• Research

Jan 4, 2017

S3 BLACKLIGHT: Health Care Sector Year End Short Activity

President-elect Trump’s health care agenda has created uncertainty in the Health Care sector and short sale activity increased as we approached 2016 year end. We see $91.4 billion of short interest in the entire Health Care sector as of year-end 2016 with balances increasing $217 million in December, but increasing almost $2 billion in the last week alone. The following data for the Health Care sector is divided into its six industry groups: Biotechnology; Health Care Equipment & Supplies; Health Care Providers & Services; Health Care Technology; Life Sciences Tools & Services; and Pharmaceuticals.

Short interest in the Health Care sector increased by $217 million in December, led by the Health Care Equipment & Supply industry which was up $281 million while the Health Care Providers & Services industry was down $291 million. Alexion Pharma (ALXN US) had the biggest monthly increase in short interest with $1.5 billion while Allergan plc (ALGN US) had the biggest monthly decrease with a drop of over $2.5 billion.

Short interest in the Health Care sector increased by $1,984 million last week, led by the Pharmaceuticals industry which was up $1,050 million while short interest in the Life Sciences Tools & Services industry was down $50 million. Alexion Pharma (ALXN US) had the biggest weekly increase in short interest with $526 million while Eli Lilly & Co (LLY US) had the biggest monthly decrease with a drop of over $168 million.

The Health Care sector’s outlook, in general, is positive with an aging population and long term chronic and communicable diseases increasing the demand for health care products and services. However, in the near term, regulatory uncertainty including the possible repeal of Obama Care and continued changes in Medicare reimbursement rates have made the sector an attractive short target. Biotech and Pharmaceuticals continue to be the largest shorts in the sector as pressure on drug pricing will shrink their margins and not allow companies to recoup the majority of their R & D expenses from the American consumer. We may expect sector reallocations in the future as stocks that are down 50% or more, such as Valeant Pharma (VRX US), Endo Intl (ENDP US), Tenet Healthcare (THC US) and Community Healthsystems (CYH US) are covered and replaced with short targets with more Alpha.
 

For more information on the above analysis, please contact:
Ihor Dusaniwsky, Head of Research, S3 Partners, LLC     Ihor.Dusaniwsky@S3Partners.net
The information herein (some of which has been obtained from third party sources without verification) is believed by S3 Partners, LLC ('S3 Partners') to be reliable and accurate. Neither S3 Partners nor any of its affiliates makes any representation as to the accuracy or completeness of the information herein or accepts liability arising from its use. Prior to making any decisions based on the information herein, you should determine, without reliance upon S3 Partners, the economic risks and merits, as well as the legal, tax, accounting and investment consequences, of such decision.


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