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

by Kirra Fedyszyn

Published on May 6, 2016 at 1:27 PM
Updated on Jun 24, 2020 at 10:16 AM

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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