Why Do Hedge Funds Like Five Prime Therapeutics?

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Five Prime Therapeutics Inc (NASDAQ:FPRX) is a $1.25 billion biotech company that focuses on the discovery and development of protein therapeutics that block cancer and inflammatory disease processes. In this article, we analyze hedge fund activity in the stock in the second quarter and take a closer look at the stock’s prospects.

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Five Prime Therapeutics Inc (NASDAQ:FPRX)’s lead product candidate is FPA008 (cabiralizumab), an antibody that inhibits CSF-1R and blocks the activation and survival of tumor-associated macrophages and monocytes. FPA008 is in Phase 1 trials for various potential tumor indications and is beginning Phase 2 trials for the indication of pigmented villonodular synovitis. The company’s other drug candidates include FPA144 and FP-1039, which are in Phase 1b trials for the potential indications of gastric cancer and mesothelioma, respectively. FPA144 received the Orphan Drug designation from the FDA for the treatment of gastric cancer in July.

Hedge funds are long Five Prime Therapeutics Inc (NASDAQ:FPRX) mainly due to FPA008’s potential. On October 15, 2015, Five Prime entered into a license and collaboration agreement over FPA008 with Bristol-Myers Squibb Co (NYSE:BMY) worth up to $1.74 billion. Five Prime will combine FPA008 with Bristol-Myers Squibb Co (BMY)’s Opdivo to examine the drug combination’s safety and efficacy on various tumors indications including lung, pancreatic, and head & neck cancer. Under terms of the deal, Five Prime received an upfront payment of $350 million, and is eligible for another $1.4 billion in development and regulatory milestone payments. In addition, the company is entitled to tiered royalties in the high teens to low twenties on sales. The billion dollar market sizes of each potential tumor indication and Bristol-Myers Squibb’s willingness to pay $350 million upfront for a drug in Phase 1 both indicate how big of a financial impact FPA008 can make for Five Prime and how promising the early stage data is. If the data over FPA008 remains positive in Phase 2, Five Prime shares have substantial upside.

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Given that Five Prime had cash and cash equivalents worth $469.2 million on June 30, 2016, the market is basically valuing FPA008 and the rest of Five Prime’s drug candidates at $780 million when the potential regulatory and development milestone payments for FPA008 total $1.4 billion alone.

On the next page, we analyze hedge fund activity surrounding Five Prime in the second quarter.

Follow Five Prime Therapeutics Inc. (NASDAQ:FPRX)

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