Which billion-dollar biotechs are short sellers targeting? – top and bottom 15

The boom and bust nature of the biotech sector makes it a natural place for short sellers with a healthy appetite for risk. One name receiving ample attention recently is MannKind, which is looking for a marketing partner to sell its newly approved diabetes drug – an effort on which many investors are betting it will come up short.

Chairman and CEO Alfred Mann has dedicated 15 years and at least $900 million towards getting Afrezza, an inhaled insulin product, through the FDA. After two prior rejections, the agency at last granted approval on June 27.

Unfortunately it may be a case of out of the fryer and into fire, however, as the company has neither the manpower nor commercial infrastructure to mount the large-scale marketing effort needed to detail the product to primary care physicians.

MannKind does not have history on its side, as any potential partner will be well aware of what happened to a previous inhaled insulin product: Pfizer's Exubera ended up being a costly flop and was pulled from the market.

What's more, even if the company does ink a deal, short sellers may also be counting on sales to be limited by Afrezza's label, which requires lung function testing and includes a black box warning against use of the product by patients with asthma or other chronic lung diseases.

Even so, RBC analyst Adnun Butt is optimistic about MannKind's chances, noting that the company disclosed in May that it had already begun engaging in "intensive" partnering discussions.

Time is of the essence, notes JP Morgan analyst Cory Kasimov, as the company's cash position "is likely only sufficient to get through mid-2014."

MannKind has intimated that an outcome on the partnership front could be expected sometime in the mid-August timeframe, which will serve as an important catalyst for investors – both long and short.

MannKind is far from the only company against which investors are betting. Below is a list of the top 15 US-listed biotechs with market caps north of $1 billion with the highest short interest (as of July 15):

Among the companies that investors see as being in line for a fall are Theravance, which stands to receive royalties from several COPD drugs marketed by GlaxoSmithKline that reported disappointing earnings on July 23. Theravance closed last week off 18 percent.

Other biotechs near the top include Agios, which sports a $1.3 billion market cap with three cancer programmes in Phase I testing; and Ariad Pharmaceuticals, which reintroduced leukaemia drug Iclusig in January after temporarily suspending sales due to concerns about its cardiovascular safety profile.

On the flipside, the 15 biotechs with the least amount of short interest are:

At the top of the list is Allergan, which investors apparently believe will be sufficiently motivated by Valeant Pharmaceuticals' takeover bid to trim fat and churn out decent earnings; established bellwethers like Amgen, Biogen Idec, Celgene and Gilead Sciences; as well as up-and-comers Alexion Pharmaceuticals, Vertex Pharmaceuticals and Regeneron Pharmaceuticals.

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