15 Biotech and Pharmaceutical Stocks to Buy According to Palo Alto Investors

Published on October 23, 2021 at 6:08 am by Swati Goyal in Hedge Funds, News

In this article, we will take a look at 15 biotech and pharmaceutical stocks to buy according to Palo Alto Investors. You can skip our detailed analysis of the fund’s history, investment strategy, and hedge fund performance, and go directly to the 5 Biotech and Pharmaceutical Stocks to Buy According to Palo Alto Investors.

Palo Alto Investors is a California-based hedge fund established in 1989 by William Leland Edwards. Edwards retired in 2013. Palo Alto Investors is currently majority owned by Joon Yun (Anthony Joonkyoo Yun) and Patrick Lee. They both own more than 25% and less than 50% of the fund. Less than 5% of the fund is owned by Chief Compliance Officer Angela Nguyen-Dinh. Palo Alto Investors focuses mostly on micro-cap and small cap healthcare firms with less than $10 billion market capitalizations. It uses fundamental research to find neglected and undervalued stocks with considerable long-term upside potential.

As of the second quarter, some of the most notable picks of Palo Alto Investors include Biogen Inc. (NASDAQ:BIIB), Align Technology, Inc. (NASDAQ:ALGN), and Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN).

In Biogen Inc. (NASDAQ:BIIB), Palo Alto Investors owns 361,600 shares worth $125.21 million. The investment covers an impressive 6.9% of the fund’s portfolio. On September 22, Needham analyst Ami Fadia initiated coverage of Biogen Inc. (NASDAQ:BIIB) with a “Buy” rating setting the price target at $400.

Another notable stock in Palo Alto Investors’ portfolio is Align Technology, Inc. (NASDAQ:ALGN). The hedge fund owns a $33.85 million stake in the company. On August 5, Credit Suisse analyst Vik Chopra initiated coverage of Align Technology, Inc. (NASDAQ:ALGN), rating it as “Outperform” setting the price target at $732.

Palo Alto Investors holds 94,850 shares in Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN) worth over $17.43 million, representing 0.96% of their investment portfolio.

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Why is it important to pay attention to hedge funds’ stock picks? Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 86 percentage points since March 2017. Between March 2017 and July 2021, our monthly newsletter’s stock picks returned 186.1%, vs. 100.1% for the SPY. Our stock picks outperformed the market by more than 86 percentage points (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.

With this context in mind, here is our list of the 15 biotech and pharmaceutical stocks to buy according to Palo Alto Investors.

Biotech and Pharmaceutical Stocks to Buy According to Palo Alto Investors

15. Align Technology, Inc. (NASDAQ:ALGN)

PAI’s Stake Value: $33,852,000

Percent of PAI’s 13F Portfolio: 1.86%

Number of Hedge Fund Holders: 57

Align Technology, Inc. (NASDAQ:ALGN) is an orthodontics company that makes 3D digital scanners and Invisalign clear aligners. The company was incorporated in 1997 and is placed fifteenth on the list of 15 biotech and pharmaceutical stocks to buy according to Palo Alto Investors.

Palo Alto Investors currently holds 55,405 shares of Align Technology, Inc. (NASDAQ:ALGN) that amount to $33.85 million. The company occupies 1.86% of Palo Alto Investors’ total portfolio. Align Technology, Inc. (NASDAQ:ALGN) saw an increase in hedge fund sentiment recently. The number of hedge fund positions increased to 57 at the end of the second quarter of 2021, compared to 49 hedge funds in the previous quarter.

In its fourth-quarter 2020 investor letter, Harding Loevner mentioned Align Technology, Inc. (NASDAQ:ALGN). Here is what the fund said:

“If you must head to one of the economy’s hot spots, perhaps look for soft wear rather than software. Align Technology was founded in 1997 in a Silicon Valley duplex with a singular vision: use technology to straighten teeth. Align pioneered computer-aided invisible orthodontics as an alternative to metal braces, and has now treated over 9 million patients with its Invisalign clear aligners. Align utilizes direct-to-consumer advertising to pull patients into participating dentists’ offices, equipping practitioners with real-time visualization and algorithm-assisted treatment planning to create and fit bespoke flexible plastic aligners. The company has been expanding its acceptance among practitioners for decades, but during the pandemic the numbers of those seeing the benefits of being able to treat patients with less chair time and fewer visits seems to have reached a tipping point. Like Disney, Align has also used the crisis to expand its digital marketing, reaching stay-at home teens and adults spending hours on Zoom, increasingly focused on how their teeth look on camera. As dental offices have reopened, Align’s earnings have benefitted from pent-up demand. It is emerging from the pandemic with a larger market share in orthodontics and a larger mind share with consumers.”

