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Baker Brothers Bet Big on Acadia Pharmaceuticals

Posted on December 10th, 2018

The shares of Acadia Pharmaceuticals, Inc. (ACAD) have plunged 40% in 2018. Still, it did not stop the Baker Brothers Advisors L.P. from sharply increasing their holdings in the stock when they had the opportunity. The company filed a $200 million secondary offering on November 26 to raise additional capital as they continue to grow.  The company’s lead drug is NUPLAZID, which is the only drug approved for the treatment of Parkinson disease psychosis.

The stock fell sharply in the Spring after concerns around the safety of their only approved drug NUPLAZID came under fire. The FDA cleared the drug, calling it safe in September. The company received more good news a few weeks later when it reported positive results from a phase 2 clinical trial for the treatment of depression.

The Offering

With investors unimpressed by the positive data, the shares failed to rise. With about $215 million in cash and short-term investments, the company decided it was time to raise capital through a secondary offering on November 26 to sell more stock.  The Baker Brothers, with two seats on the board of directors including one as the chairman, bought a stunning amount of stock on the deal.  Of the 16.1 million shares the company offered to sell, the Baker Brothers bought a total of 11.76 million or roughly 73% of the deal.

A Massive Stake

According to WhaleWisdom’s data, as of November 27, the Baker Brothers owned a total of 39.9 million shares or 32% of the company. That is up from 28.4 million shares or 22.8% of the company as of September 30.  The second largest holder of the stock is Fidelity, with 18.7 million or 15% of the company.  These two holders alone control more than 47% of the total shares, a massive stake between them.


Growth Potential

The weak stock performance comes despite what is forecast to be a robust growth profile for the company. Analysts estimate revenue will grow 34% in 2019 to $298 million, and 81% in 2020 to $540 million. Additionally, the company is estimated to see its losses narrow to $1.75 per share in 2019, and $0.09 per share in 2020. It may be one reason why the Baker Brothers are so bullish on the stock.

Additionally, the company currently has many clinical trials it is running for its lead drug candidate. The next potentially significant clinical results may come in January, for the treatment of schizophrenia, according to the website

With the potential for more positive news on the way, the drug may be on the path to treating more illnesses down the road. That may only lead to more revenue opportunities for the company; it is a bet the Baker Brothers appear to be willing to take.

Hedge Funds Pile Into Amgen

Posted on December 3rd, 2018

Amgen, Inc.’s (AMGN) stock has been hot since the end of the third quarter, rising about 1%. It does not sound impressive, but then again the broader S&P 500 has fallen 5% over the same time, while the iShares NASDAQ Biotechnology ETF (IBB) has fallen 11%. The recent rise in the stock should not be a surprise as it was one of the hottest stocks on the WhaleWisdom Heatmap among hedge funds during the third quarter.

The shares of the biotech stock rocketed higher at the beginning of November after reporting earnings that topped analysts’ estimates by 8% on better than expected revenue. More good news came in the middle of November when the company presented data pointing to long-term safety and efficacy of Repatha, its drug for the reduction of bad cholesterol.

Hedge Funds Move In


During the third quarter, Amgen moved up to number 5 on the WhaleWisdom Heatmap from 81. 19 of the 150 hedge funds the Heatmap tracks hold the stock. During the quarter, 11 hedge funds increased their holdings while 6 decreased their positions.

Additionally, the number of 13F shares held by all hedge funds increased 6% to 21.3 million shares. In total, 17 hedge funds created a new position in Amgen, while 41 increased their holdings. Meanwhile, 52 funds reduced their stakes and 16 exited.

Cutting Estimates

Despite the bullish views of the hedge funds, analysts have been reducing their forecasts for the company. Since the middle of October, analysts have cut their 2019 earnings estimates 1% to $14.46 from $14.58 per share. Additionally, they have trimmed their revenue estimates 1% to $22.9 billion from $23.0 billion.

Even more surprising is that analysts on average have a price target of $205.65, which is 1% below the current stock price of $208.25 as of November 30. Even worse, that price target is unchanged since the middle of October, which means the targets have not even risen.

A Bet on the Future

The funds are likely betting on events that analysts are not yet pricing into their estimates. The company and its partner, UCB Pharma S.A., face an FDA advisory committee to review its new drug Evenity for osteoporosis in January. Additionally, the company has a broad pipeline of drugs with eight currently in phase 3 clinical trials.

There is always the chance these hedge funds were flocking into Amgen’s as a haven in anticipation of the broader stock market volatility. Other pharmaceutical companies such as Eli Lilly and Co. (LLY), Merck & Co. Inc. (MRK), and Pfizer Inc. (PFE) have seen their shares rise 5% since the end of the third quarter as investors seek safety.

With a deep pipeline and positive news flow from the company over the past few weeks, it seems entirely possible that once again the hedge funds are one step ahead of the analysts and their forecasts.

Facebook Inc.’s (FB) stock has gone from a Wall Street hero to zero in a matter of months. The stock has tumbled 39% since peaking in July around the price of $220 per share. Now the stock trades around a price of $132 and could be heading even lower.

The stock was added to the WhaleWisdom WhaleIndex on May 18, 2015 and has increased 63%, easily beating the S&P 500’s rise of 24%. Despite the strong long-term performance, sentiment has changed quickly. Hedge funds and institutions were dumping the stock in the third quarter at an aggressive pace. That is because many investors were blindsided when the company said on its second quarter conference call that costs to protect user data were on the rise.

Dumping Shares

During the third quarter, the number of total 13F shares held by hedge funds fell 21% to 131 million shares. 65 hedge funds exited the stock during the quarter, while 115 reduced their stakes. The number of funds creating new positions were 31 while 117 added to existing positions. The total number of 13F shares held by total institutions fell 4% to 1.68 billion shares.

