May 16, 2019 - Health

Hedge funds and short sellers dig into health care stocks

Hedge funds and short sellers are raising their bets that lawsuits against pharmaceutical companies will drive down their stock prices and maybe even put them out of business.

The intrigue: Data from S3 Partners provided exclusively to Axios shows bets against biotech and pharmaceutical companies have risen 12% since the beginning of the year to nearly $62 billion of short interest.

  • "Wall Street is underestimating the impact on companies from the opioid litigation," Justin Simon of health-care hedge fund Jasper Capital Management told the Wall Street Journal.

Driving the news: Close to 2,000 lawsuits have been filed accusing big pharma companies of fueling the opioid epidemic. Drugmakers including Mallinckrodt, Allergan, Endo Pharmaceutical, Johnson & Johnson and Teva, and several drug distributors have been named as defendants.

Why you'll hear about this again: Jasper has been betting against Mallinckrodt and other companies named in the lawsuits, WSJ reports, noting that "Some hedge funds have been watching for distress in the sector, citing certain companies' use of leverage or declining profitability."

  • "On Teva's most recent earnings call, Chief Executive Kåre Schultz said, 'As you know, we have a lot of debt, so we don’t have that much money. So I think [opioid plaintiffs will] have to find somebody else if they want big settlements. It won't be with us.'"

Go deeper: Lawsuit says Johnson & Johnson was opioid "kingpin"

Go deeper