Following a downgrade from Oppenheimer analyst Christopher Marai, Raptor Pharmaceutical Corp. (NASDAQ:RPTP)‘s stock fell by more than 12% on Monday. However, shares have started to kick back and had appreciated by almost 6% before the afternoon today. Marai believes that the stock is overvalued owing to three factors that are already priced in and are very likely to disappoint in the future. Firstly, it is the anticipation of an acquisition, secondly the market for PROCYSBI, which manages a medical condition called nephropathic cystinosis, is smaller than expected, and thirdly, the outlook on the ongoing Raptor-sponsored trials, whose key results are scheduled to come out in the second half of this year is too optimistic. While expanding on this, Marai stated that Phase 2b of NAFLD will likely fail, while PROCSYBI will require long and costly placebo-controlled studies for approval. Marai warned investors to get out while they can and suggested the stock could drop by as much as 50%.
After the initial scare, the stock has rebounded strongly, which have been driven by the smart money, which gave its vote of confidence to Raptor Pharmaceutical Corp. (NASDAQ:RPTP) during the first quarter. Among the funds that we track, 12 had a total of $35.33 million invested in the company at the end of March compared to eight firms with $23.7 million in holdings at the end of last year. The stock has delivered on this promise, and is up by nearly 40% year-to-date.
At Insider Monkey, we track hedge funds’ moves in order to identify actionable patterns and profit from them. Our research has shown that hedge funds’ large-cap stock picks historically underperformed the S&P 500 Total Return Index by an average of seven basis points per month between 1999 and 2012. On the other hand, the 15 most popular small-cap stocks among hedge funds outperformed the S&P 500 Index by an average of 95 basis points per month (read the details here). Since the official launch of our small-cap strategy in August 2012, it has performed just as predicted, returning over 135% and beating the market by more than 80 percentage points. We believe the data is clear: investors will be better off by focusing on small-cap stocks utilizing hedge fund expertise (while avoiding their high fees at the same time) rather than large-cap stocks.
Insider trading can unveil useful trends regarding the outlook of the company’s management. As far as Raptor Pharmaceutical Corp. (NASDAQ:RPTP) is concerned, Liew Keltner, who is one of Raptor’s Directors sold about 50,000 shares of the company this month, and Chief Business Officer Thomas Daley disposed of about 45,000 shares of the company this year. There have been no insider purchases recorded so far in 2015. However, it should be noted that unlike insider purchases that give a strong buy signal, insider sales can occur due to a wide variety of reasons and do not necessarily indicate bearishness.
Let’s take a closer look at how hedge funds have been trading Raptor’s stock of late.
How are hedge funds trading Raptor Pharmaceutical Corp. (NASDAQ:RPTP)?
Heading into the second quarter, a total of 12 of the hedge funds tracked by Insider Monkey were bullish in this stock, a change of 50% from the previous quarter. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were boosting their stakes significantly.
According to hedge fund experts at Insider Monkey, David Shaw‘s D E Shaw had the largest position in Raptor Pharmaceutical Corp. (NASDAQ:RPTP), worth close to $9.7 million. Sitting at the number two spot is Millennium Management, led by Israel Englander, holding a $9.3 million position; less than 0.1% of its 13F portfolio is allocated to the company. Other members of the smart money that hold long positions comprise Richard Driehaus‘ Driehaus Capital, Joseph Edelman’s Perceptive Advisors, and Hal Mintz’s Sabby Capital.
Key hedge funds were breaking ground themselves. Driehaus Capital established the largest new position in Raptor Pharmaceutical Corp. (NASDAQ:RPTP). Driehaus Capital had $2.9 million invested in the company at the end of March. Joseph Edelman’s Perceptive Advisors also held a $2.9 million investment in the stock following the end of the first trimester. The following funds were also among the new Raptor investors: Hal Mintz’s Sabby Capital, J. Alan Reid, Jr.’s Forward Management, and Kris Jenner, Gordon Bussard, and Graham McPhail’s Rock Springs Capital Management.
Despite the positive hedge fund interest and shares starting to kick back, we would refrain from giving an outright ‘Buy’ rating to Raptor Pharmaceutical Corp. (NASDAQ:RPTP). Marai has some valid points and there are several other less risky opportunities in the biotechnology industry.
Disclosure: None
