Healthcare stocks are the most shorted as sector faces increasing regulatory scrutiny, report says

medical and clinical laboratory technologist
  • The health care sector has become the most heavily shorted in the US equity market, says S&P Global Market Intelligence.
  • Among the healthcare cohort, biotech shares made up the bulk of the most-shorted stocks at the end of March.
  • The healthcare sector has risen this year but is lagging gains on the S&P 500 index.
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The health care sector has emerged as the most heavily shorted in the US stock market, in part as the industry faces the potential for sharper scrutiny by the Biden administration, according to a report published Tuesday.

Of the 10 most-shorted stocks on all exchanges at the end of March, six were shares of health care companies, said S&P Global Market Intelligence. The sector made up a hefty portion of the 20 most-shorted stocks, as well, with a tally of 12.

Average short interest in healthcare stocks was 5.17%, rising by 31 basis points from mid-March and by 53 basis points from mid-February.

Investors have increasingly shorted healthcare stocks as they considered possible regulatory and other efforts that Biden and the government may pursue, including reforms to lower prices for prescription drugs and addressing pharmacy mergers.

Biotech shares made up nearly all of the most-shorted healthcare stocks in March, with Esperion Therapeutics and Clovis Oncology topping the list. Esperion, which focuses on lipid management, had short interest of about 34% in its stock, and shares of Clovis had short interest of about 31%. Inovio Pharmaceuticals, which works on using synthetic DNA products to treat cancer and infectious diseases, had 26% short interest.

The S&P 500’s health care sector is lagging behind the gains on the broader S&P 500 index so far this year. Other areas of the market are finding more favor than the defensive health care sector as increasing COVID-19 vaccinations and fiscal stimulus boost prospects for reopening businesses across the country. The sector has advanced 7% compared with the S&P 500’s climb of 11%.

The top 10 most-shorted stocks stepped higher by nearly 45% when the year started to early February but have since suffered a decline of roughly 14% on the year, said the S&P report.

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Invitae surges after report says Softbank will lead a $1.2 billion investment in the genetic-testing company

Invitae Genomics Test Kit Sample
  • The genetic testing company Invitae is set to receive a $1.2 billion investment led by Softbank.
  • Invitae also announced it will acquire a genomics company, Genosity, in a $200 million deal.
  • The firm turned in revenues of $280 million and a net loss of $602 million for the full year 2020.
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Invitae stock surged as much as 7% on Monday after a report out of the Wall Street Journal said Softbank plans to lead a $1.2 billion investment in the San Francisco-based genetic testing company.

The investment will come in the form of convertible debt and allow Invitae to expand its current genetic testing operations, per WSJ.

The convertible debt notes have an initial conversion price of $43.18 per share. Invitae shares closed at $39.19 on Friday.

The Inviate stake is the second sizeable investment from Softbank into a medical sciences company in the past few months.

The Japanese conglomerate also invested $900 million into the convertible debt of Pacific Biosciences, a next-generation DNA-sequencing systems firm, back in February.

Invitae announced plans to acquire the genomics company Genosity on Monday as well. The genetic testing company plans to use Genosity’s holdings to enhance its personalized oncology offerings.

Under the terms of the deal, Invitae will spend $200 million on the acquisition, consisting of approximately $120 million in cash and $80 million in Invitae shares. The deal is expected to close in the second quarter.

Softbank is the second big name to come out in support of Invitae.

In a CNBC interview in March, Cathie Wood of Ark Invest said Invitae “is probably one of the most important companies in the genomic revolution.”

Wood argued Inviate is “investing aggressively to be the leader in the diagnostics testing space” and that a “move towards personalized testing is going to give a few companies the lion’s share of the market.”

Despite the recent support from big names like Wood and Softbank, Invitae continues to struggle with profitability. The company turned in revenues of roughly $280 million in 2020 while posting a $602 million net loss, according to the annual 10-K SEC filing.

Invitae traded up 5.62%, at $41.36 per share, as of 10:56 a.m. ET on Monday.

invitae chart 2
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SPAC HighCape Capital soars 140% on deal to buy protein-sequencing firm Quantum-Si

Trader NYSE
Traders work on the floor at the opening bell of the Dow Industrial Average at the New York Stock Exchange on March 18, 2020 in New York.

Shares of special purpose acquisition company HighCape Capital Management LLC exploded as much as 140% on Thursday after the company agreed to buy biotech firm Quantum-Si. 

Quantum-Si has created the world’s first semiconductor chip that can enable protein sequencing and analyze proteins in a digitized format.  

 “DNA sequencing changed medicine and research by revealing what could happen in the body; protein sequencing shows what is happening right now,” ” said Dr. Jonathan Rothberg, Founder of Quantum-Si in a press release.

The transaction was also supported by a $425 PIPE, or private investment in public equity, with participation from Foresite Capital Management, LLC, Eldridge, accounts advised by ARK Invest, Glenview Capital Management, LLC, and Redmile Group, LLC. 

The expected value of the combined company is $1.46 billion. It will trade on the NASDAQ under the ticker symbol “QSI.” 

Quantum Si’s end-to-end solution is on track to launch commercially in 2022 for research use, according to the press release. 

The SPAC merger follows over 130 other blank-check companies that have gone public in 2021 as mania for the funding model continues. For context, in 2020 it took until early October for 130 SPACs to make their debut, according to data from investment firm Accelerate.

In a Thursday CNBC interview, Dr. Rothberg said that it’s not just the SPAC format that’s propelling more biotech companies to receive funding, it’s the “sophistication of investors.” 

“Our PIPE investors understood proteomics. I didn’t have to give them a lecture,” he said. “And so I’d say it’s a combination of the SPAC being there after we worked and spent $200 million to make a semiconductor that sees the molecules of life, and then an educated investor base that normally invests in public companies that knows that this is the future: digitization, artificial intelligence, [and] diagnostics on proteins.” 

Dr. Rothberg is the founder of multiple life science and medical device companies including Butterfly Network, CuraGen, and AI Therapeutics. He is best known for investing high-speed, DNA sequencing.


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