly been exploring whether its vaccine technology could work to prevent the Zika virus, but a spokesperson for the company cautioned that vaccines typically take 10-15 years to develop. Among the drugs GSK has developed are a pair of HIV treatments -- Tivicay and Triumeq -- with growing fourth-quarter sales of each helping boost the shares to their highest point since early November on Wednesday. The rally was quickly halted by the security's descending 200-day moving average, though, and at last check, the stock was trading at $40.60, down 12% year-over-year.

On the sentiment front, short-term option traders are more call-skewed now than at any other point over the past 52 weeks, per GlaxoSmithKline plc's Schaeffer's put/call open interest ratio (SOIR) of 0.23 -- an annual low. In the front-month series, specifically, peak call open interest of 5,462 contracts is found at the February 41 strike.

INO, meanwhile, recently confirmed that it will once again collaborate with GeneOne Life Science, this time on a Zika vaccine. The two companies explained they "can readily apply Inovio's technology to target other threatening infectious threats like [Middle East Respiratory Syndrome] MERS and Zika virus as well as other emergent infectious diseases."

On the charts, INO has been making a series of lower lows since topping out at an annual high of $10.83 in mid-April, down 44% at $6.05. Although the shares took a sharp bounce off their Jan. 20 two-year low of $4.50, they ran out of steam near their 180-day moving average -- a trendline that has helped contain the stock last June.

Despite these technical troubles, sentiment is mixed. Among the brokerage bunch, all five analysts covering Inovio Pharmaceuticals Inc maintain a "strong buy" rating. However, short sellers have been rolling the dice on additional losses. Short interest jumped 5.4% in the most recent reporting period, and now accounts for more than one-fifth of the stock's available float.

SNY said earlier this week it hopes its dengue fever treatment can translate into a vaccine for Zika. The speculation has done little to boost the stock, which was last seen down 1.6% at $39.93 -- on pace for a 4.1% weekly loss. Longer term, SNY has shed 27% since hitting an annual high of $54.98 in early August, and tagged a three-year low of $38.58 on Jan. 15.

In the options pits, speculators are more put-heavy than usual among options set to expire in three months or less, ahead of next Tuesday morning's earnings report. Specifically, Sanofi SA's SOIR of 0.61 sits above 88% of all comparable readings taken in the past year. Skepticism is ramping up outside of the options arena, too, and in the most recent reporting period, short interest surged 67%. Going forward, the stock could find a fresh wave of selling pressure, should shorts continue to pile on.

Now is the time to join our thriving community of Event Traders who consistently profit from every earnings season. With this discounted subscription opportunity, you'll stay ahead of the curve and seize opportunities others miss. Do not let Q3 earnings season pass you by – subscribe now and supercharge your portfolio with expert insights that turn market reactions into profit-generating opportunities!! Don't waste another second... join us right now before the next trade targeting +200% is released!