Top Pharma Stocks That Hedge Funds Love

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 |  Includes: ABT, AGN, AKRX, AUXL, AZN, BMY, ELN, ENDP, FRX, GSK, HSP, IPXL, JAZZ, JNJ, LLY, MDCO, MNK, MRK, MYL, NKTR, NVO, NVS, OPTR, PFE, PRGO, PRX, RDY, SCR, SHPG, SNY, TEVA, VRX, VVUS, WCRX
by: Insider Monkey

According to Milliman Medical Index, healthcare spending is rising at a rate of nearly 8%. In 2010, a typical American family of four spent $18,074 on medical costs, vs. $16,771 in 2009. The upward trend in healthcare costs is not a recent phenomenon. Annual medical costs increased by almost 35% in the last 4 years; from $13382 in 2006 to $18,074 in 2010.

In fact for most of the post-World War II period, healthcare costs rose at a much faster rate than the GDP. Prof. Reinhardt from Princeton University states that, in the last 40 years, while real per capita GDP growth was 1.5%, the growth rate in real per capita healthcare spending averaged 4.1 percent.

Politicians are talking about curbing the healthcare expenditures but Obama’s health reform is likely to provide a windfall for pharmaceuticals. We summarized hedge fund holdings in top pharma stocks. We follow 175 hedge funds. The industry classifications are obtained from Fidelity. Here are the top pharma stocks that hedge funds favor the most at the end of December:

Company Name

Symbol

Market Cap

Value (x1000)

No. of Hedge Funds

JOHNSON & JOHNSON

JNJ

174.9B

3,861,246

22

PFIZER INC

PFE

156.5B

3,458,283

43

TEVA PHARMACEUTICAL INDUSTRIES

TEVA

41.308B

1,880,058

26

MYLAN INC

MYL

10.795B

696,782

9

VALEANT PHARMACEUTICALS

VRX

16.026B

524,424

20

ABBOTT LABORATORIES

ABT

81.449B

496,668

17

MERCK & CO INC.

MRK

105.4B

483,047

15

WARNER CHILCOTT PLC

WCRX

6.094B

383,471

9

GLAXOSMITHKLINE PLC

GSK

105.2B

342,627

9

HOSPIRA INC

HSP

9.580B

332,896

14

SANOFI-AVENTIS

SNY

99.175B

291,193

9

ENDO PHARMACEUTICALS HOLDINGS

ENDP

4.539B

275,586

12

BRISTOL-MYERS SQUIBB CO

BMY

47.498B

271,377

12

ALLERGAN INC.

AGN

23.852B

239,195

15

FOREST LABORATORIES INC

FRX

9.395B

238,851

13

NOVO NORDISK A/S

NVO

75.151B

233,702

5

WATSON PHARMACEUTICALS INC.

WPI

7.326B

204,255

13

ELI LILLY AND CO

LLY

40.224B

186,754

13

PERRIGO CO

PRGO

8.232B

144,575

7

VIVUS INC

VVUS

608.4M

118,546

6

NOVARTIS AG

NVS

130.7B

82,952

9

ASTRAZENECA PLC

AZN

70.423B

66,298

6

NEKTAR THERAPEUTICS

NKTR

1.106B

66,251

5

VIROPHARMA INC

VPHM

1.544B

64,089

7

SHIRE PLC

SHPGY

16.952B

62,168

5

MEDICIS PHARMACEUTICAL CORP

MRX

2.059B

47,005

8

QUESTCOR PHARMACEUTICALS INC.

QCOR

1.214B

31,108

5

ELAN CORP PLC

ELN

4.752B

27,685

8

PAR PHARMACEUTICAL COMPANIES INC

PRX

1.179B

26,002

7

JAZZ PHARMACEUTICALS INC

JAZZ

1.335B

25,148

5

AUXILIUM PHARMACEUTICALS INC

AUXL

1.108B

17,681

2

IMPAX LABORATORIES INC

IPXL

1.661B

16,404

6

AKORN INC

AKRX

612.2M

9,178

2

MEDICINES COMPANY (THE)

MDCO

866.4M

8,605

4

CADENCE PHARMACEUTICALS INC

CADX

510.9M

6,152

3

OPTIMER PHARMACEUTICALS INC

OPTR

583.2M

4,387

4

DR REDDY'S LABORATORIES LTD

RDY

6.402B

2,296

2

SIMCERE PHARMACEUTICAL GROUP

SCR

702.8M

2,109

3

Click to enlarge

Johnson & Johnson tops our list mainly because of Warren Buffett’s $2.6 billion positions. There were 21 other prominent investors with JNJ positions at the end of December. The true hedge fund favorite is Pfizer with 43 hedge funds holding $3.5 billion in Pfizer shares. Hedge fund stars like John Paulson, Lee Ainslie, David Einhorn, David Tepper, and Curtis Schenker all own PFE in their portfolios. Bridger’s Roberto Mignone sold all his Pfizer holdings during the fourth quarter.

Teva is the second most popular stock in terms of number of hedge funds. Twenty six hedge funds held $1.9 Billion in TEVA at the end of December. Jeffrey Altman’s Owl Creek, Lee Ainslie’s Maverick, and John Griffin’s Blue Ridge had the largest positions in TEVA.

Our top five pharma picks are VVUS, MYL, WCRX, ENDP, and NKTR. Hedge funds collectively own at least 5% of each of these stocks. There were only 6 hedge funds with Vivus holdings at the end of December, but they owned nearly 20% of the stock’s outstanding shares. Mylan, one of John Paulson’s favorite healthcare picks, is owned by 9 hedge funds. WCRX is also owned by 9 hedge funds. It is one D.E. Shaw’s long term investments. Paul Tanico’s Castlerock also had a large position in WCRX. We believe these stocks as a group should do well over the long-term.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.