These Are Apex Capital Management’s Top Biotech Stock Picks

Founded in 1987, Apex Capital Management invests mainly in companies that have market caps of up to $10 billion and is currently overseeing $6.5 billion in assets under management. The fund uses a combination of macroeconomic and fundamental analysis to pick its stocks. The firm’s management does, however, have a preference for technology, healthcare, and consumer discretionary stocks, which account for 72% of its public equity portfolio as of September 30. Foot Locker, Inc. (NYSE:FL) has become Apex Capital Management’s new favorite stock overall, followed by Total System Services, Inc. (NYSE:TSS). In this article, however, we will focus on the biotech stocks in Apex Capital Management’s portfolio, as the healthcare sector is still a hot one and more intriguing than ever.

Why do we track hedge fund activity? From one point of view we can argue that hedge funds are consistently underperforming when it comes to net returns over the last three years, when compared to the S&P 500. But that doesn’t mean that we should completely neglect their activity. There are various reasons behind the low hedge fund returns. Our research indicated that hedge funds’ long positions actually beat the market. In our back-tests covering the 1999-2012 period hedge funds’ top small-cap stocks edged the S&P 500 index by double digits annually. The 15 most popular small-cap stock picks among hedge funds also bested passive index funds by around 53 percentage points over the 37 month period beginning from September 2012, returning 102% (read the details here).

Apex’s holding of WuXi PharmaTech (Cayman) Inc. (ADR) (NYSE:WX) was boosted by 4% during the third quarter, with the fund reporting ownership of 1.72 million shares, a position valued at $74.4 million at the end of September. A provider of laboratory services and a manufacturer of pharmaceutical ingredients, WuXi PharmaTech has also attracted the attention of Mario Gabelli, who increased his stake during the third quarter to some 262,567 shares worth approximately $11.3 million. WuXi PharmaTech (Cayman) Inc. (ADR) (NYSE:WX) has provided shareholders with great returns so far this year, advancing by 31% through yesterday’s closing price of $44.74 per share. Trading at a price-to-earnings (P/E) ratio of 32.xx, the stock is undervalued compared to most of its peers, with the industry average P/E standing at 39.30.

Increasing the investment in Irish contract research organization ICON PLC (NASDAQ:ICLR) seems to have been another great decision by the management of Apex, with the company’s latest financial results beating Wall Street’s expectations. Revenues came in at $394.7 million, while earnings were $1.02 per share, surpassing analysts’ expectations of $1.01 per share. The report was released this morning before the market opened and has prompted shares to rally, with them currently up by 4%. Perhaps this will trigger a comeback, as the stock has been falling since mid-August, although it is still 26.2% higher year-to-date. Apex Capital Management upped its stake in ICON PLC (NASDAQ:ICLR) by 10% to amass just under 1 million shares, a position worth $70.9 million as of September 30.

Three more of Apex’s top biotech stock picks are studied on the forthcoming page.

Another biotech stock Apex Capital Management is optimistic about is Medivation Inc (NASDAQ:MDVN), a developer of therapy solutions for diseases with limited treatment options. Apex reported a 3% increase to its holding of the stock, to 1.26 million shares worth $53.6 million. Valued at $7.68 billion, Medivation Inc (NASDAQ:MDVN) is trading at a P/E ratio of 28.xx, about seven-times lower than the industry average, currently at 201.90-times. Although the stock staged a rally during the first three months of 2015, it peaked at $70.79 per share at the end of March and has gone downhill since then, currently down by approximately 8.8% this year overall. The company is set to release its third quarter financial results on November 5, with analysts eyeing $237 million in revenues and earnings of $0.32 per share.

Apex’s holding of Enanta Pharmaceuticals Inc (NASDAQ:ENTA) was also boosted during the third quarter and is now at 1.22 million shares valued at more than $44.1 million. The stock ended yesterday’s trading session at $24.69, down by 51% so far this year. Shares have tumbled following a recent FDA warning that the company’s Viekira Pak may cause serious injuries to patients with advanced liver disease. Analysts believe the selloff that ensued was an overreaction, hinting that this is could be a good opportunity to buy the stock on the dip. Liisa A. Bayko of JMP Securities upgraded the stock to ‘Outperform’ from ‘Market Perform’ recently, and assigned it a price target of $32 per share. Bayko claims sales of Enanta Pharmaceuticals Inc (NASDAQ:ENTA) will not be severely hit by the FDA ruling, as part of the revenues is already secured by exclusive contracts.

With ISIS Pharmaceuticals, Inc. (NASDAQ:ISIS) making lower lows throughout the third quarter, the management of Apex decided to buy some more shares at better prices, boosting their holding by 4%. The fund reported ownership of roughly 1.02 million shares worth some $41.2 million as of the end of September. Down by 18.8% so far this year, the stock ended yesterday’s trading session at $51.90 per share, giving the company a market cap of roughly $6.4 billion. Whereas ISIS Pharmaceuticals, Inc. (NASDAQ:ISIS) posted a profit for the second quarter, analysts have gloomier expectations for the third: revenues of $52.9 million and a loss of $0.31 per share are expected. The company is set to post those results on November 9.

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