Hedge fund manager Mark Kingdon displayed a cautious sentiment on Otonomy Inc (NASDAQ:OTIC), Synergy Pharmaceuticals Inc (NASDAQ:SGYP), and Antares Pharma (NASDAQ:ATRS) in the second quarter. We can see from 13F forms filed with the SEC that the $1.46 billion New-York based investment management fund has slashed positions in each of these stocks.
“I knew I wanted to get into this business from the time I was thirteen, when I was given a couple of shares of stock,” says Mark Kingdon. “Even though the market nose-dived soon thereafter, I was taken with the idea that you could buy something that made money and then go out and do something else during the day. That seemed like a wonderful way to make a living.”
Kingdon was already writing an investment newsletter in high school, before studying at Columbia College and Harvard Business School. On graduation he worked in the pension fund of AT&T before joining Century Capital Associates in 1975. Eight years later, in 1983, he founded Kingdon Capital Management. Kingdon Capital manages two long short global equity hedge funds and a credit fund.
Now let’s take a closer look at these 3 key pharma portfolio moves:
In Q2, Mark Kingdon disposed of 461,240 shares in ear treatment company Otonomy, slashing the fund’s holding of the stock by 60%. The remaining holding of 312,453 shares has a reported value of $5.89 million.
And it seems Kingdon had a narrow escape. The company has just announced that its late-stage clinical trials for its treatment for Meniere’s disease, a chronic disorder of the inner ear, has failed. Following the news, the stock collapsed by over 80%. Otonomy’s drug, Otividex, missed the trial’s primary goal of significantly reducing the number and severity of vertigo episodes over a three-month period when compared with a placebo. It also missed its secondary goals. “At this point, we have no explanation for the unequivocal negative result,” the company said on an analyst call.
Following the news two analysts immediately downgraded the stock from buy to hold, JP Morgan’s Anupam Rama and Piper Jaffray’s Charles Duncan. Duncan slashed OTIC’s price target from $32 all the way to $8.00. He says: “With the slow-going OTIPRIO launch now perhaps the main value driver we see in the next 12 months, and clear credibility hit from this result, we are downgrading OTIC.”
Meanwhile, Cowen analyst Ken Cacciatore maintained his buy rating but drastically cut his price target on OTIC to $9.00 from $55.00. He commented: “The company will now need to make dramatic and rapid spending reductions and the focus now turns to Otiprio […] Despite the tepid launch, we are hopefully that the product will eventually realize its potential given the revamped commercial efforts, leadership changes, and potential indication expansion opportunities.”
Overall, OTIC has a Moderate Buy analyst consensus rating on TipRanks. Meanwhile, the $9 share price comes in sky-high at 151% above the current share price.
Synergy Pharmaceuticals Inc
In Q2, Kingdon displayed a very bearish sentiment on Synergy Pharma. The fund cut its Synergy holding by 1,263,078 shares or -57% to a holding of 974,623 shares worth just $4.34 million.
Synergy is a biopharmaceutical company focused on the development and commercialization of novel gastrointestinal (GI) therapies. Shares in Synergy have been slipping from $3.50 to $2.80 after the company announced an earnings miss partly due to a big increase in selling and administrative expenses. However net sales did come in 20% above estimates. Indeed, revenue rose to 2.3 million from $98,000 in Q1- Synergy’s first quarter of sales with one revenue-generating month. Now the potentially high-growth stock may be looking undervalued according to some top market commentators.
Yet investors are rightly wary that Synergy will turn to further share dilution as a way to raise funds. Year-over-year shares outstanding have already increased by about a third, from 168 million to 224 million. And further dilution is looking likely as Synergy only has case of about $83 million and a net loss of $74 million this quarter that doesn’t look like it will disappear any time soon.
According to TipRanks, Synergy has a Moderate Buy analyst consensus rating. In the last three months, the stock has received 5 buy ratings and 1 sell rating. These analysts have an average price target on SGYP of $10.45. This price target currently stands at a huge 252% above the current share price of just under $3.
Antares Pharma Inc
In Q2, Kingdon slashed the fund’s holdings in Antares Pharma by 851,508 shares. Following the 48% cut, the fund has a remaining 946,987 shares in Antares with a value of $3 million. The company focuses on self-injection pharmaceutical products and technologies and topical gel -based products.
H.C. Wainwright analyst Corey Davis presents a much more bullish take on Antares stock than Kingdon. On August 9, he reiterated his buy rating with a $5 price target (59% upside potential). He says “we continue to project cash-flow breakeven by end-2018 and overall profitability in 2019.” Davis also notes that “ATRS is preparing for potential Xyosted (testosterone autoinjector) approval on the October 20, 2017 PDUFA.” As a result, he is predicting that commercial launch of Xyosted will occur in 1Q18 rather than 4Q this year.
Ahead of the approval, Davis is encouraged by the groundwork Antares is setting in to prepare for the launch including hiring regional sales managers and over 60 field reps, as well as conducting clinical advisory boards. Xyosted, which can generate peak sales of $130 million, is expected to be launched with a conservative net-pricing to maximize sales. Davis concludes that “The injectable testosterone market remains hot—growing 20% volume YoY.”
The analyst has a 2.5 star rating on TipRanks where he is ranked #2,276 out of 4,629 analysts. On Antares stock specifically, however, Davis has an impressive track record with a 67% success rate and 6.2% average return.
Overall the stock has a Strong Buy analyst consensus rating based on analyst activity over the last three months. Furthermore, the stock has an average analyst price target of $5 which translates into very big upside potential of 59% from the current share price.