Many oncology biotech stocks experienced strong moves on Monday, associated with results released at the American Society of Clinical Oncology (ASCO) meeting taking place May 31st to June 4th in Chicago. Earlier, we wrote about Clovis Oncology's (CLVS) strong near-100% rally. In this article, we discuss two stocks that experienced strong down moves in Monday's market -- Infinity Pharmaceuticals (INFI) falling 39% and Synta Pharmaceuticals (SNTA) falling 34% -- that were among top sells by guru fund managers, and then we will give three additional top sells by these gurus in the latest available Q1/2013.
Over the weekend, at the ASCO conference, INFI announced updated phase 1 data showing encouraging clinical activity of IPI-145 in Chronic Lymphocytic Leukemia, and later on Monday, the company reported updated Phase I data showing encouraging clinical activity of IPI-145 in B-Cell and T-Cell lymphomas. IPI-145, the lead drug in its pipeline, is a potent, oral inhibitor of phosphoinositide-3-kinase (PI3K)-delta and PI3K-gamma, and it works by inhibiting the PI3K enzyme to suppress tumor growth. It is currently in early stage trials in a number of blood cancers, and it is also in mid-stage trials in inflammatory conditions including asthma and rheumatoid arthritis. While investor reaction to the data wasn't positive, two brokers, RBC Capital and Piper Jaffray came out in support of the stock, and the stock is up 15% today in the first half hour of trading. While there are some competitive concerns about INFI's leukemia treatment relative to Gilead's product (GILD) that was a factor in Monday's big drop, we agree with Piper's recommendation that with INFI shares now in the mid-teens, the price is now "too cheap to ignore", and would start accumulating at these levels. Overall, of the ten analysts that cover INFI, seven rate it at buy or strong buy, and the remaining three rate it at hold, with a median target of $49, well above current prices in the mid-teens.
At the ASCO conference, SNTA also announced early Monday morning positive overall survival results from its GALAXY-1 Phase IIb/III trial of ganetespib in combination with docetaxel versus docetaxel alone in patients with second-non-small cell lung cancer. While the study showed a 32% improvement in median overall survival, the improvement was less than the Street expected based on an earlier study released last October. The stock as a result fell 34% on Monday, and is continuing to trade at those levels in the morning session on Tuesday. Ganetespib is an inhibitor of heat shock protein 90 (Hsp90), a molecular agent that is required for the activation of proteins that helps in the growth and survival of cancer cells. By inhibiting Hsp90, Ganetespib helps block tumor cell proliferation, migration, metastasis and angiogenesis. After Monday's fall, SNTA shares now trade near 52-week lows, well below recent highs near $12 near the beginning of 2013. Of the eight analysts that cover the company, four rate it at buy/strong buy, and four rate it at hold, with a median price target of $18, well above current prices in the $5 range.
Both INFI and SNTA figured among the top collective or consensus sells by the 79 legendary or guru fund managers tracked on our website, GuruFundPicks.com, in the latest available Q1/2013. Guru fund managers together sold 0.10 million INFI shares in Q1/2013 from their 1.42 million share prior quarter position, and they sold 0.46 million SNTA shares in Q1/2013 from their 1.74 million prior quarter position. In the case of INFI, besides guru fund managers, the 23 biotech/healthcare sector-focused funds together or in consensus also sold 0.21 million shares in Q1/2013 from their 7.98 million share prior quarter position. Also, the 40 Tiger funds (funds managed by those who honed their skills at legendary fund manager Julian Robertson's Tiger Management) together or in consensus also sold INFI in Q1/2013, cutting out their entire 0.58 million share prior quarter position. Overall, INFI got a 1.1 GuruRank and SNTA got a 2.4 GuruRank based on our proprietary and relative ranking system that numerically represents on a scale of 1 to 5 the attractiveness of the stock to guru fund managers, based on their holdings, change in holdings, percent of outstanding shares and number of guru funds in the stock, as compared to the rest of the 5,200+ stocks in our database.
This means that gurus and other leading fund managers were selling INFI on the way up in Q1/2013, when shares rose more than 30% during the quarter. In contrast, leading fund managers as discussed in our prior quarter article on top small-cap picks by guru fund managers in Q4/2012 were aggressively buying INFI shares during Q4/2012 and Q3/2012, prior to the meteoric surge in the share price. Investors who follow the activities of these guru fund managers could have bought INFI shortly after their collective or consensus picks reports for Q3/3012 were available in late-November, and they would have been advised on guru fund consensus selling on the stock when our consensus picks reports were released on May 20th.
