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May 4, 2017

S3 Research: Pharma Subpoenas Generate $241 million of Profits for Short Sellers on May 3rd

The offices of Perrigo Co. PLC (PRGO US) were searched by the Department of Justice Antitrust Division as part of an investigation into price collusion in the generic drug sector. Two executives from Heritage Pharmaceuticals (Private Company) have already pled guilty to price fixing and are aiding the investigation into other firms.

PRGO short interest is $725 million - an increase of $301 million, or 71%, for the year and an increase of $145 million, or 25%, in the 2nd quarter. PRGO has been a long term short play with short sellers making $528 million in mark to market P/L, a return of 76% on an average short position of $696 million in 2016. 2017 is still a profitable year for PRGO short sellers, although not as stellar as last year. Prior to today’s $5.25 drop in price, shorts were up $24 million in mark to market P/L for a 4% return on an average short position of $561 million. Today’s stock price move added $53 million in profits to PRGO short seller’s bottom line.  

The companies who have admitted to being part of this investigation or earlier investigations are down for the day and can expect to see more down days as the DOJ investigates them more fully. Today, the pharmaceutical companies that acknowledged receiving subpoenas from the DOJ, have generated $241.5 million of daily P/L for short sellers. As the investigation grows and the possibility of sanctions increases, we should see short interest continue to grow along with short profits.

Want deeper insight into the above analysis? Contact: 
Head of Research, S3 Partners

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