The second quarter saw Samuel Isaly, founder of $10 billion fund OrbiMed Advisors add shares to his fund’s current holding of Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA), and sell off shares in Otonomy Inc (NASDAQ:OTIC) and NewLink Genetics Corp (NASDAQ:NLNK), according to 13F forms filed with the SEC. Will these moves help Isaly develop his reputation as one of the leaders in healthcare investing?

 

Isaly is the managing partner of OrbiMed Advisors, which he founded in 1989, after a career as a healthcare analyst at Chase, Merrill Lynch, Legg Mason and SG Warbug. Isaly was recently featured in Barons as the only US mutual fund manager to consistently beat the S&P 500 for the last 25 years. OrbiMed invests in all types of medical companies from biopharmaceuticals to medical devices and healthcare services worldwide.

The New York based Isaly is determined to find companies around the world that will return double-digit returns for his investors. He recently said in an interview, “I’m more driven than ever, I am learning something new every day. It’s in my genes and those of my three children and six grandchildren. We want to be top, the best in everything we do.” Isaly is hoping that the adjustments to his holdings in Otonomy, NewLink and Teva will help his fund continue its past success. Let’s take a closer look:

Teva Pharmaceuticals Industries Ltd

During the second quarter, Isaly took a big stake in Teva that didn’t turn out well so far. Isaly has lifted his hedge fund’s holding in the drug maker by 28% to 526,300 shares worth $174,840,000. Unfortunately, the stock has gotten annihilated, falling from $32 to around $18 per share today.

Teva had disappointing earnings in the second quarter that also highlighted some major core challenges the firm is going to face in the future. In the second quarter, Teva reported sales of $5.69 billion, which was higher than last year but most of its growth came from its acquisition of Actavis. Its EPS was a major disappointment coming in at $1.02 versus $1.25 a year ago. That said, the biggest cause of the sell-off in shares was Teva cutting its full-year sales forecast by more than $1 billion.

There were several issues that came to surface in the report; the first being that generic drugs are under major competitive pressure which is hurting the industry’s margins and pricing power of generic drug makers like Teva. Another major cause for concern for investors is that Teva’s multiple sclerosis injection Copaxone is set to face generic competition soon. Lastly, there is Teva’s debt situation. Teva ended the second quarter with more than $35 billion in debt, mostly accumulated from its Actavis acquisition. Management at Teva have acknowledged that this huge amount of debt is restricting the company from being financially flexible. Teva is looking into selling some of its non-core assets to help pay down some of its debt.

On a positive note, Teva announced today that its Board of Directors has named Kåre Schultz to become the Company’s President and CEO, sending shares up nearly 20%. Schultz will succeed Dr. Yitzhak Peterburg, who will continue to serve as Interim Chief Executive Officer until Mr. Schultz joins the Company.

Out of 15 analysts that have given Teva a rating in the last three months, 12 gave a Hold rating and 3 gave a Sell rating according to TipRanks. The average price target is $27.06, a 75% upside from current levels.

Otonomy Inc

Isaly cut his position in Otonomy by 16% after selling 291,020 shares. His total holding in OTIC is now 1,559,047 shares for a total value of $290,389,000. Isaly saw the shares plummet nearly 80% in the end of August following disappointing results in the company’s Phase 3 trial for its vertigo drug Otividex.

Specifically, the Phase 3 trial missed its primary endpoint, which was the count of definitive vertigo days by Poisson Regression analysis. Patients in the Otividex and placebo groups had similar reductions in the amount and intensity of their vertigo during the three-month observation period. Patients receiving the drug reported a 58% reduction in vertigo frequency, while the placebo group had a 55% reduction.

Analysts are mixed on their ratings for Otonomy according to TipRanks. In the last three months two analysts gave it a Buy rating, while 2 gave it a Hold rating. The company has a Moderate Buy rating with a price target of $12, marking a 233.33% upside from current levels.

NewLink Genetics Corp

Isaly may have sold off part of his holding of NewLink too quickly as the stock jumped over 120% this past week after updating data from its ongoing phase 2 trial. Isaly shrunk his holding in NewLink by 8% after selling 145,700 shares. His total holding is now 1,846,000 shares, which is worth $135,680,000.

NewLink updated data from its ongoing phase 2 trial of IDO inhibitor indoximod in advanced melanoma. The news has helped the immuno-oncology company make up some of the value it lost over the summer when indoximod failed in a mid-stage breast cancer trial.

The updated data was regarding a trial evaluating indoximod plus PD-1 inhibitor Keytruda in patients with advanced melanoma. The data showed improvements from data in April in the number of patients who had a complete response when receiving the two-drug combination. The response rate increased to 20% from 12% and the overall response rate jumped up from 59% to 61%. NewLink still needs to test the efficacy and safety of this combination in a phase 3 trial.

According to TipRanks analysts have a strong Buy rating on NewLink, with all 4 analysts who rated the company in the last three months giving a Buy rating. The average price target for the company is $22, representing a 24.50% upgrade from current levels.