14. Sage Therapeutics, Inc. (NASDAQ:SAGE)

PAI’s Stake Value: $34,114,000

Percent of 13F Portfolio: 1.87%

Number of Hedge Fund Holders: 27

Sage Therapeutics, Inc. (NASDAQ:SAGE) is a biopharmaceutical business that develops and sells medications to treat central nervous system diseases.

On September 22, Needham analyst Ami Fadia initiated coverage of Sage Therapeutics, Inc. (NASDAQ:SAGE) with a “Buy” rating, setting her price target at $84.

Palo Alto Investors holds 600,500 shares in Sage Therapeutics, Inc. (NASDAQ:SAGE), worth over $34.11 million, representing 1.87% of their portfolio. D E Shaw is the most significant shareholder of Sage Therapeutics, Inc. (NASDAQ:SAGE) with 1.32 million shares, worth $74.83 million.

Biogen Inc. (NASDAQ:BIIB), Align Technology, Inc. (NASDAQ:ALGN), and Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN), are some of the biotech and pharmaceutical stocks to buy according to Palo Alto Investors just like Sage Therapeutics, Inc. (NASDAQ:SAGE).

13. Karyopharm Therapeutics Inc. (NASADAQ:KPTI)

PAI’s Stake Value: $55,553,000

Percent of 13F Portfolio: 3.06%

Number of Hedge Fund Holders: 17

Karyopharm Therapeutics Inc. (NASADAQ:KPTI) is a commercial-stage pharmaceutical business that develops and commercializes anti-nuclear export medicines to treat cancer and other illnesses.

Out of the hedge funds being tracked by Insider Monkey, Palo Alto Investors is a leading shareholder in Karyopharm Therapeutics Inc. (NASADAQ:KPTI), with 5.38 million shares worth more than $55.55 million.

Biogen Inc. (NASDAQ:BIIB), Align Technology, Inc. (NASDAQ:ALGN), and Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN) are some of the biotech and pharmaceutical stocks to buy according to Palo Alto Investors, along with Karyopharm Therapeutics Inc. (NASADAQ:KPTI).

12. Epizyme, Inc. (NASDAQ:EPZM)

PAI’s Stake Value: $56,978,000

Percent of 13F Portfolio: 3.13%

Number of Hedge Fund Holders: 15

Epizyme, Inc. (NASDAQ:EPZM), a commercial-stage biopharmaceutical business based in the United States, discovers, develops, and markets new epigenetic therapies for cancer and other illnesses.

On August 10, H.C. Wainwright analyst Andrew Fein lowered his price target on Epizyme, Inc. (NASDAQ:EPZM) to $15 from $36 and kept a “Buy” rating on the shares after the company reported Tazverik sales that fell short of expectations.

The hedge fund managed by Joon Yun and Patrick Lee owns more than 6.86 million shares in Epizyme, Inc. (NASDAQ:EPZM) worth over $56.98 million, representing close to 3.13% of their portfolio.

In addition to Biogen Inc. (NASDAQ:BIIB), Align Technology, Inc. (NASDAQ:ALGN), and Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN), Epizyme, Inc. (NASDAQ:EPZM) is one of the best biotech and pharmaceutical stocks to buy according to Palo Alto Investors.

11. ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD)

PAI’s Stake Value: $57,021,000

Percent of 13F Portfolio: 3.14%

Number of Hedge Fund Holders: 10

ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD) is a biopharmaceutical firm specializing in discovering and marketing small molecule medicines for central nervous system diseases.

On September 22, Needham analyst Ami Fadia initiated coverage of ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD) with a “Hold” rating.

Alger, in its first-quarter 2021 investor letter, mentioned ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD). Here is what the fund said:

“Acadia Pharmaceuticals Inc. was among the top detractors from performance. Acadia Pharmaceuticals develops and commercializes small molecule drugs that address unmet medical needs associated with central nervous system disorders. Acadia’s Nuplazid (Pimavansenn) is marketed for treating hallucinations and delusions that accompany Parkinson’ s disease psychosis. Additionally, Nuplazid is being developed to treat hallucinations and delusions related to dementia. The price of Acadia shares fell significantly in response to an FDA notification on March 3 that the agency had identified deficiencies in the drug’ s supplemental new drug application that currently preclude discussion of labeling and post-marketing requirements.”

10. Vanda Pharmaceuticals Inc. (NASDAQ:VNDA)

PAI’s Stake Value: $81,562,000

Percent of 13F Portfolio: 4.49%

Number of Hedge Fund Holders: 17

Vanda Pharmaceuticals Inc. (NASDAQ:VNDA) is a biopharmaceutical business that develops and commercializes medicines to meet unmet medical needs. The company was founded in 2002 and is placed tenth on the list of 15 biotech and pharmaceutical stocks to buy according to Palo Alto Investors.

