Shares of Endo International (NASDAQ: ENDP) were soaring 22.8% as of 11:07 a.m. EDT on Tuesday. Endo didn't announce any new developments, but there were two stories for other opioid drugmakers. First, Purdue Pharma appears to be close to filing for bankruptcy because of ongoing opioid drug litigation. Second, shares of Mallinckrodt (NYSE: MNK) skyrocketed after the company announced an agreement to sell its BioVectra contract development and manufacturing organization business to an affiliate of H.I.G. Capital for $250 million.
The most likely reason Endo stock is jumping today relates to Mallinckrodt's news. Any positive development for a stock that has a high level of short interest results in a short-squeeze scenario where short-sellers begin to cover their positions, creating upward pressure on the stock price. That appears to be what's happening with Mallinckrodt. Endo also has a relatively high short interest. There seems to be a sympathy trade going on with short-sellers covering their Endo positions because of the spike for Mallinckrodt.
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Don't get too excited about Endo's great performance today. Assuming the theory is correct that the stock's jump stemmed from a short squeeze, the upward momentum probably won't last very long.
Mallinckrodt's good news really doesn't have any direct business impact on Endo. The fundamental issues that Endo faces haven't changed at all. Despite reaching a settlement with two Ohio counties, the drugmaker still must deal with a large number of ongoing opioid-related lawsuits.
Investing in pharmaceutical stocks can be volatile, but what we're seeing with Endo and other drugmakers embroiled in opioid litigation takes volatility to a completely different level. The best thing for investors to do is to focus on the business rather than the wild stock swings. In the case of Endo International, the business prospects remain very murky.
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