The announcement by Bristol-Myers Squibb (BMY), just over two weeks ago, on January 7th, of an agreement to buy Inhibitex (INHX) for $2.5 billion at a massive buyout premium of over 160%, has ignited a rally among biotech companies that are currently active in developing products targeting hepatitis C virus (HCV). In this article, we examine based on our research of their latest available Q3 institutional 13-F filings, the investment activities of the world's largest funds or mega funds among a dozen pharmaceutical and biotech companies that are active in the HCV space.
These mega fund managers hold between $100 billion and over a trillion dollars in assets, such as Fidelity Investments, Goldman Sachs, and Vanguard Group, and together they control almost a third of the assets invested in the U.S. equity markets, but number just over 30 out of the tens of thousands of funds that invest in the U.S. equity markets. Individually, and collectively, they pack enough firepower to move stocks based on their trading activities.
Taken together, these mega managers were bullish on the group, adding a net $427 million in Q3 to their prior $178.84 billion prior quarter holdings in the group. However, taking out the big pharmaceutical companies, mega funds still added a net $530 million in Q3 to their $47.46 billion prior quarter position among the biotech companies that are active in the HCV field. (for more general information on these mega funds, please look at the end of the article).
The following are the HCV group companies that mega fund managers are bullish about (see Table):
Idenix Pharmaceuticals (IDIX): IDIX engages in the discovery and development of drugs for the treatment of human viral and other infectious diseases, including a focus on hepatitis C virus, hepatitis B virus (HBV), human immunodeficiency virus (HIV) type-1, and acquired immune deficiency syndrome (AIDS). Mega funds added a net $45 million in Q3 to their $380 million prior quarter position, and together they hold 29.7% of the outstanding shares, higher than their 26.3% weighting in the group. The top mega fund buyers in Q3 was by Fidelity Investments ($50 million), and the top holders were Fidelity Investments ($131 million), T Rowe Price ($114 million) and Vanguard Group ($50 million).
IDIX shares have mounted a strong rally recently, up more than 100% in the past twelve trading days, benefiting from both the January 9th announcement of the acquisition of rival INHX by BMY that has ignited a rally in the group, as well as positive interim phase 2b clinical trial data on its HCV Nucleotide Inhibitor, IDIX 184, that was released the same day by the company.
Dynavax Technologies (DVAX): DVAX is a clinical-stage biotech company that is engaged in the discovery and development of novel products to prevent and treat infectious and inflammatory diseases. Its lead clinical stage product candidate is HEPLISAV™, a phase 3 investigational adult hepatitis B vaccine designed to provide protection with fewer doses than current licensed vaccines. In addition it has early stage product candidates, including a universal flu vaccine in phase 1, TLR inhibitor for lupus in phase 1, and then hepatitis B and hepatitis C therapies, also in phase 1 development.
Mega funds added a net $7 million in Q3 to their $102 million prior quarter position, and taken together they hold 25.8% of outstanding shares. The top mega fund buyers were Fidelity Investments ($3.3 million) and Bank of America Corp. ($1.6 million), and the top holder by far was also Fidelity Investments ($64 million). DVAX is currently engaged in preparing to submit its first Biologics License Application (BLA) for HEPLISAV™ Hepatitis B Vaccine to the FDA in the first quarter of 2012, followed soon by a submission of Marketing Authorization Application (MAA) for European approval.
Peregrine Pharmaceuticals (PPHM): PPHM is a clinical-stage biotech company developing and manufacturing innovative monoclonal antibody therapeutics to treat cancers and viral infections such as hepatitis C virus. In the hepatitis C space, the company is evaluating bavituximab combined with ribavirin in a randomized phase 2 trials in treatment native patients with genotype-1 HCV infection. Earlier, the company released preliminary phase 2 trial results from this study on December 29th last year that showed antiviral activity and a positive safety profile, with patients reporting fewer side effects than in the interferon-containing arm. Mega funds added a net $1 million in Q3 to their $8 million prior quarter position, and taken together mega funds hold 11.4% of the outstanding shares, with the top holders at the end of Q3 being Barclays Global Investors ($2.7 million) and Blackrock ($1.7 million).
