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OrbiMed Advisors Piles On This Biotech; Should You Follow This Healthcare-Focused Firm?

It is commonly known that most hedge fund investors reveal their positions through 13F quarterly filings, but 13D filings tend to provide more insights about their stances on different companies. A bulk of stock market participants constantly track the 13D filings of most prominent activist investors, as activist targets usually tend to greatly outperform the broader market. Essentially, activist investors acquire stakes in seemingly underperforming companies and push for changes in an attempt to unlock shareholder value. Having this in mind, this article will discuss an activist move made by a well-known investment firm tracked by Insider Monkey.

Samuel Isaly Orbimed Advisors

Let’s first take a step back and analyze how tracking hedge funds can help an everyday investor. Through our research we discovered that a portfolio of the 15 most popular small-cap picks of hedge funds beat the S&P 500 Total Return Index by nearly a percentage point per month on average between 1999 and 2012. On the other hand the most popular large-cap picks of hedge funds underperformed the same index by seven basis points per month during the same period. This is likely a surprise to many investors, who think of small-caps as risky, unpredictable stocks and put more faith (and money) in large-cap stocks. In forward tests since August 2012 these top small-cap stocks beat the market by an impressive 53 percentage points, returning 102% (read the details here). Follow the smart money into only their best investment ideas all while avoiding their high fees.

Prior to discussing the 13D filing, we will provide a brief introduction to the investment firm that submitted the filing. OrbiMed Advisors is a healthcare-focused investment firm whose first public equity fund was launched back in 1989. Its investment business expanded to include long/short equity and private equity investments in 1993. Sam Isaly, a co-founder of the New York-based firm, seeks opportunities in all areas of the healthcare industry, which has been seriously beaten down by the market recently. The firm’s flagship public equity strategy is a long/short hedge fund firm that manages an equity portfolio with a market value of $11.96 billion as of June 30.

Samuel Isaly
Samuel Isaly
OrbiMed Advisors

According to a freshly-amended 13D filing, OrbiMed Advisors currently owns 7.9 million shares of Relypsa Inc. (NASDAQ:RLYP), which represent 19% of the company’s shares. This compares to the 7.4 million-share stake disclosed through the fund’s 13F filing for the June quarter. The recent public filing also disclosed that OrbiMed’s team will regularly conduct reviews of the company’s business, financial condition, results of its operations, and prospects, among other things. Just recently, the biopharmaceutical company announced the approval by the U.S. Food and Drug Administration (FDA) of Veltassa, a drug aimed at treating hyperkalemia. Most investors were not as enthusiastic about the company’s first FDA approval as one might have expected, mainly owing to the boxed warning that Veltassa binds to many other oral drugs, which could decrease their absorption and reduce their effectiveness (read more details here). Relypsa Inc. (NASDAQ:RLYP) anticipates to bring the drug to the market at the beginning of January 2016, and it’s expected that Veltassa could generate annual sales for the company of up to $1 billion.

Meanwhile, the number of hedge funds with stakes in the biopharmaceutical company increased to 28 from 24 during the second quarter, stockpiling 39.90% of its outstanding shares. However, the value of these stakes declined to $546.87 million from $639.05 million quarter-over-quarter. Let’s not forget to mention that the stock is down by 45% year-to-date, though it appears to be rebounding at the moment. Ken Griffin’s Citadel Investment Group owned 1.43 million shares of Relypsa Inc. (NASDAQ:RLYP) at the end of June.

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Disclosure: None

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