Are Hedge Funds Turning Bearish on Healthcare Stocks?

Pfizer Inc. (NYSE:PFE) was in the portfolios of 82 funds tracked by Insider Monkey at the end of 2016, with them holding $5.23 billion worth of stock, with those figures being down marginally from 83 funds with stakes worth $5.5 billion at the end of September. Major sellers of Pfizer Inc. (NYSE:PFE) during the fourth quarter included Jim Simons’ Renaissance Technologies, Israel Englander’s Millennium Management, and D.E Shaw & Co. Pfizer Inc. (NYSE:PFE) has said that it will continue pursuing acquisitions irrespective of size, even though it had to scrap a potential mega-merger with Allergan plc Ordinary Shares (NYSE:AGN) last April. It is now exploring selling some of its drugs and treatments in areas such as cardiology, urology and primary care to generate cash.

The number of institutional investors in our system long Merck & Co., Inc. (NYSE:MRK) decreased by six during the fourth quarter, while the aggregate value of their stakes declined by 28% to $2.77 billion. Suvretta Capital Management and Renaissance Technologies exited their positions in Merck & Co., Inc. (NYSE:MRK), while Millennium Management decreased its stake by 13%, leaving it with 4.72 million shares at the end of the fourth quarter. Merck’s stock was under pressure last year due to the appreciation of the U.S dollar, patent expirations and issues over drug pricing. Though the company’s fourth quarter earnings of $0.89 per share matched analysts’ expectations, its revenue of $10.12 billion missed the $10.22 billion consensus estimate. Recently, the United Kingdom’s healthcare watchdog NICE did not recommend usage of Keytruda for the treatment of new lung cancer patients. The drug is a major money maker for Merck in several indications, and has been approved in Britain for lung cancer patients which had already begun chemotherapy, as well as for those with melanoma.

Johnson & Johnson (NYSE:JNJ) also dropped in popularity among hedge funds during the final three months of 2016, with 76 funds reporting stakes worth $5.31 billion in the company as of December 31, down from 82 funds a quarter earlier. Millennium Management cut its stake in the stock by 97% to just 13,500 shares worth $1.55 million during the period. Shares of Johnson & Johnson (NYSE:JNJ) were down by 2.5% during the year-end quarter. The company reported a net increase of 3.5% in the price of its treatments in 2016. The U.S healthcare giant recently announced that it would acquire Swiss biotech company Actelion for $30 billion. The acquisition will give Johnson & Johnson (NYSE:JNJ) ownership rights to Actelion’s portfolio of rare disease medicines, further strengthening its own drug portfolio.

Disclosure: None