Do the Shorts Know Something You Don't?

Since everyone loves a winner, it's reasonable to assume that everyone hates a loser -- everyone but short sellers, at least. These contrarian investors bet that hot stocks are primed to fall, aiming to turn their pessimism into potential profits.

These companies had some of the largest percentage increases in shares short. Combining that with the collective intelligence of Motley Fool CAPS, we'll see which of these companies Fools believe have the power to make short work of short-sellers.

Company

Shares Short
March 30

Shares Short
March 15

% Change

%  Float

CAPS Rating (out of 5)


Antares Pharmaceuticals
(AMEX: AIS  )
10.9 10.1 8.6% 12.1% ***
Threshold Pharmaceuticals (Nasdaq: THLD  ) 4.3 3.2 36.5% 10.3% **

Source: wsj.com. Share counts in millions.

Of course, this isn't a list of stocks to buy -- or short! These stocks could have serious problems that warrant their short interest, but they might also be stricken by short-term troubles. Only Foolish due diligence will tell you for certain; our 180,000-strong CAPS community offers just such a good place to start.

Gearing up for growth
The injectables market opportunity is huge, which is one of the reasons I'm bullish about Antares Pharmaceuticals and think the short sellers have this one wrong.

According to some analyst estimates, the global injectable-drug delivery market will grow at a better than 12% annual compounded rate through 2015, with the entire market for injectables estimated at more than $120 billion. Of that, just $11 billion is assigned to generics and, with all the branded drugs going off patent soon, should surge higher. Currently most of Antares' revenues come through Teva Pharmaceuticals  (Nasdaq: TEVA  ) , which is generally recognized as one of the biggest potential beneficiaries of the looming patent cliff.

Analysts anticipate that Antares will grow revenues nearly 50% this year ... and then they're really going to take off, surging 133% in 2013. Undergirding the injectables business is Antares' gel delivery system. The market misread the impact from BioSante Pharmaceutical's implosion last year, which gave investors a great buy-in point when Antares' shares sold off. But a deal with Watson Pharmaceuticals (NYSE: WPI  ) for the treatment of overactive bladder, a condition that has an addressable market worth $2.1 billion and growing, should bolster sales going forward and highlight the potential of the delivery system.

I've rated Antares to outperform on CAPS, because I see this company as only just getting started, but I could see, as lnsksr does, that it would make for an attractive buyout candidate. Either way, I think its current share price is cheap, but tell me in the comments section whether you agree, and add the stock to your Watchlist to see whether the shorts get caught short with the bet against it.

Crossing the threshold
It's likely that short sellers were eyeing Threshold Pharmaceuticals for a pullback after its stock had raced ahead nearly 600% since the start of 2012, and its 30% drop since the beginning of April supported the shorts' hypothesis. Yet Threshold makes it seem as though this is just a pause before the next leg up.

The biotech focuses on novel treatments for cancer. It just earned a $20 million milestone payment from Merck KGaA for its results from a clinical trial related to pancreatic cancer. Earlier, it received FDA orphan drug recognition for its therapy TH-302, a drug for the treatment of soft tissue sarcoma.

And data has been particularly encouraging. Threshold combined TH-302 with Eli Lilly's (NYSE: LLY  ) Gemzar to compare it with patients who took Gemzar alone, and nearly twice as many patients responded positively to the combination.

CAPS member jdill23 is one, however, who thought Threshold was overvalued, particularly citing its cash position, though that Merck payout will help strengthen it. While I find biotech investing often a crapshoot, thus far Threshold seems to be progressing fairly well, and with its pullback in price, I'm rating it to outperform the markets going forward.

Add your own thoughts on the Threshold Pharmaceuticals CAPS page or in the comments section below, and add its stock to the Fool's free portfolio tracker if you believe, as I do, that Threshold will cross over to a successful, profitable future.

Don't sell yourself short
Share your views with the CAPS community: Squeeze 'em till it hurts, or short 'em till the sun don't shine?

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Fool contributor Rich Duprey holds no position in any company mentioned. Check out his holdings and a short bio. Motley Fool newsletter services have recommended buying shares of Teva Pharmaceutical Industries. The Motley Fool has a disclosure policy. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


Read/Post Comments (3) | Recommend This Article (2)

Comments from our Foolish Readers

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  • Report this Comment On April 17, 2012, at 10:51 PM, Bsav88atty wrote:

    Rich,

    Nice little piece on Antares. I'm long and have spent hours analyzing this company and determined it's one of the best low risk/high reward investments in the biopharma sector. One of the biggest catalysts that will take this little gem much higher is its proprietary drug-device products, the first two will likely enjoy combined global peak sales of about $500M. In addition to all of this, below is a slightly revised version of a top ten reasons why I speculate that Pfizer will buy Antares soon.

