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Why Bluebird Bio Stock Is Flying Today

What happened

Bluebird Bio's (NASDAQ: BLUE) stock motored upward above 24% amid an unusually high volume of trading before pulling back to around 13.3% by noon on Tuesday, likely as a result of a short squeeze. More than 34.6% of its floating shares were held short as of June 15, which puts the stock in prime short-squeeze territory.

So what

Bluebird's stock is heavily shorted because the company is unprofitable, and it may not have enough cash to cover its expenses over the next 12 months. Its trailing-12-month operating costs are above $497.4 million, and its cash and equivalents only total around $211.6 million.

Nonetheless, in June the company's stock soared by nearly 39.4% thanks to a pair of unanimous favorable votes from regulators on a nonbinding advisory committee at the Food and Drug Administration (FDA). The committee voted that the biotech's candidate gene therapies for beta thalassemia and cerebral adrenoleukodystrophy (CALD) were both likely to be safe and effective enough to justify their use.

So, some of the people who were betting on the stock's price to fall in June are now likely in the process of trying to cover their short positions by buying additional shares, thereby driving the price up.

Now what

Regulators plan to issue binding decisions about whether the candidates can be commercialized for sale in the U.S. The binding committee will vote on Aug. 19 regarding the beta thalassemia therapy, and on Sept. 16 for the CALD therapy.

Between now and then, more short-squeeze action is possible, especially if the stock remains a favorite among short-sellers.

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Alex Carchidi has no position in any of the stocks mentioned. The Motley Fool recommends Bluebird Bio. The Motley Fool has a disclosure policy.


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