We’ve got a quickie here that a few folks asked about, and I thought I’d throw it out for you just because there are so many of you who are interested in biotech stocks (and why wouldn’t you be, of course, given the fact that the biotech index would have given you a 350%+ return over the past five years).
The pitch is not for a newsletter, really, but for a premium service from one of the hedge fund tracking services — not unlike Insider Monkey, which I’ve noted once or twice in the past, Billionaire’s Portfolio, which charges $297/quarter, tries to track the best hedge fund and big money investors, cherry pick the best investments from those institutional investors, and recommend a “top 20” portfolio of stocks to buy and sell when those hedge funds do so. Here’s how they describe themselves:
“Our premium research service, The Billionaire’s Portfolio, is a hand picked portfolio of the 20 best ideas from the world’s best hedge funds and billionaire investors. We follow the world’s best investors. You follow us.
“We’ll send you weekly emails with in depth analysis of these top ideas, along with very helpful perspectives on the global economy and broader markets. As a member to our Billionaire’s Portfolio, you will have full access to our website where you can track our full portfolio and read all of our past research notes.”
They presumably run into the same problems faced by most “whale watchers” who try to emulate hedge fund portfolios: first, that they aren’t copying the whole portfolio and so they take on more risk and might miss the best performers; and second, that they are using public filings so usually (except in the case of some large funds and large holdings) they won’t know about a hedge fund’s portfolio moves until at least 45 days after they’ve happened (most institutional investors have to report their US-listed long equity holdings quarterly, 45 days after the end of the quarter — they don’t have to report shorts or foreign shares, so while the information can be valuable it is also stale and sometimes incomplete).
But that said, they say they’ve got a “special report” for folks who sign up for their premium service, and it will give you two hot biotech stock picks by a hedge fund that they think will shoot higher. Here’s the hinting:
“… we will send you the names of two stocks owned by one of the top biotech specialist investors in the world — a Harvard PhD scientist that has produced 38% annualized returns in his hedge fund.
“He has just publicly said that he expects two of the stocks he owns to go up 500% to 700%. And he lays out the reasons why.
“We followed this same investor into Novavax (NVAX) for a 164% winner last year. And recently, we followed our other favorite biotech investor into Sarepta Therapeutics (SRPT), which is up 154% since February. Clearly, biotech stocks have the power to put up huge returns. But getting behind the right investor — an expert in the space — is paramount. The world’s best biotech investors have a record of picking the winners, at a very high rate.”
I can’t quite guarantee that this is a 100 percent certain match, not with those relatively squishy clues, but I think the “Harvard PhD scientist” they’re talking about is the pretty well-known Peter Kolchinsky, who has indeed posted very solid long-term returns for his RA Capital hedge fund (the annualized net return after fees is not 38%, it’s more like 28% now, but there have been times when the gross return was an annualized 38%).
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And Kolchinsky is probably not a billionaire, though he’s certainly not worried about his next meal — RA Capital’s portfolio is right at about a billion dollars, and he was successful before founding the hedge fund a decade or so ago (he worked at Vertex Pharmaceuticals), so he’s probably in the hundred millionaire club. I don’t get invited to those meetings (Stock Gumshoe is a lovely little business, but the best I can do is call myself an “Internet Thousandaire”), so I can’t tell you for sure.
Why does this match? Well, Kolchinsky did have his profile raised recently by an article in Barron’s, and in that article he did imply — “publicly,” since it’s in Barron’s — that he expects 500-700% returns for a couple of his fund’s holdings… so what are they?
Well, I’ll just share the excerpts from the article… here’s our “500%” possible gainer:
“Another big holding is Dyax (DYAX), which is developing a treatment for hereditary angioedema, a hive-like swelling but one located deeper under the skin. Patients can inject Dyax’s antibody once every couple of weeks to prevent attacks; more than 10,000 people are thought to be affected. Kolchinsky expects the antibody to finish Phase 3 trials in late 2016 and go on the market in 2017. He puts Dyax’s eventual valuation at three to five times its recent $3.9 billion.”
And the 700% one…
“Ardelyx (ARDX), which RA bought in May, is testing a new drug, Tenapanor, which has had promising early results in treating chronic constipation. If it gains approval, Kolchinsky believes that the drug alone could have a market value of more than $2 billion, or about seven times the entire company’s stock valuation of $294 million.”
So it’s not a perfect match, of course — the value of a company or a drug rising by 5X or by 7X is not the same as saying you expect a 500% or 700% return in the stock from today, not only because becoming 2X bigger means only a 100% return but also because firms can sell new stock or issue stock to insiders along the way that serve dilute the impact for individual shareholders, to varying degrees, of a rise in the value of the company or a drug.
But yes, Peter Kolchinsky apparently believes these two stocks to still be wildly undervalued, and he just shared that with about 300,000 of his closest friends who read Barron’s. Maybe that’s not the hedge fund guy the Billionaire’s Portfolio folks are touting this time around, but that’s my best guesstimation.
And, yes, they’re biotech stocks… so I have no idea how much they should be worth
DYAX has been discussed a few times in the biotech threads helmed by Dr. KSS, in part because it’s been a substantial holding of RA Capital, which many folks follow, for a while now, and it’s a pretty big company (market cap already over $4 billion) and did get their breakthrough therapy designation from the FDA just this week — though that didn’t really move the stock, the big move came earlier this year when they got fast track status from the FDA and released great Phase 1b results for their hereditary angioedema prevention drug, DX-2930, and the stock almost doubled back in March (they do also have an approved drug for hereditary angioedema attacks, though the sales are almost irrelevant at under $100 million).
ARDX shares are right about where they were a year ago, near $16, but have seen both $30 and $8 in the interim — it’s been a bumpy ride, they’ve done some capital raises and bought back compounds from partners, had disappointing results from a clinical trial over the Winter, and, well, your guess is as good as mine where it goes from here — probably better, if I’m to be honest. It’s a small company, market cap down under $300 million, and they’ll be hosting an Investor R&D Info day next week so that may give you an opportunity to learn more if you’re interested.
Any fans of DYAX and ARDX out there? Other candidates to match these little hints, or thoughts about Billionaire’s Portfolio? Let us know with a comment below.