Hedge Funds Have This To Say About Tuesday’s Healthcare Flops

Tuesday was a bad day for three healthcare stocks in particular. Shares of Merrimack Pharmaceuticals Inc (NASDAQ:MACK), Inovio Pharmaceuticals Inc (NASDAQ:INO), and Second Sight Medical Products Inc (NASDAQ:EYES) have all dipped significantly, begging the question: is this an opportunity to buy them on the cheap, or should they be avoided at any cost? Let’s see what the smart money tracked by Insider Monkey has to say about these stocks, which is a strong indicator of their future performance.

We pay attention to hedge funds’ moves because our research has shown that hedge funds are extremely talented at picking stocks on the long side of their portfolios. It is true that hedge fund investors have been underperforming the market in recent years. However, this was mainly because hedge funds’ short stock picks lost a ton of money during the bull market that started in March 2009. Hedge fund investors also paid an arm and a leg for the services that they received. We have been tracking the performance of hedge funds’ 15 most popular stock picks in real time since the end of August 2012. These stocks have returned 118% since then and outperformed the S&P500 Index by more than 60 percentage points (see more details here). That’s why we believe it is important to pay attention to hedge fund sentiment. Plus, we also don’t like paying huge fees.

Merrimack Pharmaceuticals Inc (NASDAQ:MACK)’s shares are down by more than 10% despite the healthcare sector being generally up in afternoon trading. Today’s decline continues a downturn in Merrimack’s stock which started on September 21. Last week, the stock lost nearly 15% of its value in spite of Oppenheimer reiterating its ‘Outperform’ rating and $13 per share price target on the stock on September 22. The move down last week, however, is in the context of the general healthcare market experiencing a downturn, as it lost over 6% by the end of September 25.

Nonetheless, hedge funds were optimistic of Merrimack Pharmaceuticals Inc (NASDAQ:MACK) in the second quarter, as our data shows that while there were 13 hedge funds long on the stock by the end of June, a decrease of one from a quarter earlier, they had $47.26 million invested in the company versus $35.8 million in the previous quarter. Polar Capital, led by Brian Ashford-Russell and Tim Woolley, owned 3.28 million shares of Merrimack Pharmaceuticals by the end of the second quarter.

Inovio Pharmaceuticals Inc (NASDAQ:INO) is in the same boat as Merrimack Pharmaceuticals as it has lost over 7% today. This also follows a sharp decline last week which trimmed nearly 12% of the stock’s value. Yesterday, the stock lost more than 8%, bringing its year-to-date downturn to over 36%. The decline may be seen as contrary to the positive news the stock received last week from the U.S. Defense Advanced Research Projects Agency, which announced on September 21 that it has provided an additional $24 million to the firm to further the development of multiple treatments and prevention approaches for Ebola.

Also similar to Merrimack Pharmaceuticals, hedge funds were positive on Inovio Pharmaceuticals Inc (NASDAQ:INO) in the second quarter. There were seven hedge funds with long positions in the stock at the end of said period, down by two from one quarter earlier, but their holdings increased by over 134% to $11.24 million, despite a decline in the stock of 5.67% during that time. Hal Mintz’s Sabby Capital owned 906,000 shares of Inovio by the end of June, a position acquired during the quarter.

Another stock which seemingly cannot leave behind the healthcare rout from last week is Second Sight Medical Products Inc (NASDAQ:EYES), which is down by over 11% today. Over the course of last week, Second Sight lost even more of its share price than Merrimack Pharmaceuticals and Inovio Pharmaceuticals, as the firm’s shares shed 25% of their value. On Monday, the stock was weighed down further by nearly 12%. The stock reached a price of $6.51 per share on Tuesday, a new 52-week low. At the end of June, three hedge funds from our database held $998 million in Second Sight Medical Products Inc (NASDAQ:EYES)’s shares. Harvest Capital Strategies, headed by Joseph A. Jolson, was the largest shareholder of Second Sight by the end of the second quarter, owning 45,000 shares, down by 11% from the end of the first quarter.

Disclosure: None