The shares of both Receptos Inc (NASDAQ:RCPT) and Celgene Corporation (NASDAQ:CELG) are trading 10% higher after the two pharmaceutical companies entered into a definitive merger agreement after the close of trading yesterday. Celgene Corporation will acquire Receptos for $7.32 billion, paying $232.00 for every share of the latter. This acquisition will improve the Inflammation & Immunology (I&I) portfolio of Celgene and help the company capitalize on its stronger position in inflammatory bowel disease (IBD) treatment. This is another example of the pharmaceutical company’s strategy to grow through acquisitions and mergers. One of the recent ones includes its partnership with Juno Therapeutics Inc (NASDAQ:JUNO) for $1 billion, making its cancer immunotherapy portfolio accessible to Celgene Corporation (NASDAQ:CELG) along with a 30% stake in Juno for the next ten years.
The acquisition of Receptos will allow Celgene to get its hands on Ozanimod, which is known to provide relief in ulcerative colitis and relapsing multiple sclerosis. While discussing the acquisition, Bob Hugin, Chairman and CEO of Celgene, said, “This acquisition enhances our I&I portfolio and allows us to leverage the investments made in our global organization to accelerate our growth in the medium and long-term.” Faheem Hasnain, President and CEO of Receptos Inc (NASDAQ:RCPT) called Celgene an excellent partner for the growth of Ozanimod. He further added, “In Celgene, we have found the ideal partner to maximize the potential of Ozanimod and our promising pipeline in order to improve the lives of patients worldwide.”
The shares of Receptos Inc (NASDAQ:RCPT) have grown by 86.77% year-to-date along with a 15.26% growth in the second quarter. Smart money was wrong about the pharmaceutical company as it turns out, as the majority of the hedge fund managers that we track bet against the company by withdrawing their investments during the first quarter. Only 34 hedge fund managers held a position in the company with investments worth $764.83 million compared to investments of $893.13 million from 38 investors. That overall holdings declined despite the stellar performance of the stock in the first quarter shows that hedge fund managers were taking profits from the position in droves and likely felt the ceiling had been reached, at least short term.
At Insider Monkey, we track hedge funds’ moves in order to identify actionable patterns and profit from them. Our research has shown that hedge funds’ large-cap stock picks historically delivered a monthly alpha of six basis points, though these stocks underperformed the S&P 500 Total Return Index by an average of seven basis points per month between 1999 and 2012. On the other hand, the 15 most popular small-cap stocks among hedge funds outperformed the S&P 500 Index by an average of 95 basis points per month (read the details here). Since the official launch of our small-cap strategy in August 2012, it has performed just as predicted, returning over 139% and beating the market by more than 80 percentage points. We believe the data is clear: investors will be better off by focusing on small-cap stocks utilizing hedge fund expertise rather than large-cap stocks.
In addition to the hedge fund managers, it might be safe to say that the insiders didn’t see this deal coming earlier in 2015, as multiple insider sale transactions have been processed year-to-date. Edward S. Torres, Director at Receptos Inc, was among the major sellers in the past few months, as he sold 220,000 shares in June and a total of 301,506 shares in 2015.
Let’s analyze the hedge fund activity surrounding Receptos Inc (NASDAQ:RCPT) at the end of the first quarter.