Analysis Of Monday's Noteworthy Institutional 5% Ownership Filings In Healthcare

 |  Includes: GSK, OREX, THLD, VVUS, XOMA
by: GuruFundPicks

Many leading funds, including biotech-focused hedge fund Baker Bros. Advisors, Fidelity Investments and QVT Financial, filed forms 13-D and 13-G (and form 4) with the SEC on Monday, March 12th, indicating that they had amended their ownership in U.S. traded public companies operating in the healthcare sector. The following are the most notable institutional trades based on our analysis of those filings (for more info on Forms 13-D and 13-G, and how to interpret that, please refer to the end of this article):

Threshold Pharmaceuticals Inc. (NASDAQ:THLD): THLD is a biotech company focused on the discovery and development of therapeutics based on tumor hypoxia, a powerful scientific platform that offers broad potential to treat most solid tumors, based on the realization that tumors thrive in areas with low levels of oxygen, or hypoxic regions. On Monday, Fidelity Investments filed SEC Form 13G/A indicating that it holds 7.46 million or 15.0% of outstanding shares, a huge increase from the 1.67 million shares it held at the end of Q4. Major institutional investors seem to be piling into THLD despite the recent huge run-up in prices, as earlier, just last Friday, we reported that Pittsburgh, PA,-based mutual fund powerhouse Federated Investors, with $352 billion in assets under management, including $19.5 billion in 13-F assets, added 4.08 million shares to the 1.15 million shares it held at the end of Q4.

The purchases by both major institutions in Q4 is indicative of their high degree of conviction in the purchase, given that THLD shares are by any standard extended, on a technical basis, up over 400% in the last six weeks. The shares have rallied since early February, when the company announced a global agreement with Merck KGaA to co-develop and commercialize THLD's phase 3 hypoxia-targeted drug TH-302. Also, subsequent to that, on February 21st, the company announced positive phase 2b clinical trial results of TH-302 in pancreatic cancer patients, which triggered another strong rally in THLD shares.

Vivus Inc. (NASDAQ:VVUS) and Orexigen Therapeutics (NASDAQ:OREX): VVUS is a biopharmaceutical company developing therapeutic products to address unmet medical needs in obesity, diabetes and sexual health. OREX develops pharmaceuticals by combining various generic drugs to treat central nervous system disorders, including obesity. On Monday, New York-based shareholder activist hedge fund QVT Financial, with over $1.2 billion in 13-F assets at the end of Q4, filed SEC Forms 13G/A indicating that it holds 8.17 million and 5.32 million shares of VVUS and OREX respectively. Its position in VVUS is a decrease from the 8.53 million shares it held at the end of Q4, and its position in OREX is an increase from the 5.12 million shares it held at the end of Q4.

VVUS shares have almost doubled since the company announced last month that an FDA advisory panel voted 20 to 2 in favor of recommending Qnexa, the company's treatment for obesity. While the FDA decision is still pending for the scheduled April 17th PDUFA date, approval seems very likely, and many analysts have been making upbeat statements and raising ratings and/or price targets. Perhaps the most optimistic statements have come from Rodman & Renshaw that upgraded the stock and raised its price target to $39, estimating Qnexa sales in 2020 at $3 billion in the U.S. and $1.8 billion overseas. Besides Rodman, the bevy of analysts joining the party included JPMorgan, JMP Securities and Cowen, all of whom raised their price targets to the $40-$45 range. Also, besides Qnexa, VVUS also is up for an April 29th PDUFA date for Avanafil, its drug for the treatment of erectile dysfunction.

Human Genome Sciences (HGSI): HGSI develops gene-based protein and antibody drugs to treat such diseases as hepatitis C, lupus, anthrax, cancer, rheumatoid arthritis and HIV/AIDS. On Monday, London-based Taube Hodson Stonex Partners filed SEC Form SC 13G indicating that it holds 10.24 million or 5.1% of outstanding shares, an increase from the 7.77 million shares it held at the end of Q4. HGSI stock has been weak lately, down almost 70% in the past year, on fears that analyst consensus sales estimates for FY 2012 for the company's BENLYSTA drug for systematic lupus erythmatosis (SLE) may be a bit too aggressive. However, we believe that the long-term blockbuster potential remains unchanged. Furthermore, the stock also continues to be the focus of buyout speculation by its BENLYSTA partner, U.K. based GlaxoSmithKline Plc (NYSE:GSK).

XOMA Ltd. (NASDAQ:XOMA): XOMA develops antibodies and recombinant proteins to treat infections, immunological and inflammatory diseases and cancer. On Monday, New York-based biotech-focused hedge fund Baker Bros. Advisors LLC, with $3.0 billion in 13-F assets at the end of Q4, filed SEC form SC 13D indicating that it holds 23.13 million or 30.6% of outstanding shares (including warrants to purchase 7.58 million shares), a huge increase from the 0.4 million shares it held at the end of Q4. The shares were acquired in connection with a registered direct offering by XOMA that closed on Monday of the prior week, March 6th. XOMA shares trade near recent lows, and are currently technically poised for a break-out of a consolidation range at the bottom. Of the five analysts that track the stock, four rate it a buy/strong buy and one rates it at hold, with a median price target of $8, well above current prices in the $2 range.

General Discussion

Form 13-D is commonly referred to as the "beneficial ownership report," and is required when a person or a group of persons acquires beneficial ownership of more than 5% of the voting class of a company's equity securities. Form 13-G is the abbreviated version of the form that is allowed under certain circumstances.

The information in forms 13-D and 13-G is extremely timely as it is required to be filed within 10 days after the purchase, in contrast to 13-F quarterly filings by institutions that are filed every three months. The information contained in 13-F filings, thereby, can as much as 18 weeks old by the time it is disseminated to the public. Furthermore, by virtue of their 5% ownership in public companies, the information contained in the 13-D and 13-G filings indicates only high confidence or high conviction moves by institutions and insiders, and hence can be interpreted to be of greater relevance to the investment community than the 13-F quarterly filings. Furthermore, 13-D and 13-G filings often are a precursor to a hostile takeover, company breakups and other "change of control" events, and often they will include a letter to management explaining the reason for their taking a large stake in the company.

Credit: Fundamental data in this article were based on SEC filings, Zacks Investment Research, Thomson Reuters and 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.

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