Over the past six months, there are two biotech stocks that have soared -- but not everyone's convinced they'll keep rising much longer. In fact, intrepid traders that bet against stocks, also known as short-sellers, appear increasingly confident these two stocks are about to tank. 

Smart long-term investors know that short-sellers often accept too much risk for too little upside, but that doesn't mean you should ignore their actions. Let's look at why some gamblers are raising their bets against two of the top-performing biotech stocks of the past six months. 

Company Stock Performance Over Past Six Months Increase in Number of Shares Sold Short Between Dec. 31, 2018, and Jan. 15, 2019 Percentage of Float Currently Sold Short
Amarin (AMRN -2.92%) 535% 27.4% 5.9%
Novavax (NVAX -0.43%) 81% 5.1% 15.2%

Data source: The Wall Street Journal.

1. Amarin: Something fishy?

Check out the latest Amarin earnings call transcript.

In early January, buyout chatter added to the incredible gains Amarin has already racked up since the company announced results from the Reduce-It cardiovascular outcomes study. There isn't a ton of pessimism out there, but 5.9% of Amarin shares available for trading are sold short, which is more than you might expect given the potential sales explosion most Amarin shareholders foresee in the years ahead.

You can buy dozens of different fish oil pills over the counter that contain omega-3 fatty acids, although none has been proved to make a difference for the patients who take them. Vascepa is the only fish oil capsule that contains nothing but eicosapentaenoic acid, or EPA, which appears to make a big difference.

During the Reduce-It study, 8,179 people already using statins to lower their cholesterol levels added Vascepa or a placebo to their daily pill diet for five long years. Patients in the placebo arm were 25% more likely to experience a life-threatening cardiovascular event, such as a heart attack.

Before the Reduce-It study, most analysts were skeptical about Amarin's claim that isolating EPA would allow Vascepa to succeed where its peers have failed. That's why the stock rocketed last year and burned plenty of short-sellers in the process.

Laboratory worker holding test tubes in front of her protective eyewear.

Image source: Getty Images.

The FDA approved Vascepa specifically for patients with really high triglycerides in 2012, and sales have been unremarkable among that limited population. Amarin's stock has since started attracting some intrepid short-sellers who think the FDA won't expand its label to include millions of patients similar to those in the Reduce-It study.

By the end of March, Amarin will submit an application that could boost the number of patients who can get their insurers to pay for Vascepa. However, a closer look at the placebo used during Reduce-It suggests there could be a long delay before the FDA's willing to approve the application.

Low-density lipoprotein cholesterol, the "bad" kind, rose 10.2% from the baseline among patients given the placebo, which was actually a mineral-oil capsule. The difference between groups was wide enough to be considered statistically significant, which could prompt the FDA to inquire further than it did when the same issue troubled regulators in 2013.

A slot machine coming up sevens.

Image source: Getty Images.

2. Novavax: Who believes in second chances?

Check out the latest Novavax earnings call transcript.

In the U.S., respiratory syncytial virus (RSV) infections send more infants to the hospital than any other kind of pathogen. This well-known public health threat has stumped vaccine developers since the 1960s, which is why investors are increasingly giddy about pivotal trial results that Novavax expects to release soon. 

This pre-commercial stage company's lead candidate, ResVax for maternal RSV immunization, could begin earning $1 billion annually for Novavax in a few short years. First, Novavax needs to show the world that ResVax can prevent the virus from infecting patients during a pivotal study.

The nearly complete maternal immunization study is the second attempt for ResVax, and the first one was a disaster. Novavax imploded in 2016, after its experimental vaccine failed to prevent older adults from contracting the virus in an 11,850-patient study.

Novavax blamed an unusually low rate of RSV infection for ResVax's failure. Influenza and RSV aren't the same, but they do spread the same way. A tough flu season during the maternal immunization study means there were probably more than enough RSV infections to measure a protective benefit if there was one.

A doctor holds a palm against his face, as if realizing he made a mistake.

Image source: Getty Images.

Learn but don't follow

There's a good chance the FDA will refuse to update Vascepa's label until we know more about the connection between long-term mineral oil ingestion, cholesterol, and statin therapy. There's a slightly better chance the FDA will shrug off Amarin's placebo problem, causing short-sellers to lose a lot more than they stood to gain.

Novavax will present results from its pivotal maternal immunization study before the end of the first quarter. There's a strong chance ResVax will let investors down again, but betting against this stock would be a terrible idea. A surprise win could cause it to double before you can close a short position.