Renaissance, Viking Like Pfizer, Biopharma

Chidem Kurdas

Despite uncertainty about new medications, bio-pharmaceutical companies have attracted significant investments from large hedge funds such as Omega Advisors, Renaissance Technologies and JP Morgan’s Highbridge.

Pfizer Inc. was a magnet for both the fundamentals-based stock pickers at Viking Global Investors and the quantitative traders at Renaissance—two very different equity strategies, apparently converging on the same pharmaceutical company.  Renaissance’s holding in Pfizer was worth more than half a billion dollars as of April.

Bio-pharmaceutical businesses thrive on innovation—-the problem is,  the number of new medications slumped since the 1990s. But  Pfizer’s research and development head Rod MacKenzie says he’s optimistic. “We’re at a very interesting place in the R&D cycle,” he said, during a presentation at the Argyle Executive Forum yesterday.

He argued that research is now directed by molecular science and the best route is collaboration among pharmaceutical companies and universities to further the science, forming R&D networks. As an example of what the science can do, Mr. MacKenzie described a young man whose lung cancer grew right back after regular treatment but has been kept in check by a new agent for two years.

Andreas Halvorsen’s Viking is certainly willing to bet on pharmaceutical R&D. Viking funds acquired more than 5% of Beckman Coulter Inc., a supplier of instruments, software and other inputs to laboratories.

Renaissance bought several big pharma companies –Merck, GlaxoSmithKline, Abbot Labs,  Johnson & Johnson – as well as large biotech players Celgene and Amgen and Gilead Sciences, a developer of drugs against viral diseases and cancers.

Another hedge fund favorite is Teva, a generic pharmaceutical manufacturer headquartered in Israel. Generics pricing is subject to cut-throat competition but it is an exciting area in emerging markets, where 5% to 15% annual growth is expected, says Mike Chase-Ortiz, senior director of product strategy at Thomson Reuters. He spoke at the  Argyle Forum.

Leon Cooperman of Omega Advisors and other funds went for Teva stock. Highbridge Capital bought Teva debt.

But generics growth in emerging markets, the potential for powerful new treatments and even Mr. MacKenzie’s observation that the industry is getting better at keeping down R&D costs are probably not the only reason bio-pharmaceutical companies are attractive. There is another major factor, namely the continuing trend of mergers and acquisitions.

M&A or expectations thereof have helped lift some of the stocks and no doubt encourage hedge fund buying.  Not everybody thinks the M&A trend is for the best in the long term. Mr. MacKenzie said he is not sure some of the advice is good—presumably advice from investment banks. But in the meantime, people seek possible acquisition targets.

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One Response to “Renaissance, Viking Like Pfizer, Biopharma”

  1. SAC Tries for Bull’s Eye « HedgeFundSmarts Says:

    […] number of big hedge funds have significant holdings in pharmaceutical and other medical firms.  For instance, Renaissance Technologies  bought $530 million of Pfizer […]

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