Vitae Pharmaceuticals Inc (NASDAQ:VTAE) may have seemed to be a very good bet for hedge funds by the end of the first quarter, but the stock plunged over 40% from its closing price of $15.19 per share on Friday, June 26, to open today at $9 per share. The stock, though recovering some of those losses, is still currently down by over 17%. The sharp decline in the stock early today comes as the company revealed that its drug VTP-34072, that it is developing with Boehringer Ingelheim Pharmaceuticals, Inc. to help treat Type 2 diabetes in overweight patients, has failed to significantly reduce blood sugar levels of test subjects as an add-on therapy. The pharmaceutical companies hoped that VTP-34072 would be an add-on drug to a treatment regimen involving metformin, a common diabetes medication. VTP-34072 will undergo trial testing as a solitary drug in a treatment program later this year.
Based on the level of interest Vitae Pharmaceuticals Inc (NASDAQ:VTAE) got from hedge funds by the end of the first quarter, it appears that investors had high hopes for the company and perhaps this particular treatment. As the stock plunges today, investors who are still long on the stock will be taking big losses. Among hedge funds tracked by Insider Monkey, the company was in nine hedge funds’ portfolios at the end of said period, up from four at the end of the previous quarter. Total investments had grown as well, as the aggregate value of holdings increased to $36.31 million by the end of 2015’s maiden quarter, up 117.80% from the previous quarter. This is a very significant increase considering the stock declined a substantial 29.63% in the first quarter of this year. Funds clearly felt it was a great buy-low candidate during the quarter and loaded up.
At Insider Monkey, we track hedge funds’ moves in order to identify actionable patterns and profit from them. Our research has shown that hedge funds’ large-cap stock picks historically delivered a monthly alpha of six basis points, though these stocks underperformed the S&P 500 Total Return Index by an average of seven basis points per month between 1999 and 2012. On the other hand, the 15 most popular small-cap stocks among hedge funds outperformed the S&P 500 Index by an average of 95 basis points per month (read the details here). Since the official launch of our small-cap strategy in August 2012, it has performed just as predicted, returning over 145% and beating the market by more than 85 percentage points. We believe the data is clear: investors will be better off by focusing on small-cap stocks utilizing hedge fund expertise rather than large-cap stocks.
We also track insider moves in companies to see bets made by executives for or against their own firms. Vitae Pharmaceuticals Inc (NASDAQ:VTAE), according to our data, did not have any purchases of shares by insiders by the end of the first half of 2015. However, Director Donald Hayden Jr. sold 55,000 shares of the firm on Tuesday of last week.
With all of this in mind, we’re going to take a peek at the key hedge fund action surrounding Vitae Pharmaceuticals Inc (NASDAQ:VTAE).
Hedge fund activity in Vitae Pharmaceuticals Inc (NASDAQ:VTAE)
As mentioned earlier, the number of hedge funds tracked by Insider Monkey who had long positions on Vitae Pharmaceuticals Inc by the end of the first quarter increased 125% from one quarter earlier. When looking at the hedgies followed by Insider Monkey, Mark Lampert‘s Biotechnology Value Fund / BVF Inc had the number one position in Vitae Pharmaceuticals Inc (NASDAQ:VTAE), worth close to $18.5 million, accounting for 3.9% of its total 13F portfolio. The second-most bullish hedge fund manager is Adage Capital Management, managed by Phill Gross and Robert Atchinson, which held a $4.7 million position; the fund has less than 0.1% of its 13F portfolio invested in the stock. Other hedge funds that hold long positions contain Steve Cohen’s Point72 Asset Management, Ken Greenberg and David Kim’s Ghost Tree Capital, and Julian Baker and Felix Baker’s Baker Bros. Advisors.
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Specific money managers were breaking ground themselves. Adage Capital Management, managed by Phill Gross and Robert Atchinson, initiated the most outsized new position in Vitae Pharmaceuticals Inc (NASDAQ:VTAE). Adage Capital Management had $4.7 million invested in the company at the end of the first quarter. Steve Cohen’s Point72 Asset Management also made a $4.3 million investment in the stock during the quarter. The other funds with new positions in the stock are the aforementioned Ghost Tree Capital, and Baker Bros. Advisors, as well as Anand Parekh’s Alyeska Investment Group.
It should be noted, however, that the future does not look too bright for Vitae Pharmaceuticals Inc, particularly regarding its drug VTP-34072 which has failed to reach its goal as an add-on drug to treat Type 2 diabetes. The drug would have to have stunning results as a solitary treatment if it ever has hopes of turning its fate around, a Reuters report notes. Because of this, we would not recommend going long in Vitae Pharmaceuticals Inc (NASDAQ:VTAE).
Disclosure: None