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The world's largest fund managers, managing between $100 billion and over a trillion dollars, are bullish on mid- and large-cap biotech stocks and they are significantly over-weight in the group. During the June quarter, these mega fund managers together added a net $772 million to their $84.86 billion prior quarter position in the group, selling $6.53 billion and buying $7.30 billion worth of stocks in the group. Furthermore, overall they are over-weight in the group by a factor of 1.3. That is, taken together, the 30-plus mega funds have invested 1.7% of their assets in the group, significantly more than the 1.3% weighting of the group in the overall market.

We have broken the investing activities of mega funds in the biotech group by mid- and large-cap biotech companies in this article and by small-cap biotech in another article that can be soon accessed from our author page. This is because small-cap biotech generally have no commercial products, but rather a pipeline of product candidates being tested in early- to late-stage clinical trials for a variety of disease conditions. In contrast, mid and large-cap biotech companies, generally, have products in the marketplace that generate revenues, and in many cases the companies have reached sustained profitability. Furthermore, the small-cap biotech companies are speculative by definition, with potential revenues often being many years in the future, and hence they attract a less risk-averse investor. Mid- and large-cap biotech companies in contrast often are more attractive to conservative investors that look for revenues and sustained profitability in constructing their value thesis.

A majority of the hedge fund and mutual fund managers included in the mega funds list manage well over $100 billion in U.S. equity assets, with some managing between $50 and $100 billion. The list includes prominent managers such as Wellington Management ($1.6 trillion in total assets under management), Vanguard Group ($1.4 trillion), Fidelity Investments ($640 billion), T Rowe Price ($330 billion) and Goldman Sachs Asset Management ($580 billion), among others. The following are the mid- and large-cap biotech companies that these mega fund managers are most bullish and bearish about (see table):

Mega Funds Bullish on Amgen Inc. (AMGN): AMGN develops therapeutics based on cellular and molecular biology to treat anemia, cancer and inflammatory diseases. Its principal products include Aranesp and Epogen erythropoietic-stimulating agents that stimulate the production of red blood cells, Neulasta and Neupogen to stimulate the production of neutrophils, which is a type of white blood cell that helps the body to fight infections, and Enbrel, an inhibitor of tumor necrosis factor that plays a role in the body’s response to inflammatory diseases. Mega funds added a net $650 million to their $19.34 billion prior quarter position. Top mega funds with a position in AMGN include Fidelity Investments ($2.04 billion), State Street Corp. ($1.90 billion), Vanguard Group Inc. ($1.81 billion) and Dodge & Cox ($1.70 billion). Overall, 971 institutions hold 80.4% of AMGN shares, with PRIMECAP Management being the largest holder with 49.7 million or 5.4% of outstanding shares.

Mega Funds Bearish on Gilead Sciences Inc. (GILD): GILD is a developer of therapeutics to treat viral, fungal, respiratory and cardiovascular diseases. Mega funds cut a net $773 million from their $15.36 billion prior quarter position. Top mega fund sellers included Fidelity Investments ($336 million), Bank of America ($287 million) and Capital World Investors ($260 million). Overall, 859 institutions hold 87.1% of GILD shares, with Fidelity Investments being the largest holder with 5.3% of the outstanding shares.

Mega Funds Neutral on Opko Health Inc. (OPK): OPK develops a broad range of pharmaceuticals and diagnostics as well as ophthalmic instrumentation products. Mega funds added a net $6 million to their $61 million prior quarter position; however, together they own only $67 million worth of OPK stock or 4.3% of the outstanding shares compared to their 42% weighting the mid- and large-cap biotech group. Top mega fund holders of OPK included Vanguard Group Inc. ($24 million) and Barclays Global Investors ($13 million). Overall, 107 institutions hold 14.7% of OPK shares, with Vanguard Group being the largest holder with 2.2% of the outstanding shares.

Mega Funds Bullish on Amarin Corp. (AMRN): AMRN is a clinical stage Ireland-based global pharmaceutical group which develops novel drugs for the treatment of cardiovascular diseases using its proprietary advanced oral and trans-dermal drug delivery technologies. Mega funds added a net $103 million to their $365 million prior quarter position. Top mega funds that bought AMRN during the June quarter included Fidelity Investments ($39 million), UBS Global ($18 million), Invesco Ltd. ($16 million) and AllianceBernstein ($13 million). Overall, 139 institutions hold 73.9% of AMRN shares, with Fidelity Investments being the largest holder with 13.0% of the outstanding shares. We recently covered AMRN, recommending a buy based on AMR101’s sales potential and a possible buy-out.

