Hedge Fund Sentiment Has This to Say About These Moves on 3 Healthcare Stocks

In a Schedule 13G filed with the SEC, Glenn Russell Dubin’s Highbridge Capital Management reported ownership of 1.70 million shares of ZS Pharma Inc. (NASDAQ:ZSPH), including 1.67 million shares of common stock issuable upon the exercise of call options. The multi-billion dollar hedge fund owned call options underlying a mere 76,300 shares on September 30. Earlier this month, U.K-based drukmaker AstraZeneca plc (ADR) (NYSE:AZN) agreed to buy ZS Pharma for $2.7 billion, supposedly betting on the FDA approval of ZS-9. ZS Pharma Inc. (NASDAQ:ZSPH)’s high-potential drug is a treatment for hyperkalemia, which involves high potassium levels in the blood associated with kidney disease and heart failure. The biopharmaceutical company has filed for approval of the drug with the FDA and is awaiting its decision, which is expected to be communicated by May 26, 2016. Under the terms of the deal between the two parties, each shareholder of ZS Pharma is set to receive $90 in cash for each share of common stock owned. It appears that Highbridge Capital aims to profit from the discrepancy between the current share price and the sale price of $90 per share.

Glenn Russell Dubin
Glenn Russell Dubin
Highbridge Capital Management

Two fewer hedge funds had ZS Pharma in their portfolios at the end of the third quarter relative to the end of the previous one. The 20 hedge funds invested in the biopharmaceutical company amassed 27.80% of the company’s shares on September 30. However, the value of their investments increased to $458.42 million from $217.78 million quarter-over-quarter. Steve Cohen’s Point72 Asset Management made the right move by acquiring a new stake of 778,120 shares in ZS Pharma Inc. (NASDAQ:ZSPH) during the third quarter.

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According to a freshly-filed Form 4, Samuel Isaly’s Orbimed Advisors unloaded 138,398 shares of Otonomy Inc. (NASDAQ:OTIC) this week at a weighted average sale price of $28.62, trimming its overall holdings to 2.12 million shares. The clinical-stage biopharmaceutical company focuses on the development of therapeutics for the treatment of disorders and diseases of the ear, and has three product candidates in development. Earlier this year, Otonomy Inc. (NASDAQ:OTIC) submitted a New Drug Application for its lead drug candidate OTIPRIO and expects a decision by December 25, 2015. It appears that the company is already preparing for the commercialization of OTIPRIO in the United States, and anticipates that it will need additional financial support to fund the launch of this product and conduct its sales and marketing operations. Meanwhile, the shares of the company are 13% in the red year-to-date, so it remains to be seen what the FDA has to say about OTIPRIO and how the market will react to the decision.

Samuel Isaly
Samuel Isaly
OrbiMed Advisors

The number of hedge funds with positions in the biopharmaceutical company climbed to 14 from 13 during the third quarter, while the value of their positions shrank to $74.20 million from $102.03 million quarter-over-quarter. These smart money investors accumulated 17.20% of the company’s outstanding shares at the end of September. Ken Griffin’s Citadel Advisors LLC owns 245,172 shares of Otonomy Inc. (NASDAQ:OTIC) as of September 30.

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Disclosure: None