The biotech group as represented by the NYSE ARCA Biotech Index (BTK) has been strong this year, now up over 31% YTD. With both the market and the biotech sector in strong bull mode, now maybe an opportune time to go 'shop' for biotech stocks. In this article, via an analysis based on the latest available Q4 institutional 13-F filings, we identify the large-cap biotech stocks, as well as big pharmaceutical company stocks, that are being accumulated and those being distributed by legendary or guru fund managers, such as Warren Buffet, George Soros, Carl Icahn, Steven Cohen and Mario Gabelli, who are well-known for their savvy in picking winning stocks year after year (Prior articles on the investing activities of guru fund managers in micro-cap biotech and small-cap biotech companies can be accessed by clicking on the above hyperlinks).
The following are the large-cap biotech and big pharmaceutical group companies that these legendary or guru fund managers are most bullish on (see Table):
Gilead Sciences Inc. (GILD): Gilead is a developer of therapeutics to treat viral, fungal, respiratory and cardiovascular diseases. Guru funds together added a net $421 million in Q4 to their $387 million prior quarter position in the company, and taken together, these funds hold 2.0% of the outstanding shares. The top buyer was billionaire star fund manager Stephen Cohen's hedge fund SAC Capital Advisors, with over $15.7 billion in 13-F assets ($201 million), and the top holders were SAC Capital ($201 million) and the Oracle of Australia Kerr Neilson's hedge fund Platinum Investment Management ($162 million).
GILD shares have been extremely volatile in the last ten weeks in what amounted to a market-cap gain of $5 billion in the early part of February on new preliminary encouraging data on its lead hepatitis C drug. This was followed by a massive near $8 billion market-cap loss two weeks later 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. Finally, shares gained back over $5 billion at its mid-day peak last Thursday after the company released strong results from a 12-week study of its hepatitis C treatment GS-7977. GILD shares currently trade at a discount 11-12 forward P/E and 5.7 P/B, compared to averages of 22.2 and 11.3 for its peers in the biotech group.
Alexion Pharmaceuticals (ALXN): ALXN is a commercial-stage biotech focused on serving patients with severe and ultra-rare disorders. Guru funds together added a net $66 million in Q4 to their $734 million prior quarter position in the company, and taken together, guru funds hold 4.8% of the outstanding shares. The top buyer was hedge fund guru Andreas Halvorsen's Viking Global Investors ($239 million), and the top holders were SMidCap-focused mutual fund company Columbia Wanger Asset Management, with $20.5 billion in 13-F assets ($429 million) and Viking Global Investors ($303 million).
ALXN shares have been among the strongest consistent performers in the biotech group, up almost three-fold in the last eighteen months, and up nearly forty-fold since the lows almost ten years ago. The appreciation has been based almost solely on the commercial success of its Soliris drug for the treatment of patients with paroxysmal nocturnal hemoglobinuria, a blood disorder, and atypical hemolytic uremic syndrome, an ultra-rare and life-threatening genetic disease.
In the latest Q4 report released in February, ALXN beat earnings (41c v/s 33c) and revenues ($228 million v/s $221 million). Furthermore, analysts are projecting strong earnings growth from $1.38 in 2011 to $2.50 in 2013 at an annual rate of 34.6%, while the stock trades at a 36-37 forward P/E and 15.0 P/B compared to averages of 62.9 and 10.2 for its peers in the biotech group. While the stock has attractive growth and a reasonable valuation, it is very extended technically. As such, we would wait for a pullback into the low- to mid-$70s before buying.
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. Guru funds together added a net $84 million in Q4 to their $26 million prior quarter position in the company, and taken together guru funds hold 1.5% of the outstanding shares. The top buyer was Hussman Econometrics ($65 million), and the top holders were Hussman Econometrics ($65 million) and legendary billionaire investor Ken Griffin's Chicago-based hedge fund Citadel ($26 million). VRTX stock currently trades at 11-12 forward P/E and 9.7 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 $3.05 in 2012 and $3.23 in 2013.
