Zach Wohlberg

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Marshall Wace Pulled Back Holding in Intercept Pharmaceuticals Inc (ICPT), Optimistic About Valeant Pharmaceuticals Intl Inc (VRX) and Exelixis, Inc. (EXEL)

A first glance at this hedge fund's strategic Q2 moves in biotech sector.

London based hedge fund Marshall Wace, which was founded by Paul Marshall and Ian Wace, was active last quarter making some changes to its biotech portfolio. The fund slashed position in Intercept Pharmaceuticals Inc (NASDAQ:ICPT), while initiating a new position in Valeant Pharmaceuticals Intl Inc (NYSE:VRX). The fund also expressed its optimistic outlook in Exelixis, Inc. (NASDAQ:EXEL) by adding a significant number of shares to its current holding.

Marshall Wace was founded in 1977 and is a leading investment manager specializing in equities, both long and short. The fund stresses fundamental investing with systematic and quantitative strategies to help deliver returns. Marshall Wace is currently one of the largest alternative asset managers in the world with over 240 employees. The firm believes in having a diverse workforce and a culture that enables innovative ideas to be executed quickly.

In 2016, Marshall Wace was ranked a top Institutional Investor’s Alphas Hedge Fund report card after being ranked No. 26 the year before. The fund had posted double-digit gains in two of its funds that year while also receiving high marks for risk management, transparency and infrastructure.

Let’s take a look at some of the moves Marshall Wace made this past quarter to try and help it stay a top the rankings for this coming year.

Intercept Pharmaceuticals Inc

Marshall Wace began to unload its holdings in Intercept, amid a year that has seen the stock lose over 60% of its market value. The fund sold 54% of its shares and now has a holding that is worth $6,424,000.

Top analysts across the Street have cut their price target for Intercept after the company received a warning letter from the FDA regarding its liver-disease medicine Ocaliva. The FDA sent the letter after finding an increased risk of serious liver injury and deaths in patients taking excessive doses of Ocaliva. The agency also stated that the drug may be related to liver injuries in certain patients who took the correct dose of drug.

Ocaliva is used to treat a rare liver disease called primary biliary cholangitis, which causes bile ducts in the liver to become inflamed, damaged and destroyed. Over time the bile builds up and causes the liver to lose its ability to function.

Analyst Ritu Baral of Cowen feels that it is unlikely the FDA withdraws the drug from the market and believes this letter’s goal was to “prevent overdosing and encourage reporting of any other Ocaliva related events.”

The sentiment among analysts is still bullish, with the overall analyst price target being $151.45, a 147% upside from current levels. The overall consensus is a Buy with 7 analysts giving a Buy rating, 5 analysts recommended a Hold rating and the remaining 2 put a Sell rating on the stock.

Valeant Pharmaceuticals Intl Inc

Marshall Wace initiated a new position in Valeant by adding 93,964 shares worth a value of $1,597,000. The fund is hoping that Valeant, which is now trading around $14, can continue its recovery from scandals relating to high prices and shady accounting related to its connection with Philidor.

Analysts are mixed on the future for Valeant, with Mizuho analyst Irina Rivkind Koffler giving the opinion that the future looks bleak due to a collection of business weaknesses. Koffler is expecting to see underperformance across the board in the second half of the year, especially in Diversified revenue.

Diversified revenue, which makes up 30% of Valeant’s EBITA, was down 27.3% Y/Y this past quarter with EBITA margins falling from 81% to 73%. The analyst expects this segment to do even worse in the second half of the year due to the company’s reporting of generic inventory stocking in the first half of 2017.

The company’s second quarter report also showed that Valeant divested a number of its remaining 2Q:17 growth drivers within B&L, Dendreon and Obagi. While Valeant’s management team is relying on its dermatology pipeline, Koffler believes that this pipeline will not meet expectations.

Many analysts seem content with watching Valeant from the sidelines with 7 analysts giving the company a Hold rating. Furthermore, 3 analysts have a Buy rating and 3 have a Sell rating. Overall, the analyst price target for Valeant is $17.83, representing a 26.27% upside from current levels.

Exelixis, Inc.

In the second quarter, Marshall Wace built up its holding in Exelixis by 60%. Its total portfolio value is now $30,755,000 with over 1.2 million shares. Apparently, the fund wanted to increase its exposure to the genomics-based drug company that has risen over 50% this year.

Earlier this summer Exelixis announced it had completed a submission of a new supplemental New Drug Application (sNDA) to the FDA for Cabometyx tablets. These tablets are a treatment for patients with previously untreated advanced renal cell carcinoma (RCC).

The submission was based on results from the CABOSUN randomized phase 2 trial of Cabometyx in patients with previously untreated RCC, with intermediate or poor risk disease.

CEO Michael Morrissey believes that this is an “important milestone” and if approved “will offer an important new alternative for the treatment of patients with previously untreated advanced RCC.” Exelixis already has launched Cabometyx for patients with previously treated advanced RCC.

The company’s stock lost 12% of its value this past week as some investors are worried that the company has become overvalued after being up 65% this year and 1,300% over the last years. Nonetheless, analysts across the Street are optimistic about Exelixis future.

According to TipRanks, out of the 9 analysts who have recommendations on Exelixis in the last 3 months, 6 have Buy ratings and 3 have Hold ratings. The analyst price target for the stock is $30.43, representing a 30% increase from current levels.

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