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New York-based Orbimed Advisors is the world's largest healthcare investment firm, with over $5 billion in assets under management, including $3.37 billion in 13-F assets per its most recent Q1 2012 filing, up from $3.05 billion in the prior quarter. Orbimed also manages a series of venture capital funds. Their investment team includes over 40 professionals, many of them with backgrounds in science, medicine and the life sciences industry, besides the more typical finance backgrounds. About 90% of their fund is in the healthcare space, and most of the remaining 10% is in accident and healthcare insurance providers. Across capitalizations, about 55% of their capital is in large-caps, 20% in mid-caps and the remaining 25% is in small-cap equities.

We analyzed Orbimed's Q1 13-F to determine its highest conviction bets, selecting the largest buys and sells in size, where the buy/sell is also a significant proportion of its prior quarter position in that company. Based on that analysis, the following are two undervalued growth companies among its bullish positions in Q1 2012, that are also being accumulated by major healthcare-focused and other major institutional investors (see Table):

Questcor Pharmaceuticals (QCOR): QCOR is an integrated specialty pharmaceutical company focused on the development, acquisition and marketing of innovative, acute care and critical care hospital and specialty pharmaceutical products. Its primary product is H.P. Acthar Gel, an injectable drug that is approved for the treatment of exacerbations associated with multiple sclerosis, infantile spasms, opsoclonus myoclonus syndrome and nephrotic syndrome.

Orbimed added $60 million in Q1 to its $14 million prior quarter position, that was a new buy in that quarter. Other healthcare-focused institutions that made large bullish bets on QCOR in Q1 included healthcare-focused hedge fund Visium Asset Management adding a new 1.4 million share position, and New York-based biotech-focused hedge fund Perceptive Advisors adding a new 0.8 million share position. Also, among the buyers included legendary billionaire investor Ken Griffin's Chicago-based hedge fund Citadel Advisers adding a new 0.7 million share position, and BAMCO adding 0.5 million shares to its 0.5 million share prior quarter position. Overall, funds accumulated 9.9 million additional shares in Q1, buying/adding 17.8 million shares and cutting/decreasing 7.9 million shares.

QCOR shares have been among the strongest performers in the healthcare space, flat YTD as it consolidates a multi-year run in which it has gone up over ten-fold in the last four years. Interestingly, even in the middle of this mayhem in May, the stock has stood its ground, trading within 15% of its all-time highs. In the most recent Q1 (March), it beat analyst revenue and earnings estimates (61c v/s 52c), once again, as it continues on its track record of beating estimates every quarter recently. The stock even survived a TheStreetSweeper hit in January, trading down temporarily before moving back to its highs.

The stock currently trades in the mid-point of the $35-$45 range when the major institutions listed above acquired shares in Q1, and can thus be bought at prices similar to what these institutions may have paid in Q1. The shares currently trade at 12-13 forward P/E and 10.8 P/B compared to averages of 33.2 and 6.1 for its peers in the medical drugs group, while earnings are projected to rise at an annual 61.4% rate from $1.27 in 2011 to $3.31 in 2013.

Watson Pharmaceuticals (WPI): WPI is a developer of generic and branded drugs, including oral contraceptives, analgesics, and smoking cessation aids. Orbimed added $24 million in Q1 to its $85 million prior quarter position.

Other healthcare-focused institutions that made large bullish bets on WPI in Q1 included healthcare-focused hedge fund Visium Asset Management adding 1.1 million shares to its 0.2 million share prior quarter position, and Montreal-based Swiss and Canadian healthcare-focused investment firm Sectoral Asset Management adding 0.7 million shares to its 0.3 million share prior quarter position. Also, among the major institutional buyers included hedge fund guru Andreas Halvorsen's Viking Global Investors adding a new 2.2 million share position and mega fund State Street Corp. adding 1.0 million shares to its 4.8 million share prior quarter position. Overall funds accumulated 2.0 million additional shares in Q1, buying/adding 23.5 million shares and cutting/decreasing 21.5 million shares.

