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Another Way to Slip Under the “Halo” of a Powerful Biotech Investing Duo
By Michael Brush
Exclusively for InvestorIdeas.com
July 03, 2008
As expected, being in stocks “protected” by the halo of ownership by a powerful biotech investing duo known as the Baker brothers has kept investors away from the harsh declines in this terrible market so far this year.
If you have never heard of the biotech investing team of Julian and Felix Baker, here’s a quick summary.
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I’ve written about big stock positions held by this low-profile investing duo (they rarely appear in the press) because they have an outstanding record.
To sum up, the stocks they buy often have a habit of advancing anywhere from 40% to 60% in the six months after their purchases. Likewise, many of their stocks have declined a lot less than others in this downturn.
Let’s look at the returns of five of their stocks I’ve highlighted over the past 14 months, and compare their performance to the market since the start of the year. I’m talking about ViroPharma (VPHM), up 45%; Allos Therapeutics (ALTH), up 17%; Genomic Health (GHDX), down 15%; Incyte (INCY), down 25%; and Seattle Genetics (SGEN), down 26%.
As you can see, the performance of these stocks is all over the map, which isn’t unusual for biotech companies. But if you bought equal amounts of each of these at the start of the year, you would be down less than 1% right now. In the same time frame, the S&P 500 and Nasdaq are off over 13%.
Of course this is merely a short-term assessment which might not mean that much to the Baker brothers, who hold stocks for years. They have the kind of long-range outlook that you should emulate. But in a six-month time frame that has brought us a nasty bear market, the outperformance of these stocks does says at least something about their skills as investment analysts.
Recently, we’ve seen buying by an insider at a different Baker brothers play. It’s called Halozyme Therapeutics (HALO). Since the middle of March a director at this company named Randal Kirk has purchased $21 million worth of stock at around $5.80, or not too far below where it trades now.
Like many of the biotech companies owned by the Baker brothers, Halozyme Therapeutics has a collection of promising therapies in the middle stages of testing and development, a good cash position, and solid partnerships.
Let’s take a closer look.
Halozyme Therapeutics (HALO)
Halozyme is working on therapies that apply core know-how to several different kinds of diseases, including diabetes and cancer.
Halozyme’s silver bullet is an enzyme known as “rHuPH20 hyaluronidase” or PH20 for short.
It can degrade a substance in the body called hyaluronic acid. That’s a gel-like substance which is a major component of tissues throughout the body. Degrading hyaluronic acid can improve the delivery of drugs and fluid to normal body tissue, tumors and bone.
- For example, a line of research at the company dubbed 'Cheetah' is looking at how PH20 works together with some forms insulin to create a variation that is closer to the insulin produced by the body. Early research suggests the result is better absorption of the insulin, greater peak insulin levels, and more effective glucose reduction.
- The company is also working on how to combine PH20 with an osteoporosis treatment called bisphosphonates. Together, the two may be more effective. Plus they can be administered with an injection, instead of intravenously.
- The enzyme PH20 may also enhance chemotherapy treatments against cancers because hyaluronic acid – the stuff that PH20 breaks down – can block drugs from entering tumors. Known as chemophase, this approach has passed safety tests, and may move on to further trials next year.
- PH20 can also reduce pressure in tumors. Pressure inside tumors may block the effectiveness of anti-cancer drugs.
- The company has another enzyme called HTI-501 that can alter the structure of skin in a way that may be helpful in treating dermatological conditions like cellulite and scarring.
Partnerships and cash
Halozyme finished the first quarter with $92.6 million in cash. It had revenue of $1.8 million during the first quarter, while it spent $8.4 million on research and development and overhead costs were $4.2 million.
The company has partnerships with Roche and Baxter International (BAX).
The bottom line: You might make money on this as a trade, but remember that biotech investments really have to be long-term plays. Since this one has the backing of the Baker brothers and decent insider buying, it may be a winner.
Disclaimer
At the time of publication, Michael Brush did not own or control shares in any of the companies listed in this column. Mr. Brush is an independent columnist for this web site.
For more on Insiders Corner disclosure, see the disclosure section in About Insiders Corner: http://www.investorideas.com/insiderscorner/. InvestorIdeas.com Disclaimer: www.InvestorIdeas.com/About/Disclaimer.asp. InvestorIdeas is not affiliated or compensated by the companies mentioned in this article.
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