Infinity Pharmaceuticals Inc. (INFI): Billionaire Steve Cohen’ SAC Up to 5% of This Stock

According to a 13G filed with the SEC, SAC Capital Advisors, a hedge fund managed by billionaire Steve Cohen, owned 2.4 million shares of Infinity Pharmaceuticals Inc. (NASDAQ:INFI), giving the fund 5% of the total shares outstanding of the $1.9 billion market cap biotechnology company. We track SAC’s quarterly 13F filings alongside those of many other hedge funds and notable investors as part of our work developing investment strategies (we have found, for example that the most popular small cap stocks among hedge funds generate an average excess return of 18 percentage points per year), and so we can see that the fund and its Sigma subsidiary together had owned about 210,000 shares at the beginning of January (find Cohen’s favorite stocks). Infinity Pharmaceuticals Inc. (NASDAQ:INFI) is working on drug development and placing its products in clinical trials, including for patients with arthritis and asthma.

Looking at our database of filings, Samuel Isaly’s Orbimed Advisors, which focuses on healthcare investments, increased the size of its position in Infinity by 68% during the fourth quarter of 2012 to a total of 3.2 million shares (see Isaly’s stock picks). Perceptive Advisors, a biotechnology focused hedge funds managed by Joseph Edelman, cut its stake slightly but still closed December with 2.5 million shares in its portfolio (check out more stocks Perceptive owns). We would note that two major institutional shareholders which had owned over 10% of the company recently reported dumping their shares; these transactions were reported as insider sales (research insider sales at Infinity).

Infinity Pharmaceuticals Inc. (NASDAQ:INFI)’s stock price had been doing quite well, having been up 35% year to date as of the beginning of April before plunging this month (likely due to these share sales). It is now up only 5% for 2012, but over 200% in the last year. As a development stage company, it only receives revenue in the form of collaborative research and development funds, a figure which declined last year compared to 2011. Almost $120 million was used on research and development for the year, which made up the overwhelming majority of Infinity Pharmaceuticals Inc. (NASDAQ:INFI)’s expenses. The company used $80 million in cash on operations in 2012, raising cash from the issuance of common stock. At the end of the year, Infinity had $180 million in cash and cash equivalents as well as $150 million in liquid securities, which should be sufficient to cover operations for at least some time. Analysts are not expecting the company to be profitable this year or next year.

Other development stage biotechnology companies where there is currently no expectation for positive earnings on a forward basis include Alnylam Pharmaceuticals, Inc. (NASDAQ:ALNY), Synageva BioPharma Corp (NASDAQ:GEVA), Theravance Inc (NASDAQ:THRX), and Ariad Pharmaceuticals, Inc. (NASDAQ:ARIA). These stocks are also all small caps. Synageva BioPharma Corp (NASDAQ:GEVA) and Theravance are somewhat popular short targets, with 27% of the float held short in Theravance Inc (NASDAQ:THRX)’s case. For what it is worth, Ariad Pharmaceuticals, Inc. (NASDAQ:ARIA) develops cancer medications, Synageva BioPharma Corp (NASDAQ:GEVA)’s primary product is designed to treat lysosomal acid lipase deficiency, Alnylam currently has several products in clinical trials for patient with various blood disorders, and Theravance Inc (NASDAQ:THRX) develops medicines to treat respiratory, bacterial, and central nervous system conditions.

Of course, many investors will avoid development stage drug companies entirely and certainly one cannot make a value case for a company which is not on track to generate earnings this year or next year. While Infinity Pharmaceuticals Inc. (NASDAQ:INFI)’s stock price has been rising, that is not a good case for buying a stock and it’s certainly questionable that major owners have been selling shares. In addition, the company’s cash flow from operations is negative; while the balance sheet indicates that there is enough cash to support Infinity Pharmaceuticals Inc. (NASDAQ:INFI) for the time being, this further demonstrates the business’s distance from producing solid financial results. There is a roster of interesting owners but we’d advise against buying and the company may not even be worth following for investors unless they are able to analyze trial data for Infinity’s drugs as it comes in.

Disclosure: I own no shares of any stocks mentioned in this article.