Most biopharma and life sciences hedge funds continued to struggle in May in what is shaping up to be one of the worst years in recent memory for the strategy. Many funds are down by double-digit rates this year, including a few that are off by more than 30 percent.
During the same period, the SPDR S&P Biotech ETF fell about 12 percent.
The group has been hurt by the stock market’s overall volatility and unpredictability, which has impacted fledgling companies with little or no revenues more than others. And many biopharma stocks have been hurt by the Trump administration’s increasing anti-vaccine sentiment and by fears that the Food and Drug Administration will be slow to approve any new drugs.
Indeed, investors — anticipating a change in the approval standards for biologics — were especially concerned last month when Dr. Vinay Prasad replaced Dr. Peter Marks as head of the FDA’s Center for Biologics Evaluation and Research.
Of course, in the world of fledgling biopharma companies, stock movements are often pegged to the success or failure of specific drugs in the development and approval pipeline.
In any case, Casdin Capital continues to be the worst performer. It is down about 30 percent through May, according to investors. The hedge fund firm, defensive about its brutal numbers for most of the past few years, recently issued a stern warning to its investors not to share performance information with reporters — as if those investors weren’t aware of the immense erosion of their principal.
Casdin has been hurt this year, in part, by GeneDX Holdings, the firm’s largest long position, which makes up one-quarter of U.S. assets. The stock is down nearly 20 percent for the year and off 45 percent from its April peak.
Altogether, Casdin’s three largest longs accounted for more than half of assets at the end of March, according to the most recent 13F filing.
No. 2 long BioLife Solutions has declined more than 16 percent for the year, and No. 3 long Revolution Medicines fell more than 10 percent.
EcoR1 Capital is down 19.5 percent for the year after dropping a further 1.2 percent in May, says someone who has seen the results. Its four largest longs combined accounted for nearly 50 percent of assets at the end of March, according to its filing. EcoR1 has been especially hard hit this year by its No. 1 long, Apellis Pharmaceuticals, which has lost nearly half its value since year-end.
Other hedge funds have also been damaged by the stock. It is the seventh-largest long of Avoro Capital Advisors, whose main hedge fund is down 17 percent for the year after plummeting nearly 11 percent in May, says a person who saw the results. Apellis is also the ninth-largest long of Deep Track Capital.
Elsewhere, Soleus Capital Management lost 6.5 percent in May and is down 14 percent for the year, per an investor. It has never suffered a losing year. It is a little more diversified than several other funds, with its two largest common stock longs accounting for roughly 15 percent of assets. Its No. 1 long, TG Therapeutics, fell about 22 percent in May but is up more than 13 percent for the year.
Several other hedge funds are also down by double digits for the year.
They include RA Capital, down 15.2 percent after losing nearly 3 percent in May, says a source who saw the results. Perceptive Advisors is off by 15.5 percent for the year despite squeezing out a few basis points of gains last month, a different source reports. Affinity dropped about 1 percent in May and nearly 14 percent for the year, according to a hedge fund database. And Janus Henderson Biotech Innovation Fund is off by 14.5 percent this year after losing more than 5 percent last month, the database reveals.
Not all biopharma hedge funds are sickly this year.
Averill dropped just 1 percent in May and is down about 2.6 percent for the year, according to someone who saw the results.
And then there is the outlier, Nantahala Capital Management, which gained 2 percent in May and remarkably is up 16 percent for the year, according to an investor. It is a $1 billion small-/micro-cap long-short equity firm. A few of the companies in which it has investments this year received FDA approval for drugs, boosting their stocks.
For example, in March, Soleno Therapeutics, Nantahala’s largest U.S. common stock long, got FDA approval for extended-release tablets to treat hyperphagia in adults and children four or older with Prader-Willi syndrome, according to a press release. The stock is up nearly 72 percent for the year.
