Shorts Sighted

Gilead's panel meeting for Vistide, its lead product, sent its high flying shares plummeting 24% in just a few minutes on March 15, thanks to a misleading Dow Jones wire report.

Unanimous approval by an FDA advisory panel should be good news for a company, but Gilead’s panel meeting for Vistide, its lead product, sent its high flying shares plummeting 24% in just a few early morning minutes on March 15, thanks to a misleading Dow Jones wire report. Nasdaq halted trading in the stock moments later and it didn’t resume trading until the following Monday.

Gilead might have expected some investor response. The panelists’ concerns about safety data have caused worries that while Vistidewill likely be approved for its initial retinitis indication—a very small market—it might not be competitive with current therapies. Worse, its various formulations could have trouble being approved for the much larger markets for which they are being developed, like herpes.

But the fact that the stock dropped so quickly on such a large trading volume invites darker speculation. Since it’s impossible to value a biotech company based on its pipeline, the best way to make money is betting on the stock’s movement itself.

Indeed, hedge investors are increasingly active in the industry, particularly at times when companies are set to make major announcements.

Was it the shorts? The volume alone suggests the possibility. In any event, the tar has stuck: Gilead is still down 17% from its pre-meeting price.