Larry Robbins of Glenview Capital is one of the most widely-watched investors on Wall Street. During the nine year period from 2001 until 2010, Glenview managed to return over 300% by holding a diversified portfolio, but mainly focusing on healthcare. As Robbins recently outlined in a letter to investors, his bias towards healthcare is based on the fact that the sector has been consistently reporting earnings growth. However, during the third quarter, amid a broader market sell-off, many of Robbins’ healthcare picks lagged, though the investor attributes this underperformance to external factors rather than weak fundamentals of the companies in which he is invested. We have previously discussed some of Robbins’ picks from the hospital and managed care industry, which amassed the largest shares of Glenview’s healthcare allocation (see details). In this article, we will assess some of the fund’s picks from the pharmaceutical and other industries.
We follow Glenview among over 700 other hedge funds, because we believe that imitating hedge fund activity can generate market beating returns over the long-term. However, our backtests that covered the period between 1999 and 2012 showed that following hedge funds’ into their most popular picks generally slightly underperforms the market, while imitating their top small-cap ideas can produce returns well above the benchmark. Our strategy involves following the 15 most popular small-cap picks among hedge funds and it has returned 102% since August 2012, beating the market by some 53 percentage points (see more details here).
Among the external factors that affected Glenview’s returns are the recent issues involving Turing Pharmaceuticals, which raised the price of a drug to $750 from $13.50 shortly after acquiring the rights to it, which led to a lot of political talk regarding drug-pricing policies. However, Robbins assured his investors that all of his pharmaceutical picks generated earnings growth through volume growth and “responsible aggregate pricing decision.” Another factor involves Valeant Pharmaceuticals Intl Inc (NYSE:VRX), of which Glenview has never owned any shares, but, whose 60% drop since August negatively affected other industry names.
“We have no position in Valeant because, to the best of our current knowledge, they are guilty of what looks to be poor judgment in historical price increases on acquired products, but they do not appear to be a fraudulent enterprise, making its share price a gamble on sentiment rather than a long or short investment,” Robbins said.
It should be mentioned that other big players from the hedge fund industry are very bullish on Valeant Pharmaceuticals Intl Inc (NYSE:VRX), including Jeff Ubben and Bill Ackman.
In its latest 13F, Glenview revealed AbbVie Inc (NYSE:ABBV) as its largest holding in the pharma industry, the fund holding 17.86 million shares at the end of June, which represented an increase of 15.41 million shares during the second quarter. AbbVie’s stock lost 18% during the third quarter and took another hit recently after a notice from the U.S Food and Drug Administration that stated AbbVie Inc (NYSE:ABBV)’s Hep-C drug had a high chance of causing liver failure. However, Robbins remains bullish on AbbVie Inc (NYSE:ABBV) over the long-term, and said in the letter that the Hep-C drug problem does not affect Glenview’s long-term thesis, “even under the worst case scenario, which would involve zero future sales of their current Hep-C compound.”
On the following page we will discuss one more pharmaceutical stock that Robbins is bullish on, namely Allergan PLC (NYSE:AGN). We will also see why Glenview cut its stake in the pet care company VCA Inc (NASDAQ:WOOF) earlier in August.