Scary Day For Investors Of These 4 Sliding Stocks

Shares of Neos Therapeutics Inc (NASDAQ:NEOS), Rambus Inc. (NASDAQ:RMBS), Zogenix, Inc. (NASDAQ:ZGNX), and International Business Machines Corp. (NYSE:IBM) are down substantially in morning trading today. Let’s take a closer look at why these stocks have lost the faith of investors this morning as well as look at how the elite investors tracked by Insider Monkey feel about these companies.

First a little about ourselves. We at Insider Monkey follow the smart money, a select group of elite hedge funds. In the eyes of most traders, hedge funds are assumed to be underperforming, old investment tools of the past. While there are more than 8,000 funds in operation at present, Insider Monkey looks at the aristocrats of this group, around 730 funds. Contrary to popular belief, Insider Monkey’s research revealed that hedge funds underperformed in recent years because of their short positions as well as the huge fees that they charge. Hedge funds managed to outperform the market on the long side of their portfolio. In fact, the 15 most popular small-cap stocks among hedge funds returned 102% since the end of August 2012 and beat the S&P 500 Index by 53 percentage points (see the details here).

Shares of Neos Therapeutics Inc (NASDAQ:NEOS) are off by 24.90% in morning trading after the company disclosed that the FDA had ‘identified deficiencies that preclude discussion of labeling and postmarketing requirements/commitments’ concerning the company’s Contempla XR-ODT drug candidate, a potential treatment for attention deficit hyperactivity disorder (ADHD). Because the FDA has not provided additional information regarding the deficiencies, shareholders are selling first and asking questions later. Although there are already a number of treatments for ADHD on the marketplace, a significant percentage of the pediatric population has trouble swallowing solid dosage forms and may prefer orally disintegrating tablets instead (of which Contempla XR-ODT is a candidate). Shareholders are surely hoping the FDA’s identified deficiencies won’t be a serious impediment.

Zogenix, Inc. (NASDAQ:ZGNX), a pharmaceutical company developing treatments for central nervous system (CNS) disorders, is down by 5.69% today after the firm disclosed that the FDA requested ‘additional information related to the Company’s proposed Phase 3 program for ZX008 prior to the FDA declaring Zogenix’s Investigational New Drug Application (IND) effective.’ Zogenix has responded with the additional information required to begin the phase 3 clinical program. ZX008 is a potential treatment for Dravet syndrome, a rare form of epilepsy with an onset in infancy. The drug has received ophan drug designation from the FDA. Management doesn’t think the ZX008 clinical development timeline will change because of the FDA request, and still expects to begin Phase 3 trials in the fourth quarter of 2015. Of the 730 elite funds we track, 15 funds owned $65.25 million of the company’s shares (accounting for 25.30% of the float) on June 30, up from 14 funds and $40.11 million respectively on March 31. Julian Baker and Felix Baker‘s Baker Bros Advisors owns 10.03 million shares, while Kevin Kotler’s Broadfin Capital owns 10.74 million shares.

On the next page, we analyze why Rambus and IBM are down.