This is What Hedge Funds Have to Say about Two Healthcare Stocks on the Move

Novo Nordisk A/S (ADR) (NYSE:NVO) and Sanofi SA (ADR) (NYSE:SNY) are two healthcare companies that recently received product approval in the US and Europe, respectively, but both stocks did not move significantly, in line with the news. In the following article we will take a closer look at the recent developments at these companies and attempt to assess the hedge fund sentiment towards them in order to see whether you should buy them on today’s performance.

Why do we pay attention to hedge fund sentiment? Most investors ignore hedge funds’ moves because as a group their average net returns trailed the market since 2008 by a large margin. Unfortunately, most investors don’t realize that hedge funds are hedged and they also charge an arm and a leg, so they are likely to underperform the market in a bull market. We ignore their short positions and by imitating hedge funds’ stock picks independently, we don’t have to pay them a dime. Our research has shown that hedge funds’ long stock picks generate strong risk adjusted returns. For instance the 15 most popular small-cap stocks outperformed the S&P 500 Index by an average of 95 basis points per month in our back-tests spanning the 1999-2012 period. We have been tracking the performance of these stocks in real-time since the end of August 2012. After all, things change and we need to verify that back-test results aren’t just a statistical fluke. We weren’t proven wrong. These 15 stocks managed to return more than 118% over the last 36 months and outperformed the S&P 500 Index by 60 percentage points (see the details here).

Novo Nordisk A/S (ADR) (NYSE:NVO) received Food and Drug Administration approval of two injectable insulin drugs last Friday, Tresiba and Ryzodeg. The former is a long-acting insulin drug that was rejected back in 2013, while the latter is a conformulation of Tresiba. Tresiba was rejected by the FDA over heart-safety worries, requesting a new trial that would investigate the drug’s cardiovascular effects. Tresiba is marketed in 30 countries and is anticipated to generate annual sales of $2.4 billion by 2020, according to an article published by Reuters. The Danish insulin maker anticipates to launch the drug in the United States during the first quarter of 2016. Reportedly, this is likely to represent the largest drug launch of Novo Nordisk, but only time will show the true potential of the drug. The shares of Novo have advanced by more than 1.40% in today’s trading session, broadening the year-to-date return to over 31%.

The Danish drugmaker received a bit of attention from the hedge fund industry during the second quarter, as the number of money managers invested in the stock climbed to 18 from 15. Similarly, the value of their investments grew by $139.39 million quarter-over-quarter. However, the hedge funds tracked by Insider Monkey own only 1.30% of the company’s outstanding stock as of June 30. Billionaires Jim Simons’ Renaissance Technologies and Ken Fisher’s Fisher Asset Management represent the largest shareholders of Novo Nordisk A/S (ADR) (NYSE:NVO) within our database, owning 14.09 million and 12.30 million shares, correspondingly.

In other news, Praulent, a proprotein convertase subtilisin/kexin type 9 inhibitor, or simply PCSK9, owned by both Regeneron Pharmaceuticals Inc. (NASDAQ:REGN) and Sanofi SA (ADR) (NYSE:SNY) was granted marketing authorization by the European Commission (EC). Therefore, the drug, which is aimed at treating bad cholesterol in certain adult patients with hypercholesterolemia, represents the only EC-approved PCSK9 inhibitor available in two starting doses. The addressable market in Europe is quite huge for the two companies, as high cholesterol represents a substantial health problem on the continent. It appears that Europe has the largest prevalence per capita of high cholesterol all around the world, according to the World Health Organization (WHO). However, the shares of both Sanofi and Regeneron are in the red so far today. To be more specific on that, Sanofi’s stock has lost more than 0.5% so far in today’s trading session, which could be potentially explained by the recent pullback of biotech stocks.

Sanofi SA (ADR) (NYSE:SNY) lost some of its popularity within the hedge fund industry, as the number of hedge funds with positions in the stock declined by three to 31 during the second quarter. In the meantime, these positions accounted for only 0.80% of the company’s shares at the end of June. Similarly, the value of hedge funds’ investments in Sanofi decreased to $1.08 billion from $1.18 billion during the April – June quarter. Warren Buffett’s Berkshire Hathaway is the second-largest equity holder of Sanofi SA within our database, holding 3.91 million shares.

Disclosure: None