The Most Heavily Shorted Small Cap Biotech Stocks (For Good Reason): SPPI, HZNP & QCOR

Small cap biotech stocks by themselves tend to be risky investments but Spectrum Pharmaceuticals (NASDAQ: SPPI), Horizon Pharma (NASDAQ: HZNP) and Questcor Pharmaceuticals (NASDAQ: QCOR) add another dimension to the mix as they are the most heavily shorted biotech stocks. Specifically and according to a recent look at HighShortInterest.com, Spectrum Pharmaceuticals (SPPI) had short interest of 54.93%, Horizon Pharma (HZNP) came in at 49.77% and Questcor Pharmaceuticals (QCOR) came in at 41.05% (some of the shorts may have already cashed out). Moreover, the shorts have come out as recent winners to varying degrees with each of these small cap biotech stocks but that does not mean they will continue to do so. So what does the future hold for investors and those shorting Spectrum Pharmaceuticals (SPPI), Horizon Pharma (HZNP) and Questcor Pharmaceuticals (QCOR) alike? Here is a quick look at all three:

Spectrum Pharmaceuticals (NASDAQ: SPPI) Recently Backtracked on a Premature Announcement by its Partner

Spectrum Pharmaceuticals is a biotechnology company with integrated commercial and drug development operations with a focus in hematology and oncology. In recent trading days, Spectrum Pharmaceuticals has managed to both reward and punish investors and short sellers alike when on September 21, its Denmark-based development partner Topotarget A/S issued a stating that the primary endpoint had been met in the phase 2 clinical trial for belinostat (targeted for treatment of peripheral T-cell lymphoma). A few days later, Spectrum Pharmaceuticals issued its own press release distancing itself from the release by Topotarget A/S. That calls into question just what is going on between the two companies (e.g. Are they communicating with one another?) but its important to remember that Spectrum Pharmaceuticals’ future rest on other drugs as well. Likewise and for investors and short-sellers alike, there is a lesson here – namely be careful trading on unconfirmed press releases (especially when they are not even coming from the company in question). On Wednesday, Spectrum Pharmaceuticals fell 1.785 to $11.60 (SPPI has a 52 week trading range of $6.94 to $17.48 a share) for a market cap of $698.83 million plus the stock is down 20.7% since the start of the year but up 160.75 over the past five years.

Horizon Pharma (NASDAQ: HZNP) Just Had a Secondary Offering (But It Also Had A Big Run-Up)

Horizon Pharma is a biopharmaceutical company developing and commercializing medicines to target unmet therapeutic needs in arthritis, pain and inflammatory diseases. Last week, Horizon Pharma crushed investors with a larger-than-expected secondary offering that was also at a steep discount to make matters worst. The good news is that at least Horizon Pharma raised around $75 million (after wiping out a considerable amount of shareholder value as the stock had been trading at $4.5 when the offering was made) and its not like the offering was unexpected as small cap biotech stocks usually need to do a big offering to get the funds they need to run the FDA gauntlet. Otherwise, it should be noted that Horizon Pharma has partnership deals for its other drugs and investors need to keep in mind that the stock had a huge run-up over the summer that was probably not sustainable. On Wednesday, Horizon Pharma rose 0.29% to $3.48 (HZNP has a 52 week trading range of $3.05 to $8.99 a share) for a market cap of $117.58 million plus the stock is down 13% (after spiking to the $8 level over the summer) since the start of the year and down 61.5% over the past five years.

Questcor Pharmaceuticals (NASDAQ: QCOR): Still Plenty of Action Coming for the Shorts and For Investors

Questcor Pharmaceuticals is a biopharmaceutical company whose primary product is H.P. Acthar Gel - an injectable drug that is approved by the US Food and Drug Administration (FDA) for the treatment of 19 indications. Last week, Questcor Pharmaceuticals lost some 40% of its value when Aetna (NYSE: AET) announced that it will no longer cover the company’s flagship drug Acthar as a treatment for multiple sclerosis. And while Aetna may only represent about 5% of the Questcor Pharmaceuticals’ prescriptions, it could mean that other insurers will drop the drug as well. Then again it may not and that’s the problem for investors. Another problem is a just announced investigation involving the company's promotional practices (That has triggered shareholder lawsuits or rather various lawyers are trying to cash in with their own investigations). Since H.P. Acthar Gel is Questcor Pharmaceuticals’s primary product – meaning all its eggs are in that basket. On Wednesday, Questcor Pharmaceuticals fell 5.44% to $18.24 (QCOR has a 52 week trading range of $17.95 to $58.91 a share) for a market cap of $1.09 billion plus the stock is down 56.1% since the start of the year but its also up 3,044.8% over the past five years. 



The Bottom Line. The worst could be over for investors in small cap biotech stock now that the secondary offering by Horizon Pharma (HZNP) is done with but investors need to be cautious about Spectrum Pharmaceuticals (SPPI) and Questcor Pharmaceuticals (QCOR) both rewarding the shorts once again.