Life Sciences Funds Post Mixed Results

Hedge funds specializing in fledgling biopharma and health care companies have experienced wide variation in performance this year.

Biological Research

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Biopharma and life sciences hedge funds posted mixed results in May in what is a very volatile strategy. As a result, there is a wide range of performance among the funds, with several up by double-digit rates this year and others down by similar amounts.

Biopharma stocks in general are risky, as many of the companies have no products and investors are betting on the outcome of clinical trials. Stocks often get slammed when companies report bad news about ongoing trials. And the group as a whole often takes a hit when there is talk of the Federal Reserve delaying interest rate cuts.

On the other hand, the group is in the crosshairs of big pharma, which has been actively acquiring many of these companies over the past few years.

The performance leader so far in 2024 is Casdin Capital, which is recovering from one of the worst performances among the group in recent years. It was up 16 percent through the first five months after gaining 5.5 percent in May, according to an investor. Casdin’s four largest longs accounted for nearly half of U.S. stock assets at the end of the first quarter, and three of them are enjoying very strong years.

The largest is Revolution Medicines, which develops therapies to inhibit frontier targets in RAS-addicted cancers, accounting for more than 13 percent of assets. The stock rose just under 3 percent in May but was up 34 percent over the first five months of the year.

No. 3 long position BioLife Solutions surged 22 percent last month and is up more than 32 percent for the year. No. 4 long Sarepta Therapeutics is up about 28 percent in 2024 despite climbing less than 3 percent in May.

Elsewhere, Averill Partners’ share class that invests only in public securities was up 13.5 percent for the year even after gaining just 20 basis points in May, according to an investor. Its share class that invests in public and private companies was up 10 percent for the first five months, the source notes.

Institutional Investor regularly points out that the fund, part of Suvretta Capital Management, is successful at shorting and often performs opposite most of its peers from month to month.

RTW Investments’ class of its flagship fund that invests just in public securities increased by 3.8 percent last month and is up 6 percent for the year. The fund’s class that invests in public and private companies is up 4.5 percent year-to-date, according to an investor. The Innovation Fund, which is long-biased, was up 7.5 percent for the year through May.

RTW in general is more diversified than many of its peers. The firm’s five largest longs at the end of March made up a little more than one-quarter of assets, a lesser concentration than those of many other firms. The broad-based portfolio has served RTW well as its largest long, Rocket Pharmaceuticals — accounting for 7 percent of assets — is down about 25 percent for the year.

Otherwise, most life sciences funds lost money last month and only a few remain in the black.

For example, RA Capital Management dropped 1.2 percent for the month but is still up 7.5 percent for the year, according to an investor. It was hurt once again by the volatile Ascendis Pharma A/S, which accounts for more than 18 percent of U.S. assets. The stock was down 2.4 percent last month and nearly 18 percent since peaking in late February.

Soleus Capital, for its part, dropped nearly 2 percent for the month but remains up 4.5 percent for the year, according to an investor. Avoro Capital Advisors was down 2.5 percent in May and is barely profitable for the year, up just 60 basis points, an investor says.

On the other hand, Redmile Group lost 4.4 percent in May and is down about 11 percent for the year, says someone who has seen the results.

The biggest loser this year appears to be EcoR1 Capital, down 14.5 percent after dropping a further 2 percent in May, reports a person who has seen the results. Apellis Pharmaceuticals, its largest long — accounting for nearly 17 percent of assets — is down about 32 percent for the year.