Dmitry Balyasny is a trader who manages over $12 and a half billion dollars at the multi-strategy, worldwide hedge fund he founded just sixteen years prior: Balyasny Asset Management (BAM). A man does not amplify $2 billion in assets to over six times that without knowing how to take a smart risk every now and again. Therefore, it is no surprise to see the hedge fund mogul decide to lean into Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) and Synergy Pharmaceuticals Inc (NASDAQ:SGYP) while rocketing up his fund’s stake in Opko Health Inc. (NASDAQ:OPK).
In a quickly and constantly changing market, the analyst has expressed to investors that with all eyes on alpha-driven gains, there may not be “enough alpha” to satisfy the masses. However, with beginnings in a tiny office founded in Chicago, Illinois, Balyasny has not brought to the table standout returns without the help of beyond 90 teams, all offering the latest investment insights. A philanthropist whose trading pursuits were shaped first under the helm of Schonfeld Securities back in the early ’90’s, Balyasny has been actively investing in hedge funds from before the start of the millennium.
Let’s dive in to the macro investor’s positive leaps into the biotech sector n the third quarter:
Teva May Have Missed on Q3 Earnings, But Balyasny Embraces the Gamble
Balyasny boldly initiated a position of 1,645,926 shares in Teva valued at $28,968,000 in a third quarter move that goes against the grain. Most on Wall Street have questions on this troubled Israeli pharma giant deep in debt. After the company saw a nearly 20% loss in value upon delivering a third quarter miss and a 2017 chopped guide, the hedge fund guru clearly is finding himself gravitating to his favorite kind of stock situation: the “misunderstood.”
Yet, one hedge fund manager’s underestimated biotech player is another’s skeptical stock option lacking financial resilience and without immediate turnaround.
As far as J.P. Morgan analyst Chris Schott is concerned, Teva is simply in hot water. Between “an extended road to recovery” coupled with “no clear fundamental inflection in sight,” this analyst retreats to the bears on the debt-laden giant.
Even as Schott acknowledges that Teva’s new leadership in Kare Schultz, cherry picked from Danish drug maker Lundbeck to save the battered ship, marks an encouraging move forward, this does not change the long, challenging road ahead of the company.
With a comeback far from sight, the analyst downgrades TEVA stock from a Neutral to an Underweight rating with a price target of $11, which implies a 19% downside from where the stock is currently trading. (To watch Schott’s track record, click here)
Ultimately, Teva does not measure up to its competitors at the end of the day for Schott, who argues, “…with other names in the space reporting inline/better than expected 3Q results, we see more attractive opportunities elsewhere in the sector and do not see a reason to step into TEVA shares at current levels. While Teva’s recent appointment of Kare Schultz as President and CEO (joined Nov 1) represents a clear positive in our view, adding a highly creditable executive with significant industry experience, we do not see any quick fixes for Teva… Overall, we believe Kare Schultz has the right background/experience set to evaluate and execute on restructuring opportunities in the Teva portfolio having successfully implementing a two-year restructuring program at Lundbeck with cost reductions exceeding expectations. However, with declining core business performance, we expect Teva’s leverage to reach >5x in 2018, limiting the new management team’s financial flexibility as it pursues a new strategic plan.”
In a Wall Street game of new bulls like Balyasny and new bears like Schott, who wins out the verdict on the troubled biotech giant? The case is not closed here, with the battle torn between the two and TipRanks analytics demonstrating TEVA as a Hold. Based on 19 analysts polled by TipRanks in the last 3 months, 3 rate a Buy on Teva stock, 12 maintain a Hold, while 4 issue a Sell on the stock. With a return potential of nearly 8%, the stock’s consensus target price stands at $14.93.
Synergy Magnetizes a New Bull in Balyasny
Synergy likewise has enticed BAM’s bullish attention, attracting an opening stake of 1,383,400 shares worth $4,012,000 under Balyasny’s leadership.
The company just last Monday revealed the pricing of common shares and warrants that has sent the stock in a tumble, having lost 28% total in value since the news broke. Dilution scare or bolstered balance sheet at play?
