5 Pharma Stocks Playing the Volatility Game

ARIA, SURG, HTWR, TSRO, and WMGI are among the pharmaceutical stocks on the move

by Andrea Kramer

Published on Sep 2, 2015 at 12:07 PM

Pharmaceutical names are making major moves today, with a handful of stocks playing the volatility game. Among them: Ariad Pharmaceuticals, Inc. (NASDAQ:ARIA), Synergetics USA Inc (NASDAQ:SURG), and HeartWare International Inc (NASDAQ:HTWR), which are moving on M&A buzz; as well as TESARO Inc (NASDAQ:TSRO) and Wright Medical Group Inc (NASDAQ:WMGI), which are reacting to FDA nods.

ARIA was last seen 16.9% lower at $7.56, after Baxalta Inc (NYSE:BXLT) reportedly abandoned its bid for the firm. Heading into last night's close, ARIA was sitting pretty, just off an annual high in double-digit territory, tagged after takeover rumors hit the Street late last week. ARIA is now on the short-sale restricted (SSR) list -- though these pessimistic positions already account for more than a quarter of the stock's float.

Currently, ARIA options are trading at four times the normal intraday rate, and some skeptics may be buying puts to place their downside bets. Specifically, traders are seemingly buying to open September 6 puts, which will move into the money if ARIA breaches $6 by expiration at the close on Friday, Sept. 18. 

SURG is, well, surging. The stock skyrocketed more than 50% to touch a fresh three-year peak of $6.70, on news the company is Valeant Pharmaceuticals Intl Inc's (NYSE:VRX) acquisition du jour. Valeant said it will buy SURG for roughly $166 million, or $6.50 per share -- a 48% premium to SURG's close of $4.39 yesterday -- marking VRX's eighth acquisition of 2015, after just buying the maker of "female Viagra."

HTWR, meanwhile, has plummeted 19.5% to sit at $65.85 -- and on the SSR list -- and earlier hit a three-year low of $65.60, as traders pan the company's all-share acquisition of Israeli firm Valtech Cardio Inc. Analysts are also jeering the purchase. "While we understand the rationale of this acquisition and it may prove to be a strong asset over the next 3-5 years, we anticipate there will be significant investor turnover and no longer see upside within BTIG's 12 month rating system," BTIG wrote, downgrading HTWR to "neutral" from "buy." 

Echoing that, Raymond James downgraded the stock to "market perform" from "outperform," while Sterne Agee CRT slashed its price target to $93 from $103. There could be more on the way, too; HTWR boasts seven "buy" or better ratings, compared to three lukewarm "holds" and one "strong sell." Plus, the average 12-month price target of $96.83 now sits at a 47% premium to the stock's current perch. 

TSRO is up 6.6% at $55.07, after the FDA approved its treatment for chemotherapy-induced nausea. In late 2010, Tesaro licensed Rolapitant from Opko Health Inc. (NYSE:OPK), which is enjoying a 1.5% halo lift to flirt with $11. In the wake of the news, Jefferies lifted its price target on TSRO to $73 from $70 -- in uncharted territory for the stock, which has now added nearly 50% in 2015. 

A short squeeze could propel TSRO even higher, should bears hit the exits. Short interest accounts for almost 23% of the equity's float, and would take more than 13 sessions to repurchase, at TSRO's average daily trading volume. 

Finally, WMGI has jumped 9.7% to flirt with $25.14, after the FDA approved its Augment Bone Graft. However, the stock is still struggling to surmount its 10-month moving average, which has led WMGI 6.4% lower in 2015. 

But, a mass exodus of bears could translate into added upside for the shares. Short interest represents almost four weeks' worth of pent-up buying demand, at WMGI's average pace of trading. Plus, the stock's Schaeffer's put/call open interest ratio (SOIR) of 1.12 stands higher than 97% of all other readings from the past year, implying near-term options traders are more put-heavy than usual right now.


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