    Pfizer Buyout Speculation

    Here is the circumstantial evidence that I believe supports a Pfizer buyout sooner than most folks here think:

    1. The Pfizer/King/Teva matter was tried over a two-week period, the parties have asked for a delay to submit their post-trial briefs, and the court agreed as a result of its understanding that the parties are close to settling. Expect a settlement by the end of May. Of course there are several reasons to spend millions in legal fees and costs to take an IP case all the way through trial only to settle shortly before the court's ruling. The judge may have given strong hints to the parties about how he is leaning and has given them one more opportunity to settle before formally announcing his decision. Another alternative is Pfizer intends to buy Teva or Antares or both. Indeed, Pfizer has taken a very good look at AIS's IP through this patent infringement litigation. It discovered Antares's pen device technology, and possibly the other injector technology, which is better than what PFE is using for its epi. I'm certain PFE liked what it saw and has created a nice-sized list of drugs it can combine with Antares devices.

    2. Pfizer now has a major supplier of injectable methotrexate and it has a potential blockbuster in tofactinib. A Vibex MTX-tofactinb combination would make for a nice portfolio in the global RA therapy market and the other off-label markets.

    3. The undisclosed Pfizer-Antares deal involving a drug that has been sitting on the shelf and which will provide milestone payments and royalties for only three years. As Scott previously noted, why would PFE approach our little company for some drug that has been sitting on the shelf? And only three years of royalties? This undisclosed product deal gave PFE an opportunity to look even deeper into Antares's castle. IMHO, this alone supports that something else is in the works, whether it's a NestraGel or MTX partnership or an outright buyout.

    4. Pfizer now has over $26.8B in its treasure chest. Only SNY has more cash. PFE will raise an additional $30B by 2013 after selling its animal health and nutrition divisions, thereby increasing its stockpile of cash to $57B by 2013. GSK and LLY each have about $9B, Teva has about $1B, and Watson has less than $250M. So, to answer prior questions about which company among AIS's partners would win in a bidding war, see #6.

    5. Jack Howarth. Where did this fella last work? Pfizer. What is his specialty? Acquisitions. Now, it typically takes about a year or more from the time Mr. Jack steps in for a buyout to occur. But show me the rules that say a buyout under his watch could not occur in less than a year. Indeed, a couple things I believe we will see this time is a shorter period to the buyout announcement and a larger buyout premium, as I seriously doubt that Wotton and his team will accept anything below $10 PPS.

    Indeed, is it a coincidence that Antares hired Jack. Antares simply may have wanted a stronger investor relations officer who could help them better tell the story. Perhaps Jack thought it was a good time to leave big pharma to take a shot with a little microcap. It's definitely an interesting piece of evidence. Coincidence? I do not believe so. It is also interesting that Jack is not listed as one of Antares's top ten insiders. The published insider with the fewest shares is Carrara at 27,500 shares. If Jack thought Antares was good enough to pack up and leave big pharma, why didn't he load up on AIS stock? This leads to my next piece of circumstantial evidence...

    6. There have been no reported insider transaction transactions since 2/1. Jack was hired on 2/27. Counting today, we are in one of the longest periods without an insider transaction in at least the past 52 weeks. With with all that has been reported in the 10K, the CC, and investor presentations, why has there been no insider buying since 2/1? Is it reasonable to speculate that Antares is in an extended blackout period that prevents them from buying or selling their shares?

    7. Antares's office lease has expired; it has been on a month-to-month lease for several months, and it will have up to three months to vacate the office after its landlord finds a new tenant. So what's the hold up with finding new space? Are they holding out for a better lease rate or are they waiting to move into PFE's offices?

