In this article, we will present the 10 best stocks to invest in according to the billionaire biotech hedge fund manager Joe Edelman. Click to skip ahead and see the 5 Best Biotech Stocks to Invest In.
Joseph Edelman is one of the most successful biotech hedge fund portfolio managers since he founded Perceptive Advisors in 1999, with the strategy of generating gains by investing in small and mid-cap biotechnology stocks. The assets under management of Edelman's hedge fund soared from $6 million in 1999 to almost $6.85 billion in the last two decades.
Its flagship fund, Perceptive Life Sciences Fund, specializes in investing money in small- and mid-cap biotech companies. The fund reported losses in 2002, 2008 and 2018 when the broader biotech index fell at a high double-digit rate. Biotech stocks have a little correlation to the broader stock market because these stocks make moves on speculations and events such as trial results and FDA approval.
Joseph Edelman's Life Sciences fund returned 53.7% last year, driven by the strong performance of its largest stock holdings including the biggest position Mirati Therapeutics (MRTX) and Global Blood Therapeutics (GBT). The biotech hedge fund has managed to generate an impressive 30% average return since 1999. The fund has reported massive returns of 129% in 1999 and 155% in 2000 while returns remained higher than 50% in 2003, 2013, and 2019. Perceptive's returns were also above 40% in 2015 and 2017. When evaluating a hedge fund's potential to deliver large returns, you should ignore its returns in earlier years and focus on its returns in recent years. In that regard Perceptive has been generating spectacular returns since 2013 for a mid-size hedge fund. You shouldn't blindly follow a hedge fund's stock picks, but if your conclusion about a stock idea doesn't match with the conclusion of a hedge fund with a stellar track record of identifying winners, you should double check your analysis.
Best Biotech Stocks to Invest In
Along with short-term investments, the veteran hedge fund manager likes to hold investments for years. The average time held for top ten stocks hovers around 6.70 quarters while top 10 stock holdings account for 43% of the overall portfolio. Perceptive Advisors have been spending strongly on research before taking any positions. Therefore, the biotech hedge fund holds those investments for the long-term. That is why the time held for the top 20 stocks stands around 8.05 quarters.
Biotech stocks are event-driven securities, meaning they move up or down on news, such as clinical trial data and FDA approvals. They have little correlation to the overall stock market or the economy. Obviously most small and micro-cap biotech stocks are money losing companies and they need access to capital markets to fund their operations and research. Investors' appetite for risk diminishes significantly during recession or financial crises. It may become very difficult for small and micro-cap (speculative) biotech stocks to convince investors and raise additional capital during these periods. As a result of increasing risk of insolvency and bankruptcy biotech stocks also experience large declines during bear markets. So, that's one main source of correlation between biotech stocks and the broader market. However, in normal times biotech stocks are relatively less correlated with the overall market, your performance as an investor really depends on your ability to identify the best biotech stocks to invest in.
While Joseph Edelman's reputation remains intact, the same can’t be said of the hedge fund industry as a whole, as its reputation has been tarnished in the last decade during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 78 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 16. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
Following the trading principles and investment strategies of one of the most successful biotech hedge fund manager would definitely help new and even advanced investors in making profits from the biotechnology sector. Let’s start reviewing the 10 best biotech stocks to invest in according to the billionaire biotech hedge fund manager Joe Edelman.
A clinical-stage biopharmaceutical company SpringWorks Therapeutics (NASDAQ: SWTX) is the tenth-largest stock holding in biotech billionaire Joseph Edelman’s portfolio. The hedge fund holds 3.4 million shares of SpringWorks valued at $165 million, accounting for 2.39% of the portfolio. The firm initiated a position in SpringWorks during the third quarter of 2019 when it was trading around $22 a share.
According to an Insider Monkeyreport, bullish hedge fund bets are currently standing at an all-time high. The shares of this clinical-stage biopharmaceutical company soared almost 149% in the last twelve months. The share price rally is supported by its strong cash position. The company has also recently completed enrollment in the phase 3 DeFi trial of Nirogacestat in Adult Patients with Desmoid Tumors.
It has also recently signed clinical collaborations with Janssen, Pfizer, and Precision Biosciences to evaluate nirogacestat in combination with BCMA-directed therapies. The company says, “Our ten clinical development programs are progressing as planned and we look forward to providing further updates as we advance our pipeline and continue to execute on our strategy to build a leading targeted oncology company.”