The following are the HCV group companies that mega fund manager are most bearish about (see Table):
Vertex Pharmaceuticals (VRTX): VRTX engages in the discovery, development, and commercialization of small molecule drugs for the treatment of hepatitis C, cystic fibrosis, epilepsy and other life-threatening diseases. It has two FDA-approved drugs, INCIVEKTM for treat chronic hepatitis C genotype-1 infection in adults with stable liver problems, who have not been treated before or who have failed previous treatments, and Lexiva for HIV that it co-discovered with GlaxoSmithKline (GSK).
It has five other drugs in clinical development, including VX-222 in phase 2 development for hepatitis C, VX-765 in phase 2 development for epilepsy, VX-509 in phase 2 development for immune-mediated inflammatory disease, and VX-770 and VX-809 in phase 3 and phase 2 development respectively for Cystic Fibrosis. Mega funds cut a net $110 million in Q3 form their $3.89 billion prior quarter position. The top sellers were Fidelity Investments ($91 million) and T Rowe Price ($34 million), and the top holders were Fidelity Investments ($966 million) and Capital World Investors ($653 million).
Achillion Pharmaceutical (ACHN): ACHN is a clinical-stage biotech focused on developing new treatments to patients with infectious diseases, including HCV and resistant bacterial infections. It currently has five compounds in various stages of clinical development targeting HCV, including one in phase 2, two in phase 1 and two others in pre-clinical development. Mega funds cut a net $6 million from their $280 million prior quarter position, with the top seller being Bank of New York Mellon Corp. ($18 million), and the top holder being Fidelity Investments ($111 million). ACHN shares rallied strongly after the announcement of the INHX acquisition by BMY, up over 50% in the five trading days after the January 7th announcement; while they have given back part of their gains, they are still up over 35% on the news.
Inhibitex Inc. and Bristol-Myers Squibb Co.: INHX, a developer of differentiated anti-infective products to prevent and treat serious viral and bacterial infections, including primarily shingles and chronic infections caused by hepatitis C virus, is under agreement to be acquired by BMY, a developer of branded pharmaceuticals for the treatment of cardiovascular, virological and other infectious diseases. Mega funds cut $28 million in Q3 from a $512 million prior quarter position in INHX, and they added a net $711 million to their $20.51 billion prior quarter position in BMY.
Other pharmaceutical and biotech companies that are players in the HCV space that mega funds are bearish on (see Table) include Gilead Sciences Inc. (GILD), that has multiple product candidates in phase 1 and phase 2 trials targeting hepatitis C, in which mega funds cut a net $306 million in Q3 from their $17.68 billion prior quarter position, and Abbott Laboratories (ABT), that has a product candidate in phase 2 clinical trials for HCV in collaboration with Enanta Pharmaceuticals, in which mega funds cut a net $16 million in Q3 from their $26.63 billion prior quarter position.
Also, additional HCV players that mega funds are bullish about include Merck & Co. (MRK), that has an FDA-approved product Victrelis for HCV in the market, and several in phase 2 and 3 development for hepatitis B and C, in which mega funds added a net $530 million to their $47.46 billion prior quarter position; and Pfizer Inc. (PFE), that has a compound in phase 2 development for HCV, in which mega funds added a net $60 million to their $54.03 billion prior quarter position. Furthermore, mega funds have a $1 million position, unchanged in Q3, in Inovio Pharmaceuticals (INO), that has compounds in phase 2 and preclinical development targeting HCV.
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.
Credit: Historical fundamentals including operating metrics and stock ownership information were derived using SEC filings data, I-Metrix® by Edgar Online®, Zacks Investment Research, Thomson Reuters and Briefing.com. The information and data is believed to be accurate, but no guarantees or representations are made.
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