Top 12 Biotech Short Squeeze Stocks - TheStreet

The biotech industry has an extensive number of heavily

shorted stocks.

When a stock has a high short ratio, it has the potential to move sharply higher on positive news. When good news starts to lift a stock's price, short-sellers are forced to scramble to cover their positions by buying in their shorted shares. That short-covering can push the stock's price even higher.

The short ratio is also known as the "days to cover" ratio, which is the number of days it would take the short-sellers to cover their positions based on the average daily volume of shares traded. We have recently updated the

Biotech Short Squeezes

portfolio at Each of the dozen stocks on the list has a market cap of at least $225 million.

The biotech with the highest short ratio is


(CYTK) - Get Report

, a South San Francisco-based company that develops and markets small molecule drugs for treating cardiovascular diseases and cancer. It has strategic alliances with


(AMGN) - Get Report



(GSK) - Get Report


Cytokinetics has an extremely high short ratio of 26.5, with 9.67% of the float shorted. The company has negative earnings and a price-to-sales ratio of nearly 60. Any good news would likely result in a squeeze upward.

A top holder in Cytokinetics is

Columbia Acorn Select

(ACTWX), a fund known as a long-term holder of stocks. In 2006, 25 of the companies it invested in were bought, often at significant premiums to the price at which their shares were trading.

Next on the list is

Momenta Pharmaceuticals

(MNTA) - Get Report

, with a high short ratio of 24.6, and 30% of the float shorted. Momenta is involved in the business of developing generic versions of complex mixture drugs. It has negative earnings and a P/S ratio of 24.

Momenta is collaborating with


, a unit of


(NVS) - Get Report

, to develop injectable enoxaparin, a treatment for deep vein thrombosis. It recently was hit after warning investors that the Food and Drug Administration will probably take longer to review M-Enoxaparin, its generic form of


(SNY) - Get Report

blood-clot drug Lovenox, than the previously announced estimate of 18 to 24 months. So the jury is out here but any good news would set up a squeeze possibility in Momenta.

Another heavily shorted stock is

Nabi Biopharmaceuticals


, which has a short ratio of 21 and 15% of the float shorted. Nabi makes and sells products to help with transplantation, infectious disease, nicotine addiction and hematology. The stock has negative earnings and a P/S of 3.

Nabi shares happen to be owned by

Chapman Capital

, a Los Angeles-based activist hedge fund run by Bob Chapman. His hedge fund, which he ran on the side for a couple of years, generated a net return of 55% in 2004 and 62% in 2005.

Other stocks that Chapman owns are

Cypress Semiconductor

(CY) - Get Report

, which has a short ratio of 4.3, and specialty paper company

PH Glatfelter

(GLT) - Get Report

, which has a short ratio of 11.5.

Nabi is also owned by

Third Point

, another activist hedge fund, this one founded by Daniel Loeb. The fund has had an average annual return of 28.9% since 1995. Third Point also owns


( CLZR), which has a short ratio of 14, and

PDL BioPharma

(PDLI) - Get Report

, which has a short ratio of 5.

Both of these activist funds are playing in this space and both seem to like Nabi, which considering that investment endorsement, could be worth a look.

Another name on the Biotech Short Squeeze portfolio is

Alnylam Pharmaceuticals

(ALNY) - Get Report

, which has a short ratio of 16 with almost 20% of the float short. Just yesterday, Alnylam's stock rose 52% after the company announced a deal to partner with


on its RNAi technology.

RNAi is a method of turning off genes, or gene silencing, which has the potential to prevent disease-causing proteins from being made. Roche is paying $331 million in upfront payments and equity investments in a deal the two sides said could eventually be worth more than $1 billion. This deal and the stock's subsequent surge provides a prime example of the type of move you can see when a heavily shorted company delivers good news.

For the rest of the dozen names on the list, check out the

Biotech Short Squeezes

page on

At the time of publication, Altucher and/or his fund had no positions in stocks mentioned, although positions may change at any time.

James Altucher is president of Stockpickr LLC, a wholly owned subsidiary of and part of its network of Web properties, and a managing partner at Formula Capital, an alternative asset management firm that runs a fund of hedge funds. He is also a weekly columnist for

The Financial Times

and the author of

Trade Like a Hedge Fund


Trade Like Warren Buffett



. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Altucher appreciates your feedback;

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