Mega Funds Bullish on Dendreon Corp. (DNDN): DNDN develops targeted therapeutics to treat cancer using active immunotherapies, monoclonal antibodies and small molecules. Among investor circles, it is probably best known as the maker of Provenge for Prostate Cancer. Mega funds added a net $201 million to their $486 million prior quarter position. Top mega funds that added DNDN during the June quarter included Ameriprise Financial ($66 million), T Rowe Price ($55 million) and Capital World Investors ($55 million). Overall, 288 institutions hold 74.0% of DNDN shares, with SAC Capital Advisors being the largest holder with 5.8% of the outstanding shares, and PRIMECAP Management being the second largest holder with 5.2% of outstanding shares. We recently covered DNDN, recommending a buy based on our thesis that the recent quarterly miss was a sales and marketing failure that was fixable, and that the market was now severely under-estimating the sales potential of Provenge.

Mega Funds Bullish on Cubist Pharmaceuticals (CBST): CBST is a biopharmaceutical company that develops anti-infective products to treat conditions in the acute care environment. The company markets CUBICIN, the first antibiotic in a new class of anti-infectives called lipopeptides. Mega funds added a net $30 million to their $692 million prior quarter position. Top mega funds that hold CBST include Wellington Capital Management ($160 million) and Vanguard Group Inc. ($116 million). Overall, 255 institutions hold CBST shares, with Federated Investors being the largest holder with 9.3% of the outstanding shares. We covered CBST today in our article analyzing the impact on the opioid space of the over-the-top offer by CBST to acquire Adolor Corp. (ADLR).

Mega Funds Bullish on Pharmasset Inc. (VRUS): VRUS develops pharmaceuticals for the treatment of chronic hepatitis C infection and HIV. Mega funds added a net $69 million to their $2.46 billion prior quarter position. Top mega funds that hold VRUS include Fidelity Investments ($711 million) and T Rowe Price ($316 million). Overall, 210 institutions hold 92.8% of VRUS shares, with Fidelity Investments being the largest holder with 14.6% of the outstanding shares.

Mega Funds Bullish on Biogen Idec Inc. (BIIB): BIIB develops treatments for multiple sclerosis (MS), cancer and auto-inflammatory diseases. Mega funds added a net $263 million to their $9.79 billion prior quarter position. Top mega funds that held BIIB at the end of the June quarter included Capital Research Global Investors ($1.96 billion) and Fidelity Investments ($1.50 billion). Overall, 538 institutions hold 95.7% of BIIB shares, with PRIMECAP Management being the largest holder with 10.3% of the outstanding shares.

Mega Funds Bearish on Celgene Corp. (CLEG): CELG develops therapies to treat cancer and immune-inflammatory related diseases by regulating cells, genes and proteins. Mega funds cut a net $202 million from their $11.66 billion prior quarter position. Top mega funds that held CELG at the end of the June quarter included Janus Capital Management ($2.14 billion), Vanguard Group Inc. ($998 million), State Street Corp. ($971 million) and T Rowe Price ($930 million). Overall, 709 institutions hold 80.9% of CELG shares, with Janus Capital Management being the largest holder with 8.3% of the outstanding shares.

Mega Funds Bearish on Vertex Pharmaceuticals (VRTX): VRTX engages in the discovery, development and commercialization of small molecule drugs for the treatment of hepatitis C, inflammatory and autoimmune disorders, pain and cancer. Mega funds sold a net $184 million out of their $5.19 billion prior quarter position. Top mega funds that held VRTX at the end of the June quarter included Fidelity Investments ($1.39 billion) and Capital World Investors ($869 million). Overall, 337 institutions hold 90.6% of VRTX shares, with Fidelity Investments being the largest holder with 14.5% of the outstanding shares.

Table

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General Methodology and Background Information: The latest available institutional 13-F filings of over 30-plus mega hedge fund and mutual fund managers were analyzed to determine their capital allocation among different industry groupings, and to determine their favorite picks and pans in each group. These mega fund managers number less than 1% of all funds and yet they control almost half of the U.S. equity discretionary fund assets. The argument is that mega institutional investors have the resources and the access to information, knowledge and expertise to conduct extensive due diligence in informing their investment decisions. When mega Institutional Investors invest and maybe even cover a specific investment idea, the idea deserves consideration for further investigation. The savvy investor may then leverage this information either as a starting point to conduct his own due diligence.

Disclaimer: Material presented here is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion. Further, these are our "opinions" and we may be wrong. We may have positions in securities mentioned in this article. You should take this into consideration before acting on any advice given in this article. If this makes you uncomfortable, then do not listen to our thoughts and opinions. The contents of this article do not take into consideration your individual investment objectives so consult with your own financial adviser before making an investment decision. Investing includes certain risks including loss of principal.

Source: Mid-Cap, Large-Cap Biotech Picks By The World's Largest Fund Managers