In its latest Q1 (March), WPI beat analyst revenue and earnings estimates ($1.64 v/s $1.60), and reaffirmed FY EPS guidance. Its shares currently trade at 11-12 forward P/E and 2.5 P/B compared to averages of 13.2 and 2.9 for its peers in the generic drugs group, while earnings are projected to rise at a strong 13.8% annual rate from $4.77 in 2011 to $6.18 in 2013.

The following are additional healthcare stocks that Orbimed is bullish about, accumulating shares in them in Q1 2012 (see Table):

  • Onyx Pharmaceuticals Inc. (NASDAQ:ONXX), that is a biotech company engaged in the development of small molecule drugs designed to target mechanisms that cause cancer cell proliferation and angiogenesis, in which it added a new $70 million position in Q1;
  • Abbott Laboratories (NYSE:ABT), that is a developer of pharmaceuticals, diagnostic systems, nutritional supplements and vascular, ophthalmic and eye care products, in which it added $50 million in Q1 to its $38 million prior quarter position;
  • Gilead Sciences Inc. (NASDAQ:GILD), a developer of therapeutics to treat viral, fungal, respiratory and cardiovascular diseases, in which it added $35 million in Q1 to its $110 million prior quarter position; and
  • Biogen Idec Inc. (NASDAQ:BIIB), that is engaged in the research, development and commercialization of therapies for the treatment of multiple sclerosis, cancer and auto-inflammatory diseases, in which it added $31 million in Q1 to its $66 million prior quarter position.

Also, the following are among its top sells in Q1, including some like Vivus Inc. (NASDAQ:VVUS) and Regeneron Pharmaceutical (NASDAQ:REGN) that appear to have been sold partially based on their being up sharply recently, and others such as Wellpoint Inc.(WLP) that have flat-lined recently suggesting a more bearish stance on that one (see Table):

  • Vivus Inc., that is a biopharmaceutical company developing therapeutic products to address unmet medical needs in obesity, diabetes and sexual health, in which it cut $98 million in Q1 from its $151 million prior quarter position;
  • Pharmacyclics Inc. (NASDAQ:PCYC), a development stage biotech company that is focused on discovering and developing innovative small-molecule drugs for the treatment of cancer and immune mediated diseases, in which it cut out completely its $64 million prior quarter position;
  • Medivation Inc. (NASDAQ:MDVN), that develops novel small molecule drugs for the treatment of prostate cancer, Alzheimer's disease and Huntington's disease, in which it cut $35 million in Q1 from its $38 million prior quarter position;
  • Regeneron Pharmaceutical, 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, in which it cut $31 million in Q1 from its $72 million prior quarter position;
  • Wellpoint Inc., that is a provider of managed healthcare services through PPO, HMO and POS, indemnity and other hybrid plans, in which it cut $29 million in Q1 from its $113 million prior quarter position;
  • Celgene Corp. (NASDAQ:CELG), that develops therapies to treat cancer and immune-inflammatory related diseases by regulating cells, genes and proteins, in which it cut $21 million in Q1 from its $58 million prior quarter position;
  • Aetna Inc. (NYSE:AET), a diversified U.S. health care benefits company offering a range of health insurance products and related services, including medical, dental, pharmacy, behavioral health, group life, and disability plans as well as medical management capabilities and Medicaid health care management, in which it cut $19 million in Q1 from its $84 million prior quarter position; and
  • UnitedHealth Group Inc. (NYSE:UNH), that is a diversified health and well-being company, in which it cut $18 million in Q1 from its $99 million prior quarter position.

Table


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Credit: Fundamental data in this article and company descriptions are based on SEC filings, Zacks Investment Research, Yahoo, 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.

Source: Orbimed's $3.4B Filing: 2 Stocks It And Other Healthcare Funds Bought In Q1, And Other Trades