Since everyone loves a winner, it's reasonable to assume that everyone hates a loser -- everyone but short sellers, at least. These contrarian investors bet that hot stocks are primed to fall, aiming to turn their pessimism into profits.
Below, we take a look at biotech Navidea Biopharmaceuticals Inc (NYSEAMEX:NAVB), whose shares sold short, according to The Wall Street Journal, jumped 6%. That amounts to more than 17% of its float so its short interest ratio is 18 days to cover, or the number of days it would take to completely buy back all the shares sold short. The Motley Fool thinks seven days is a lot so it's always possible we could see a short squeeze, but let's see if the specialty pharma still has the power to make short work of short sellers.
Navidea Biopharmaceuticals snapshot
|Market Cap||$361 million|
|Revenues (TTM)||>$1 million|
|1-Year Stock Return||4.7%|
|Estimated 5-Year EPS Growth||N/A|
|Return on Investment||(164.8%)|
|Dividend and Yield||N/A|
|Shares Short Feb. 15||19.3 million|
|Shares Short Jan. 31||18.2 million|
Just because the shorts are piling in doesn't mean you should, too. Such stocks could have serious problems that warrant their short interest, but they might also just be stricken by short-term troubles. Only Foolish due diligence will tell you for certain.
The short story Navidea Biopharmaceuticals Inc (NYSEAMEX:NAVB)'s lead product is Lymphoseek, a marker used to determine the spread of certain solid-tumor cancers into the lymphatic system, which has the potential to be a top-tier targeted imaging agent for lymphatic mapping. Following the disappointment associated with receiving a complete response letter from the FDA last September, Navidea finally has a PDUFA date at the end of next month that should determine once and for all whether it has addressed the regulatory agency's concerns.
Fortunately, those issues centered on its contract manufacturing partners and not the imaging agent's efficacy or safety, so considering it also filed a marketing authorization application with the European EMA, there might be some sense behind investors feeling confident that it has.
If the FDA does give Lymphoseek its imprimatur, Navidea and its U.S. marketing partner, Cardinal Health, Inc. (NYSE:CAH), plan to hit the ground running. There's a worldwide market opportunity approaching $450 million, depending on who's doing the counting, with the U.S. representing almost half of it at $200 million. The EU is second with $70 million, according to Navidea, and the rest of the world comes in at $180 million.
Of course, Navidea Biopharmaceuticals Inc (NYSEAMEX:NAVB) won't recognize all that revenue because that's just the addressable market. It's going to have to split the proceeds with Cardinal Health, Inc. (NYSE:CAH), which also has the responsibility for determining what price to sell the agent (analysts have pegged it at around $400 per treatment ). As they're also entitled to half the U.S. sales, it's going to be a much smaller number that ends up on Navidea's top line. Short sellers may agree there's an opportunity here, but it's likely a far smaller one than longs are suggesting.