Biotech Stocks Hedge Funds Are Betting On

Hedge funds have channeled sizeable investments this year on biotech. They are right on the money on this one, after getting bets wrong on gold earlier this month.

While biotechnology indices continue to slip--Nasdaq is still down by 13.93 percent while S&P by 0.93 percent, Yahoo data showed—biotech still remains to be a bull market, up by 200% since 2011, Business Insider reported. Big-name biotech stocks like Gilead Science (GILD) and Amgen (AMGN) are also slowly on the rebound, based on latest Yahoo finance market data.

On Wednesday, Reuters reported that Nasdaq biotechnology index fell by another 1.2 percent. The report noted that while “results were mixed,” they did indicate “some fundamental strength, easing concerns the group was overvalued.”

Hedge funds, with their fondness for risk-taking, and biotech for its inherent high risk, seem like a match made in heaven. Let us take a look at the biotech stocks hedge funds are betting on. 

Gilead Sciences, Inc.

It is not a surprise Gilead Sciences is a favorite among hedge funds due to its expertise in the HIV field and the launch of its Hepatitis C product Sovaldi. Trading at 74.08 per share, the company is a must-buy for a number of hedge funds and mutual funds. Davidson Kempner Capital Management is one of the top US hedge funds invested in GILD, holding 80,000,000 shares amounting to $260, 047,000 million as of Q4 last year. Other major hedge fund investors of GILD include Sectoral Management, Orbimed Advisors, Partner Fund Management, and Glg Partners, Insider Monkey reported. No current data is available as of press time.

GILD currently has a market cap of $113.95 billion, based on Yahoo Finance data. Its trading volume is a whopping 22,103,281 per day. According to Brian Nichols of Seeking Alpha, the company earned 13.7 billion during the past 12 months. Using analysts’ data from Yahoo Finance, Nichols also noted that Sovaldi has the potential to boost the company’s growth by 85 percent this year, and another 18 percent by 2015.

Biogen Idec

Columbus Circle Investors is the top hedge fund invested in Biogen BIIB with 1,184,324 shares amounting to $331,104,000 in Q4 2013, Insider Monkey said. Orbimed Advisors comes next with 1,095,100 BIIB shares amounting to $306, 159, 000. Last but not the least is Sectoral Asset Management, the third hedge fund with the largest holdings in BIIB with 544,575 shares amounting to $152,248,000.

Biogen trades at 294.84 % a share, based on Yahoo Finance data. It was revealed the company has an average trading volume of 1,815,480 and a market capitalization of $69.70 billion.

According to a report on The Wall Street Journal, sales of its multiple-sclerosis treatment Tecfidera have raised the company’s revenue by 12 percent.

The company meanwhile forecasts a 26 percent to 28 percent revenue growth throughout the year, Reuters reported.The company also expects earnings to soar between $11.35 and $11.45 earnings per share, up from its previous forecasts of $11.00 to $11.20.    

Incyte Corp.

Delaware-based Incyte Corp. INCY is a favorite of Baker Bros. Advisors.  Insider Monkey said the hedge fund, which is headquartered in New York and owns a $7 billion portfolio, is heavily invested in Incyte. As of December 2013, the company holds 14,810,559 shares from Incyte amounting to $749,859,000, not to mention over $300,000 worth of bonds from the biotech firm. Incyte stocks closed at $47.30, up by 0.72 percent on Thursday, Google Finance data showed. It is known for its FDA-approved drug Jakafi for the treatment of myelofibrosis as well as its strong oncology pipeline.  

Retrophin

A new entrant in the biotech sector, Retrophin (RTRX) picked up the pace fast. Led by famous short seller and “boy genius” Martin Shkreli, the company was able to raise $40 million to celebrate its launch as a Nasdaq listing, according to a Bloomberg report. Retrophin was able to attract hedge fund investors like Steven Cohen of recently shut down SAC Capital.

The company was on a roll. In February, the company made a $63 million acquisition that generated revenues for the company, Bloomberg Businessweek reported. From January up to this month, stocks of the company soared by 230 percent to $23, falling hard during the sell-off to $12. Retrophin stocks are up on Thursday by 0.03 percent to $13.82, Yahoo Finance data showed.

Industry Forecasts

Areas of opportunity can be found in the sector despite the downdraft, Citigroup research managing director Yaron Werber told CNBC news. “If you look at year to date, 2014 is shaping up to be the second-best year for IPOs in the biotech space after 2000,” he said.

He also noted that big-cap biotechs are bound to grow “north of 20 percent” due to “great pipeline drugs” and earnings visibility. Werber based his forecasts based on P/Es and PEGs versus the S&P 500.

Things are “tougher,” however, for small-caps and micro-caps, he told CNBC.

Investor.com noted last week that the worst may still not be over, unfortunately, for the sector, especially for small-caps and micro-caps. These companies could, however, leverage the market potential of their product candidates to grab the attention of risk-tolerant hedge fund managers.

Promising micro stocks in the field include Marina Biotech Inc. (MRNA) which develops microRNA-based diagnostics and therapeutics for rare diseases; BioCoRx, Inc. BICX, which was all over the news and blogsphere recently with its Naltroxene time-release implant for alcohol and opioid addiction treatment; and Mast Therapeutics, Inc. (MSTX), which is focused on developing drugs for sickle cell disease.

In similar news, hedge funds are placing their portfolios in known healthcare companies such as Johnson & Johnson (816,830 shares), Baxter International (3.34 million shares), Pfizer Inc. (1.92 million shares), Mead Johnson Nutrition (2.3 million shares) and CVS Caremark Corp (1.21 million shares),  Jonas Elmerraji of TheStreet reported.

Just like other analysts, Elmerajji found this out by taking a closer look at recent 13F filings, which provides a “sneak peek” at where hedge funds are putting their money. 13f filings are required of companies with over $100 million in assets.