Why Does The Smart Money Like Acorda Therapeutics?

Acorda Therapeutics Inc (NASDAQ:ACOR) is a $1.11 billion biotechnology company that develops and commercializes novel therapies for neurological disorders. In this article, we take a closer look at the company’s recent developments and future prospects. In addition, we are going to assess the data from the latest round of 13F filings in order to get an idea regarding the hedge fund sentiment towards the company.

While there are many metrics that investors can assess in the investment process, the hedge fund sentiment is something that is often overlooked. However, hedge funds and other institutional investors allocate significant resources while making their bets and their long-term focus makes them the perfect investors to emulate. This is supported by our research, which determined that following the small-cap stocks that hedge funds are collectively bullish on can help a smaller investor to beat the S&P 500 by around 95 basis points per month (see the details here).

Acorda Therapeutics Inc (NASDAQ:ACOR)’s main drug is Ampyra (dalfampridine), which improves walking for people with multiple sclerosis. In the second quarter, Ampyra net AMPYRA sales rose by 16% year-over-year in to $122.1 million, and the drug is expected to deliver revenues of $475 million to $485 million in 2016.

Various patent lawsuits filed by drug companies seeking to make a generic version of Ampyra caused Acorda’s shares to decline for much of 2015 until late August when the U.S. Patent and Trademark Office denied a patent challenge from various parties asking for inter partes review concerning Ampyra. That caused Acorda shares to surge to over $40 per share by December.

However, Acorda shares began to sink again in January 2016 after the company made an all-cash tender offer valued at $363 million for Biotie Therapies. Biotie has three clinical-stage compounds that have the potential to improve the lives of people with Parkinson’s. The most advanced drug, Tozadenant, has a target NDA filing by the end of 2018. Management estimates the drug could realize $400 million a year in U.S. peak sales. In addition to Tozadenant, Acorda has its own Parkinson’s candidate in Phase 3 trials, CVT-301, which could potentially have $500 million in U.S. peak sales. Investors might have sold Acorda on the Biotie buyout news because they thought Acorda was overpaying for the pipeline.

Acorda shares have also fallen since January because the U.S. Patent and Trademark Office Patent Trials and Appeal Board instituted an inter partes review of four of Acorda’s patents in March 11. The patents relate to Ampyra and were set to expire between 2025 and 2027. A ruling concerning the inter partes review is expected to be made by March 2017. If the ruling goes against Acorda, some investors think that generics for Ampyra could potentially have an easier time entering the market.

Acorda shares have also retreated since mid-May due to lower analyst profit estimates. Whereas analysts were before expecting EPS of $0.73 for 2016 and $0.96 for 2017, they now expect EPS of $0.44 and $0.75 per share for the two years, respectively. The lower EPS estimates are mainly due to higher-than-anticipated R&D expense guidance for the full year.

Despite the lower EPS estimates, many hedge funds are long Acorda they like Acorda’s promising pipeline, which could pay off substantially in future years. If Acorda successfully defends its Ampyra patents, there is also substantial upside. Aegis has a $52 price target.

At the end of June, 21 funds tracked by Insider Monkey were long Acorda Therapeutics Inc (NASDAQ:ACOR), compared to 26 funds a quarter earlier. Phill Gross and Robert Atchinson‘s Adage Capital Management cut its stake by 14% quarter-over-quarter to 1,175,000 shares at the end of June, while James E. Flynn‘s Deerfield Management kept its stake unchanged at just over 1.0 million shares.

Disclosure: none