MyoKardia, Inc. (MYOK) ranks 9th in our list the 10 best biotech stocks to buy now. Edelman first bought MyoKardia shares in 2015.
The largest pharmaceutical companies always like to buy small biotech companies with strong pipelines. Bristol Myers Squibb (NYSE: BMY) acquired MyoKardia last month in an all-cash transaction for $13.1 billion. The shares of MyoKardia have ceased trading on the stock exchange as it becomes a subsidiary of Bristol Myers Squibb. Through the acquisition, Bristol Myers Squibb gains mavacamten, a potential cardiovascular medicine BMY plans to use for the treatment of obstructive hypertrophic cardiomyopathy.
A small-cap clinical-stage biopharmaceutical company Zymeworks (ZYME) ranks eighth in our list of the 10 best biotech stocks to buy now according to Perceptive Advisors. The veteran hedge fund manager first initiated a stake in Zymeworks during the second quarter of 2017. The hedge fund has raised its stake in biopharmaceutical company Zymeworks in the latest quarter by 22%.
Perceptive Advisors is currently holding 4.4 million shares of Zymeworks valued at $204 million, representing 2.09% of the overall portfolio. Joseph Edelman’s portfolio benefitted from its stake in Zymeworks over the years. ZYME stock price soared from its IPO price of $13 in 2017 to $52 a share at present.
“Zanidatamab’s clinical development continued to expand this quarter, having opened new sites across the globe for the pivotal trial in HER2-amplified biliary tract cancers toward our first potential BLA submission,” said Ali Tehrani, Ph.D., Zymeworks’ President & CEO. “We are well-resourced to achieve this milestone for zanidatamab, along with advancing the development of ZW49 into expansion cohorts and beyond.”
Hedge funds are bullish on Zymeworks, according to an Insider Monkey report. “Zymeworks was in 31 hedge funds’ portfolios at the end of June. The all-time high for this statistics is 27. This means the bullish number of hedge fund positions in this stock currently sits at its all-time high. There were 27 hedge funds in our database with ZYME holdings at the end of March. Our calculations also showed that ZYME isn’t among the30 most popular stocks among hedge funds.”
CYTK ranks 7th in our list of the 10 best biotech stocks to buy now. A late-stage biopharmaceutical company Cytokinetics, Incorporated (CYTK) is a member of Perceptive Advisors portfolio over the past two quarters. The hedge fund has slightly slashed its position in the latest quarter to capitalize on share price gains. Despite selling a 2% stake in the September quarter, Cytokinetics accounts for 3.14% of the overall portfolio.
Shares of Cytokinetics soared more than 100% in the last twelve months. Its third-quarter revenue of $41.7 million jumped 589.3% year over year. The company also appears in a strong cash position to invest in research and development. It ended the third quarter with cash, cash equivalents, and investments at $451.2 million.
"We continued to make progress on our pipeline, highlighted by the advancement of CK-274 in REDWOOD-HCM and our advancing a second cardiac myosin inhibitor into clinical development. With a strong balance sheet, fortified by business development and financing deals completed in July, we are well-positioned to continue funding the progression of our muscle-directed drug candidates in clinical trials,” the company said in an earnings call.
The small-cap biotechnology BridgeBio Pharma, Inc. (BBIO) deals with medicines for genetic diseases. It is the sixth-largest stock holding of biotech billionaire Joseph Edelman’s portfolio, accounting for 3.62% of the overall portfolio. The veteran hedge fund manager first initiated a stake in BridgeBio Pharma during the second quarter of 2019. The hedge fund is currently holding 6.7 million shares valued at $251 million.
BridgeBio Pharma shares soared more than 80% in fiscal 2020. The investors have also applauded the joint venture between BridgeBio Pharma and Maze Therapeutics. The company is well set to achieve several milestones in fiscal 2021.
“We are nearing a significant inflection point as a company as we approach the start of 2021. Our four key programs have critical data readouts within the next year and a half – in ATTR, achondroplasia, CAH, and ADH1. We are progressing 17 ongoing clinical trials and we are preparing for commercialization, to bring our first investigational therapy to patients. There has never been a more exciting moment to be at the forefront of the revolution taking place in genetic medicine,” said BridgeBio CEO and founder Neil Kumar, Ph.D.