Shares of small-cap medical diagnostics company BG Medicine (BGMD) are showing no sign of a post-St. Patrick’s Day hangover on Tuesday, trading hard and fast to the tune of a more-than 25 percent gain on volume that reached more than five times its daily average before noon.
The stock gapped up 6.4 percent to $1.50 a share at the opening bell before quickly catching momentum and building on gains. Shares traded as high as $1.78 apiece in morning trading, a gain of 26.2 percent, and stayed over $1.70 even after pulling back some.
The buying spree comes without a specific news item motivating the move, but it appears to have all the signs of a classic short squeeze. The stock already skyrocketed earlier this year after the Center for Medicaid and Medicare Services (CMS) nearly doubled the national limitation amount (NLA) for BG Medicine’s Galectin-3 test to $30.01.
With Q4 and FY 2013 financial results due to be released prior to the opening bell on Thursday, March 20, many traders could be anticipating a big spike and covering their short positions ahead of the report’s release.
Potentially helping short-sellers decide to run for the hills is the consistent rising support level that had developed in mid-January, starting at about $0.90 a share and rising to close to $1.40 by the start of the week. The support level has been repeatedly tested, and started moving in tandem with both the 20-day and 50-day SMA in late February. Tuesday’s spike has the stock moving sharply away from that support level, possibly showing bolstered confidence on the part of bullish BG traders and investors (and a loss of confidence for any shorts) at what appears to be a firm floor for the stock’s value.
Finally, the relatively low free-float for BG could be contributing to the big price swing. With a total float of just under 28 million shares, BG Medicine features a relatively small number of outstanding shares. However, this is only buoyed by the fact that over 40 percent of that float is currently owned by company insiders, a position arrived at by a nearly 25 percent increase over the last six months.
Much of that came from beneficial owner Noubar Afeyan who bought an additional 2 million shares at a price of $4 million at the end of January.
So, while the stock has 28 million shares outstanding, less than 17 million are currently on the market. This is especially interesting when considering the 8 percent short float (prior to today). While not a particularly large short position, it’s much larger when considered against the free float as opposed to the full float.
An 8 percent short float would represent closer to 13 percent of the free float, which would appear to be a large enough short position to drive gains in excess of 20 percent should the shorts abandon their positions en masse.
Taken collectively, these factors could all be working in conjunction to drive trading action sharply higher. However, it’s all speculative at this point, and Thursday’s earnings report will most likely solidify the price in the short-term regardless of what’s motivating Tuesday’s movement.
BG Medicine’s primary product is the BGM Galectin-3® test. Galectin-3 is a protein that, when detected in the bloodstream, can indicate a risk for heart failure. From the company’s website:
“Galectin-3, a member of the galectin family of proteins, is a biomarker that has been shown to play an important role in heart failure. Heart failure is a condition caused by a combination of diseases or factors that damage or overwork the heart muscle, resulting in its inability to pump blood efficiently to meet the requirements of other body organs. This condition often leads to serious medical complications and is a leading cause of death. According to the American Heart Association, heart failure affects an estimated 5.1 million Americans, with an approximate 670,000 new cases occurring each year, and we believe the prevalence and incidence of heart failure are similar in Europe. In the United States alone, heart failure was expected to cost the healthcare system over an estimated $32 billion in 2013.”
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