Why Are These Bio-Tech Stocks Surging Today?

After two days in the red, ZIOPHARM Oncology Inc. (NASDAQ:ZIOP) seems to be heading north again, managing to surge by as much as 8.8% during the first hour of trading. The stock fell by as much as 6.2% over the past two days as analysts updated their stance over the weekend, assigning a consensus 2.5 rating on a scale where 1 is a Strong Buy and 5 represents a Strong Sell. On October 1, ZIOPHARM announced a 24-month agreement with Intrexon Corp (NYSE:XON), whereby the former will pay Intrexon $10 million in exchange for access and rights to use some of its technology and patents in their own research projects.

MSDC Management, run by Marc Lisker, Glenn Fuhrman, and John Phelan, holds a significant stake in ZIOPHARM Oncology Inc. (NASDAQ:ZIOP): 4.47 million shares, up by 2% during the second quarter. Dan Loeb sees great upside potential, having initiated a position during the second quarter of 1.95 million shares. In general, ZIOPHARM Oncology gained in popularity among elite funds, as the number of long positions reported at the end of the second quarter among those elite investors that we track grew to 15, from 13 at the end of March. The value of their combined investment increased by 8.5% to $95 million and represents 6.2% of the company’s outstanding stock.

The relief shareholders of Zafgen Inc (NASDAQ:ZFGN) felt this morning was short lived, as the stock is back in the red following two hellish days in which shares lost 54% of their value. The stock opened higher today and, after surging by as much as 14%, slumped again following an anemic reaction from management with regards to the latest developments. Investors started to panic on Monday, as Zafgen cancelled several meetings with investors that were due yesterday and today. Wall Street fears the worst, namely that there is something wrong with beloranib, the company’s leading drug candidate, currently in a Phase III study, with results expected in the first quarter of 2016. The drug was designed to address obesity problems and is meant to alter the way the human body metabolizes fat. Zafgen CFO Patty Allen sent an email to analysts today that did not manage to address investor worries:

“We have received a number of inquiries from the investment community. As you are aware, we do not comment on share price movement or market speculation. We appreciate the concerns of our stakeholders. Zafgen remains committed to developing novel therapies to improve the health and well-being of patients affected by obesity and complex metabolic disorders.”

James E. Flynn‘s Deerfield Management holds the largest stake in Zafgen Inc (NASDAQ:ZFGN) among the hedge funds that we track, with the fund having reported ownership of a little over 1.0 million shares in its latest 13F filing. Julian Baker and Felix Baker are also fans of this stock, having tripled their holding during the second quarter to 287,677 shares. Our data shows that smart money exercised caution when it came of Zafgen, as the number of funds holding the stock fell to 12, from 15 at the end of the first quarter. The value of their investment also fell, by nearly one-third, to some $100 million, while representing 10.8% of Zafgen’s common stock.

Disclosure: None