US interest rate cuts are finally here and are expected to ease the pressure on a hard-pressed life science sector. However, not everyone is hoping for price increases. BioStock has listed the most shorted stocks in the industry and taken a closer look at some of the cases.

Short selling – i.e., when investors borrow shares to sell, hopefully buying back at a lower price. If an investor believes that the share price will fall, short selling is thus a way to make money from such a downturn. If several investors choose to short a stock, it may be a sign that something is not right.

While a high short-selling rate should be seen as a red flag, it does not automatically mean a stock will fall. Many of us recall the hysterical movements in the American game retailer GameStop at the beginning of 2021, where short sellers were forced to buy back shares at considerable losses in a so-called “short squeeze.”

Significant short positions in life science

Short selling is also common in the life science sphere. Radiation therapy system supplier Elekta has been one of the most shorted stocks in the Nordic region for several years. According to the Holdings database, just over 11 percent of Elekta shares are shorted at the time of writing. Only one other Nordic stock beat that: collapsed real estate company SBB.

Looking at the price development of the past five years, short sellers have also been proven right. During that time, Elekta lost almost half its value and thus underperformed significantly compared to the rest of the stock market. With today’s total short position worth nearly SEK 3 billion, there are clear expectations that the share will continue to fall.

As so often, however, there are divided opinions about future price developments. For example, Handelsbanken recently published an analysis in which Elekta is described as a potential takeover candidate. If that prediction comes true, the short sellers will be punished.

Juicy valuation weighs heavily

Next on the short-selling list is Danish ChemoMetec, which sells medical devices for cell counting. For many years, the company has reaped great success with its products, and investors have been spoiled with good growth figures year after year. This, in turn, has driven up the share price, which peaked at over DKK 1000 four years ago.

However, the stock got ahead of itself, with the PE ratio – i.e., the relationship between earnings and share price (price/earnings) – reaching almost 200, a juicy valuation, to put it mildly. The share price has since corrected, and when ChemoMetec reported its broken financial year 2023/2024, sales had fallen by 8 percent. Thus, some think that even today’s PE ratio of over 50 is a bit too high, and if you believe the short sellers, further declines in the share are expected.

Short sellers repurchased Dicot

One stock not currently on the list but still worth mentioning is the potency drug developer Dicot. The stock fell off the top after the large short-seller Guevoura Fund started repurchasing shares and reducing its position. The company recently carried out a successful rights issue, and it can be assumed that the short sellers’ sights have been set on the subscription price, which amounted to SEK 0.15 per share. The stock was hovering around SEK 0.20 while the short position was being built up and is trading at just over SEK 0.16 at the time of writing.

The great interest enabled Dicot to raise more money than it had initially aimed for. With almost SEK 135 million added, the company can increase the development pace, and the other day, it was announced that it also plans to expand to include more indications.

BioArctic under pressure

Finally, we would like to mention BioArctic, which has been on many people’s radar due to the success of the Alzheimer’s treatment, Lecanemab. The stock has been volatile since phase III data was announced in 2022, with hopes of future sales battling the fear of a high valuation.

A further blow came this summer when the EU’s Committee for Medicines for Human Use (CHMP) issued a negative recommendation regarding marketing authorization. The announcement put extra pressure on the stock and was followed by lowered target prices among several analysts — good news for the short sellers who had bet on a weak development. Currently, just over 4 percent of the company’s shares are sold short.

List of the most shorted life science stocks

As previously stated, you cannot assume that a high proportion of shorted shares will automatically lead to price declines. However, short sellers rarely take their short positions lightly, so there may be reason to be cautious with stocks where they amass.

Below, BioStock lists the ten most shorted life science stocks right now.

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