5 of the Most Hated Biotech Stocks on the Market: Are They Buys?

One of the best ways to measure how much a stock is hated is by looking at the percentage of the stock's float that's sold short. Short-sellers think so poorly of a stock that they're willing to put money on the line that its price will fall.

Five biotech stocks appear to have incurred a lot of hate based on their levels of short interest: Agios Pharmaceuticals (NASDAQ: AGIO), Insys Therapeutics (NASDAQ: INSY), Intercept Pharmaceuticals (NASDAQ: ICPT), Lexicon Pharmaceuticals (NASDAQ: LXRX), and Myriad Genetics (NASDAQ: MYGN). But are these hated stocks actually smart picks to buy right now?

Agios Pharmaceuticals

Over 52% of Agios Pharmaceuticals' stock float is sold short. Why such pessimism about the stock? It could be that many investors are skeptical about the prospects for ivosidenib, which Agios hopes to submit for U.S. regulatory approval by the end of 2017.

However, Agios and partner Celgene recently won Food and Drug Administration (FDA) approval for acute myeloid leukemia (AML) drug Idhifa, which inhibits the IDH2 enzyme. That approval could bode well for Agios' chances for IDH1 inhibitor ivosidenib. While Agios' market cap of $3 billion might seem steep for where the company stands right now, I think the short-sellers could be wrong about Agios Pharmaceuticals over the long run.

Insys Therapeutics

Nearly 41% of Insys Therapeutics' stock float is sold short. Sales for Insys' opioid painkiller Subsys have plunged in the midst of the national opioid epidemic. Insys stock has also dropped, making some short-sellers plenty of money along the way.

I wouldn't count on a dark cloud hovering over Insys for much longer, though. The company recently launched Syndros, its cannabinoid treatment for anorexia associated with weight loss in AIDS patients and nausea and vomiting associated with chemotherapy in cancer patients.

There are also signs that the worst days for Subsys could be coming to a close. I recently picked Insys as one of three marijuana stocks that could be big winners by the end of the year, and still think the biotech could rebound significantly in the coming months.

Intercept Pharmaceuticals

Intercept Pharmaceuticals' short interest as a percentage of stock float currently stands at almost 44%. The biotech continues to lose lots of money. Sales for Ocaliva in treating primary biliary cholangitis (PBC) are growing, but not nearly enough to justify Intercept's market cap of close to $3 billion.

There's tremendous potential for Ocaliva, though, in another indication -- non-alcoholic steatohepatitis (NASH). Phase 3 studies are still underway for the NASH indication.

There are quite a few other companies developing NASH drugs, as well. However, I think Intercept could be a big winner in time and definitely wouldn't bet against it. Don't be surprised if Intercept becomes an acquisition target for a larger biopharma company down the road.

Lexicon Pharmaceuticals

There are lots of haters of Lexicon Pharmaceuticals, with a whopping 59% of its float sold short. Like Intercept, Lexicon is still posting big losses with relatively slow sales for its only approved drug, Xermelo.

Yet again, though, I'm not on the short-sellers' side. Lexicon received good news in June with Xermelo being included as a recommended treatment option by the National Comprehensive Cancer Network (NCCN). More important, though, is the company's experimental diabetes drug sotagliflozin. Results announced so far from clinical studies have been very positive. The drug has a real shot at becoming a blockbuster success, in my view.

Myriad Genetics

Last on our list is Myriad Genetics, with nearly 44% of its float sold short. That short interest has been dropping, however, with the molecular-diagnostics company recently hitting 52-week highs. It seems likely that short-sellers covering their short positions have helped drive Myriad Genetics stock higher.

I'd be a little leery of buying Myriad Genetics now, though. The company has enjoyed good news of late, including positive results from studies of its DNA cancer tests and broader payer coverage of the EndoPredict breast cancer test.

Still, in my view, the growth prospects for Myriad don't justify its premium valuation. I don't hate the stock, but at the current price, I don't love it, either.

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Keith Speights owns shares of Celgene. The Motley Fool owns shares of and recommends Celgene. The Motley Fool has a disclosure policy.