Besides INFI and SNTA, guru fund managers also were bearish on the following small-cap biotech stocks in Q1/2013 (see table below):
- Array Biopharma Inc. (ARRY), a development stage biotech company focused on the discovery, development and commercialization of small-molecule drugs that regulate target proteins to treat cancer and inflammatory diseases in North America, Europe and the Asia Pacific, in which guru funds collectively or in consensus sold a net 0.43 million shares in Q1/2013 from their 1.41 million share position in the prior quarter.
- Arena Pharmaceuticals (ARNA), that is a biotech developer of oral drugs for cardiovascular, central nervous system, inflammatory, and metabolic diseases, in which guru funds in consensus sold a net 0.17 million shares in Q1/2013 from their 0.32 million share position in the prior quarter.
- Santarus Inc. (SNTS), a development-stage biotech company focused on acquiring, developing and commercializing proprietary products addressing diabetes, high cholesterol, ulcerative colitis, travelers' diarrhea and other diseases, in which guru funds in consensus sold a net 2.87 million shares in Q1/2013 from their 5.90 million share position in the prior quarter.
The biotech group is up about 40% in the past twelve months, in new high territory, in tandem with the move in the broader indices. There are hundreds of upcoming catalysts on small-cap biotech companies in the next few months, including PDUFA dates, and pivotal clinical and mid- and early-stage clinical trial results, that could have a significant effect on the prices of the underlying stocks. These catalysts offer probably the best opportunities for out-sized gains, for the not-so-risk-averse investor, but also the risk of catastrophic losses like that suffered by SNTA and INFI longs on Monday.
We believe that knowledge of how the best minds in the investment community, in the form of guru fund managers, are collectively positioning themselves in advance of these catalysts, can inform our investment decision-making, often clueing us into a potential outcome. INFI and SNTA are not unique, as we have observed similar predictive power in the moves of leading fund managers, as reported in their quarterly 13-F and periodic 13-D/G filings, some of which are documented in our earlier articles on Q4/2012 small-cap biotech picks by guru funds and Q1/2013 small-cap biotech top picks by guru funds.
General Methodology and Background Information: The latest available institutional 13-F filings of 79 legendary or guru hedge fund and mutual fund managers, such as Warren Buffet, George Soros, Carl Icahn, Steven Cohen and Mario Gabelli, were analyzed to determine their capital allocation from among different industry groupings, and to determine their favorite picks and pans in each group. The hedge fund and mutual fund managers included in this select group include only high profile names who by virtue of their long-term market-beating returns have earned their standing in the investment community and are worthy of our attention. They include well-known names such as those mentioned above, as well as perhaps relatively lesser-known names that also have a stellar long-term history of beating the markets, such as Seth Klarman, John Griffin, Prem Watsa, Robert Karr and Lee Ainslie. Each guru has been carefully selected based on their long-term performance and standing in the investment community. Furthermore, the credentials of most of the 79 guru funds that justify their inclusion in this elite group were detailed in our previous articles that can be accessed from our author page and from the 13-F pages for those funds on our website, GuruFundPicks.com
These legendary or guru fund managers number less than one percent of all funds and yet they control over ten percent of the U.S. equity discretionary fund assets. The argument is that institutional investors have the resources and the access to information, knowledge and expertise to conduct extensive due diligence in informing their investment decisions. When high alpha generating or guru Institutional Investors by virtue of their fund performance, low volatility and elite reputation in the investment community, invest and maybe even converge on a specific investment idea, the idea deserves consideration for further investigation. The savvy investor may then leverage this information either as a starting point to conduct his own due diligence or even go as far as constructing a model diversified portfolio based on the guru funds best picks.
This article is part of a series on institutional holdings in various industry groups and sectors, and other articles in the series for this and prior quarters can be accessed from our author page.
Credit: Fundamental data in this article were based on SEC filings, Zacks Investment Research, Thomson Reuters and Briefing.com. The information and data is believed to be accurate, but no guarantees or representations are made.
Disclaimer: Material presented here is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion. Further, these are our 'opinions' and we may be wrong. We may have positions in securities mentioned in this article. You should take this into consideration before acting on any advice given in this article. If this makes you uncomfortable, then do not listen to our thoughts and opinions. The contents of this article do not take into consideration your individual investment objectives so consult with your own financial adviser before making an investment decision. Investing includes certain risks including loss of principal.