3 Healthcare Stocks Short Sellers Are Prescribing for Trouble
The healthcare industry has historically provided significant returns to investors, with a predicted CAGR of 12.71% until 2027. Although many successful and profitable companies experience a surge in stock price, the healthcare industry also has many stocks that plummet. This is because many healthcare companies rely on trials that need to be approved by the Food and Drug Administration (FDA), making their performance difficult to predict.
Many companies, particularly small-cap companies, see massive share price declines when their trials fail or their treatments are not approved. Investors in the healthcare industry take great care as these risks make the industry a common target for short sellers. With that in mind, here are three healthcare stocks short sellers are prescribing for trouble that investors should sell.
Healthcare Stocks Targeted by Short Sellers: Moderna (MRNA)
Moderna (NASDAQ:MRNA) is a pharmaceutical and biotechnology company headquartered in Cambridge, Massachusetts. The company focuses on producing medicines based on mRNA, and its stock has surged drastically after receiving government approval for an mRNA vaccine for Covid-19 during the pandemic.
Moderna has experienced four days of consecutive losses after U.S. District Judge Mitchell Goldberg ruled in favor of Arbutus Biopharma (NASDAQ:ABUS), a biotech company that is involved in a patent infringement lawsuit with Moderna related to the latter’s Covid-19 vaccines. Shares of Moderna fell 4% on Wednesday following an unfavorable ruling against the company.
Over 95% of Moderna’s revenue is generated through its product sales. Various grants and subsidies from the government and private organizations make up the remaining 5%. Despite Moderna’s massive success in recent years due to its development of mRNA Covid-19 vaccines, the company’s recent loss in the lawsuit will make it a vulnerable target for short sellers.
Furthermore, Moderna’s financials raise concerns for investors. In the fourth quarter of the 2023 fiscal year, Moderna experienced a drop of 45% in total revenue and an 85% fall in net income year-over-year. Moderna remains highly dependent on revenues from vaccines. The company is also lacking experience in pharma sales compared to its larger competitors like Pfizer (NASDAQ:PFE). Combined with the lawsuit loss, the company’s prognosis is grim. Until the company can improve its declining revenue patterns and offload the heavy reliance on vaccine sales by expanding into multiple revenue streams, Moderna stock remains a sell.
InnovAge (INNV)
InnovAge Holding Corp (NASDAQ:INNV) is a healthcare company based in Denver, Colorado, that provides medical and ancillary services for the elderly who are in need of care and support to live independently. The firm operates in the system known as PACE (Program of All-Inclusive Care for the Elderly), and about 150 of these PACE programs currently serve more than 70,000 patients across the nation.
Recently, Goldman Sachs lowered its target price for InnovAge Holding from $8 to $7, while JPMorgan Chase lowered its price target on shares from $7 to $6 in a research report published on Wednesday, March 13.
Moreover, the company’s most recent reported balance sheet makes InnovAge a good target for short sellers. The company held $123.1 million in liabilities due within 12 months, along with an additional $108.2 million due after a year, while only holding $98.8 million in cash and $43.7 million worth of receivables. While its EPS has improved 64.82% YoY, it remains negative at 0.03, and due to its overvaluation, investors should be cautious about InnovAge.
Healthcare Stocks Targeted by Short Sellers: iBio (IBIO)
iBio (NYSEMKT:IBIO) is an American pharmaceutical company that focuses on biotherapeutic drugs. The producer’s leading drug candidates of note include iBio-400, which is a vaccine that treats classical swine fever, and iBio-101, an immuno-oncology drug that treats cancer.
Yet, iBio is extremely far from a fully approved product that will generate a consistent profit. None of iBio’s nine current drugs are currently in clinical trials, with most in the early discovery stage. The stock has experienced a fall of 90% in its price YoY, which may seem like a positive signal to buy. Although the company’s net income in FY 2023 has improved from FY 2022, iBio is still losing money and is considered overvalued by several brokerages. Shares of iBio have fallen nearly 40% in the last five days, indicating it is getting heavily targeted by short sellers.
Furthermore, because iBio lacks an innovative drug that will enter the market in the next couple of years, its stock does not showcase any promising signs of performing well in the short or long term. Therefore, investors should consider selling IBIO stock.
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On the date of publication, Andy Kim did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