The stock started falling in July after the company said it would see higher than expected costs and lower margins in the future. The company was planning to spend a significant amount to provide more surveillance of its users following the fallout from the Cambridge Analytica scandal and issues around user data privacy.

Cutting Estimates

As a result, analysts have been cutting their earnings and revenue estimates for the company’s fourth quarter. Earnings are now forecasted to fall 2% versus prior estimates for growth of 10% in July. Revenue estimates have fallen as well and are now seen rising 26% from prior estimates of 34%.

Full-year earnings and revenue estimates have dropped. But more problematic is that earnings estimates for 2019 have fallen 17% to $7.54 per share, down from prior estimates of $9.04 and a steep decline. The estimates for 2020 have fallen 18.5% to $8.62 per share.

No Longer Cheap

An investor can now even argue that the stock is expensive trading at a 2019 PE ratio of nearly 18. That is because the stock is expected to average earnings growth of 8% over the next two years, and the PE ratio is more than double that growth rate, with a PEG ratio of 2.3.

The stock has fallen 18% since the end of the third quarter, and it would suggest that the hedge fund and institutions that were selling in the third quarter are far from finished. Should earnings and revenue estimates continue to fall, the stock is likely to fall along with them as investors continue to bail.

Nvidia Corp.’s (NVDA) stock had been one of the great growth stories in the stock market over the past five years. The stock has surged by more than tenfold during that time. However, that has all come to a halt since October with the stock crashing,  now 43% off its highs. The bad news is that hedge funds and institutions had been buying up shares of the stock and the third quarter was no different.

The stock plunged on November 16 after the company reported weaker than expected quarterly results. Disappointing fiscal fourth quarter guidance has resulted in analysts slashing earnings and revenue estimates. Now, all the hedge funds and institutions are likely fleeing the stock at a rapid pace given the stocks sharp decline, and that means the selling probably isn’t over.

Loading Up

Hedge funds were adding to the holdings in the third quarter with the total number of 13F shares rising by 4% to 19.5 million shares. During the quarter, nearly 28 funds created new positions while 39 added to existing ones. On the flipside, 24 funds exited the stock while 48 reduced their holdings. Overall, total institutions increased their positions 2.5% to 409.9 million with a total of 13F shares.

Now it seems like the funds and institutions are running for the exits. Shares have been in free fall over the past month, and the stock likely isn’t finished falling. That is because the company reported fiscal third quarter 2019 earnings that were 4% below estimates and revenue that was 2% below estimates.

Big Disappointment

The company issued revenue guidance well below Wall Street consensus estimates. As a result, analysts have cut their fourth quarter earnings estimates by a stunning 31% to $1.41 per share. Additionally, revenue estimates have fallen a shocking 21%. The result is that analysts now see earnings for the fourth quarter falling 18%. Meanwhile, revenue is expected to fall 7% versus the same period a year ago.

Slashing Forecast

Those reductions are not all, because estimates for 2019 and 2020 have also fallen sharply following the disappointing results. Analysts have slashed their 2019 earnings estimates 6% since the end of October and have slashed their 2020 estimates by 4%. Revenue estimates for 2019 and 2020 have also fallen 4% for each year.

All the institutional and hedge fund buying the stock has seen over the past five years during the stock’s massive rise appears to have evaporated in a matter of weeks. There is a very good chance that investors are not likely to come rushing back into the stock anytime soon.

Twilio Rewards Hedge Funds with A Big Rise

Posted on November 13th, 2018

To say that Twilio Inc. (TWLO) has had a healthy 2018 is an understatement. That is because the stock has risen by nearly fourfold this year, crushing the S&P 500’s return of 4%. It is hard to find any stock that has put together the same type of performance this year.

The cloud computing company has also seen its share of hedge funds running to buy the stock, during the second quarter. It turned out to be a good bet because the stock has increased by 63% since the end of June. The stock was also added to the WhaleWisdom WhaleIndex 100 on August 15 and has increased by 29% since.

Hedge Funds Add

During the second quarter, hedge funds increased their total 13F holdings by 27% to 16.6 million shares.  Also, 19 of the hedge funds started new positions in the stock while 12 added to existing ones. Meanwhile, 10 closed their holdings and 18 reduced their stakes. Overall the number of total institutions, including investors such as mutual funds, decreased their total 13F holdings by 6% to 56.4 million.

Big Growth

Hedge funds are betting on Twilio’s ability to deliver significant growth in the future. The company reported blowout third quarter results on November 6. Earnings per share came in at $0.07, which was $0.05 better than analysts’ estimates. Additionally, revenue beat estimates by 11% coming in at $168.9 million.

Analysts estimate that the company will grow its earnings by 64% in 2019 to $0.18 per share, followed by growth of 93% in 2020.

Revenue is forecast to rise by 31% in 2019 to $825 million; that is up from prior estimates in July of $744 million. Meanwhile, growth is forecast to remain steady in 2020 too, increasing by 26%.

Lofty Valuation

The company is going to need to keep growing its revenue and earnings because its current valuation is astronomical. The stock is trading at a 2020 PE ratio of 267, which is about 16 times higher than the S&P 500’s valuation.

Hedge funds made the right bet in the second quarter and reaped the reward. The big question is how much more the stock can continue to rise, and if these same hedge funds are not going to now take their profits and run. With a valuation as extreme as Twilio’s, investor expectations have now grown extremely high. If the company can deliver the big quarterly beats, then shares can continue to soar. If not, then stock has much room to fall. The question that remains;  who will be left holding the bag.