Shares of both Geron Corporation (NASDAQ:GERN) and Lannett Company, Inc. (NYSE:LCI) are in the limelight today as each has made significant gains on the back of positive news announcements from both firms. Geron Corporation (NASDAQ:GERN) shares are up by more than 11% today after it announced the publication of two papers in The New England Journal of Medicine (NEJM) regarding the firm’s telomerase inhibitor imetelstat. Meanwhile, Lannett Company, Inc. (NYSE:LCI) shares have performed even better, gaining more than 13% after it company announced that it has agreed to acquire UCB SA’s Kremers Urban Pharmaceuticals Inc. for $1.23 billion.
Geron Corporation (NASDAQ:GERN) revealed that imetelstat, its telomerase inhibitor, had disease-modifying activity in two Phase 2 studies linked to selective stoppage of malignant precursor cell clones that lead to two hematologic myeloid malignancies: essential thrombocythemia (ET) and myelofibrosis (MF). For the study concerning ET, imetelstat spurred a hematologic response in all patients, the majority of them achieveing a hematologic complete response, the company noted. The results mean that the drug may have therapeutic activity for cell clones that result in ET. For the study concerning MF, the drug produced “unprecedented complete and partial remissions, including reversal of bone marrow fibrosis and molecular responses”. The firm has an exclusive license and collaboration agreement with Janssen Biotech, Inc. for the development and subsequent commercialization of the drug.
Meanwhile, Lannett Company, Inc. (NYSE:LCI) will be buying Kremers Urban Pharmaceuticals Inc. The latter firm’s lead drug is a generic form of Johnson & Johnson (NYSE:JNJ)’s Concerta, a drug for attention deficit hyperactivity disorder (ADHD). It also makes drugs for gastroesophageal reflux. In the statement announcing the deal, Lannett said that the deal will boost its adjusted earnings per share by less than 10% for the current fiscal year that ends in August 2016. However, the firm said that the deal, which is expected to close in December, will increase adjusted earnings per share by over 20% in the next fiscal year. Furthermore, Lannett expects $40 million in overlapping costs per year in the third year after the acquisition. Lannett has also been the subject of two upgrades today, from Craig-Hallum and Roth, which increased their price targets on the stock to $72 and $68, respectively, from $57 and $61, on the news of the acquisition.
The positive news about Geron Corporation (NASDAQ:GERN) and Lannett Company, Inc. (NYSE:LCI) today and the subsequent reaction of the markets are surely welcome in the eyes of hedge funds we track which are long on the two stocks. However, it should be noted that based on our data, hedge funds have differing views on the two companies, which we will discuss below.
General opinion is that hedge funds under perform the S&P500 based on net returns. But we are missing something very important here. Hedge funds generally pull in strong returns from their top small-cap stocks and invest a lot of their resources into analyzing these stocks. They simply don’t take large enough positions in them relative to their portfolios to generate strong overall returns because their large-cap picks underperform the market. We share the top 15 small-cap stocks favored by the best hedge fund managers every quarter and this strategy has managed to outperform the S&P500 every year since it was launched in August 2012, returning 118% and beating the market by more than 60 percentage points (read the details). Because of this, we know that collective hedge fund sentiment is extremely telling and valuable.
Hedge funds are not too fond of Geron Corporation (NASDAQ:GERN). The collective value of their holdings in the stock went down by 5.02% in the second quarter to $23.62 million. That was despite a 13.53% increase in the stock’s price during said period, and an increase of one to 11 in terms of the number of hedge funds which are long on the stock. Furthermore, hedge fund holdings accounted for only 3.50% of the outstanding shares of the firm. James A. Silverman’s Opaleye Management held the largest stake among the institutions we track, owning about 1.83 million shares on June 30. Meanwhile, D.E. Shaw & Co., L.P. founded by David E. Shaw increased its stake by 68% to 1.35 million shares by the end of June. Millennium Management, led by Israel Englander, on the other hand, decreased its stake by 71% to 370,424 shares.
The same cannot be said about Lannett Company, Inc. (NYSE:LCI), which may have experienced a measly 0.58% increase in total hedge fund holdings in the second quarter to $184.96 million, but given the fact that its shares slid by 12.21% from April to the end of June, the amount of capital invested in the stock during the quarter was actually much greater, even as hedge funds with position in the stock dipped to 17 from 19. Moreover, hedge funds long on the stock held a total of 8.60% of Lannett’s shares at the end of the second quarter. Gotham Asset Management, helmed by Joel Greenblatt increased its stake by 12% to about 1.73 million shares, while Chuck Royce’s Royce & Associates’ increased its holding by 177% to 429,281 shares. However, Millennium Management was also bearish on this stock, exiting its position by selling all 96,051 shares it had owned as of March 31.
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