It’s an unusual day in recent trading when shares in biotech stock Clinuvel Pharmaceutical (ASX:CUV) haven’t risen or fallen by anywhere between 2 to 4 per cent.

Clinuvel, better known to some by its former name of Epitan, has a novel treatment for rare cases of genetic skin disorders. It spent well over $100 million developing its product, and it is likely to be several years yet before it uses up all of its accumulated losses and will have to pay any company tax.

But with a decision due October 6 from the Food and Drug Administration (FDA) — the gatekeeper for Clinuvel to gain access to the critical US market — ongoing volatility in the price investors are willing to pay for Clinuvel shares is hardly surprising.

Especially once you realise that as much as 6 per cent of its shares have been sold short.

In other words, some investors are betting its shares have further to fall.

Among small caps, there are only a handful of stocks with larger outstanding short positions than Clinuvel.

These include the Robert Friedland-backed battery metals play Clean TeQ (ASX:CLQ) and struggling graphite producer Syrah Resources (ASX:SYR).

More than 15 percent of Syrah shares held by short traders, who have profited mightily as shares have sunk from over $2 to around 50c in recent trading.

But when good news emerges, short sellers can be forced to move quickly to buy back shares, squeezing the share price higher.

This occurred on Monday, when the shares in the heavily shorted Nufarm surged as much as a third when it sold a big chunk of its operations for more than$1.8 billion, catching short sellers off guard. As much as 17 per cent of Nufarm’s shares had been sold short, resulting in a scramble to buy shares to close out positions.

For Clinuvel, its shares peaked at $38.95 in June, buoyed by optimism that it would win access to the US market for is skin pigmentation treatment, opening the door to a surge in earnings.

But that optimism was dashed when the FDA said it needed more time to consider Clinuvel’s application. It said a decision would be made on October 6.

Clinuvel has put on a brave face over the delay, especially since some patients are travelling from the US to Europe to gain access to its treatment.

There is always the possibility the FDA could decide to extend still further its deadline to come to a decision.

Its staff have been working “around the clock” to supply information to the FDA it said in a recent newsletter to shareholders, while noting that winning access to the European market, too, took longer than anticipated.

One of the few brokers following the stock is Moelis, which has a $30.58 target price on Clinuvel.

It says the FDA’s decision remains a “key catalyst” for Clinuvel shares, although the delay in winning access to the US means it doesn’t now expect meaningful sales to emerge in that market until around 2022.

Still, with a handy $50 million in cash sitting on its balance sheet, there is always the chance of an acquisition as Clinuvel seeks to broaden its product profile, the broker has noted.

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