Every investor knows that you can profit from a stock when its price goes up -- but much less attention is given towards the strategy for making money when a stock goes down. Investors call this "shorting" a stock, and it's one tool that an investor can use to make a profit if they are feeling bearish. When an investor is short a stock, they borrow the shares from their brokerage and sell them on the market, hoping to buy back that same stock at a later date at a lower price. If they can do so successfully, they make a profit.

On occasion, Wall Street turns very bearish against a company, and a large percentage of the shares available for trading on the open market get shorted. This can happen for a huge variety of reasons, and any company can suddenly find itself on Wall Street's bad side. Biotechnology stocks in particular tend to get a lot of interest from short sellers, as they tend to be some of the riskiest companies available for investment. It's not uncommon for a biotech company to have no revenue at all, yet still sport a multibillion dollar valuation because of the promise of a drug in clinical development.

However, when you consider that 90% of new drug candidates that enter phase 1 clinical studies will fail to make it to market, and it's not uncommon for a biotech's stock price to tank on the heels of bad news, you begin to understand why these make a ripe target for short sellers. 

So which biotech stocks is Wall Street particularly bearish about at the moment? A quick search on FinViz for biotech stocks with market caps over $2 billion that have the highest floats -- that is, shares available to trade on the open market -- sold short produced some interesting results.

No. 1: Insys Therapeutics Inc
First up on our list is Insys (NASDAQ:INSY). The company has been a huge winner recently, with shares up more than 180% over the past year due to the huge sales growth of its under-the-tongue spray Subsys, which is used to manage pain flare-ups caused by cancer.  
 
While the company lists more than 71.4 million shares outstanding, the vast majority of those shares are held by insiders, leaving only 23 million of those shares trading on the open market. Of those 23 million shares, more than 7.4 million have been sold short, representing more than 31% of the shares available.
 
Wall Street might be feeling bearish on Insys because of some hot water the company got into last year over marketing practices that it used to promote Subsys. The company is only allowed to promote the drug for treating cancer patients, but the drug saw huge demand from a wide variety of doctors. One Michigan doctor last year was even under federal investigation for Medicare fraud related to his extreme use of the drug at his practice. If the FDA were to crack down on the sale of Subsys, the company could be in trouble -- Subsys is responsible for the vast majority of the company's overall sales.
 
No. 2: Theravance Inc
Up next is Theravance (NASDAQ:THRX). Theravance is a royalty management company, and the company boasts a partnership with pharma giant GlaxoSmithKline in which Theravance receives royalties from sales of the drugs Revlar/Breo Ellipta and Anoro Ellita, which treat COPD and asthma. Theravance then takes the cash it receives from the royalties and pays out a huge dividend to its investors, and the stock currently yields more than 5%. 
 
So whats the problem here? Sales of Anoro Ellipta and Revlar/Breo Ellipta have been slow to gain traction in the market, so revenue for the company over the last few years has only been in the single-digit millions, while expenses have been well above $30 million per year. When a company is losing money it becomes hugely onerous to pay out a big dividend. To make up for the shortfall the company has been borrowing heavily, and sports a balance sheet that is now loaded with more than $730 million in debt versus only $250 million in cash. Unless sales of Anoro Ellipta and Revlar/Breo Ellipta take off, it's going to be tough for the company to continue to shell out more than $100 million each year to fund its dividend. 
 
Analysts are expecting big sales growth for the company over the next few years, as peak sales for Breo Ellipta in the U.S. alone are estimated to be about $1.3 billion, but remember that Theravance would only receive a small portion of that revenue as a royalty payment. Given the uncertainty involved with the company's current finances, and the slow launch of Breo and Anoro, Wall Street appears to be betting heavily against the company's success. Theravance has 80.6 million shares that trade on the open market, and more than 27 million of those shares have been sold short, which represents 34% of the total.

If Revlar/Breo Ellipta and Anoro Ellita sales explode higher from here, Theravance shorts might be in for some pain ahead. However, Wall Street remains skeptical, which is why the company is so heavily shorted.

No. 3: MannKind Corporation
Last up on our list is MannKind (NASDAQ:MNKD). The company recently launched its first drug to market, Afrezza, an inhaled insulin used to treat type 1 and type 2 diabetes. First quarter sales for the drug were sluggish, as marketing partner Sanofi was only able to sell a little more than $1 million of the drug.

Investors are very bearish on the future of Afrezza at the moment -- pharma giant Pfizer tried to launch its own inhaled insulin, Exubera, years ago and failed dramatically. Afrezza offers some nice advantages over Exubera, so I think it has a better chance of succeeding, but Wall Street remains very bearish on the company.

256 million shares of the company's stock trades on the open market, and more than 131 million have been sold short, which is more than 50% of the total available shares. MannKind investors have had a rocky ride since the launch of Afrezza, and Wall Street is predicting more pain ahead. If Afrezza can prove the skeptics wrong, MannKind's stock could be primed for a huge short squeeze -- however, for the moment this is another stock that I'm going to be staying far away from.  

Are any of these buys?
Just because Wall Street is skeptical about these stocks doesn't mean that they can't make for great long term investments. If I were to invest in any of these three, it would have to be Insys. The company is solidly profitable, has a clean balance sheet, and has a few interesting drugs that could find their way to market in the coming years. If we get a pullback in the market, I may be willing to find a place for the company's stock in my portfolio.

Brian Feroldi has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.