Hedge Funds Like Ariad Pharmaceuticals, Inc. (ARIA) Despite the Failed Deal

Less than a week after reports that Baxalta Inc (NYSE:BXLTwanted to acquire Ariad Pharmaceuticals, Inc. (NASDAQ:ARIA), the discussions of a deal, might be over, although none of the two reports have been officially confirmed by either one of the companies. According to Bloomberg, citing people familiar with the matter, the negotiations failed because the parties could not agree on a price. The news has negatively affected Ariad’s stock on Wednesday, but it started recovering on Thursday, advancing by over 3%.

Baxalta’s stock has also jumped by almost 4% today, but in this case, the news about the deal with Ariad being off the table, has been positively received by investors. Baxalta, which was spun off from Baxter International Inc (NYSE:BAX) in July, is currently trying to fend off a $30-billion takeover by Shire PLC (ADR) (NASDAQ:SHPG), and the acquisition of Ariad was mostly seen as a move to prevent a deal with Shire. However, Baxalta considers that the current terms, undervalues it.

Biotech Stocks 9

The healthcare sector has seen a lot of mergers and acquisitions since the start of last year. The talks between companies such as Baxalta Inc (NYSE:BXLT), Ariad Pharmaceuticals, Inc. (NASDAQ:ARIA) and Shire PLC (ADR) (NASDAQ:SHPG) are among the latest. Shire itself was subject of a failed takeover bid last year. These deals, aimed at refocusing firms, bolstering market shares and growth, or unlocking shareholder value, are usually  favored by smart money and hedge funds try to target these deals and often push for them to take place.

The general opinion is that hedge funds underperform the S&P 500 based on net returns. However, they pull in strong returns from their top small-cap ideas 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&P 500 ETF (SPY) every year since it was launched in August 2012 and has returned 118% and has beat the market by more than 60 percentage points (read more details). Because of this, we know that collective hedge fund sentiment is valuable and can provide a lot of insight to retail investors.

With this in mind, let’s take a closer look at the latest hedge fund activity surrounding Ariad Pharmaceuticals.

According to the data from the latest round of 13F filings, hedge funds from our database are bullish on Ariad Pharmaceuticals, Inc. (NASDAQ:ARIA). The number of investors with long positions declined to 31 from 38 during the second quarter, while the aggregate value of their holdings slid by 11% on the quarter to $401.61 million. However, these investors hold more than 25% of Ariad’s outstanding stock.

More specifically, Alex Denner’s healthcare-focused Sarissa Capital Management owns the largest stake in Ariad Pharmaceuticals, Inc. (NASDAQ:ARIA), which contains 12.85 million shares worth about $106.27 million. David Costen Haley’s HBK Investments initiated a stake during the second quarter and reported 120,700 shares in its latest 13F. Dmitry Balyasny’s Balyasny Asset Management increased his take by 11% to 1,519,292 shares. However, Israel Englander’s Millennium Management reduced its stake by 60% to 673,253 shares.

Disclosure: None