Juno Therapeutics Inc (NASDAQ:JUNO) jumped to a $67.22 per share pre-market high today, or 45.18% from the stock’s closing price yesterday, as the company announced that it has agreed to a ten-year collaboration with Celgene Corporation (NASDAQ:CELG) which could produce potentially groundbreaking immunotherapies for patients with cancer and autoimmune diseases. Juno shares were still up by over 25% as the market opened today, though they appear to be on a downtrend, as the initial market reaction to the deal may have been an overly bullish one. According to Juno Therapeutics Inc, Celgene Corporation is expected to make an initial payment of approximately $1 billion which includes the purchase of about 9.1 million Juno shares at a $93.00 per share valuation. As part of the collaboration, Juno gains the option to co-develop and co-promote Celgene programs, while Celgene gains the option to commercialize Juno programs outside North America and co-promote certain programs globally. A joint conference call will be hosted by both companies at 5:00 p.m. ET today.
The marked jump of Juno Therapeutics Inc (NASDAQ:JUNO) shares before markets opened today is in rather stark contrast to a decrease in interest in the stock from the world’s largest hedge funds at the end of the first quarter. At the end of the first three months of the year, a total of 21 of the hedge funds tracked by Insider Monkey were long in this stock, a decrease of 22% from the previous quarter, compared to the previous quarter’s 27. In terms of holding value, hedge funds held $211.38 million at the end of the first quarter, up by a miniscule 0.80% from the $209.69 million on record at the end of the prior quarter. This is a bearish sign too, based on our experience, as the stock increased in value by 16.16% from January 2 to March 31, indicating a sell-off of shares by top managers. Nor were they wrong until the deal was announced, as Juno’s shares had fallen by nearly 25% in the second quarter.
Hedge funds and other big money managers tend to have the largest amounts of their capital invested in large and mega-cap stocks because these companies allow for much greater capital allocation. That’s why if we take a look at the most popular stocks among funds, we won’t find any mid- or small-cap stocks there. However, our backtests of hedge funds’ equity portfolios between 1999 and 2012 revealed that the 50 most popular stocks among hedge funds underperformed the market by seven basis points per month, showing that their most popular picks and the ones that received the bulk of their capital were not actually their best picks. On the other hand, their top small-cap picks performed considerably better, outperforming the market by 95 basis points per month. This was confirmed through backtesting and in forward tests of our small-cap strategy since August 2012. The strategy, which involves imitating the 15 most popular small-cap picks among hedge funds has provided gains of more than 145%, beating the broader market by over 85 percentage points through the end of April (see the details).
At Insider Monkey, we also track insider moves on company shares as they provide a gauge with which to judge whether insiders are confident in their companies. For Juno Therapeutics Inc, there were no purchases of shares in the first half of the year. There were several large sales, however, this month. In 16 transactions from June 17 to June 26, Director Anthony Evnin sold just under 1.67 million shares of the company. Large shareholder Douglas Bratton sold 270,000 shares on June 23 and 24. Director Richard Klausner sold 8,000 shares on June 23, and General Counsel Bernard Cassidy sold 11,850 shares on June 24.
Taking all of this into account, let’s take a glance at the key action regarding Juno Therapeutics Inc.
How are hedge funds trading Juno Therapeutics Inc (NASDAQ:JUNO)?
According to hedge fund experts at Insider Monkey, Anders Hove and Bong Koh‘s VHCP Management had the biggest position in Juno Therapeutics Inc (NASDAQ:JUNO), worth close to $97 million, amounting to 22.3% of its total 13F portfolio. The second-largest stake is held by Partner Fund Management, managed by Christopher Medlock James, which held a $30.5 million position; the fund has 0.8% of its 13F portfolio invested in the stock. Other members of the smart money that are bullish consist of Peter Kolchinsky’s RA Capital Management, James E. Flynn’s Deerfield Management, and Kris Jenner, Gordon Bussard, and Graham McPhail’s Rock Springs Capital Management.
Because Juno Therapeutics Inc (NASDAQ:JUNO) has experienced falling interest from hedge fund managers, it’s easy to see that there lies a certain “tier” of funds that elected to cut their entire stakes in the first quarter. Interestingly, Israel Englander‘s Millennium Management said goodbye to the largest investment of all the hedgies followed by Insider Monkey, valued at close to $5.8 million and consisting of 110,410 shares, while Stanley Druckenmiller of Duquesne Capital was right behind this move, as the fund manager dumped about $3.7 million worth of shares, 70,000 in all. These bearish behaviors are intriguing to say the least, as total hedge fund interest dropped by six funds in the first quarter.
The bearish behavior of hedge funds, evidenced by fewer hedge funds having long positions in the company and by the reduced value of their holdings when considering share price appreciation in the first quarter by those who still held long positions at the end of the first quarter, lead us to conclude that Juno Therapeutics Inc (NASDAQ:JUNO) may not be a stock to bet on at the moment, even in light of its recent agreement, given the perhaps overly gung-ho reaction of the market.
Disclosure: None
