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Hedge Funds Expect Big Things From 1 Of These 2 Sliding Biotechs

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Two micro-cap biotech stocks are having a rough start to the week amid generally positive momentum for the market as a whole. Nexvet Biopharma plc (NASDAQ:NVET) and Celyad SA (ADR) (NASDAQ:CYAD) have each registered losses of nearly 5% today in afternoon trading on no notable news. Let’s dig into these stocks and try to pinpoint why the market has turned against them this morning.

Biotech Stocks 9

Let’s start with Nexvet Biopharma plc (NASDAQ:NVET), which is developing species-specific treatments for dogs and cats that could rapidly create monoclonal antibodies recognized as native by the immune systems of the animals. The company’s PETization drug development outlined above was recently granted $3.2 million in cash under the Australian government’s Research and Development Tax Incentive Program. The Dublin, Ireland-based company conducts its drug discovery activities in Australia because of those incentives.

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Nexvet Biopharma plc (NASDAQ:NVET) released its full year fiscal 2015 results for the period ending June 30 on September 3. It announced nothing in the way of revenue, and a net loss of $11.9 million attributable to common shareholders. Among the company’s $20 million in expenses for the year were expenses incurred due to its IPO in February. That IPO has been a big disappointment for investors, with shares sliding by over 58% since.

Five investors that we track were among those taking positions in the company during the first quarter, which declined to four by the end of the second quarter. Investors in our database held over $17.22 million worth of the company’s shares, 30.50% in total, making them quite bullish on the biotech firm. Thomas Steyer’s Farallon Capital, which holds stakes in both companies featured in this article, was the most bullish among them, taking up a large activist position in the company shortly after its IPO, a position which stood at just under 2.50 million shares on June 30. Phill Gross and Robert Atchinson’s Adage Capital also holds a large position in Nexvet, of 875,000 shares.

A reader might question our decision to focus on the small-cap category, considering that it’s mostly the larger counterparts of these companies that head the portfolios of most hedge funds. The reason for our focus is simple. Our research has shown that in the period between 1999 and 2012 the top small-cap picks of hedge funds outperformed the broader market by nearly one percentage point per month, whereas the top overall picks (mostly large-caps) underperformed by seven basis points per month during the same period. Why pay high fees to own a glut of low-performing stocks when you can invest on your own in hedge funds’ best stock picks? Since its launch in August 2012, Insider Monkey’s small-cap strategy has outperformed the S&P 500 every year, returning 118% since then, over two-times greater returns than the S&P 500 (read the details here).

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