Biopharma-focused hedge funds posted strong gains in June, driven by a blockbuster acquisition and growing optimism that scientific advances and AI could revive the sector.
The Nasdaq Biotechnology Index rose about 9.6 percent and the State Street SPDR S&P Biotech ETF climbed more than 16 percent last month. Several individual funds were up by double digits as well. As a result, most of the funds are now outperforming the broad market index after lagging it for most of the year.
The biggest winner in June was Affinity Healthcare Fund, whose returns were in the mid-teens, and which was up 34.27 percent for the year, according to a hedge fund database. It was boosted in late June when AbbVie agreed to acquire Apogee Therapeutics for $135.11 per share in cash. On June 22, shares of Apogee, Affinity’s largest common stock long, jumped more than 46 percent. The stock accounted for more than 5 percent of the hedge fund firm’s assets at the end of the first quarter.
“We see several catalysts that make us optimistic for the opportunity set ahead, from ongoing scientific advancements to encouraging capital markets expectations alike,” states a recent report from the Goldman Sachs Prime Insights & Analytics team.
Goldman asserts that we are in a “golden age” of scientific innovation. “Over the past few decades, and in more recent years in particular, new drug approvals and scientific opportunities have surged as the drugs themselves become more developed,” it says. The firm anticipates a continuation of the boom in mergers and acquisitions as cash-rich pharmaceutical giants look to replenish their shrinking drug pipelines.
At the same time, Goldman predicts an increase in IPOs of late-stage companies. It notes that artificial intelligence is being used as a tool in the drug discovery process and could compress development timelines, increase the probability of trial success, and lead to higher net present values. “It also has the potential to improve disease target identification, predict molecular structures, perform drug simulations, optimize clinical trial design, and streamline FDA applications,” it says. Goldman believes the regulatory environment has become clearer and more favorable, too.
Several other biopharma firms, including Perceptive Advisors and RA Capital Management, were beneficiaries of the deal, although Apogee was not a top-ten holding for any of them.
Avoro Capital Advisors gained 13 percent last month and is up 18 percent for the year. No. 2 long Ascendis Pharma climbed about 19 percent. In mid-June, the company announced favorable results from a Phase 3 trial of one of its drugs.
RA Capital also benefited from Ascendis’s rise. The stock is the fund’s largest long, accounting for about one-quarter of assets. The firm gained 11 percent last month and is up 15 percent for the year.
RTW Investments, meanwhile, posted a strong 10 percent increase for the month, pushing it back into the black. It’s up 8.5 percent for the year. Shares of No. 3 long Protagonist Therapeutics rose by more than 23 percent in June, and No. 4 long PTC Therapeutics jumped 10 percent-plus.
Even Casdin Capital also posted a strong rebound, adding more than 20 percent in June and more than 35 percent for the year, according to someone who saw the results. However, it remains well below its high-water mark.
Janus Henderson Biotechnology Innovation Fund rose more than 8 percent last month and is up 13.5 percent for the year.
Averill’s two hedge funds lost money in June, but its share classes that include private investments remain among the top performers for the year, according to two people who have seen the results. Averill, excluding designated investments, fell 5.2 percent for the month but was up 4.3 percent for the year.
But the Averill share class that includes designated investments was down 1.2 percent in June and is up 22.6 percent for the year. Averill’s Madison share class, which excludes designated investments, dropped 3.9 percent last month but is still up 3.9 percent for the year. The Madison share class that includes designated investments rose 1.4 percent in June and 31.7 percent for the year.
Elsewhere, Soleus Capital Management’s main fund gained 3.3 percent last month and is up 9.2 percent for the year, says an investor. Perceptive was up 3.3 percent in June and 15.4 percent for the year, per an investor. Ascendis is its third-largest long.
Cormorant Asset Management brought up the rear, rising 1.3 percent after dropping 2.36 percent in the second quarter, an investor reports.
