In the last couple of years, biotechnology industry has been a hot topic and investors have been watching closely as the industry gained on average 40% in the last three years (the second-highest return across industries). A number of nano and small-cap companies that have very small or no revenues at all and significant losses have surged over the years on the back of a strong bullish sentiment from large and small money managers. This particular trend has raised some questions regarding the long-term investment opportunities in the industry and many consider that biotech is a new bubble that is going to burst soon and wipe the profits of those who have been too optimistic and have not managed to sell their shares. Nevertheless, for now, biotech stocks are still gaining ground and hedge fund managers are profiting by investing mostly in large-cap components of the industry, due to a lower level of risk.
Last week, one of the most popular biotech stocks was Biogen Idec Inc (NASDAQ:BIIB), which closed up by 10% on Friday and has been among the top gainers throughout the entire week. Moreover, during Friday’s trading session, Biogen’s stock reached its new all-time high of $480.18. One investor who profited from his bet on Biogen Idec is Stanley Druckenmiller of Duquesne Capital. As of the end of 2014, Duquesne owns 359,400 shares of the company, valued at nearly $122 million. The stake that was increased by 250% during the fourth quarter, amasses 12% of the fund’s equity portfolio, being the largest position in terms of value.
The reason behind the 10% jump of Biogen Idec Inc (NASDAQ:BIIB)’s stock on Friday is the results of the Ib trial of the company’s Alzheimer’s candidate aducanumab. The trial showed better-than-expected results with impairment in cognition and memory slowing down in the early stages of the disease. The company plans to continue with Phase III trials later this year. Biogen Idec’s stock appreciated by some 300% in the last three years on the back of its successful multiple sclerosis drugs.
Mr. Druckenmiller has not been holding shares of Biogen Idec Inc (NASDAQ:BIIB) on a long-term basis, as opposed to some of his other holdings. As Duquesne’s previous 13F filings show, over the last several years, the investor initiated and sold stakes in the company several times. At the end of 2013, the fund held 91,500 shares of the company, but the position was closed during the first three months of 2014 and re-opened during the second quarter. Moreover, as the last round of 13F filings showed, during the fourth quarter, when Mr. Druckenmiller raised his position in Biogen Idec Inc (NASDAQ:BIIB), the bullish sentiment of the majority of other investors slightly fell as 57 funds disclosed holding $27.72 billion worth of stock at the end of 2014, down from 58 funds with $28.39 billion a quarter earlier. Among other investors that have been bullish on the company are Samuel Isaly’s Orbimed Advisors and Cliff Asness’ AQR Capital Management, which own 1.49 million shares and 1.20 million shares respectively.
Mr. Druckenmiller is known as one of the greatest investors in the hedg fund industry. Duquesne owns around $8 billion in assets under management and holds over $1.0 billion in equities, which are mainly represented by Services stocks, followed by healthcare. The fund’s latest 13F filing shows that biotech industry was not overlooked by Mr. Druckenmiller and aside from Biogen Idec Inc (NASDAQ:BIIB), which represents his largest position, the investor held shares of some other biotech companies, such as Celgene Corporation (NASDAQ:CELG) and bluebird bio Inc (NASDAQ:BLUE).
The majority of Mr. Druckenmiller’s picks are large-cap companies, which is why immitating his top holdings wouldn’t be a good idea for a smaller investor. This is confirmed by our empirical studies, which showed that an equity portfolio consisting of 50 most popular stocks among hedge funds underperformed the market by 7.0 basis points per month between 1999 and 2012. However, we have also found that a portfolio that consists of 15 most popular small-cap picks can beat the market by 1.0 percentage point per month. Based on this research we have developed a strategy that involves tracking 15 most popular small-cap stocks among over 700 hedge funds. We have beens sharing these stocks in our newsletters since August 2012 on a quarter-by-quarter basis and since inception, our strategy returned some 132% and beat the S&P 500 ETF (SPY) by roughly 79 percentage points.
Nevertheless, let’s take a closer look at Mr. Druckenmiller’s other two biotech favorites. In Celgene Corporation (NASDAQ:CELG), the investor held 434,100 shares valued at $48.56 million, which represents Duquesne’s sixth largest position. Both Biogen Idec Inc (NASDAQ:BIIB) and Celgene Corporation (NASDAQ:CELG) are among five biotech stocks that billionaires love, according to the last round of 13F filings. Aside from Duquesne, the company was also included in the equity portfolio of Orbimed Advisors, which owns 3.66 million shares, as of the end of 2014. Last week, Celgene Corporation (NASDAQ:CELG) also reported positive results from Phase 3 study of Oral OTEZLA, a drug for the treatment of psoriasis. The company has a positive outlook from analysts and last week Piper Jaffray raised the price target to $144 from $135, reiterating ‘Overweight’ rating.
On the other hand, bluebird bio Inc (NASDAQ:BLUE) is one of Mr. Druckenmiller’s small cap picks from the biotech industry. During the fourth quarter, the investor initiated a stake with 355,400 shares, valued at $32.60 million. The $4.1 billion clinical-stage company focuses on developing gene therapies for severe genetic and rare disorders. The stock of the company surged by 83% at the beginning of December, after bluebird bio Inc (NASDAQ:BLUE) reported positive results from a trial of LentiGlobin BB305, a drug developed for the treatment of transfusion-depdendent patients with beta-thalassemi. This development helped bluebird bio Inc (NASDAQ:BLUE) capture the attention of investors, as during the fourth quarter the number of funds holding the stock increased by 8 to 30 and the aggregate value of capital held in the company by these funds surged to $482.92 million from $155.88 million in the previous quarter. Israel Englander’s Millennium Management raised its stake in the company by 300% during the last three months of 2014 to 546,300 shares.
Disclosure: none
