Julian and Felix Baker’s Baker Bros. Advisors LP has filed a 13D filing in which it reported ownership of 4.27 million shares of Aquinox Pharmaceuticals Inc. (NASDAQ:AQXP), which represent 39.8% of the company’s common stock. This marks an increase of 3.06 million shares since the fund’s latest filing on Aquinox. At the same time, the nature of the stake was changed to activist, which however might be related to the large size of the position.
Baker Bros. Advisors is a healthcare and life sciences focused hedge fund founded by Julian and Felix Baker in 2000. The New York-based hedge fund mainly provides services to endowments, foundations and high-net-worth families. According to its most recent 13F filing with the SEC, Baker Bros. Advisors manages a equity portfolio with a market value of $12.02 billion as of March 31. The hedge fund has benefited significantly from the high exposure to the health care sector, which has always been among the best performing sectors, especially in the last year on the back of significant growth of the biotech industry. The M&A activity in the biotechnology industry in 2015 is five times higher than in 2014, reaching $24.2 billion in deals.
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Aquinox Pharmaceuticals Inc. (NASDAQ:AQXP) is a clinical-stage pharmaceutical company that aims at discovering and developing targeted therapeutics in disease areas of inflammation and immune-oncology. The company’s lead drug candidate is AQX-1125, which is a small molecule activator of SH2-containing inositol-5′-phosphatase 1 (“SHIP1”) and has demonstrated broad anti-inflammatory activity. The stock is one of the top gainers today, jumping by more than 250% in intraday trading on the back of positive results from AQX-1125 trial, while year-to-date, the stock has advanced by some 400%. Another shareholder that will most likely profit from the stock’s surge is another healthcare-focused fund Kevin Kotler’s Broadfin Capital, which owns 531,768 shares as of March 31.
Let’s now discuss in more detail the extent to which the positive results from the clinical trial might influence the company’s success in the future. It’s worth mentioning that analyst Biren Amin from Jefferies has recently downgraded the rating on Aquinox to “Hold” from “Buy” and reduced the price target from $13 to $2 after the company’s flagship trial of AQX-1125 in chronic obstructive pulmonary disease patients with frequent exacerbations failed to demonstrate efficacy. Nevertheless, Aquinox has just announced consistently positive results from secondary endpoints from its Phase 2 LEADERSHIP trial with AQX-1125 in patients with bladder pain syndrome/interstitial cystitis (BPS/IC) and the stock skyrocketed on Monday. Hence, there are only a few steps remaining for AQX-1125 in BPS/IC towards its commercialization. The healthcare company intends to finalize its pivotal trial designs in consultation with the U.S. Food and Drug Administration and the European Medicines Agency so as to set a path for the potential approval. Eventually, as soon as the company’s lead candidate is approved, a new flourishing revenue stream unlocks for Aquinox.
Meanwhile, the company’s financial results are weak, which is not surprising for a clinical-stage company. As of the end of June, the company has cash and cash equivalents of $29 million, down from $41 million a quarter earlier, and it posted a net loss of $4.8 million for the second quarter, slightly narrower than a loss of $5.4 million a year earlier.
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