Shares of ZIOPHARM Oncology Inc. (NASDAQ:ZIOP), Intrexon Corp (NYSE:XON), and Heron Therapeutics Inc (NASDAQ:HRTX) are down significantly today amid a broader market decline. Although the three have substantial hedge fund ownership between them, investors are still selling the biotech stocks off. Read on to see why.
In the eyes of most traders, hedge funds are assumed to be underperforming, old investment tools of the past. While there are more than 8,000 funds in operation at present, Hedge fund experts at Insider Monkey look at the aristocrats of this group, around 700 funds. Contrary to popular belief Insider Monkey’s research revealed that hedge funds underperformed in recent years because of their short positions as well as the huge fees that they charge. Hedge funds managed to outperform the market on the long side of their portfolio. In fact, the 15 most popular small-cap stocks among hedge funds returned 118% since the end of August 2012 and beat the S&P 500 Index by 60 percentage points (see the details here).
ZIOPHARM Oncology Inc. (NASDAQ:ZIOP) and Intrexon Corp (NYSE:XON) are down because the biotech sector is down. The biotech sector is ‘risk off’ because Martin Shkreli, CEO of Turing Pharmaceuticals, raised the price of a drug called Daraprim 55x overnight and drew the ire of the news media and Hillary Clinton. Investors are concerned that Shkreli’s price hike could prompt regulators to curb biotech prices. Any ceiling in drug prices would negatively affect developing biotech companies’ prospects, many of whom are cash flow negative.
As it stands, hedge funds are still bullish on ZIOPHARM and Intrexon. According to our database of around 730 funds, the total number of investors long ZIOPHARM Oncology Inc. (NASDAQ:ZIOP) rose to 15 at the end of June from 13 at the end of March while the total value of hedge funds’ holdings increased to $95 million (6.2% of the float) from $87.56 million. Among the funds that established new positions in ZIOPHARM were Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, which bought 305,330 shares in the second quarter, and James Dinan’s York Capital management, which purchased 428,657 shares from March 31 to June 30. Marc Lisker, Glenn Fuhrman And John Phelan‘s MSDC Management increased its position by 2% to 4.48 million shares in the same time frame too.
The total number of hedge funds long Intrexon Corp (NYSE:XON) rose to 21 in the second quarter from 20 in the first quarter, while the total value of hedge fund holdings increased to $387.43 million (7.3% of the float) on June 30 from $340.49 million on March 31. David Cohen And Harold Levy’s Iridian Asset Management increased its holdings by 25% to 2.26 million shares, while John Thiessen’s Vertex One Asset Management upped its stake by 100% to 100,000 shares. Dan Loeb‘s Third Point kept its holdings the same at 2.7 million shares.
Heron Therapeutics Inc (NASDAQ:HRTX) is down more than 26% after announcing the results of its recently finished Phase 3 MAGIC study of SUSTOL®(granisetron) Injection, extended release.
For the primary endpoint, the proportion of patients with delayed-phase complete response (CR) was significantly greater with the SUSTOL (64.7%) versus ondansetron regimen (56.6%), an absolute treatment difference of 8.0% (95% CI 1.7-14.4; p = 0.014), equating to a relative 14.2% CR rate improvement.
Although the data showed that SUSTOL was generally well tolerated with no new safety concerns, the data did not meet market expectation’s on efficacy. SUSTOL has a PDUFA goal date of January 17, 2016.