Top Q4 Buys And Sells Of Healthcare-Focused Hambrecht And Quist Capital Management

|
 |  Includes: ALKS, ALXN, AMGN, ARIA, BAX, CVS, DNDN, GILD, INCY, MDVN, MRK, REGN, TEVA, VRTX, VVUS
by: GuruFundPicks

Boston-based Hambrecht & Quist Capital Management (HQCM), led by CEO & portfolio manager Daniel Omstead, and with over $475 million in 13-F assets per its latest Q4 filing on Friday, is the registered investment adviser to two closed-end equity funds, H&Q Healthcare Investors and H&Q Life Science Investors. As the name implies, the latter is focused on life science or biotech, and the former is broader and focuses generally on the healthcare sector. The fund's objective is long-term capital appreciation, with the selection biased towards smaller, emerging companies. As such, a quarter of its portfolio is invested in small-caps, another 30% in mid-caps, and the remaining 45%-50% in large-cap equities. The portfolio is moderately diversified into 71 positions.

The following are some of HQCM's most bullish moves in Q4 (see Table):

Teva Pharmaceutical (NASDAQ:TEVA): TEVA is an Israeli developer of generic and branded drugs and active pharmaceutical ingredients. At $21 million, this is HQCM's third largest position, including the $3 million it added in Q4. TEVA stock has been in rally mode ever since the company announced at the beginning of the year, on January 3rd, that former senior executive from Bristol-Myers Squibb (NYSE:BMY) would succeed the current CEO Shlomo Yanai when he retires in May; the stock is up over 12% YTD, and currently trades at 8 forward P/E and 1.8 P/B compared to averages of 11.3 and 3.0 for its peers in the generics drug group.

The company is a consistent growth performer, with earnings up strongly almost every year recently, including through the 2008/09 recession, and they are projected to continue increasing at a healthy 11.1% from $4.54 in 2010 to $5.60 in 2012. TEVA's generics business is expected to benefit greatly from the woes of big pharmaceuticals that are expected to lose patent exclusivity on a number of big drugs.

Dendreon Corp. (NASDAQ: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. HQCM added $6 million in Q4 to its $5 million prior quarter position. DNDN too recently announced a new CEO, naming board member John Johnson, a former executive at leading pharmaceutical company Johnson & Johnson (NYSE:JNJ), to the top post.

DNDN shares are in strong recovery mode, rallying more than 100% since the company announced in early January its Q4 revenues and an update on commercialization. We continue to believe that the recent update has changed the risk-to-reward balance in favor of the bulls, but that short-term there is an increased risk of a pull-back, especially as we get near the Q4 report date of February 27th.

Ariad Pharmaceuticals Inc. (NASDAQ:ARIA): ARIA is engaged in the development of drugs that treat aggressive and advanced-stage cancer by regulating cell signaling with small molecules. It is also developing small-molecule drugs that block signal transduction pathways in cells responsible for osteoporosis, and immune and inflammatory diseases. HQCM added a new $6 million position in the company in Q4. ARIA stock has been in a strong rally since mid-December, up over 50%, bolstered by two recent upgrades, on December 27, by Rodman & Renshaw, and then on January 19, by Maxim Group, both of whom made bullish statements about the potential of its ponatinib treatment and other drugs in its pipeline, and raised the price target to $18 and $20 respectively.

The company is currently awaiting an FDA decision scheduled for June on its lead product Ridaforolimus for the treatment of metastatic soft-tissue or bone sarcomas (in patients who had a favorable response to chemotherapy), and it has two other potential blockbuster oncology drugs in its pipeline, Ponatinib in phase 3 for CML and AP26113 in phase 1 for lung cancer and other tumors.

Gilead Sciences Inc. (NASDAQ:GILD): Gilead is a developer of therapeutics to treat viral, fungal, respiratory and cardiovascular diseases. At $30 million, including a minor $1 million sold in Q4, this is HQCM's largest position in its portfolio. GILD last week reported new preliminary data on its lead hepatitis C drug that were encouraging, with the company disclosing that all genotype 1 hepatitis C patients treated with the experimental drug and ribavirin had no detectable signs of the virus after four weeks of the treatment.

The stock was up over 10% on Friday (or almost $4 billion in market-cap) on the news, and is up almost 30% YTD; even with the huge run-up, its shares still trade at a discount 12-13 forward P/E, and at 6.8 P/B, compared to averages of 22.2 and 11.3 for its peers in the biotech group.

The following are some of HQCM's most bearish moves in Q4 (see Table):

Amgen Inc. (NASDAQ:AMGN): AMGN develops therapeutics based on cellular and molecular biology to treat anemia, cancer, and inflammatory diseases. HQCM cut $5 million in Q4 from its $11 million prior quarter position in the company. AMGN too has mounted a huge rally recently, up almost 30% since the end of November or over $12 billion in market cap. The stock recently reported guidance at the end of January, with earnings missing slightly analyst estimates ($1.21 v/s $1.22) and revenue ahead of estimates ($3.97 billion v/s $3.92 billion); it currently trades at a discount 10-11 forward P/E and 2.8 P/B compared with averages of 22.4 and 11.3 for its peers in the biotech group, while earnings are projected to increase from $5.33 in 2011, to $6.72 in 2013, at a compounded growth rate of 12.3%.

Vertex Pharmaceuticals (NASDAQ: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. HQCM cut $6 million in Q4 from its $18 million prior quarter position in the company. VRTX recently reported its Q4 last week on Thursday, beating revenue and earnings estimates; the stock currently trades at 9-10 forward P/E and 9.8 P/B compared to averages of 22.2 and 11.3 for its peers in the biotech group, while earnings are projected to rise from 8c in 2011 to $3.61 in 2012 and $4.03 in 2013.

In addition (see Table), HQCM is also bullish on biotech company Medivation Inc. (NASDAQ:MDVN), in which it added a new $14 million position; biotech company Alkermes Plc (NASDAQ:ALKS), in which it added a new $12 million position in Q4; Vivus Inc. (NASDAQ:VVUS), that develops innovative therapies to treat obesity, diabetes, and sexual health, in which it added a new $4 million position in Q4; biotech company Regeneron Pharmaceutical (NASDAQ:REGN), in which it added a new $5 million position in Q4; biotech company Alexion Pharmaceuticals (NASDAQ:ALXN), in which it added $7 million in Q4 to its $16 million prior quarter position; and Merck & Co. (NYSE:MRK), in which it added $6 million to a $5 million prior quarter position.

Also, additional companies that HQCM is bearish on include pharmacy drug store chain operator CVS Caremark Corp. (NYSE:CVS), in which it cut $6 million from a $11 million prior quarter position; biotech company Cubist Pharmaceuticals (CBST), focused on addressing unmet medical needs in the acute care environment, in which it cut $4 million from a $12 million prior quarter position; medical products and devices company Baxter International Inc. (NYSE:BAX), in which it cut $4 million from its $9 million prior quarter position; and biotech company Incyte Corp. (NASDAQ:INCY), in which it dropped its entire $11 million prior quarter position.

Table

click to enlarge

Click to enlarge

Note to Table: The companies selected to be included in both the Top Buys and Sells and Top Holdings categories in the Table were picked on both an absolute basis, i.e. the highest dollar amounts of buys and/or sells, as well as those amounts relative to their market-cap. That way, the list is not biased towards the largest companies in the group.

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.

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

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.