3 Drugmakers Feeling the Pain

Drugmakers Horizon Pharma PLC (HZNP), Eli Lilly and Co (LLY), and Pacira Pharmaceuticals Inc (PCRX) are sinking along with their sector peers

May 6, 2016 at 1:27 PM
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It's a bad day to be a drugmaker, as Valeant Pharmaceuticals Intl Inc's (NYSE:VRX) latest news sent its shares falling south, while two other pharmaceutical stocks are plummeting even harder following a round of bearish brokerage notes. Specifically, Endo International plc's (NASDAQ:ENDP) sales warning is being cited as the main negative driver within the sector. Below we'll take a look at three drug stocks that are also feeling the pain today, and could be set up to slide even further: Horizon Pharma PLC (NASDAQ:HZNP), Eli Lilly and Co (NYSE:LLY), and Pacira Pharmaceuticals Inc (NASDAQ:PCRX).

HZNP is down 6.3% at $13.67 -- not too far off its October annual low of $12.86. The share have given up 37% year-to-date, but analysts appear hopeful ahead of the company's first-quarter earnings report, due Monday morning. Of the seven brokerages providing coverage, six rate Horizon Pharma PLC a "strong buy," even after the company confirmed disappointing full-year guidance less than a month ago. Bullish options traders haven't been dissuaded, either, as the equity's 50-day call/put volume ratio on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) sits at 3.12 -- higher than 70% of the past year's readings. Still, some of these call buyers could be short sellers in disguise. Short interest on HZNP represents nearly 15% of the stock's available float. Whatever the case may be, an earnings miss could prompt a round of downgrades and/or an exodus among option bulls, creating even more pressure.

LLY is trading 1.2% lower at $74.38, down nearly 12% in 2016. The company announced first-quarter results last week, with downbeat earnings overshadowing strong revenue and an encouraging outlook, and analysts have since responded with a mixed bag of price-target adjustments. The shares are now back below the $75 level, which served as resistance through February and early March, but traders seemingly expect Eli Lilly and Co to resume a recent uptrend. Short interest on the stock fell by nearly 25% during the two most recent reporting periods to represent just 1% of LLY's total float. And at the ISE, CBOE, and PHLX, the security's 50-day call/put volume ratio of 3.60 ranks in the 98th percentile of its annual range -- showing options traders close to a bullish peak. However, going forward, an unwinding of this optimism could weigh on the stock.

PCRX has shed 0.4% so far today at $47.68, bringing its year-to-date loss to 38%. The company reported quarterly earnings that topped expectations earlier this week, but revenue missed the mark. Still, analysts are quite bullish, with seven of eight maintaining a "strong buy" recommendation on Pacira Pharmaceuticals Inc, without a single "sell" in sight. Options traders have been unusually call-skewed toward the stock, too. PCRX's 50-day call/put volume ratio of 5.92 is higher than 97% of the past year's readings. But not all of these call buyers are necessarily bulls. Short interest accounts for about 21% of the equity's float, or more than two weeks' worth of trading, at PCRX' average daily volume -- suggesting some shorts may be picking up protective calls to hedge against upside risk. That said, a capitulation among "vanilla" option bulls and/or a round of downgrades could sink the stock.


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