In this article we discuss the investing activities of the world's largest funds in large-cap biotech stocks (other articles discussing the investing activities of mega funds in small-cap biotech and micro-cap biotech stocks can be accessed by clicking on the above hyperlinks). These mega fund managers, such as Fidelity Investments, Goldman Sachs, and Vanguard Group, manage between $50 billion and over $700 billion each, and together control over 35% 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. Together, they are bearish on the group, cutting a net $335 million in Q4 from their $1.83 billion prior quarter position in the group.
The following are the large-cap biotech companies that these mega fund managers are most bullish about (see Table):
Biogen Idec Inc. (BIIB): BIIB is engaged in the research, development and commercialization of therapies for the treatment of multiple sclerosis (MS), cancer and auto-inflammatory diseases. Mega funds together added a net $502 million in Q4 to their $17.01 billion prior quarter position in the company, and taken together mega funds hold 57.4% of the outstanding shares. The top buyer was mutual fund powerhouse Fidelity Investments, with $492 billion in 13-F assets ($433 million), and the top holders were Pasadena, CA-based mega fund PRIMECAP Management Co. ($3.00 billion) and Fidelity Investments ($2.65 billion).
BIIB reported its Q4 on January 31st, beating analyst earnings estimates ($1.51 v/s $1.49) on the back of strong sales growth of TYSABRI and AVONEX, but guided earnings lower for FY2012. The stock has been a long-term performer, having almost tripled in the last three years; it currently trades at all-time highs at a discount 17-18 forward P/E and 4.7 P/B compared to averages of 43.2 and 10.9 for its peers in the biotech group.
Gilead Sciences Inc. (GILD): Gilead is a developer of therapeutics to treat viral, fungal, respiratory and cardiovascular diseases. Mega funds together added a net $484 million in Q4 to their $16.82 billion prior quarter position in the company, and taken together mega funds hold 48.9% of the outstanding shares. The top buyer was Los Angeles-based mega fund Capital Research Global Investors, with over $223 billion in 13-F assets ($670 million) and mega fund Wellington Management, with $254 billion in 13-F assets ($551 million), and the top holders were Capital Research Global Investors ($1.88 billion) and Fidelity Investments ($1.62 billion).
GILD shares have been extremely volatile in the last two months, in what amounted to a market-cap gain of $5 billion in the early part of February on new preliminary data on its lead hepatitis C drug that were encouraging, followed by a massive near $8 billion market-cap loss when it announced that six of eight patients for which data was available experienced viral relapse within four weeks of completing the hepatitis C treatment. Its shares currently trade at a discount 10-11 forward P/E and 5.1 P/B, compared to averages of 22.2 and 11.3 for its peers in the biotech group.
Regeneron Pharmaceutical (REGN): REGN develops medicines for the treatment of serious medical conditions. It has two products, ARCALYST and EYLEA, on the market, and additional in development to treat inflammatory conditions, allergic and immune conditions, and cancer. Mega funds together added a net $240 million in Q4 to their $5.66 billion prior quarter position in the company, and taken together mega funds hold 51.2% of the outstanding shares. The top buyers were mega fund company State Street Corp. ($108 million) and Wellington Management ($89 million), and the top holders were Los Angeles-based Capital World Investors, with over $262 billion in 13-F assets ($1.31 billion), and Fidelity Investments ($1.27 billion).
REGN shares have been among the strongest performers among mid-cap biotech companies, more than doubling YTD. The strong performance is based on string of positive news on its EYLEA drug since the start of the new year, that is getting increasing traction in the marketplace. A number of brokers, including BMO Capital, Goldman Sachs, and Bank of America have made optimistic statements about the company, with Goldman putting a buy recommendation and a $144 price target, and Bank of America adding it to "U.S. 1 List" and calling it one of its top biotech picks for 2012.
Besides these, mega funds based on their Q4 trading activity indicated that they are bearish on the following large-cap biotech stocks (see Table):
- Amgen Inc. (AMGN), that develops therapeutics based on cellular and molecular biology to treat anemia, cancer, and inflammatory diseases, in which mega funds together cut a net $1.56 billion in Q4 from their $28.49 billion prior quarter position in the company;
- Celgene Corp. (CELG), that develops therapies to treat cancer and immune-inflammatory related diseases by regulating cells, genes and proteins, in which mega funds together cut a net $555 million in Q4 from their $14.95 billion prior quarter position in the company;
- Vertex Pharmaceuticals (VRTX), engaged in the discovery, development and commercialization of small molecule drugs for the treatment of hepatitis C, cystic fibrosis, epilepsy and other life-threatening diseases, in which mega funds together cut a net $196 million in Q4 from their $3.66 billion prior quarter position in the company; and
- Alexion Pharmaceuticals (ALXN), a commercial-stage biotech focused on serving patients with severe and ultra-rare disorders, in which mega funds together cut a net $55 million in Q4 from their $9.06 billion prior quarter position in the company.
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.
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: Fundamental data in this article were based on SEC filings, Zacks Investment Research, Thomson Reuters and Briefing.com. The information and data is believed to be accurate, but no guarantees or representations are made.
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.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.