While the market may be initially scared off, Canaccord analyst John Newman sides with Balyasny in the bullish camp after the drug maker’s third quarter performance, intrigued by Trulance’s opportunity in the chronic idiopathic constipation (CIC) market.
“Recent formulary wins [are] notable,” writes the analyst, calling for more upside ahead while rating a Buy rating on SGYP stock with a price target of $13, which implies a close to 567% upside from where the shares last closed. (To watch Newman’s track record, click here)
Coming up, Synergy’s PDUFA fate hangs in the balance, scheduled for January 24th for an sNDA in IBS-C, and Newman boasts “confidence” that a green light is not far behind. This will in turn place Trulance’s adoption curve at an even more enticing advantage, especially when the company puts into place direct-to-consumer advertising. Newman angles for a “meaningful positive impact” come 2018 once more awareness spreads for the company’s lead asset, allowing SGYP to “level the competition field to some extent.”
Overall, Newman’s enthusiasm on Synergy aligns well with Balyasny’s, as the analyst surmises: “SGYP is expecting most remaining new-to-market (NTM) blocks to be lifted in 1H18, which would give Trulance more favorable access across commercial, Medicare Part D and Managed Medicaid plans. In 3Q17, more than 25K Rx were filled (+105% over 2Q17), totaling ~38K Rx since launch in March. The Rx volume is driven by over 7000 physicians (+87% over 2Q17), and 50% of the volume came from patients who were new to branded treatment and 42% was from conversions, consistent with what we have seen in previous quarter. Overall, the Rx volume growth is within our expectation and the pattern continues to suggest strong value proposition for Trulance given the high portion of therapeutic conversions in the Rx volume. In addition, the formulary wins should help continue to support Trulance’s growth trajectory.”
Early initial word hovering around this drug maker points to the bulls, as TipRanks analytics exhibit SGYP as a Buy. Out of 6 analysts polled by TipRanks in the last 3 months, 5 are bullish on Synergy stock while 1 is bearish. The 12-month average price target stands at $7.75, marking a 297% upside from where the stock is currently trading.
Opko Gets a Big Lift Up
Opko was already in Balyasny’s pocket of compelling prospects, but in a savvy third quarter play, the hedge fund guru is revving up the confidence, taking his holding up 234,738 shares worth $1,610,729. This is a massive boost of 584%, which has taken the trader’s fund’s holding up to 275,000 shares worth a total of $1,887,000.
Interestingly enough, this biotech firm failed to meet Street-wide expectations in its third quarter, yet Cantor analyst Louise Chen echoes Balyasny’s quarterly move radiating enthusiasm for the company’s prospects. Chen stands by Opko’s “rays of sunshine” waiting in the wings despite a dip in revenue from services that led to a gaping sales underclass, noting this is “attributable to lower pricing at BioReference’s GeneDx division.”
Bullish on the company’s longer-term trajectory, the analyst rates an Overweight rating on OPK stock with a price target of $20, which implies a nearly 305% increase from current levels. (To watch Chen’s track record, click here)
“Despite these weaker than expected sales, our investment thesis remains intact, and we continue to think that the long term sales and earnings potential of the company’s business are underappreciated and that upward earnings revisions in 2018+, to levels not reflected in consensus expectations, should drive the stock higher. We expect upward earnings revisions to be driven by: 1) the uptake of Rayaldee, 2) commercialization of OPK’s branded drug pipeline, and 3) BioReference sales growth and margin expansion,” asserts Chen.
For the third quarter, OPK posted a loss of $0.08 per share, short 3 cents of FactSet consensus expectations and a miss of 4 cents compared to Chen’s forecast. While Chen continues to back Opko’s opportunity, he has adjusted his estimates for 2017 with a cut back in EPS expectations. The drug maker closed out September with $100.3 million between cash and equivalents, expecting kidney disease franchise Rayaldee to achieve profitability at $8 million to $10 million in sales per quarter.
According to TipRanks, both Balyasny’s as well as Chen’s attitude toward the stock aligns positively with investor sentiment on the Street, considering that out of 5 analysts polled in the last 12 months, the majority of 4 are bullish on Opko stock with only 1 bearish analyst. With a return potential of 185%, the stock’s consensus target price stands at $14.10.