RA Capital Management LLC is a crossover fund manager that invests in public and private healthcare and life science companies developing drugs, medical devices and diagnostics. The Massachusetts-based asset manager was co-founded by Peter Kolchinsky, who received PhD in Virology from Harvard University, in 2001. The investment firm operates as a sophisticated life sciences think-tank that finances private, IPO and follow-on financings for a portfolio of early-stage biotech companies.
In a second-quarter letter to investors, RA Capital Management said that the biotech sector was in a bubble in 2015, “not because valuations were unreasonable, since at any point in time one can point to examples of companies valued too high (even now) or too low (even then), but because generalist investors likely did not know what they were buying.” The following snapshot from RA Capital’s second-quarter letter to investors provides a brief prognosis for the biotech sector:
“(The) biotech sector continues to innovate and build on its accomplishments, addressing humanity’s insatiable need for solutions to its healthcare problems. We draw our optimism from the long-term relevance and value of our sector, from its productivity, growing experience, increasing versatility, and importance to the US economy. Regardless of political rhetoric, we believe that our industry will overcome its image problem and be seen and valued for the engine of good that it is. The pendulum has swung too far and will swing back.”
Although Mr. Kolchinsky’s RA Capital Management was down by 16.4% this year through the end of June, retail investors looking for “pearls” within the biotech space should definitely have a look at the Massachusetts-based firm’s portfolio of investments in publicly traded companies. That said, Insider Monkey decided to compile a list of positive contributors to RA Capital Management’s performance in the second quarter.
Through extensive research, we determined that imitating some of the picks of hedge funds and other institutional investors can help generate market-beating returns over the long run. The key is to focus on the small-cap picks of these investors, since they are usually less followed by the broader market and are less price-efficient. Our backtests that covered the period between 1999 and 2012, showed that following the 15 most popular small-caps among hedge funds can help a retail investor beat the market by an average of 95 basis points per month (see more details here).
Celator Pharmaceuticals Inc. (NASDAQ:CPXX)
– Shares Owned by RA Capital Management (as of June 30): 0
– Value of RA Capital Management’s Holding (as of June 30): 0
– Q2 Return: 173.6%
Celator Pharmaceuticals Inc. (NASDAQ:CPXX) was definitely one of the biggest positive contributors to RA Capital Management’s performance in the second quarter of 2016. In late May, Jazz Pharmaceuticals plc (NASDAQ:JAZZ) agreed to buy the oncology-focused biopharmaceutical company for approximately $1.5 billion, a huge figure for a company that has a promising leukemia drug but no revenue. Under the terms of the agreement, Celator shareholders are set to receive $30.25 per share in cash for each share owned. RA Capital Management sold out its entire stake of 1.41 million shares of Celator during the second quarter, most likely after the announcement of the $1.5 billion-deal. The Massachusetts-based asset manager acquired the 1.41 million-share stake during the first quarter of 2016, so the entire stake was bought for less than $13 a share. In early 2016, Celator shares were trading for less than $2 a share, but positive clinical results from a clinical trial of a leukemia drug released in mid-March drove the value of Celator’s stock much higher. Tom Sandell’s Sandell Asset Management owns 448,293 shares of Celator Pharmaceuticals Inc. (NASDAQ:CPXX) as of June 30.