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Has Five Prime Therapeutics Inc. (FPRX) Turned The Corner? Adage Capital Thinks So

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Adage Capital Management, founded by Phill Gross and Robert Atchinson, recently disclosed an ownership stake of 2.66 million shares in Five Prime Therapeutics Inc. (NASDAQ:FPRX) in a 13G filing with the SEC, which represents 10.33% of the company’s outstanding shares. This represents an increase of 701,457 shares from the fund’s previous stake, as revealed in its latest 13F filing for the period of June 30.

Phill Gross

Adage Capital Management LP is a Boston-based hedge fund co-founded by two former money managers at Harvard University’s endowment, Phill Gross (pictured above) and Robert Atchinson. The investment management firm was launched with a $3.8 billion commitment from Harvard Management Company back in 2001. Interestingly, its founders continue to run this firm in the same style they managed the aforementioned equity group at Harvard. They take long and short bets on individual stocks within different industries by employing fundamental analysis with a focus on intra-industry valuation methodologies. The 13F filing for the June quarter reveals that Adage Capital Management oversees a public equity portfolio worth $40.10 billion.

Phill Gross And Robert Atchinson
Phill Gross And Robert Atchinson
Adage Capital Management

We follow hedge funds like Adage Capital Management because our research has shown that their stock picks historically managed to generate alpha even though the filings are up to 45-days delayed. We used a 60-day delay in our back tests to be on the safe side and our research showed that the 15 most popular small-cap stocks among hedge funds outperformed the S&P 500 Total Return Index by an average of 95 basis points per month between 1999 and 2012. After adjusting for risk, our calculations revealed that these stocks’ monthly alpha was 80 basis points. We have also been sharing and tracking the performance of these stocks since the end of August 2012, during which time they have returned 118%, outperforming the S&P 500 ETF by over 60 percentage points (see more details here).

Five Prime Therapeutics Inc. (NASDAQ:FPRX) is a clinical-stage biotechnology company that engages in the discovery and development of protein therapeutics that block cancer and inflammatory disease processes. The company’s product candidates include FPA008, an antibody that inhibits the colony-stimulating factor-1 receptor, developed for the treatment of rheumatoid arthritis; FPA144, an antibody that inhibits fibroblast growth factor receptor 2b, developed for the treatment of gastric cancer; and FP-1039/GSK3052230, a fusion protein that traps and neutralizes cancer-promoting fibroblast growth factors. The shares of the biotechnology company have lost 27% since the beginning of the year, partly owing to the seemingly “disappointing” second quarter financial results and business update it revealed at the beginning of August. However, the stock gained 8.24% on Wednesday, which might indicate a turnaround point for Five Prime Therapeutics. Jeffrey Jay and David Kroin’s Great Point Partners initiated a new position in the company comprised of 678,595 shares during the second quarter, whereas Steven Cohen’s Point72 Asset Management reduced its stake by 54% to 479,411 shares.

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