AbbVie, Biogen, Gilead: Smart Money Got Burned Betting on Biotech in Q3

When it rains, it pours, and for big pharma, it certainly poured in the third quarter. With the third quarter over, let’s take a closer look at the fundamentals of hedge fund hotels Pfizer Inc. (NYSE:PFE), Gilead Sciences, Inc. (NASDAQ:GILD), AbbVie Inc (NYSE:ABBV), Amgen, Inc. (NASDAQ:AMGN), and Biogen Inc (NASDAQ:BIIB) and see how they did in the third quarter (it wasn’t pretty).

First, a little about ourselves. We at Insider Monkey monitor the activity of a select group of smart money investors. We pay attention to hedge funds’ moves because our research has shown that hedge funds are extremely talented at picking stocks on the long side of their portfolios. It is true that hedge fund investors have been underperforming the market in recent years. However, this was mainly because hedge funds’ short stock picks lost a ton of money during the bull market that started in March 2009. Hedge fund investors also paid an arm and a leg for the services that they received. We have been tracking the performance of hedge funds’ 15 most popular small-cap stock picks in real time since the end of August 2012. These stocks have returned 102% since then and outperformed the S&P 500 Index by around 53 percentage points (see the details here). That’s why we believe it is important to pay attention to hedge fund sentiment; we also don’t like paying huge fees.

#5 Biogen Inc (NASDAQ:BIIB)

Number of Hedge Fund Holders (as of June 30): 63
Total Value of Hedge Fund Holdings (as of June 30): $3.62 billion
Hedge Fund Holdings as Percent of Float (as of June 30): 3.80%

Biogen Inc fell by 27.8% in the third quarter as safety worries slowed sales of Tecfidera, the company’s blockbuster drug for multiple-sclerosis. Sales of Avonex, and Tysabri slowed as well. The market’s enthusiasm for aducanumab, an antibody for Alzheimer’s disease, meanwhile, is no longer fever-pitched. Biogen was the biggest loser on the list in terms of stock performance, but was held by the fewest number of funds of the stocks covered in this article. Samuel Isaly‘s Orbimed Advisors owns 1.28 million shares of Biogen Inc (NASDAQ:BIIB).

#4 Amgen, Inc. (NASDAQ:AMGN)

Number of Hedge Fund Holders (as of June 30): 68
Total Value of Hedge Fund Holdings (as of June 30): $4.24 billion
Hedge Fund Holdings as Percent of Float (as of June 30): 3.60%

Amgen, Inc. (NASDAQ:AMGN) fell by 9.5% in the third quarter as its strong portfolio of cancer, cardiovascular, and bone health drugs were no match for bearish market sentiment. Hedge funds may have been a little bit early moving on Amgen, as ownership was up from 59 funds with $4.15 billion in shares at the end of March. Dan Loeb‘s Third Point is the biggest elite fund holder with 9 million shares. Amgen could still rally however, as its Enbrel, Prolia, and XGEVA sales are still strong and it has a solid biosimilar pipeline ahead.

#3 AbbVie Inc (NYSE:ABBV)

Number of Hedge Fund Holders (as of June 30): 79
Total Value of Hedge Fund Holdings (as of June 30): $6.11 billion
Hedge Fund Holdings as Percent of Float (as of June 30): 5.70%

Shares of AbbVie Inc (NYSE:ABBV) fell by 18.4% in the quarter as investors worried about Humira’s patent expiration, which occurs at the end of 2016 in the United States. Humira accounted for over 60% of AbbVie’s revenue in 2014, and almost half of its profits. It isn’t all bad, however, as AbbVie’s Humira patents in Europe won’t expire until 2018. Because Humira is a biogenic, the experts don’t think a generic form or biosimilar will actually be viable until 2019. This means AbbVie has plenty of time to develop its pipeline or acquire other companies to offset any future revenue drop. AbbVie is the top hedge fund pick of the five companies covered in this article in terms of percent of shares owned and has a number of elite healthcare investors backing it. Larry Robbins‘ Glenview Capital owns 17.86 million shares while Julian Baker and Felix Baker’s Baker Bros. Advisors owns 14.37 million shares.

We’ll cover the top two biotech stocks that burned hedge funds in the third quarter on the following page.

#2 Gilead Sciences, Inc. (NASDAQ:GILD)

Number of Hedge Fund Holders (as of June 30): 84
Total Value of Hedge Fund Holdings (as of June 30): $4.93 billion
Hedge Fund Holdings as Percent of Float (as of June 30): 2.90%

Gilead Sciences, Inc. (NASDAQ:GILD) shares fell by 15.8% in the third quarter as investors worried about HCV drug competition. Although Gilead’s Sovaldi and Harvoni have done very well this year, other big drug companies including Abbvie and Johnson & Johnson (NYSE:JNJ) are competing in the market or will in the future. Concerns over future drug price ceilings may also have played a part in the fall. D E Shaw owns 4.39 million shares.

#1 Pfizer Inc. (NYSE:PFE)

Number of Hedge Fund Holders (as of June 30): 85
Total Value of Hedge Fund Holdings (as of June 30): $4.66 billion
Hedge Fund Holdings as Percent of Float (as of June 30): 2.30%

Pfizer Inc. (NYSE:PFE)’s stock fell by 5.6% in the third quarter as investors worried over the company’s patent cliffs. Revenue has been soft in recent years due to various drugs coming off patent, including Celebrex and Zyvox. The company’s blockbuster $5 billion-a-year Lyrica could face generic competition in 2018 too. Not all is lost, however. Pfizer recently closed the acquisition of Hospira, one of the world’s leading makers of biosimilars and injectable drugs and infusion technologies. The global biosimilar market is estimated to be a $20 billion market by 2020 and the global market for generic sterile injectibles is estimated to be as big as $70 billion by the end of the decade. Pfizer has been down the patent cliff path before, with its stock tanking to under $15 a share in 2010 on generic Lipitor concerns. Through M&A and a productive pipeline, Pfizer’s shares have nearly doubled five years later. Investors hope history will repeat again, with Palbociclib, PF-06290510, and PF-06425090 leading the way. Ken Fisher‘s Fisher Asset Management owns 31.82 million shares. 

Disclosure: None