Volatile valuations make biotech a haven for short sellers

The years-long glut of biotech IPOs has flooded the public markets with high-risk life sciences companies, and shorts have taken a particular interest in those newly public drug developers, according to a report, betting the industry's recent boom will see its shadow.

According to the Financial Times, small-cap biotech companies, on average, have about 7.3% of their shares in the hands of short sellers, a figure much higher than the Russell 3000 average of 4% and second only to the energy industry. And August's Wall Street swoon was a great time to short biotech: almost 90% of small-cap biotechs lost value last month, according to FT, and the biggest losers were heavily shorted.

But despite biotech's recent stumble, the industry is still in the midst of a longitudinal boom. The Nasdaq biotech ETF ($IBB) is up about 12% since the start of the year, and the S&P biotech ETF has risen 18% in the same period

And the pace of new IPOs has largely stayed on track. Nearly 40 life sciences companies have gone public in 2015, following 84 IPOs last year.

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