Squashed Takeovers And Positive Test Results Propelling These Stocks Higher

Three stocks are making some major noise in today’s trading session, with gains of over 15% for all three. The companies behind the stocks making these gargantuan gains are Bellerophon Therapeutics Inc (NASDAQ:BLPH), Synaptics, Incorporated (NASDAQ:SYNA), and Depomed Inc (NASDAQ:DEPO), and we’ll run through the action on each and their accompanying hedge fund sentiment.

Let’s start with Bellerophon Therapeutics Inc (NASDAQ:BLPH), which we’ve now covered three times in the past few days owing to the extreme volatility in the stock. On September 25 it enjoyed a massive swing to the upside of about 69% following the release of positive data related to its Phase 2 study of INOpulse, for the treatment of Pulmonary Arterial Hypertension. However, just a few days later it was back in the news due to its stock heading sharply in the other direction, giving back most of its Friday gains in the first two trading sessions of this week, as the market seemingly decided that the gains were an overreaction, and that despite the positive news, the market for the treatment may not be overly big.

Yet here we are on Wednesday and momentum appears to have swung back to the buy side again, as shares are up by a touch over 25%. The push today follows more information being released related to INOpulse, at the European Respiratory Society (ERS) International Congress 2015 in Amsterdam. The newly-released data was from a small trial of six patients with pulmonary hypertension, each of which was given an acute dose of INOpulse nitric oxide. The results showed increased blood flow in the lungs of all six patients, while oxygen saturation was preserved.

Hedge funds we track were quite positive about Bellerophon Therapeutics Inc (NASDAQ:BLPH), owning 44.90% of the biotech’s shares as of June 30. In all, six funds we track had positions valued at $45.99 million at that time. Also noteworthy is the fact that Julian Baker and Felix Baker’s Baker Bros. Advisors was the top shareholder of those six, with 350,000 shares at the end of June. The stock picks of the healthcare fund have been exceptional this year, ranking it as one of the top funds in our database.

Most investors don’t understand hedge funds and indicators that are based on hedge funds’ activity. They ignore hedge funds because of their recent poor performance in the bull market. Our research indicates that hedge funds partly underperformed because they aren’t 100% long. Hedge funds’ fees are also very large compared to the returns generated, which reduces the net returns delivered to investors. We uncovered through extensive research that historically, hedge funds’ long positions in certain stocks actually outperformed the market greatly, and it has held true to this day. For instance, the 15 most popular small-cap stocks among funds has beaten the S&P 500 Index by more than 60 percentage points since the end of August 2012. These stocks returned a cumulative of 118% vs. less than 58% for the S&P 500 Index (read the details). That’s why we believe investors should pay attention to what hedge funds are buying, particularly in the small-cap sector, rather than what their net returns are, which the media primarily focuses on.

Synaptics, Incorporated (NASDAQ:SYNA) is a much less popular stock among the elite hedge funds we track, which held just 5.70% of the human interface solutions provider’s shares, and their sentiment towards the stock during the second quarter was relatively flat. 22 funds held $181 million in shares on June 30, down by one fund but up by about $16 million respectively, from March 31, the latter figure of which was about in-line with the growth of the stock during the quarter. Despite seemingly positive fiscal 2015 fourth quarter results released at the end of July, shares trended down throughout August as investors appeared worried about the firm’s high P/E of about 28, despite a forward P/E that only sits around 10.

The stock got a 26% shot in the arm today however after it was revealed that the firm turned down a $110-per-share offer from a group of Chinese investors, which amounted to a 70% premium as of yesterday’s close. Bloomberg reported that the talks were ongoing, and that Synaptics may be holding out for as much as $125 per share. Despite the potential for a big payday, there is the possibility that the sale of the company to a Chinese group would need regulatory approval.

Seymour Sy Kaufman and Michael Stark’s Crosslink Capital and Mark Kingdon’s Kingdon Capital are two of the hedge funds we track which would likely be very pleased with a $125 per share sale of the company. The funds owned 438,383 shares and 270,723 shares of Synaptics, Incorporated (NASDAQ:SYNA) respectively.

Lastly is Depomed Inc (NASDAQ:DEPO), a pharmaceutical company which is also the subject of a proposed takeover, and which has also shot down said takeover. In a statement released today, Depomed reiterated that Horizon Pharma PLC (NASDAQ:HZNP)’s offer, initially made last month, undervalues the company, and that the all-stock hostile takeover offer is also substantially less valuable than it once was. Depomed called out Horizon Pharma for still touting the deal as being worth $33 per share, given the sharp decline in Horizon’s shares over the past month. The proposed deal to Depomed’s shareholders of 0.95 Horizon shares for each Depomed share would now be worth less than one-third of that.

Given that, Roth Capital today cut its price target on Depomed Inc (NASDAQ:DEPO) to $21 from $33, citing the shattered value of the proposed takeover, while nonetheless rating the company a ‘Buy’ as a standalone entity. Shares are up by 19% today to $18.48 in afternoon trading. Horizon Pharma PLC (NASDAQ:HZNP)’s shares are also having a strong showing today, up by over 18%.

Hedge funds in our database would have a lot of say on any hostile takeover, as they owned 15.60% of Depomed’s shares on June 30, led by Richard Mashaal’s RIMA Senvest Management with 3.87 million shares. 22 hedge funds in our database held $202 million worth of the company’s shares on June 30, down from 25 funds holding $224 million in shares on March 31. Israel Englander’s Millennium Management was one of the funds to close its position in Depomed during the second quarter, one which had previously consisted of over 667,000 shares.

Disclosure: None