You might have heard about Wildcat Capital Management and Leonard Potter before, although they are not as widely covered by financial websites like Warren Buffett, Carl Icahn, or Bill Ackman. Since it’s a family office (it manages the wealth of billionaire David Bonderman, his family and a group of friends), it’s usually very private. We have covered Wildcat in several articles that discussed its stock picks that are publicly disclosed in quarterly 13F filings. Wildcat is one of the best stock pickers to follow, because in the last couple of years, its publicly-disclosed holdings generated very impressive returns. For example, in the 12-month period ended September 2017, Wildcat’s non-microcap stock picks had a weighted average return of 218%. In the first quarter of 2018, Wildcat’s stock picks returned 15%, while for the year ended March 31, the returns stand at 159%, which make it one of the best-performing hedge funds among those we track.
Wildcat’s actual results might be different from our calculations. Family offices often look for alternative investments and are an important source of funding for startups and private companies. Wildcat is no exception. For example, in April Wildcat formed a strategic partnership with car wash companies Moo Moo Express and Flying Ace Express and united them under one company called Express Wash Concepts, according to a press release. However, we focus solely on investments in publicly-traded companies, when we assess a fund’s returns, because this helps us determine whether the investor falls under our criteria and can be included in our flagship investment strategy. The strategy involves identifying 100 best-performing hedge funds and other investors and finding the best stocks with market caps between $1.0 billion and $10 billion that these funds are collectively bullish on. This approach was thoroughly backtested and has shown impressive results since our strategy was launched four years ago. Since May 2014, our flagship strategy returned more than 84%, beating the S&P 500 ETF (SPY) by more than 30 percentage points. Recently we have released our latest stock picks and you can access them by subscribing to our newsletters here.
One of the biggest successes in Wildcat Capital’s equity portfolio was Kite Pharmaceuticals, which represented almost 78% of the total portfolio value at the end of September 2017, just before the company was acquired by Gilead Pharmaceuticals. Wildcat invested in Kite Pharmaceuticals when it was a private company, and according to Bloomberg the acquisition netted the fund a profit of at least $425 million. Wildcat’s other top pick, CoStar Group Inc (NASDAQ:CSGP), which is currently it’s largest bet, amassing 46% of the portfolio, also performed strongly over the last year, and so did LPL Financial Holdings Inc (NASDAQ:LPLA) and Sabine Royalty Trust (NYSE:SBR), which are the second- and third-largest positions, with a share of around 10.5% of the total value of the equity portfolio each.
What’s interesting is that Wildcat seems to be rebuilding its exposure to the healthcare sector. When the fund was still holding Kite Pharmaceuticals, it steadily had over 60% of its portfolio allocated towards biotech stocks, with Kite being the largest holding, followed by smaller positions, in companies such as NantKwest Inc (NASDAQ:NK), in which it has been gradually reducing its position over the last couple of years. At the end of 2017, Wildcat had just 8% of its equity portfolio invested in biotech, but during the first three months of 2018, the fund added two new positions: it re-added Editas Medicine (NASDAQ:EDIT), after having closed a stake a quarter earlier, and Sienna Biopharmaceuticals Inc (NASDAQ:SNNA). It also boosted its investment in Urogen Pharma Ltd (NASDAQ:URGN). In this way, Urogen Pharma Ltd (NASDAQ:URGN), Editas Medicine (NASDAQ:EDIT), and Sienna Biopharmaceuticals Inc (NASDAQ:SNNA) are Wildcat’s fourth, fifth, and sixth-largest holdings respectively as of the end of March and we will discuss them in more detail to see if you should follow Wildcat’s moves.
Generally speaking, biotech stocks are a very tricky investment, because these are companies that are still working on developing a product, don’t have revenue, so their success depends on the outcome of the products in their pipeline. Therefore, a lot of analysis is required, but looking at stocks that skilled stock pickers like Wildcat are betting on, can provide some useful shortcuts in determining the best biotech stocks to invest in. To get more biotech investment ideas, you can also take a look at these stocks that top biotech focused funds have bought.