At the end of the second quarter of 2021, 17 hedge funds in the database of Insider Monkey held stakes worth $ 266.51 million in Vanda Pharmaceuticals Inc. (NASDAQ:VNDA), compared to 18 hedge funds in the preceding quarter worth $ 207.37 million.

9. Prothena Corporation plc (NASDAQ:PRTA)

PAI’s Stake Value: $89,015,000

Percent of 13F Portfolio: 4.9%

Number of Hedge Fund Holders: 20

Prothena Corporation plc (NASDAQ:PRTA) is a late-stage clinical business in the United States that focuses on researching and developing new treatments for life-threatening illnesses.

On September 20, Fox Advisors analyst Steven Fox initiated coverage of Prothena Corporation plc (NASDAQ:PRTA) with an “Overweight” rating and gave his price target of $14.

8. Revance Therapeutics, Inc. (NASDAQ:RVNC)

PAI’s Stake Value: $94,903,000

Percent of 13F Portfolio: 5.22%

Number of Hedge Fund Holders: 12

Revance Therapeutics, Inc. (NASDAQ:RVNC) is a biotechnology company that develops, manufactures, and sells neuromodulators globally for various aesthetic and therapeutic purposes.

Palo Alto Investors holds more than 3.20 million shares in Revance Therapeutics, Inc. (NASDAQ:RVNC), worth over $94.90 million, representing 5.22% of their investment portfolio. There were 12 hedge funds in our database that held stakes in Revance Therapeutics, Inc. (NASDAQ:RVNC) at the end of the second quarter, compared to 10 funds in the previous quarter.

7. Amicus Therapeutics, Inc. (NASDAQ:FOLD)

PAI’s Stake Value: $96,424,000

Percent of 13F Portfolio: 5.31%

Number of Hedge Fund Holders: 34

Amicus Therapeutics, Inc. (NASDAQ:FOLD) is a biotechnology firm specializing in discovering, developing, and delivering medicines for patients with rare metabolic disorders. It was incorporated in 2002 and is placed seventh on the list of 15 biotech and pharmaceutical stocks to buy according to Palo Alto Investors. Amicus Therapeutics, Inc. (NASDAQ:FOLD) currently has a $2.9 billion market capitalization.

On July 19, BTIG analyst Yun Zhong initiated coverage of Amicus Therapeutics, Inc. (NASDAQ:FOLD) and rated it as “Buy,” giving it a price target of $15.

The hedge fund managed by Patrick Lee and Joon Yun holds more than 10 million shares in Amicus Therapeutics, Inc. (NASDAQ:FOLD), worth over $96.42 million, representing 5.31% of their portfolio.

Carillon Tower Advisers, in its first quarter 2021 investor letter, mentioned Amicus Therapeutics, Inc. (NASDAQ:FOLD). Here is what the fund said:

“Amicus Therapeutics is a biotechnology company focused on discovering, developing, and delivering novel high-quality medicines for people living with rare metabolic diseases. The firm’s shares slumped after it reported disappointing results in the phase three trial for its drug to be used in the treatment of late-onset Pompe disease (LOPD). Unfortunately, the trial data did not generate statistical significance in the primary endpoint.”

6. United Therapeutics Corporation (NASDAQ:UTHR)

PAI’s Stake Value: $123,292,000

Percent of 13F Portfolio: 6.79%

Number of Hedge Fund Holders: 45

United Therapeutics Corporation (NASDAQ:UTHR) is a biotechnology firm based in the United States. Its goal is to create innovative, life-prolonging technologies for people suffering from lung illness and organ manufacturing. It was incorporated in 1996 and is placed sixth on the list of 15 biotech and pharmaceutical stocks to buy according to Palo Alto Investors. Shares of United Therapeutics Corporation (NASDAQ:UTHR) rallied 94.23%, resulting in a market capitalization of $8.76 billion.

On July 14, Argus analyst Jasper Hellweg initiated coverage of United Therapeutics Corporation (NASDAQ:UTHR), upgrading it to “Buy” from “Hold” and gave a price target of $205.

The hedge fund chaired by Yun holds 687,206 shares in United Therapeutics Corporation (NASDAQ:UTHR) worth over $123.29 million, representing 6.79% of their portfolio. Renaissance Technologies is a leading shareholder in United Therapeutics Corporation (NASDAQ:UTHR), with 3.11 million shares worth $558 million.

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