5 Most Undervalued Biotech Stocks To Buy According To Hedge Funds

3. Royalty Pharma plc (NASDAQ:RPRX)

Number of Hedge Fund Holders: 38

PE Ratio as of February 29: 12.10

Royalty Pharma plc (NASDAQ:RPRX) ranks 3rd on our list of the most undervalued biotech stocks. The company operates as a buyer of biopharmaceutical royalties and a supporter of innovations in the biopharmaceutical industry in the United States. Royalty Pharma plc (NASDAQ:RPRX)’s portfolio encompasses royalties on commercial products and development-stage product candidates addressing therapeutic areas such as rare diseases, cancer, neuroscience, immunology, respiratory, infectious diseases, hematology, and diabetes. 

On January 19, Royalty Pharma plc (NASDAQ:RPRX) declared a $0.21 per share quarterly dividend, a 5% increase from its prior dividend of $0.20. The dividend is payable on March 15, to shareholders on record as of February 16. 

According to Insider Monkey’s fourth quarter database, 38 hedge funds were bullish on Royalty Pharma plc (NASDAQ:RPRX), compared to 31 funds in the prior quarter. Phill Gross and Robert Atchinson’s Adage Capital Management is the largest stakeholder of the company, with 10.8 million shares worth $306 million. 

Patient Capital Management stated the following regarding Royalty Pharma plc (NASDAQ:RPRX) in its fourth quarter 2023 investor letter:

“We built up a position in Royalty Pharma plc (NASDAQ:RPRX) during the quarter. Royalty Pharma is the largest buyer of biopharmaceutical royalties. The stock traded down throughout 2023 hitting a low of $26.21 in October below its IPO price of $28 in 2020 despite revenue and earnings before interest, taxes, depreciation, and amortization (EBITDA) being materially higher. The company is in the business of buying royalties, originally funded by debt with profits recycled into new opportunities. As interest rates rose throughout the year, the stock came under pressure as fears of a smaller spread between royalty deal IRRs and the cost of capital hit the stock. This fear looks overblown with only 21% of current debt being variable and the majority of its fixed rate debt not due until after 2030. With an average cost of debt of 5% and 2023 deal internal rates of return (IRRs) averaging low teens, we believe the model still works. This environment has only served to grow the total addressable market. Run by a proven business leader, we believe the company can continue to invest at attractive spreads. Trading at just 8x earnings, we believe you are getting an attractive entry point to own a leader in the space.”