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Mar 22, 2017

S3 BLACKLIGHT: Record Short Interest in Kite Pharma After Positive CAR-T Trial

On February 28th, Kite Pharma Inc. (KITE US) reported positive results for a clinical trial of its CAR-T therapy that boosts a patient’s immune system in order to target and kill cancer cells. The trial, which consisted of 101 aggressive non-Hodgkin Lymphoma patients, resulted in an 82% positive response rate after only one infusion with less than a 3% mortality rate due to the treatment. KITE’s stock price rose 40% to $70.77 in two trading days, and by mid-March, hit $85.92, just 2% off its historical high.   

Short sellers have been building their positions since the 4th quarter of 2016, with short interest more than doubling since the end of September 2016 and up 74% in 2017. Kite Pharma’s short interest is presently $756 million, down from its historical high of $832 million set on March 13th.

KITE’s stock price was down 27.2% in 2016 and short sellers made $94 million in net of financing mark to market P/L on an average short position of $333.6 million, a 28.3% return. KITE short sellers did not fare as well in 2017, as they were down $328.8 million on an average short position of $580.1 million for a negative 56.7% return.

The recent surge of short selling is both a value and technical play. Momentum short sellers are betting that there will be some profit taking and retracement after the stock rallied over 70% in less than 3 months. On the value side, competition from Juno Therapeutics (JUNO US) and Novartis (NVS US) in the CAR-T pharmaceutical space may drastically alter KITE’s near term and long term revenue forecasts. Whoever can produce the first reliable and tested CAR-T therapy protocol will have the vast majority of a possible $10 billion plus cancer treatment market.

Want deeper insight into the above analysis?
Contact:  Ihor.Dusaniwsky@S3Partners.net
               Head of Research, S3 Partners
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