We have broken down the investing activities of mega funds in the biotech group by small-cap biotech companies in this article, and by mid- and large-cap biotech companies in another article that can be soon accessed from our author page. This is because small-cap biotech companies 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. This contrasts with mid and large-cap biotech companies that 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.
The world’s largest fund managers, managing between $100 billion and over a trillion dollars, are bullish on small-cap biotech stocks, (including micro-cap and nano-cap biotech companies). During the June quarter, these mega fund managers together added a net $869 million to their $7.78 billion prior quarter position in the group, selling $584 million and buying $1.45 billion worth of stocks in the group. Furthermore, overall they are under-weight in the group by a factor of 0.7; that is, taken together, the 30-plus mega funds have invested 0.17% of their assets in the group, less than the 0.23% weighting of the group in the overall market.
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 small-cap biotech companies that these mega fund managers are most bullish and bearish about (see table):
Mega Funds Bullish on Exelixis Inc. (EXEL): EXEL develops small-molecule therapies for the treatment of cancer. Mega funds added a net $28 million to their $440 million prior quarter position. Top mega funds with a position in EXEL include Fidelity Investments ($131 million), T Rowe Price ($117 million) and Wellington Capital Management ($73 million). Overall, 150 institutions hold 74.3% of EXEL shares, with Fidelity Investments and T Rowe Price being the largest holders at 14.9% and 13.3% of the outstanding shares respectively.
Mega Funds Bullish on Biosante Pharmaceuticals (BPAX): BPAX develops products for female sexual health and oncology. Its lead products include Libigel for the treatment of female sexual dysfunction and Elestrin for the treatment of moderate-to-sever vasomotor symptoms associated with menopause. Mega funds added a net $8 million to their $17 million prior quarter position. Top mega funds that added the most to their EXEL position in the June quarter included Vanguard Group Inc. ($2.6 million) and Barclays Global Investors ($2.1 million). Overall, 96 institutions hold 27.9% of BPAX shares, with Green Point Partners being the largest holder with 4.8% of the outstanding shares.
Mega Funds Bullish on Cell Therapeutics Inc. (CTIC): CTIC is a biopharmaceutical company engaged in the development of oncology or cancer drugs. Mega funds added a net $11 million to their $9 million prior quarter position. Top mega funds that added the most to their CTIC position in the June quarter included State Street Corp. ($2.9 million), Vanguard Group Inc. ($2.4 million) and Fidelity Investments ($2.1 million). Overall, 73 institutions hold 14.8% of CTIC shares, with Vanguard Group being the largest holder with 3.8% of the outstanding shares.
Mega Funds Neutral on Adolor Corporation (ADLR): ADLR develops small-molecule prescription pain management products for surgery patients. ADLR just announced on Monday morning an over-the-top acquisition offer from Cubist Pharmaceuticals that we covered in an article published Monday. Mega funds position in ADLR remained unchanged during the June quarter at $36 million or 16.4% of the total outstanding shares. Top mega fund holders of ADLR at the end of the June quarter included Wellington Capital Management ($15 million) and Fidelity Investments ($10 million). Overall, 45 institutions hold 64.3% of ADLR shares, with Baker Bros. Advisors being the largest holder with 15.0% of the outstanding shares and Wellington Capital Management being the second largest holder with 13.0% of the outstanding shares.
Mega Funds Bullish on Keryx Biopharmaceuticals (KERX): KERX develops novel pharmaceutical products to treat cancer, renal disease and other life-threatening diseases. Mega funds added a net $13 million to their $38 million prior quarter position. Fidelity Investments was the only mega fund that significantly added to its KERX position in the June quarter, buying $8 million worth of KERX shares. Overall, 88 institutions hold 36.5% of KERX shares, with Fidelity Investments being the largest holder with 8.2% of the outstanding shares.
Mega Funds Neutral on Anadys Pharmaceuticals (ANDS): ANDS is a biopharmaceutical company engaged in developing novel medicines for the treatment of hepatitis C in the U.S. Mega funds position in ANDS remained unchanged during the June quarter at $6 million or 2.7% of the total outstanding shares. Wellington Capital Management was the only significant mega fund holder with $3.8 million worth of ANDS shares. Overall, 43 institutions hold 66.6% of ANDS shares, with QVT Financial LP being the largest holder with 20.0% of the outstanding shares.
Mega Funds Bearish on Aeterna Zentaris Inc. (AEZS): AEZS develops therapeutics in the areas of oncology and endocrinology. Its product portfolio includes Cetrotide currently marketed for in-vitro fertilization, and its lead compound in phase 3 trial is Perfosine for advanced metastatic colorectal cancer and multiple myeloma that it is partnered with Keryx Pharmaceuticals in North America. In addition, AEZS has phase 2 and earlier trials in several other indications in oncology and endocrinology. Mega funds cut their entire $5 million position in AEZS from the prior quarter, with Wellington Capital Management being the sole seller of the entire $5 million block of AEZS shares. Overall, 29 institutions hold 5.5% of AEZS shares, with RCM Capital Management being the largest holder with 2.0% of the outstanding shares.
Mega Funds Neutral on Cel-sci Corp. (CVM): CVM is a developer of immunotherapeutic agents and peptides to treat cancer and bacterial, viral and parasitic infections. Its lead product, Multikine, is under phase 3 clinical trial for the treatment of head and neck cancer. Mega funds position in CVM remained unchanged during the June quarter at $3 million or 4.9% of the total outstanding shares. Vanguard Group Inc. ($2.0 million) and Barclays Global Investors ($1.2 million) were the only significant mega fund holders of CVM shares at the end of the June quarter. Overall, 37 institutions hold 4.9% of CVM shares, with Vanguard Group Inc. being the largest holder with 2.3% of the outstanding shares.
Click to enlarge
General Methodology and Background Information: The latest available institutional 13-F filings of over 30+ 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 one percent 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 converge on 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.