Short Interest Swings in Biotech Stocks (BIIB, GILD, VVUS)

The short interest in biotech and emerging pharmaceutical companies was mixed in the first two weeks of October. Shares sold short in Alexion Pharmaceuticals (NASDAQ:ALXN), Amgen (NASDAQ:AMGN), Celgene (NASDAQ:CELG), Dendreon (NASDAQ:DNDN), Illumina (NASDAQ:ILMN), Onyx Pharmaceuticals (NASDAQ:ONXX) and Regeneron Pharmaceuticals (NASDAQ:REGN) grew somewhat between the September 28 and October 15 settlement dates. But short interest in Arena Pharmaceuticals (NASDAQ:ARNA), Pharmacyclics (NASDAQ:PCYC) and Vertex Pharmaceuticals (NASDAQ:VRTX) declined during that time.

Three stocks saw larger swings in short interest between the September 28 and October 15 settlement dates. They were Biogen Idec (NASDAQ:BIIB), Gilead Sciences (NASDAQ:GILD) and VIVUS (NASDAQ:VVUS).

Biogen Idec

This S&P 500 component saw short interest dwindle almost 10 percent to 1.68 million shares, its lowest level this year. Short interest is still less than one percent of the float. Biogen Idec develops and markets therapies for the treatment of neurodegenerative diseases, hemophilia and autoimmune disorders. In early October, Biogen Idec posted positive data from the study of its first oral multiple sclerosis therapy and awaits FDA approval by the end of the year. The company has a market capitalization of more than $34 billion and a return on equity of nearly 22 percent. The long-term earnings per share (EPS) growth forecast is more than 14 percent. Fourteen of the 25 analysts polled by Thomson/First Call rate the stock at Buy or Strong Buy. They believe the stock has a little room to run as the mean price target is more than seven percent higher than the current share price. That price target is just above the multiyear high from last month. Over the past six months, the stock's performance has been in line with larger competitor Pfizer (NYSE:PFE) but it has outperformed the broader markets.

Gilead Sciences

Shares sold short in this California-based biopharmaceutical company jumped almost 12 percent to 29.12 million. This followed a more than 26 percent rise in shares sold short in the previous period. The short interest is more than three percent of the float. This maker of therapeutics for the treatment of life-threatening diseases such as HIV and hepatitis has a market cap of more than $51 billion. Gilead Sciences also is an S&P 500 component, and it recently knocked MasterCard (NYSE:MA) from the number 55 spot on the list. Its return on equity is more than 36 percent, and the long-term EPS growth forecast is about 15 percent. Out of 28 analysts surveyed by Thomson Reuters, 23 rate the stock at Buy or Strong Buy; none recommend selling shares. Their mean price target indicates upside potential of more than 10 percent. Shares have traded mostly between $65 and $70 since mid September but are up more than 61 percent year to date. Over the past six months, the stock has outperformed competitors GlaxoSmithKline (NYSE:GSK) and Pfizer, as well as the broader markets.

VIVUS

Short interest in this Mountain View, California-based company increased 11.3 percent to 16.92 million shares, pushing days to cover to more than five. Short interest is near 17 percent of the float. VIVUS develops therapies to address obesity, sleep apnea, diabetes and male sexual health. In early October, the company set a deal with Express Scripts (NASDAQ:ESRX) to distribute its anti-obesity drug. VIVUS now has a market cap of almost $2 billion. The long-term EPS growth forecast is about 51 percent, but the return on equity is in negative territory. Of the 13 polled analysts who follow the stock, eight recommend buying shares and just one recommends selling. Their mean price target, or where they expect the share price to go, is nearly double the current share price. Shares have retreated about 20 percent since the mid-October settlement date. Over the past six months, VIVUS has underperformed GlaxoSmithKline, Eli Lilly (NYSE:LLY) and the S&P 500.

Exchange traded fund iShares Nasdaq Biotechnology (NASDAQ:IBB) includes Biogen Idec and Gilead Sciences among its top 10 holdings. Shares are up about 30 percent year to date, despite pulling back more than four percent in the past week. SPDR S&P Biotech (NYSE:XBI) also includes Gilead Sciences as a top holding, and it is up almost 32 percent year to date, despite also pulling back in the past week.