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Why Are These Stocks Trending In The Wrong Direction Today?

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Both the NASDAQ and S&P 500 are slightly in the green this morning as positive momentum continues to buffet the market. However not all stocks are enjoying the fruits of this momentum. Five in particular are trending in the wrong direction on heavy volume. Let’s find out why and whether the catalyst is only a short-term setback or a blow to long-term formulas as well.

Biotech Stocks 10

Cempra Inc (NASDAQ:CEMP)

  • Elite Investors with Long Positions (as of June 30): 19
  • Aggregate Value of Elite Investors’ Holdings (as of June 30): $171 Million
  • Percentage of Shares Owned by Elite Investors (as of June 30): 11.40%

Let’s start with Cempra Inc (NASDAQ:CEMP) which has crumbled by over 35% in morning trading despite the company’s antibiotic drug solithromycin meeting its main goal in a phase 3 study, which was to be as effective as Bayer’s moxifloxacin. Despite the efficacy of the treatment, the number of adverse events suffered by patients in the study was over twice as high as those for the rival treatment, at 34.3% to 13.1%. The market reaction may be overly strong, as the occurrence of serious adverse events was much closer, at 6.9% to 5.4%, which leaves the drug fully within the realm of being a legitimate option for defeating bacteria. Cempra Inc (NASDAQ:CEMP) has a couple of big backers in Dennis Purcell’s Aisling Capital and James A. Silverman’s Opaleye Management, which have 11.22% and 6.69% of their public equity portfolio’s capital allocated to the stock respectively, as of June 30.

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Whether elite hedge funds collectively like a stock or not is an important metric to consider, as these large investors show a great level of skill and expertise when it comes to picking stocks. Over the last few years equity hedge funds have trailed the market by a large margin, but that’s mostly due to their hedging and short positions, which perform poorly in a bull market. Their long positions performed far better, especially their small-cap picks, which have the potential to beat the market by 95 basis points per month on average, as our backtests showed. Our small-cap strategy involves imitating a portfolio of the 15 most popular small-cap picks among hedge funds and it has returned 102% since August 2012, beating the S&P 500 ETF (SPY) by over 53 percentage points (read more details here).

WaferGen Bio-systems, Inc. (NASDAQ:WGBS)

  • Elite Investors with Long Positions (as of June 30): 3
  • Aggregate Value of Elite Investors’ Holdings (as of June 30): $1.51 Million
  • Percentage of Shares Owned by Elite Investors (as of June 30): 16.10%

WaferGen Bio-systems, Inc. (NASDAQ:WGBS) is down by an eye-catching 22.22% after the company made a public offering of 3.92 million shares of common stock, at a price of $1 per share. In addition, each share comes with a five-year warrant to buy an additional share at $1.44, while the underwriters of the offering were also granted the option to purchase up to an additional 2.25 million shares. The blow to the stock today piles on top of an already poor week that has seen it lose 45.32% of its value. WaferGen Bio-systems, Inc. (NASDAQ:WGBS) has also lost over 65% of its value since it exploded in mid-September thanks to positive results from its Single-Cell system.

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Zafgen Inc (NASDAQ:ZFGN)

  • Elite Investors with Long Positions (as of June 30): 12
  • Aggregate Value of Elite Investors’ Holdings (as of June 30): $101 Million
  • Percentage of Shares Owned by Elite Investors (as of June 30): 10.80%

Zafgen Inc (NASDAQ:ZFGN) is another stock that has been highly volatile of late, which is not uncommon for early-stage biotechs. It plummeted on October 12 and 13, followed by a bounce-back on October 14. Now, shares are falling again, down by over 36% today after its beloranib treatment for Prader-Willi Syndrome was put on clinical hold by the FDA. Zafgen announced on Wednesday that a patient in a study of the drug had died, though no cause of death was given. Prader-Willi Syndrome is a genetic disorder that results in obesity and a high mortality rate for those afflicted. Top line results of the study are still expected by the first quarter of 2016. Healthcare investor James Flynn of Deerfield Management held 1.01 million shares of Zafgen Inc (NASDAQ:ZFGN) on June 30.

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On the following page we’ll look at two more of the day’s biggest losers, including one of the biggest oil companies in the world.

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