From the Securities Lending Trading Desk

Demand for Achaogen, Inc., a specialty U.S. based pharmaceutical company, has spiked this week as the share price fell to a 52-week low. Chinese smartphone giant Xiaomi Corp launched its IPO in Hong Kong last week. In Europe, Mothercare announces store closures, continuing the negative outlook for the British high street.

Below please find this week’s edition of From the Trading Desk, which provides timely commentary about top security earners, revenue drivers and other factors influencing the securities lending market from the BBH Securities Lending Trading Team.

Americas

Demand for Achaogen, Inc. (AKAO), a specialty pharmaceutical company, has spiked this week as the share price fell to a 52-week low on 7/9. The sell-off came as the FDA approved the use of their antibiotic, Zemdir, for some uses but not for others. Some analysts suggest there is a strong need for new antibiotics which treat infections that are now resistant to those antibiotics that have been in the market longer. However, bears are focused on new developers of antibiotics, as a whole, due to disappointing private market valuations, lacklustre sales results for big pharma companies, and inefficiencies for smaller companies focused on just one antibiotic. Short interest and fee levels spiked on 7/10 as investors question if AKAO has further to fall.

TransEnterix, Inc. (TRXC) has become one of the most sought-after names in Sec Lending as the company was added to the Russell 3000 Index. The share price for the medical device company has been relatively volatile over the past three months, closing between a low of $1.68 on 5/1 and $5.84 on 6/27. Fee levels for TRXC spiked following its addition to the Russell 3000 index; however, as we often see, fee levels have since started easing as prime brokers adjust their books based on the index changes. According to the most recent information available, short interest on TRXC has risen to more than 20% of the float and TRXC is one of the top 10 stocks with the largest percentage of short interest in that index. Other top shorted names include Frontier Comm (FTR), J.C. Penney Co (JCP) and Ziopharm Oncology (ZIOP). Considering the elevated utilization and short interest, we anticipate continued directional demand.Asia Pacific

Asia Pacific

Shares in Yahoo Japan surged and then dropped in Tokyo trading on plans by Softbank Group to purchase $2 billion of Yahoo Japan shares from Altaba Inc. Under the three-way deal, Softbank will purchase Yahoo Japan shares from Altaba, then Yahoo Japan will buy back the exact same number of shares from Softbank Group. The deal will effectively increase Softbank Group’s ownership of Yahoo Japan from 42.95% to 48.17%. We have seen strong securities lending demand on Yahoo Japan since Softbank’s purchase announcement last week.

Chinese smartphone giant Xiaomi Corp launched its IPO in Hong Kong last week, raising $4.7 billion at the lower end of the marketed range. Trade tensions between China and the U.S. negatively impacted the share price of Xiaomi Corp on the first day, leading to a 6% fall, shares recovered later in the week. Analysts were left unconvinced by Xiaomi Corp’s attempt to sell itself as an internet company instead of a hardware company. We have seen strong securities lending demand on Xiaomi since the IPO.

Europe

Mothercare announces store closures, continuing the negative outlook for the British high street. After another week of trade and tariff related headlines, the UK high street continued to show signs of weakness as Mothercare, MTC LN, announced a closure of up to 60 stores and a share offering to raise £32.5 million at £19 a share. Mothercare hopes that store closures through a Company Voluntary Arrangement (CVA) leading to reduced costs and rent swill give it the breathing room it needs to turn its fortunes around and return to profitability. The market initially welcomed the plans (share price increased 15%) however the price has now reverted to pre-announcement levels. We continue to see increased lending demand for the name.

Takeover news continues to drive lending demand. ONTEX BB shares ended last week suspended following a takeover offer by PAI Partners which it initially rejected. Shares opened 41% at the beginning of this week following news that PAI Partners were willing to raise their offer clearing the way for the private equity firm to start going over the Belgian company’s books. The board of CAPIO SS unanimously decided to reject an unsolicited $700M offer for the healthcare provider by Australian firm Ramsay Health Care. The offer represented a premium of 16% vs CAPIO SS closing price on Thursday and required an acceptance level of 90% by shareholders.