According to 13F forms filed with the SEC and now released to the public, hedge fund guru Dmitry Balyasny turned bullish on Array Biopharma Inc (NASDAQ:ARRY) in the past quarter. However, Balyasny displayed a very bearish sentiment on troubled Valeant Pharmaceuticals Intl Inc (NYSE:VRX) and Himax Technologies, Inc. (NASDAQ:HIMX).
Balyasny founded Balyasny Asset Management, known as BAM, in 2001 in Chicago. Now the fund has evolved to more than 90 teams, many strategies, and a global footprint. BAM is a multi-strategy hedge fund firm with assets under management (AUM) of over $24 billion. Dmitry Balyasny says: “(we) focus on misunderstood situations”. The fund uses detailed research methods to pinpoint unique ideas capable of generating high returns.
In particular the firm says: “Our teams of software engineers and data scientists work at the forefront of technology, leveraging the latest research in machine learning, big data, cloud computing, and much more. Our technology teams build robust tools that provide our portfolio managers, analysts and traders the information they need to drive our business.”
Now let’s see how this strategy played out in Q2:
Array Biopharma Inc
In Q2, Balyasny ramped up the fund’s holding of Array Biopharma by a whopping 353%. The addition of a further 560,124 shares took the fund’s total holding of the stock to 719,124 shares with a value of just over $6 million. He has gained from the stock soaring after the release of positive data from a Phase 3 clinical trial, BEACON CRC, assessing the combination of three drugs for the treatment of colorectal cancer (CRC). The data was presented at the European Society for Medical Oncology Congress (ESMO) in Madrid leading earlier in September.
Now shares are rising once again as the FDA has announced that the PDUFA date for the company’s new drug application for its melanoma drug is set for June 30 2018. Specifically, the application concerns a combination of binimetinib (bini) and encorafenib (enco) for review in treating BRAF-mutant metastatic melanoma. Cantor Fitzgerald analyst Mara Goldstein reiterated her buy rating on the stock following the news. She has a price target of $15 on the stock- this works out as a huge 42% upside from the current share price.
“Although we anticipated acceptance of the NDA, the formal notice and preliminary review results does reduce regulatory risk, in our view” comments Goldstein. Overall, this news combined with the clinical data, improves Goldstein’s view on the stock in general. She praises the “strong data presentations at ESMO” and says that “BEACON, in our view, is an opportunity to expand the market potential of bini/enco, and the preliminary results showing improved tolerability and PFS above other regimens is a positive sign.”
She sums up the dual win for the company thus: “We believe the bini/enco combination demonstrates best-in-class treatment for melanoma, in addition to emerging data suggesting a role in BRAF-mutant colorectal cancer.”
The stock has a very impressive outlook from analysts. It has a Strong Buy analyst consensus rating and an average price target of $13.67. This works out at an encouraging 30% upside potential from the current share price.
Valeant Pharmaceuticals Intl Inc
Balysany slashed the fund’s holding in controversial pharma stock Valeant by 78%. He sold 608,976 shares in VRX. The fund’s remaining holding of 175,534 shares has a value of just over $3 million. And no doubt top analyst Irina Rivkind Koffler would have encouraged an even greater sell-off. She is the most bearish analyst on VRX, and according to Koffler the situation is becoming even bleaker for VRX. She has a sell rating on the stock and recently trimmed her price target from $8 to $7- a 43% downside from the current share price.
Koffler believes that the company’s diversified revenue will worsen towards the end of the year, and that this will be mirrored by underperformance across the board for the year. Indeed she says “We expect Valeant to miss its 2017 revenue and EBITDA guidance, and FactSet consensus 2018 estimates still appear too high.” If you examine the stock on a sum of the parts analysis, EBITA margins in the critical diversified segment have dropped from ~81% in 2016 to 73% year-to-date.
In Q2 specifically, diversified revenue declined by 23% but still made up 16% of revenue. Worryingly she believes that “This segment should fare even worse in 2H:17, as the company reported generic inventory stocking in 1H:17.” At the same time, the fact that the company has divested assets to reduce its huge debt burden has deprived it of its traditional revenue-generating assets.
All that’s left, says Koffler, as “less attractive businesses”. Similarly dermatology expectations are still too high given that the “Branded Rx business is struggling and the pipeline is unlikely to meet expectations.” The dermatology segment fell 30.9% year-over-year even when comp odds were advantageous- a sign of more difficult times to come says Koffler.
According to TipRanks, VRX has a Hold analyst consensus rating. We can see that in the last three months, analysts have published 3 buy, 7 hold and 3 sell ratings on the stock. The average analyst price target of $17.36 translates into a 23% upside from the current share price.
Himax Technologies, Inc.
In Q2, Balyasny exited Taiwanese fabless semiconductor firm Himax. Previously the fund held 1,990,150 shares in the stock with a value of $20,717,461. Selling up now is definitely the right move according to top Oppenheimer analyst Andrew Uerkwitz. He has a sell rating on the stock and a $4 price target (60% downside).
According to Uerkwitz, the firm’s much-hyped growth prospects have consistently failed to materialize. That is why he is now skeptical about management’s claims of a 3D sensing opportunity. He is also concerned about an increasing number of Chinese rivals on the OEM front, which could further jeopardize the stock.
Uerkwitz states: “We want to be believers this time, but between history, a deteriorating core business, and our checks, we see an over-valued stock with no risk being priced in. In this note we look at the dynamics negatively affecting the company’s DDIC segments, question the 3D sensing opportunity, and look at past growth opportunities that are yet to yield material revenue contribution.”
As a result, he believes that the market has been swept up in a stock euphoria and this means that the stock’s fundamentals, and indeed its history, are being ignored. Furthermore, on a valuation perspective, Uerkwitz says investors are overlooking the risks vs. Himax’s peer group. He puts the nail in the coffin for Himax when he concludes that ultimately, this is a stock that is “over-promising and eventually under-delivering.”
Himax has a Moderate Buy analyst consensus rating on TipRanks. In the last three months, analysts have published 4 buy ratings and 2 sell ratings on the stock. Meanwhile, the average analyst price target of $10.40 stands at a slight downside of -0.1% from the current share price.