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Hedge funds scoop up biotech stocks after ‘catastrophic’ declines

Hedge funds are looking for a reality in the battered biotechnology sector, despite the fact that cruel sales have taken off and that lower valuations will breathe life into the flow of the deal.

The Nasdaq biotechnology stock index plummeted nearly a third of its all-time high last August, with hopes of a Covid-19 epidemic boosting the industry giving way to concerns about frothed stock prices. The sharp sale has left, in turn, many companies Struggling to raise new funding.

However, some hedge fund Managers now believe that prices have fallen too much in relation to companies’ drug development prospects and their remaining cash levels. These investors started buying stocks cheaply, or launching portfolios to take advantage of the turmoil.

“It’s the worst fix [in the biotech sector] I have seen in the 22 years of my career, “said Michel Jezualdi, founder of London’s Infinity Investment Partners investment group.” We have never seen such pressure. “

Gesualdi, a $ 1.5 billion asset manager, recently launched a new fund specifically to focus on life sciences opportunities. He added that the sector is, by all measures, “as cheap as ever”.

Industry sources attributed the sale in the sector, among other things, to the departure of so-called non-specialized tourist investors Biotechnology But who sought recidivism in the early stages of the plague. Investors have also grown concerned about the regulatory scrutiny of making deals and the possibility that companies may start running out of funding.

Subsequent market reversal proved to be particularly difficult for a sector accustomed to record low interest rates and a seemingly never-ending bullish stock market. The future profits of such companies are highly valued when the interest rate is close to zero, but seem less when the cost of loans goes up.

“Coming out of the Cubid bounce, seeing inflation rise in [a] A higher rate than any central bank predicted, e [biotech] The sector has faced unexpected distress, “said Philip Wolgen, CEO of Australian biotech firm Cleanwell Pharmaceuticals, whose share price fell from nearly $ 45 in September to $ 15 (US $ 10).

After a “catastrophic” fall in the sector, fund managers and bankers “openly bring their disgust at the perpetuation of these risky ventures,” he added, referring to backing companies with little chance of revenue in the near term. However, he said investors are starting to look at “real business[es]In the sector.

Meanwhile, mergers and acquisitions, traditionally, centralized valuation support, with large pharmaceutical companies looking for ways to build their drug pipeline, has dried up. The number of transactions in 2022 has dropped to its lowest level in the opening six months of the year in more than a decade, according to Evaluate Pharma.

For sale there Hit some hedge funds that specialize in healthcare Hard. One of the highest-profile funds that has suffered is Perceptive Advisors from New York, which lost about 32% last year and fell 35% this year to the end of June, according to numbers sent to investors and a person familiar with the performance.

California-based Endurant Capital, run by Vietnamese trader Quang Pham, lost 6.8% this year in its Health Master fund by the end of May, though it did back up a bit in June. Last year, San Francisco-based Asymmetry Capital closed after losses, with its founder emphasizing how difficult life has become for small biotechnology-focused funds.

However, some executives believe this is the right time to build exposure to the sector.

“This is the area where there has been a complete and utter surrender,” said Andrew Clifford, CEO of Platinum Properties of Sydney, which manages $ 14 billion in assets.

SYZ Capital has also added to its positions in the trading funds in the sector, and sees opportunities in the US and in the longer term in China. “We are positive about biotechnology,” said Cedric Wignia, head of liquid alternative managed funds.

UBS’s O’Connor hedge fund unit earlier this year hired a team from Alera Partners to launch a new strategy for betting on rising and falling prices and focused on medical treatments. The strategy is part of O’Connor’s multi-strategic fund, but could eventually be launched as a separate fund, said a person familiar with the company’s plans.

“Healthcare is a perfect example of where we want to be exposed,” said chief investment officer Kevin Russell, who believes there is a capacity of more than $ 1 million in transactions in the sector as pharma companies try to build their drug pipeline.

Russell added that there was “very little distinction between stocks” by investors.

“we are thinking [this] Is a function of lack of experience and scientific knowledge “among investors, and should present opportunities for O’Connor to make money from betting on rising and falling prices,” he said.

laurence.fletcher@ft.com

Hedge funds scoop up biotech stocks after ‘catastrophic’ declines Source link Hedge funds scoop up biotech stocks after ‘catastrophic’ declines

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