Alphyn Capital Management, an investment management firm, published its fourth-quarter 2021 investor letter – a copy of which can be downloaded here. A quarterly portfolio net return of 3.9% was recorded by the fund for the fourth quarter of 2021, and a 13.9% return for the past year, while its S&P 500 TR benchmark delivered a 28.7% return in 2021. Spare some time to check the fund’s top 5 holdings to have a clue about their top bets for 2022.
Alphyn Capital Management, in its Q4 2021 investor letter, mentioned Oaktree Acquisition Corp. II (NYSE: OACB) and discussed its stance on the firm. Oaktree Acquisition Corp. II is a Los Angeles, California-based blank check company with a $308.2 million market capitalization. OACB delivered a -0.15% return since the beginning of the year, while its 12-month returns are down by -6.58%. The stock closed at $9.86 per share on January 27, 2022.
Here is what Alphyn Capital Management has to say about Oaktree Acquisition Corp. II in its Q4 2021 investor letter:
“In December, Oaktree Acquisition announced its intention to acquire Alvotech, a leading pure-play biosimilar platform. Interestingly, the parent Oaktree Capital has invested in Alvotech for three years, so one would expect it has highly diligenced the opportunity. A biosimilar is a biological product that is highly similar to and has no clinically meaningful difference from an existing approved biological. Biologicals are large complex molecules that have become the standard of care for many difficult-to-treat conditions. Eight of the world’s ten highest-selling medicines are biologics, and the market is large, expected to grow 10% per year to a $555bn market by 2026. The biosimilar market is expected to grow to an $80bn market. The business case for biosimilars is that they are significantly cheaper to produce and should save the US healthcare system over $100bn over the next five years.
Alvotech has 7 biosimilar products in its pipeline. The most notable is a biosimilar to rheumatoid arthritis treatment Humira, the world’s best-selling pharmaceutical product with $20bn in annual sales. Alvotech receives milestone payments from partners to finance the development of its products and a cut of revenues following successful commercialization. Notwithstanding the risk inherent in biotech companies, these alternative funding sources align nicely with the type of businesses I seek.
The company forecasts $800m in 2025 revenue at 60% EBITDA margins, which could make it worth $7bn-$9bn using comparable multiples. This would be 3-4x Oaktree’s acquisition price of $2.25bn. While this is clearly at the more speculative “high skew” end of our portfolio, there are several factors that make this a potentially attractive risk-reward, sized appropriately. Alvotech’s founder previously built three pharma companies, including one that he grew to $2bn in revenues and generated 50% annual returns for shareholders. Furthermore, the management team brings deep knowledge of the development process, with collectively 17 successful biosimilar approvals. Together, they have built a pure-play bilosimilar development platform and established a top-tier network of
commercial partners (TEVA in the US, STADA in the EU, and Yangtze River in China). Finally, on December 12, the European Commission has approved the use of Alvotech’s Humira biosimilar in the EU, bringing it a step closer to commercialization.”
Our calculations show that Oaktree Acquisition Corp. II (NYSE: OACB) failed to obtain a mark on our list of the 30 Most Popular Stocks Among Hedge Funds. Oaktree Acquisition Corp. II (NYSE: OACB) delivered a -0.45% return in the past 3 months.
In April 2021, we also shared another hedge fund’s views on OACB in another article. You can find other letters from hedge funds and prominent investors on our hedge fund investor letters 2021 Q4 page.
Disclosure: None. This article is originally published at Insider Monkey.