Wildcat Capital Management added Urogen Pharma Ltd (NASDAQ:URGN) to its portfolio during the second quarter of 2017 (when the company went public) and in the first three months of 2018 it raised the stake by 42% to 181,702 shares worth $9.03 million. Since the IPO, the stock has more than tripled in value, helped by optimism in the company’s pipeline. It doesn’t have a developed product yet, but it has recently reported preliminary results from a Phase 3 study of its MitoGel product for the non-surgical treatment of low-grade upper tract urothelial cancer. The data showed a complete response rate of 59% in 34 patients. The drug appeared to be well-tolerated and the trial showed a lot of promise. Top-line results from the Phase 3 study are expected in the second half of 2018 and Urogen Pharma Ltd (NASDAQ:URGN) is currently planning to submit an NDA for the drug in the first quarter of 2019. MitoGel has previously received Orphan Drug status and Fast Track designation for urothelial carcinoma.
In Editas Medicine (NASDAQ:EDIT), Wildcat first initiated a stake in 2016 (when Editas conducted its IPO), but it sold the position during the fourth quarter of 2017, with gains of around 91%. During the first three months of 2018, Wildcat acquired 185,668 shares of Editas Medicine (NASDAQ:EDIT) valued at $6.16 million. Editas Medicine (NASDAQ:EDIT) is a discovery-phase pharmaceutical company that is working on developing therapies based on CRISPR-CAS9 gene editing technology. The CRISPR-CAS9 technology is currently in the middle of a dispute related to ownership. At the end of April, representatives from several research institutions, including the University of California at Berkley, the Broad Institute of Technology (which includes Harvard and MIT) presented their arguments in the US Court of Appeals. In 2012, Berkley professor Jennifer Doudna and Emmanuelle Charpentier described the CRISPR (Clustered Regularly Interspaced Short Palindromic Repeats). They filed for a patent, but Feng Zhang, a reserchear at the Broad Institute of Technology, was first to win the patent by expediting the patent review process by paying a fee. In 2015, Berkley contested the patent, but last year, the US patent office ruled that the patent belongs to Zhang and the Broad Institute.
On the outcome of the dispute depend billions of dollars. CRISPR-CAS9 technology is very important for the biotech industry, because it allows very precise DNA editing. CAS9 is an enzyme that acts as “molecular scissors” and can cut, edit, or correct disease-associated DNA in a cell. Editas Medicine (NASDAQ:EDIT) has licensed the technology from the Broad Institute. The company is currently working on several projects, including some drug candidates that it is developing in collaboration with Cellgene (NASDAQ:CELG). Recently, Editas Medicine (NASDAQ:EDIT) has announced that its EDIT-101 product for Leber Congenital Amaurosis type 10 is on track for an application for Investigational New Drug sometime this year.
In Sienna Biopharmaceuticals Inc (NASDAQ:SNNA), Wildcat Capital Management initiated a $5.55 million position that contains 295,613 shares as of the end of March. Sienna Biopharmaceuticals Inc (NASDAQ:SNNA) went public last July and the stock is down by 23% since the IPO. The company is engaged in developing topical products in medical dermatology and aesthetics. It currently has five programs in its pipeline in various stages. Sienna Biopharmaceuticals Inc (NASDAQ:SNNA) has two platforms: Topical by Design, which includes SNA-120 for the treatment of pruritus associated with psoriasis and underlying psoriasis and SNA-125 for the treatment of atopic dermatitis and psoriasis, and Topical Photoparticle Therapy, which includes SNA-001 for the treatment of acne and for the reduction of light-pigmented hair. Sienna is expected to present Phase 2b top-line results for the SNA-120 in the first three months of 2019, while for SNA-125 it expects to present Phase 1/2 proof-of-concept results for the treatment of dermatitis in the fourth quarter of 2018 and for the treatment of psoriasis in the third quarter of 2018. In the second half of 2018, Sienna Biopharmaceuticals Inc (NASDAQ:SNNA) expects to present pivotal results from its SNA-001 clinical-stage programs.