Healthcare sector has proven itself to be one of the most resilient sectors of the US economy. Since healthcare cannot be outsourced and represents an expense that people usually cut on last during economic downturns, investing in healthcare stocks is a good way to recession-proof your portfolio. Moreover, the sector itself is comprised of many industries. Moreover, the aging population and advancement in technology that also affects the sector suggests that the sector will thrive in the years ahead as well.
There are many options when it comes to investing in the healthcare sector. For new and inexperienced investors, the best approach is to go with ETFs or Index funds, or stick to big pharmaceutical companies. Investors looking for dividends, should consider healthcare REITs. Then there is the biotech sector.
In the current bull run, biotech stocks have been among the star performers. Since March 2009, iShares NASDAQ Biotechnology Index (ETF) (NASDAQ:IBB) has surged more than fourfold, versus S&P 500’s gain of 270%. The biotech industry had been very hot a couple of years ago, with biotech startups flooding the IPO market, which prompted analysts and even the former Fed chair Janet Yellen to warn investors about a bubble. However, since the middle of 2015, the biotech industry has went through a cool-down period, with the iShares NASDAQ Biotechnology Index (ETF) (NASDAQ:IBB) down by over 7% from its 2015 highs.
Despite the risks and pitfalls, the biotech industry is still a good investment. There are many companies with promising drugs in their pipelines and big companies with products already on the market. Navigating through individual stocks is tricky and biotech stocks are even more complicated since they also require more research into their drugs, either already available or still under development.
Therefore, a good idea is to look at where hedge funds are investing among biotech stocks. Hedge funds often employ people that are specialized in the biotech industry and research carefully each stock they invest in. There also are biotech-focused funds like Mark Lampert‘s Biotechnology Value Fund, or Anders Hove and Bong Koh’s VHCP Management, but we would like to do an overall overview of how hedge funds are “feeling” about the biotech industry.
To assess the hedge fund sentiment towards biotech stocks, we have looked at the data compiled from the last round of 13F filings. We track over 650 hedge funds as part of our small-cap strategy (read more details here) and aside from identifying stock picks that are part of the strategy, we can also see the popularity of thousands of other stocks among the hedge funds in our database.
When it comes to biotech stocks, we noticed a decline in interest among hedge funds. If at the end of 2015, the most popular biotech stock (Gilead Sciences, Inc. (NASDAQ:GILD)) ranked on the 19th spot, at the end of 2017, the most popular biotech stock was on the 44th spot. Nevertheless, we have identified the most popular biotech stocks among hedge funds and have selected those that saw the largest increase in popularity during the fourth quarter.
bluebird bio Inc (NASDAQ:BLUE) is far from being the most popular biotech stock, yet it saw the largest increase in popularity during the fourth quarter. At the end of December 38 funds held shares of bluebird bio Inc (NASDAQ:BLUE), up by 12 funds over the quarter. Moreover, a year earlier there were only 24 funds long bluebird bio Inc (NASDAQ:BLUE). At the end of February, bluebird bio Inc (NASDAQ:BLUE) posted its fourth-quarter results and even though both net loss of $2.52 per share and revenue of $4.17 million, missed the consensus estimates by $0.82 and $2.89 million, respectively, the revenue surged by 169% on the year on the back of a jump in collaboration revenue. The company’s stock has surged by over 160% in the last year amid substantial quarterly revenue growth and several milestones, including progress in the development of its key drug candidate LentiGlobin and the acquisition of a manufacturing facility.
In Iqvia Holdings Inc (NYSE:IQV), there are 48 funds long the stock as of the end of 2017, up from 44 funds a quarter earlier. A year earlier, there were 37 funds holding shares of the company, which was known as Quintiles IMS Holdings. Quintiles changed its name into Iqvia Holdings Inc (NYSE:IQV) in November and changed its ticker to IQV from Q (a year earlier Quintiles and IMS Health completed their merger). Iqvia Holdings Inc (NYSE:IQV) provides solutions and information and contract research services and has many high-profile clients among the top pharmaceutical and biotech companies. Iqvia Holdings Inc (NYSE:IQV) posted better-than-expected results for the fourth quarter and updated its 2018 guidance due to changes in reporting standards. The company now expects full-year revenue between $10 billion and $10.20 billion and EPS between $5.20 and $5.45, versus the previous ranges of $8.45 billion – $8.65 billion and $5.35-$5.60, respectively.
During the fourth quarter, the number of funds from our database long Biogen Inc (NASDAQ:BIIB) increased by nine to 63, but, since the end of 2016, the number of bullish funds declined by 13. Recently, the company’s stock took a couple of hits on the back of several developments. In February, Biogen Inc (NASDAQ:BIIB) clinical trial of a multiple sclerosis drug failed to beat placebo and provided an update on its study of an Alzheimer’s disease drug. At an investor conference, a Biogen executive said the study of aducanumab will increase the number of patients by 510 to 3,210 due to increased variability. However, the investors took the news as a sign that the drug was not showing good enough results and sent the stock lower, although CEO Michael Vounatsos said that the stock movement was an overreaction. Earlier this month, Biogen and AbbVie Inc (NYSE:ABBV) have withdrawn Zinbryta, a multiple sclersis drug, from the market after reports of severe immune reactions.
Celgene Corporation (NASDAQ:CELG) saw 66 funds in our database long its stock at the end of 2017, up from 63 funds a quarter earlier, but down from 69 funds at the end of 2016. At the end of February, Celgene Corporation (NASDAQ:CELG)’s stock tanked on the back of the FDA rejecting the company’s new drug application for multiple sclerosis drug candidate ozanimod, which was expected to be a blockbuster with billions in sales. The “refusal to file” was due to insufficient data and Celgene Corporation (NASDAQ:CELG) intends to remedy the situation and resubmit the NDA.