    8. The tone of the past two investor presentations has changed. While Apple and Wotton are not over-promising as some companies do, they have appeared a bit more bullish since Jack came on board. For example, Apple mentioned that the 30-50% revenue growth for 2012 excludes income from products that are not already generating revenue (i.e., Gelnique). He followed up this comment that AIS intends to announce a product approval for each of the next 5 years. Apple painted a very interesting picture for Vibex MTX insofar as if they can successfully insert MTX into the RA therapy process between oral methotrexate and a biologic. He estimated the top end of MTX peak revenues at $200M, which I believe is a low estimate. Moreover, Apple and Wotton both agreed that QS1 will be a better opportunity than MTX. So, at a minimum we are looking at $400M in revenues just with those two products. Then QS2 and QS3 will be soon to follow. And by that time, I suspect the five Teva products, global Anturol, and the Pfizer product will be in full swing. PFE can use its treasure chest and vast resources and expertise to accelerate these programs and maximize each product's peak sales potential much better than a company with $34M in cash. No offense intended to Paul and his solid team.

    9. Speaking of Gelnique/Anturol, it's very interesting to me the company has signed up only one ROW partner for a drug that received FDA approval four months ago. Same for not yet signing a European partner for MTX, especially considering that a significantly inferior methotrexate-syringe product has enjoyed much success across the pond. Of course, we still don't have that NestraGel partnership. What is Wotton and his team doing in their month-to-month offices all day? Does PFE want all of these rights and more? Sure they do.

    10. Everyone has a price. As a few individuals have correctly noted, sure, Wotton and his leadership team are young and looking to make a mark with this company. But at some point, the price becomes too high and taking the cash overrules the desire to hit other more intangible objectives. The top ten insiders at Antares hold about 1,473,736 shares: Wotton has 482,620, Apple has 285,231, and Sadowski has 133,221. Considering Antares's successes to date and its significant revenue potential, I believe Antares's bottom number is slightly above $1B. At about $10 pps, at least 5 Antares employees would walk away with over $1M in either cash or PFE stock, which, by the way, currently yields about a 4% dividend. Further considering all of PFE's billions in cash and their need for the IP and more revenue-generating products, I believe PFE would now pay Antares's bottom number.

    So why buy now at such a higher-than-standard premium instead of waiting until PFE's leadership can demonstrate to its shareholders that the acquisition would be immediately accretive earnings? Why did you buy this stock? Do you think you know more about Antares than Pfizer? Pfizer knows what QS1-3 are, we do not. Would it not be a savvy business decision to pick up the company now for a little more than $1B instead of waiting to pay $2B or more in a couple years? Would you rather buy AIS now or wait until it hits $10? Many smart investors on this board have said AIS is the best low risk/high reward opportunity they have in their portfolios. And many here have loaded up to levels that exceed 50% or more of their common stock portfolios. Buying AIS now would be even less risky for PFE, as it would require only about 1.8% of its anticipated 2013 cash balance.

    To that end, as a longterm holder looking forward to $1B in revenues by 2018, I would not be pleased with a buyout now. I truly and sincerely hope that I am wrong.

    Cheers

  • Report this Comment On April 17, 2012, at 11:13 PM, Bsav88atty wrote:

    My reference in #4 to #6, should have been to #5, Jack Howarth. I revised this and failed to correct the reference. My reference to "Scott" is to Scott Matasow. Other references are to folks on the Yahoo message board for AIS.

  • Report this Comment On April 17, 2012, at 11:25 PM, GTGTbangbang wrote:

    yes Mr Duprey, good article, you hit on some fine points for AIS, but a few adders hopefully not too redundant to the insightful color lent by bsav'ing the day just above...

    About the most disparaging comments I encounter for AIS refer to its income stream traditionally from royalty & piece sales for larger pharma's products. Although this has created a pristine balance sheet and debt / warrant picture, this situation is history. AIS is a very different company than a few years ago under the (no longer too) new CEO & excellent team. Listen to last few Co. presentations to understand that AIS is no longer just a specialty supplier of IP or self-injectors to a width selection of the biggest names in pharma, it is now a stand alone player or in some cases a true partner. Expect big changes on the revenue horizon.

    Although it is my prime hope that AIS gets to enjoy a few years as an independent money machine, DD fans would do very well to get acquainted with the resume of the most recent hire, the VP of IR. Few pieces of public information are as illustrative for what the future likely holds for AIS.

    Drug delivery and / or facilitation stories all over pharmadom are worth careful consideration to avoid some of the high risk in new drug trial while still getting the growth, and while AIS is a almost unique example of the synergy possible to many larger drug specialists, there are other fine examples not limited to BDSI, HALO and PSDV (sometimes the purveyor of fine shovels does better than the gold miner ...)

    As far as the shorts - in addition to what I believe is their sore failure to comprehend the new AIS, there is now (and only recently) an option chain to hedge that dangerous position, so perhaps the increased percentages have something to do with that.

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