5 Stocks That Are Getting Battered and Bruised Today

At a time when crude futures are in the green and the major indexes are flat, shares of five stocks, Catabasis Pharmaceuticals Inc (NASDAQ:CATB), Flexion Therapeutics Inc (NASDAQ:FLXN), DryShips Inc. (NASDAQ:DRYS), Sunoco LP (NYSE:SUN), and Fibrocell Science Inc (NASDAQ:FCSC) are sharply down today. Let’s find out why traders are selling off these equities and see how the smart money is positioned in them.

At Insider Monkey, we track around 765 hedge funds and institutional investors. Through extensive backtests, we have determined that imitating some of the stocks that these investors are collectively bullish on, can help retail investors generate double digits of alpha per year. The key is to focus on the small-cap picks of these funds, which are usually less followed by the broader market and allow for larger price inefficiencies (see the details here).

Catabasis Pharmaceuticals Retreats on Clinical Results

Catabasis Pharmaceuticals Inc (NASDAQ:CATB) is 26% lower today after a Phase 2a trial showed that the company’s drug candidate CAT-2054 failed to achieve the study’s primary endpoint of statistically lowering bad cholesterol compared to a placebo. Non-HDL and triglyceride did not change statistically either. Catabasis will stop investing in CAT-2054 for the treatment of hypercholesterolemia as a result. The company will continue to focus on CAT-2054 for the indication of non-alcoholic steatohepatitis, however. Three funds that we track owned 10.7% of Catabasis Pharmaceuticals Inc (NASDAQ:CATB)’s shares at the end of March, out of 766 funds in Insider Monkey’s database.

Flexion Raises Money

Flexion Therapeutics Inc (NASDAQ:FLXN) shares have retreated by 11% after the company announced that it will start a $60 million public offering of stock. The underwriters have a 30-day option to buy another $9 million of additional shares. Wells Fargo, RBC, and BMO are the joint book runners. The exact pricing of the offering hasn’t been released yet. Ten funds in our system were long Flexion Therapeutics Inc (NASDAQ:FLXN) at the end of the first quarter.

On the next page we examine why shares of DryShips Inc, Sunoco LP, and Fibrocell Science Inc are sinking today.

DryShips Shares Sink on Registered Direct Offering

DryShips Inc. (NASDAQ:DRYS)‘s stock has sank by another 6% after the company announced that it has entered into a securities purchase agreement with an institutional investor. 5,000 Series C convertible preferred shares, warrants to purchase another 5,000 Series C convertible preferred shares, and 148,998 common shares will be issued for net proceeds after fees of around $5 million. If all the warrants are exercised, DryShips could receive total proceeds of $10 million. DryShips Inc. (NASDAQ:DRYS) shares are down by 70% year-to-date. Four funds that we follow owned 2.9% of the company’s float on March 31.

Analyst Downgrades Sunoco

Sunoco LP (NYSE:SUN) is 7% lower today after Jefferies analyst Christopher Sighinolfi wrote that the company might need to cut its dividend by the end of the year to remain in compliance with various credit covenants and to preserve its financial well-being. Mr. Sighinolfi cites various factors that, when stripped out, would have shown first quarter normalized distributable cash flow of 0.7-times the interest payments, rather than the 1.18-times reported. The analyst estimates Sunoco’s leverage might quickly near the credit covenant limit of 6.25-times, which is a problem given that the debt/EBITDA covenant tightens to 5.5-times in 2017. Mr. Sighinolfi now has a target price of $23 per share on the stock, down from the previous $35 target. 11 funds in our system held shares of Sunoco LP (NYSE:SUN) as of the latest 13F reporting period.

Fibrocell Science’s Lead Product Fails Study

Fibrocell Science Inc (NASDAQ:FCSC) is 36% in the red after a Phase 2 clinical trial showed that the company’s lead product candidate, azficel-T, failed to beat the results of a placebo, thus the primary endpoints of the study were not met. Azficel-T had been a candidate for the treatment of vocal cord scarring resulting in chronic or severe dysphonia. Fibrocell now intends to dedicate its efforts to FCX-007 for the treatment of recessive dystrophic epidermolysis bullosa and its earlier-stage programs. Five funds tracked by Insider Monkey were long Fibrocell Science Inc (NASDAQ:FCSC) at the end of March, owning 9.1% of its shares.

Disclosure: None