Short Interest Swings in Biotech Stocks (CELG, GILD, REGN)

The short interest in biotech and emerging pharmaceutical companies was mixed again in the first two weeks of December. The number of shares sold short in Amgen (NASDAQ:AMGN), Arena Pharmaceuticals (NASDAQ:ARNA), Dendreon (NASDAQ:DNDN) and Illumina (NASDAQ:ILMN) grew somewhat between the November 30 and December 14 settlement dates.

But short interest in Alexion Pharmaceuticals (NASDAQ:ALXN), Biogen Idec (NASDAQ:BIIB), Onyx Pharmaceuticals (NASDAQ:ONXX), Pharmacyclics (NASDAQ:PCYC), Vertex Pharmaceuticals (NASDAQ:VRTX) and VIVUS (NASDAQ:VVUS) declined during that time.

Three stocks saw swings of more than 10 percent in short interest between the November 30 and December 14 settlement dates. They were Celgene (NASDAQ:CELG), Gilead Sciences (NASDAQ:GILD), and Regeneron Pharmaceuticals (NASDAQ:REGN).

Celgene

The short interest in this biopharmaceutical company rose about 12 percent to 6.86 million. That was the highest number of shares sold short since July. But it is less than two percent of the float.

This maker of therapies to treat cancer and immune-inflammatory related diseases has a market capitalization of about $33 billion. Celgene is an S&P 500 component, and in December announced encouraging results for its experimental medicine pomalidomide. The company's return on equity is more than 28 percent, and the long-term earnings per share (EPS) growth forecast is more than 22 percent.

Out of 29 analysts polled by Thomson/First Call, 13 rate the stock at Strong Buy and eight others also recommend buying shares. The mean price target indicates upside potential of about 10 percent and would be a new multiyear high. Shares are up more than 26 percent in the past six months. In that time, the stock has outperformed the likes of Johnson & Johnson (NYSE:JNJ), as well as the S&P 500.

Gilead Sciences

This S&P 500 component saw short interest fall more than 10 percent to 29.43 million shares, its third consecutive period of decline and the lowest average daily volume since August. Short interest is about four percent of the float.

The company develops and markets therapies for the treatment of HIV infection, chronic hepatitis B and life-threatening diseases. In December, Gilead announced it would acquire YM BioSciences and also announced a stock split. The company has a market cap of more than $54 billion and a return on equity of almost 34 percent. The long-term EPS growth forecast is more than 17 percent.

All but five of the 28 analysts surveyed recommend buying shares. They believe the stock has some room to run as their mean price target is about 14 percent higher than the current share price. That target would be a new multiyear high. Over the past six months, the stock has outperformed larger competitor Pfizer (NYSE:PFE) as well as the S&P 500.

Regeneron

Short interest in this Tarrytown, New York-based company decreased more than 12 percent to 4.88 million shares. Days to cover rose to more than seven, and the shares sold short represent more than six percent of the float.

Regeneron develops and commercializes medicines for the treatment of serious medical conditions. It was named biotech company of the year by Scrip Intelligence, and The Motley Fool picked it as one of the best stocks of 2012. The company now has a market cap of almost $16 billion. The long-term EPS growth forecast is more than 50 percent, and the return on equity is more than 36 percent.

Eleven of the 16 surveyed analysts who follow the stock recommend buying shares. Their mean price target, or where they expect the share price to go, is more than six percent higher than the current share price. Note though that the share price was recently higher than that target. Over the past six months, the stock has outperformed larger competitors Amgen and Novartis (NYSE:NVS), as well as the broader markets.

ETFs

Exchange traded fund iShares Nasdaq Biotechnology (NASDAQ:IBB) includes the three companies featured here among its top 10 holdings. Shares are up more than 29 percent year to date, despite a pulling back somewhat in the past two weeks. SPDR S&P Biotech (NYSE:XBI) also includes these three biotech companies as top holdings, and it is up more than 33 percent year to date, despite also pulling back recently.