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Is ArQule, Inc. (ARQL) Going to Burn These Hedge Funds?: ShangPharma Corp (ADR) (SHP), OncoGenex Pharmaceuticals Inc (OGXI)

ArQule, Inc. (NASDAQ:ARQL) was in 13 hedge funds’ portfolio at the end of December. ARQL investors should pay attention to a decrease in hedge fund sentiment in recent months. There were 17 hedge funds in our database with ARQL positions at the end of the previous quarter.

ArQule, Inc. (NASDAQ:ARQL)According to most traders, hedge funds are perceived as worthless, old investment vehicles of the past. While there are over 8000 funds in operation at the moment, we at Insider Monkey hone in on the moguls of this club, close to 450 funds. It is estimated that this group controls most of all hedge funds’ total capital, and by keeping an eye on their top equity investments, we have unsheathed a number of investment strategies that have historically outperformed the market. Our small-cap hedge fund strategy outpaced the S&P 500 index by 18 percentage points per annum for a decade in our back tests, and since we’ve started sharing our picks with our subscribers at the end of August 2012, we have beaten the S&P 500 index by 25 percentage points in 6.5 month (explore the details and some picks here).

Equally as important, optimistic insider trading sentiment is a second way to parse down the investments you’re interested in. Just as you’d expect, there are many motivations for an upper level exec to cut shares of his or her company, but just one, very simple reason why they would behave bullishly. Plenty of academic studies have demonstrated the useful potential of this strategy if investors know what to do (learn more here).

With these “truths” under our belt, we’re going to take a gander at the latest action regarding ArQule, Inc. (NASDAQ:ARQL).

What have hedge funds been doing with ArQule, Inc. (NASDAQ:ARQL)?

In preparation for this year, a total of 13 of the hedge funds we track were long in this stock, a change of -24% from the previous quarter. With hedgies’ sentiment swirling, there exists a few noteworthy hedge fund managers who were increasing their stakes significantly.

According to our comprehensive database, Jean-Marie Eveillard’s First Eagle Investment Management had the most valuable position in ArQule, Inc. (NASDAQ:ARQL), worth close to $13 million, comprising 0% of its total 13F portfolio. On First Eagle Investment Management’s heels is Julian Baker and Felix Baker of Baker Bros. Advisors, with a $4 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Some other hedgies that hold long positions include James E. Flynn’s Deerfield Management, Peter Kolchinsky’s RA Capital Management and D. E. Shaw’s D E Shaw.

Due to the fact that ArQule, Inc. (NASDAQ:ARQL) has witnessed declining sentiment from the smart money, logic holds that there was a specific group of hedgies that slashed their full holdings last quarter. At the top of the heap, James E. Flynn’s Deerfield Management sold off the largest position of all the hedgies we key on, comprising about $6 million in stock.. Arthur B Cohen and Joseph Healey’s fund, Healthcor Management LP, also cut its stock, about $6 million worth. These transactions are important to note, as aggregate hedge fund interest fell by 4 funds last quarter.

How have insiders been trading ArQule, Inc. (NASDAQ:ARQL)?

Insider purchases made by high-level executives is best served when the primary stock in question has experienced transactions within the past half-year. Over the latest six-month time frame, ArQule, Inc. (NASDAQ:ARQL) has seen zero unique insiders purchasing, and zero insider sales (see the details of insider trades here).

Let’s also examine hedge fund and insider activity in other stocks similar to ArQule, Inc. (NASDAQ:ARQL). These stocks are ShangPharma Corp (ADR) (NYSE:SHP), OncoGenex Pharmaceuticals Inc (NASDAQ:OGXI), Enzon Pharmaceuticals, Inc. (NASDAQ:ENZN), Durata Therapeutics Inc (NASDAQ:DRTX), and Cytokinetics, Inc. (NASDAQ:CYTK). This group of stocks belong to the biotechnology industry and their market caps match ARQL’s market cap.

Company Name # of Hedge Funds # of Insiders Buying # of Insiders Selling
ShangPharma Corp (ADR) (NYSE:SHP) 6 0 0
OncoGenex Pharmaceuticals Inc (NASDAQ:OGXI) 4 0 0
Enzon Pharmaceuticals, Inc. (NASDAQ:ENZN) 10 0 0
Durata Therapeutics Inc (NASDAQ:DRTX) 5 7 0
Cytokinetics, Inc. (NASDAQ:CYTK) 7 0 1

With the returns exhibited by our tactics, everyday investors should always watch hedge fund and insider trading activity, and ArQule, Inc. (NASDAQ:ARQL) applies perfectly to this mantra.

Click here to learn more about Insider Monkey’s Hedge Fund Newsletter

Insider Monkey’s small-cap strategy returned 37% between September 2012 and March 2013 versus 12.9% for the S&P 500 index. Try it now by clicking the link above.

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