Short Sellers Delight in Biotech Breakdown

Biotech stocks OvaScience Inc (NASDAQ:OVAS) and Ionis Pharmaceuticals Inc (NASDAQ:IONS) are getting crushed today

by Josh Selway

Published on May 26, 2016 at 11:45 AM
Updated on Jun 24, 2020 at 10:16 AM

Biotech stocks OvaScience Inc (NASDAQ:OVAS) and Ionis Pharmaceuticals Inc (NASDAQ:IONS) are both selling off today. Let's take a quick look at what has OVAS and IONS trading lower, and what it could mean for the stocks' short sellers. 

With trading volume set to hit a 12-month high, OVAS has dropped more than 27% of its value today, last seen trading at $7.13, after the fertility company announced a public stock offering of 7.2 million shares for just $7 per share. This comes after a long line of losses for the stock, which has shed more than 76% in the past 12 months. 

While OvaScience Inc (NASDAQ:OVAS) options volume has remained light on an absolute basis, short sellers are likely cheering today's drop. Specifically, nearly one-third of the stock's float is committed to short interest, and it would take these bears almost three weeks to cover their positions, at average daily trading volumes. Today, though, OVAS has found itself on the short-sale restricted list. 

IONS is even worse off today, giving back 35.2% at $22.85, earlier touching a roughly two-year low of $22.49. The tumble comes after the company announced co-developer GlaxoSmithKline plc (ADR) (NYSE:GSK) would not be initiating a Phase 3 outcome study for its therapy for transthyretin (TTR) amyloid cardiomyopathy. The biotech stock has now lost 66% of its value in the past 12 months, and it looks like some short sellers are using options to lock in paper profits. 

Specifically, Ionis Pharmaceuticals Inc (NASDAQ:IONS) call options are trading at 15 times the usual intraday pace today, with buy-to-open activity taking place at the way-out-of-the-money January 2018 40-strike call. Considering short sellers control more than six days' worth of buying power on IONS, this trade was possibly initiated by a short seller hedging against a future upside move in the shares. 

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