Besides these, guru fund managers based on their Q4 trading activity indicated that they are bearish on the following large-cap biotech and big pharmaceutical companies (see Table):
- Johnson & Johnson (JNJ), that develops healthcare products and provides related services to the consumer, pharmaceutical and medical markets, in which guru funds together cut a net $589 million in Q4 from their $4.89 billion prior quarter position;
- Pfizer Inc. (PFE), a global pharmaceutical company that discovers and develops branded prescription drugs for cardiovascular and metabolic diseases and other conditions, in which guru funds together cut a net $399 million in Q4 from their $2.61 billion prior quarter position;
- Bristol-Myers Squibb Co. (BMY), that develops branded pharmaceuticals for the treatment of cardiovascular, virological and other infectious diseases, in which guru funds together cut a net $338 million in Q4 from their $508 million prior quarter position;
- Sanofi (SNY), a French developer of pharmaceutical products, vaccines and integrated healthcare solutions targeting various therapeutic areas, in which guru funds together cut a net $139 million in Q4 from their $953 million prior quarter position;
- GlaxoSmithKline Plc (GSK), a U.K. based developer of pharmaceutical products, over-the-counter medicines, and health-related consumer products worldwide, with leadership in four major therapeutic areas including anti-infectives, central nervous system [CNS], respiratory and gastro-intestinal or metabolic conditions, in which guru funds together cut a net $60 million in Q4 from their $816 million prior quarter position;
- Merck & Co. (MRK), a research-driven global pharmaceutical company engaged in developing prescription drugs to treat asthma, osteoporosis, cardiovascular, metabolic and other disorders. It also develops vaccines, biological therapies, animal health, and consumer products, in which guru funds together cut a net $58 million in Q4 from their $714 million prior quarter position;
- Amgen Inc. (AMGN), that develops therapeutics based on cellular and molecular biology to treat anemia, cancer, and inflammatory diseases, in which guru funds together cut a net $19 million in Q4 from their $322 million prior quarter position;
- Celgene Corp. (CELG), that develops therapies to treat cancer and immune-inflammatory related diseases by regulating cells, genes and proteins, in which guru funds together cut a net $19 million in Q4 from their $69 million prior quarter position; and
- Regeneron Pharmaceutical (REGN), a developer of medicines for the treatment of serious medical conditions, with two products, ARCALYST and EYLEA, on the market, and additional in development to treat inflammatory conditions, allergic and immune conditions, and cancer, in which guru funds together cut a net $2 million in Q4 from their $28 million prior quarter position.
General Methodology and Background Information: The latest available institutional 13-F filings of over 85+ legendary or guru hedge fund and mutual fund managers, such as Warren Buffet, George Soros, Carl Icahn, Steven Cohen and Mario Gabelli, were analyzed to determine their capital allocation from among different industry groupings, and to determine their favorite picks and pans in each group. The hedge fund and mutual fund managers included in this select group include only high profile names who, by virtue of their long-term market-beating returns, have earned their standing in the investment community and are worthy of our attention. They include well-known names such as those mentioned above, as well as perhaps relatively lesser-known names that also have a stellar long-term history of beating the markets, such as Seth Klarman, John Griffin, Prem Watsa, Robert Karr and Lee Ainslie. Each guru has been carefully selected based on their long-term performance and standing in the investment community. Furthermore, the credentials of most of the 85-odd guru funds that justify their inclusion in this elite group were detailed in our previous articles that can be accessed from our author page
These legendary or guru fund managers number less than one percent of all funds and yet they control over ten percent of the U.S. equity discretionary fund assets. The argument is that institutional investors have the resources and the access to information, knowledge and expertise to conduct extensive due diligence in informing their investment decisions. When high alpha generating or guru Institutional Investors by virtue of their fund performance, low volatility and elite reputation in the investment community, 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 or even go as far as constructing a model diversified portfolio based on the guru funds best picks.
This article is part of a series on institutional holdings in various industry groups and sectors, and other articles in the series for this and prior quarters can be accessed from our author page.
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.