A few months ago it was brought to the attention of investors that shares of Ampio Pharmaceuticals (AMPE) were carrying a very significant short interest, reaching 20% of the entire float. When shares of developing pharmaceutical or biotech companies rise in price as quickly as AMPE has over the course of 2011, it's not unusual to see a parrallel rise in short interest, as many of these yet-to-be-established companies see their shares quickly fall back to earth after such price runs.
In the case of AMPE, however, the pullback that the shorts likely expected never materialized as encouraging milestone events on the pipeline front continued to demonstrate that Ampio might be onto something with its strategy of repositioning already-approved products to treat new indications.
With the AMPE share price still on the move, a negative piece was published on the Motley Fool website that sought to question the legitimacy of the Ampio pipeline, but the impact on share price was negligible and the article was retracted shortly after it was published.
Through the past couple of months, however, the short interest has remained steady at roughly twenty percent of the float; still a significant amount, and also an indication that investors were to expect that another short attack was going to reveal itself.
After all, those short shares would eventually have to cover.
Another attack against the company was published this week by a short-seller of the AMPE stock, and this one looked to de-legitimize the company's officers and pipeline progress, although only a portion of the company's pipeline was given mention in the piece.
As a result of the short attack that coincided with the negative piece, AMPE shares dropped back to the five dollar level, down a staggering 32% in one day. With likely only a fraction of the shares short having been covered to this point, it shouldn't be out of the question to expect a continued short attack.
In the game of stock investing, a company's stock action does not often coincide with news developments on the pipeline front. Take, for instance, the amount of share prices that drop after the FDA approves a new drug. Especially with small cap investing, the traders and momentum players will dictate the movement of a stock, more so than the media headlines will.
In the end, however, it's the milestone events that talk, not the trading pattern of a particular investor.
For Ampio, the milestone events have not played out in favor of the short selling crew as multiple announcements regarding the positive pipeline progress have hit the news wires. Lead product Ampion, for instance, has recently returned yet another round of promising results as a potential anti-inflammatory, while developments regarding Optina and Zertane have also looked encouraging.
Since the pipeline progress is not helping out the short side of the argument, another tactic would need to be put to work in order to attempt to knock the share price down.
The latest attack revolves mainly around discrediting the Ampio pipeline because of another failed company, Isolagen. Isolagen, according to the latest hit piece on Ampio, failed as a company because its cell treatment, which was to treat wrinkles and other indications of aging, simply did not work. With this being the opening argument for the short-sided case of Ampio, the burden of credibility lies in the strength of the opening argument.
The truth, however, shows that the Isologen's technology was approved by the FDA earlier this year as laViv.
Unfortunately for Isologen, the company was derailed more by a global economic meltdown that dried up financing for many small, developing companies than it was by its treatment not working. Isologen was forced to file for bankruptcy protection when funding dried up, but - as the milestone events show us - the Isolagen technology works good enough to warrant an FDA approval, which right off the bat is contrary to everything written in the hit piece against Ampio.
When credibility is lost before finishing the title, it's tough to move forward from that point.
It's the pipeline progress that talks. Ampio's technology is not yet advanced in development enough to be given an FDA approval as Isolagen's technology has, but when it's all said and done, the results from the pipeline matter more than the direction where a long or short trader wants a stock to trade.
Before the story is played out, however, a developmental stock is susceptible to the whims of the traders with the most money to play the game. It shouldn't be so easy for the short-sellers to make their money in this day and age - resorting to writing headlines when the positive events from a company that their shorting don't play along with their games - but unfortunately it is.
As always, do not buy or sell a stock based on someone else's inclination - it's up to each investor to conduct his or her own DD, develop a personal investment strategy, and invest accordingly.
On a closing note, why don't the bankers just bank. There's enough turmoil in the global economy right now where the bankers don't need to spending their time blogging.
Disclosure: No position.