What a difference a quarter made for many life sciences and biopharma hedge funds.
Cormorant Asset Management was chugging along at the end of March, up 24 percent for the first quarter. But then it more than reversed this gain in the second quarter and finished the first half of the year down 3 percent.
It wasn’t the only life sciences hedge fund to experience a sharp reversal of fortune in the second quarter. EcoR1 Capital was down 15.5 percent in the first half of the year after rising by 2 percent in the first quarter, according to a person who has seen the results.
Other funds saw their gains shrivel in the second quarter but remain in the black. For example, RA Capital Management’s 14 percent first-quarter increase was halved in the second quarter, to 7 percent through June, an investor says. Soleus Capital lost nearly two-thirds of its first-quarter gains but was up 5.5 percent through June, according to an investor.
Other funds that declined in the second quarter experienced smaller losses. RTW Investments, for one, dropped just 1 percent in the second quarter and is up 9.5 percent for the year, according to an investor.
“Small- to midcap biotechs were victims in the second quarter,” acknowledged one manager. They were especially hurt in April, when the sector took a huge beating.
Not all biopharma and life sciences funds, however, lost money in the second quarter. In fact, several are outperforming the broad market.
They are led by 8 Knots Management, which is up 30 percent for the year despite losing 3 percent in June, an investor says. But as Institutional Investor previously reported, 8 Knots is an unusual life sciences fund. Many of its largest positions are well-established, profitable midcap and large-cap companies, and it does not specialize in fledgling, productless companies that rely on potential blockbuster drug or product pipelines.
Janus Henderson’s Biotechnology Innovation Composite, a pure play on biotech stocks, was up 28 percent in the first half after gaining 3.34 percent in the second quarter, according to a June client letter obtained by II. The fund is more diversified than many of the other biopharma specialists.
According to an investor, it has benefited in part from acquisitions made by two of its holdings: Gilead Sciences acquired CymaBay Therapeutics, and in April Vertex Pharmaceuticals agreed to acquire Alpine Immune Sciences. It also was helped by Sarepta Therapeutics, which is up more than 50 percent this year. It was boosted last month when the Food and Drug Administration expanded approval of its Elevidys gene therapy for Duchenne muscular dystrophy patients. Sarepta is a major holding of a number of biopharma and life sciences hedge funds.
Elsewhere, one of Casdin Capital’s share classes was up nearly 24 percent for the year after climbing about 6 percent in June, according to an investor. The four largest U.S. longs accounted for nearly half of U.S. assets, according to a regulatory filing. They include Sarepta, the fourth-largest. Revolution Medicines, Casdin’s largest long, was up more than 35 percent in the first half of the year and has jumped more than 63 percent for the year.
Other life sciences funds are up by double-digit rates this year.
Avoro Capital rose between 11.5 percent and 12 percent after surging 11 percent in June, an investor says. No. 1 long position United Therapeutics rose 16 percent in June and is up about 44 percent year-to-date. Sarepta is its fourth-largest long.
Averill Partners, for its part, is up in the midteens for the year depending upon its share class, according to an investor.
Catalio Capital Management’s public equities strategy was up 2.55 percent in June and 9.7 percent for the year, says someone who has seen the results. In the first half of the year, 11 different stocks each kicked in more than 1 percent to performance in both therapeutics and non-therapeutics and across market cap ranges, the source says.