Short Report: Bears pounce on DOJ, SEC investigation into Cassava Sciences fraud

Welcome to this week’s installment of “The Short Interest Report” – The Fly’s weekly recap of short interest trends among some of the most widely followed high-short-float stocks. Using the data from our partner Ortex.com, which utilizes the latest information from stock lenders to estimate short interest changes for thousands of publicly traded companies, this report will screen for some of biggest changes in short interest as a percentage of free float and days-to-cover ratios while also considering the short interest data on some of the more volatile and heavier-traded names of the week. Based on the availability of data from Ortex, the report tracks the trading period that covers prior Friday through Thursday of this week, excluding holidays. As a basis of comparison for stocks discussed below, the S&P 500 index was down 2.6%, the Nasdaq Composite was down 3.9%, the Russell 2000 index was up 1.1%, the Russell 2000 Growth ETF (IWO) was up 0.6%, and the Russell 2000 Value ETF (IWN) was up 1.8% in the five-day trading session range through July 25.

SHORT INTEREST GAINERS

• Ortex-reported short interest in Cassava Sciences (SAVA) saw its lowest level of the year in late May at about 26%. Then a regulatory disaster struck in late June – the DOJ filed charges against the company’s co-lead scientist, advisor and consultant, Hoau-Yan Wang, alleging he had defrauded the U.S. National Institutes of Health in collecting $16M in grants while fabricating and falsifying data in of Cassava Sciences’ development of simufilam and SavaDx. Shares fell by as much as 53% on Friday, June 28th, and while the company has since taken steps in limiting the PR damage, including replacing its CEO, the bears are undeterred. This week, the stock was up 25% in the five-day period covered, but shorts as a percentage of free float rose from 30.5% to 37.6% – the highest level for 2024. The spike in trading volume over the past week has impacted days to cover, with the ratio slipping from 10.2 to 2024-low of 9.5.
• A rapid rise in bearish bets in GroupOn (GRPN) shares popped up on our radar late last month when an outsized jump in the stock’s trading volume coincided with a four percentage point increase in the short interest to 22%. The stock has gained about 13% since then – with this week accounting for 3% of the climb – though the shorts are also unrelenting, boosting exposure in short interest this week from 23% to a 2024 high of 31%. With trading volume on the decline over the past two weeks, days to cover on GroupOn is also higher- rising from 2.9 to 3.6, a six-month high.
• Ortex-reported short interest in The Children’s Place (PLCE) troughed at 2024 lows of 8.4% on July 1, coinciding with a one-month high in the stock price. Shorts as a percentage of free float have since run up for two consecutive weeks as shares surrendered the gains made over the prior three weeks. In the five-day period covered through Thursday this week, short positioning in The Children’s Place rose from 10.2% to 23.5% – a three-week high and days-to-cover ratio gained from 3.2 to 3.8, and while the stock traded flat this week, it remains down about 17% from mid-July highs.
• Virgin Galactic (SPCE) had flown its seventh commercial spaceflight – and the second of 2024 – earlier last month, carrying four paying passengers, without an incident. But while the company ramps up its manufacturing capacity to scale up the nascent age of space tourism, the stock price is anything but in “we have liftoff” mode. Shares were up 2% this week but still down over 85% from mid-December highs. The 1-for-20 reverse stock split announced on June 12th was met extra coolly, and Virgin Galactic plummeted over 40% in the subsequent week. Meanwhile, the bearish activity has also marched in step with this year’s sell-off – shorts as a percentage of free float troughed around 21% in mid-February before a steady uptrend saw the short interest pierce through 30%. This week, the estimated short interest was up from 27% to 33% – the highest level of bearish appetite since late 2020.

SHORT INTEREST DECLINERS

• Ortex-reported short interest in Semtech (SMTC) plummeted late this week, falling from a five-month high of 21.7% seen on Monday to 12% by the end of Thursday – the lowest level of the year. The company had completed the convertible note exchange announced two weeks ago – trading in $188M in 2028 convertible debt for 10.4M shares of common stock, thereby diluting bearish representation. Shares were also down on equity dilution, falling about 10% on Thursday. For the five-day period covered, Semtech stock was down 11%.