Why Some Heavily Shorted Stocks Have Taken Off

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The Tuesday Trounce:

Get shorty:

Not a good time to be a short-seller in recent days, especially with some of the hardest hit stocks on the short-selling hit parade bouncing by more than 50% from recent lows. The big risers include

Think New Ideas

(THNK)

, up 76%;

Delta Financial

(DFC)

, 29%;

Brooke Group

, 20%;

Computer Learning Centers

(CLCX)

, 13%;

Tel-Save

(TALK)

, 16%;

Microchip

(MCHP) - Get Report

, 25%;

Sabratek

(SBTK)

, 30%;

Quadramed

(QMDC)

, 56%; and

Steris

(STRL) - Get Report

, 25%.

What makes these stocks so special? They're names of companies some of the savviest shorts believe have serious fundamental problems, but have risen for nonfundamental reasons. So-called "fast" shorts, investors who short for no other reason than the stocks are falling, have recently bought back the shares they borrowed when initially going short.

Now, for the other shoe:

The stock of

Anika Therapeutics

(ANIK) - Get Report

gave up as much as three-fourths of its value yesterday after the

Food and Drug Administration

rejected its application to roll out a treatment for osteoarthritis of the knee. The treatment had been the great hope for the Massachusetts medical device company.

Without it, Anika still has a roughly $8 million a year business selling hyaluronic acid to

Bausch & Lomb

(BOL)

for the use in eye surgery. A scan through the fine print in Anika's

SEC

filings, however, shows that its agreement with Bausch & Lomb ends in February 2001.

Which is where the other shoe comes in. There's growing speculation that after the agreement ends, Bausch & Lomb may switch to

Lifecore Biomedical

(LCBM)

as its primary supplier of hyaluronic acid. Lifecore also makes the solution and is currently selling it to Bausch & Lomb in Europe. What's more, according to Lifecore's 10-Q filing, Bausch & Lomb has filed an application with the FDA to buy its hyaluronic acid in the U.S. from Lifecore.

The arrangement was supposed to be approved in September at the earliest. Lifecore CEO Jim Bracke says the FDA is taking the "full-time allotments" for these things.

If the approval does go through, Bracke figures Bausch & Lomb will play both companies off each other to see which can produce the highest-quality product at the cheapest price. (He thinks he'll win.) In the meantime, Bausch & Lomb is only required to buy a "minimum" amount from Anika until its agreement expires. Anika won't say what the minimum is, but one good source who has seen the sales agreement says it's considerably less than the $8 million Bausch & Lomb is currently paying. Put another way, if Lifecore gets approval, Anika could feasibly lose a chunk of its remaining business overnight.

Meanwhile, Lifecore has been taking heat for going too slowly with its own clinical trials of a product to help prevent surgical adhesions. But considering that Anika was dinged for the quality of its clinical trials, "fast clinical trials aren't always the way to go," says

Piper Jaffray

analyst Tom Gunderson.

CHS capers:

Last month, after this column

raised questions about whether the

CHS Electronics

(HS)

CEO Claudio Osorio had, in a roundabout way, been betting that his company's stock would fall, he issued a press release saying that he and his execs planned to make "significant" purchases of CHS stock. That was Sept. 2. On Sept. 10, according to a filing with the SEC, he bought a whopping 15,000 shares at around $10 per share; the stock closed yesterday at 8 11/16. Yep, for all his bluster, just 15,000 shares, which is a drop in the bucket for someone who owns 6.2 million shares. What about the other execs? There were no filings indicating they bought; a spokesman says they weren't required to make a filing.

Herb Greenberg writes daily for TheStreet.com

. In keeping with the editorial policy of

TSC

, he does not own or short individual stocks. He also does not invest in hedge funds or any other private investment partnerships. He welcomes your feedback at herb@thestreet.com. Greenberg writes a monthly column for

Fortune

and provides daily commentary for

CNBC

.