Abstract
The high price of prescription drugs is often attributed to the lack of alternative therapies and the costs of drug development and clinical trials. Short attacks are an underdiscussed contributor to both. They divert and deplete a biotech’s resources, ultimately reducing competition and keeping new drugs off the market.
Short selling (shorting) involves selling borrowed stock. This Article addresses its impact on small biotech companies, defined here as those with a market capitalization of $2 billion or less. These small biotechs contribute disproportionately to innovative research and development but face many obstacles on the road to regulatory approval. Short attacks exacerbate the challenges faced by small biotechs and impose significant costs on society. This Article’s case study on Northwest Biotherapeutics highlights how short selling and algorithmic trading nearly derailed a promising brain cancer vaccine.
The Article contributes to the legal literature on financial markets by explaining how shorting can hinder biotech innovation and contribute to social inequities. To safeguard biotech innovation and offset some of the negative externalities of short selling, this Article proposes a 15 percent surtax on the profits from short selling a small biotech, which would be allocated to the National Institutes of Health to fund further research and development. To implement this proposal, short sales should be reported daily to FINRA, and entities managing more than $20 million and holding short positions in small biotechs should be required to file quarterly audited and certified statements. This proposal aims to curtail market manipulation, increase transparency, preserve legitimate short selling practices, and redistribute the costs and benefits of short selling more equitably.
Recommended Citation
Nancy S. Kim,
Shorting Innovation,
57 Loy. L.A. L. Rev. 525
(2024).
Available at: https://digitalcommons.lmu.edu/llr/vol57/iss3/1
