Hedge Funds Place Record Bets Against Bavarian Nordic

  • Short positions on biotech firm surged to 11% in recent weeks
  • Prostate cancer trial is a major binary event, Jefferies says

After fighting off a vocal attack from a short seller less than a year ago, Bavarian Nordic A/S is again the target of hedge funds betting shares in the Danish biotechnology company are set to fall.

Short interest in the developer of cancer vaccines jumped to 11 percent of the share capital this week, according to Markit data. That’s the highest percentage in at least a decade and more than twice the level in August last year, when Kerrisdale Capital Management LLC published reports and hosted conference calls attacking the Danish company’s pipeline.

Shares in Bavarian traded 3 percent higher as of 12:45 p.m. in Copenhagen, compared with a 0.4 percent decline in Denmark’s benchmark index of stocks.

Short positions have jumped in recent weeks, according to Markit data
Short positions have jumped in recent weeks, according to Markit data

The hedge funds are at odds with analysts covering the stock. All nine tracked by Bloomberg have buy recommendations with an average price target of 382 kroner, which is 55 percent more than the stock closed at on Wednesday. Bavarian shares have declined 31 percent this year through Wednesday, though they’re still worth seven times their low point in November 2011.

Bavarian has said it expects to publish final data on its prostate cancer vaccine Prostvac in 2017. Last year, the company signed a licensing deal with Bristol-Myers Squibb Co. on the product.

“The company faces a major binary event with the Prostvac trial coming up in 6 to 12 months,” Peter Welford, a London-based analyst at Jefferies International Ltd, said by phone. “I suspect that it’s this event that’s causing some investors to go short. It will be relatively easy to build an argument as to why the trial will fail because this is a cancer vaccine,” and such products “have a chequered past in late-stage trials,” he said.

Kerrisdale, which all but abandoned its short position in November, isn’t leading the bets against the stock this time, according to data from the Danish Financial Supervisory Authority.

Millennium International Management LP has the biggest short position at 0.81 percent of the share capital as of June 30, up from 0.59 percent 10 days earlier, according to the FSA. The New York-based fund didn’t immediately return a telephone call seeking comment on its position. Bavarian declined to comment on the short positions in its stock.

Welford at Jefferies, who has had a buy recommendation on the stock for almost four years, said he expects a higher probability of success than of failure in the Prostvac trial.

“My view is that the product has an effect,” he said. “But there is a risk as to whether the magnitude of effect will be sufficient to achieve statistical significance, particularly in view of the number of prostate cancer drugs that have come to the market.”

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