Several major investors made moves in the pharmaceuticals arena last week as the ups and downs in that industry came to the fore. The Baupost Group sold off its entire holdings of the Biotechnology firm Targacept Inc. (NASDAQ:TRGT) and SAC Capital advisers continued to increase its stake in the pharmaceuticals research firm Amarin Corporation plc (NYSE:AMRN). Both pieces of news demonstrated the fickle nature of the research pharmaceuticals sector which can rise and fall so quickly based on results of trials and approval from regulators.
No one was more aware of this in the last week than the folks at Targacept Inc. (NASDAQ:TRGT) where their new anti depressant posted disappointing results in a trial run by the company. That move caused Baupost to complet negate its stake in the firm, dropping around 6 million shares last week. Targacept’s shares dropped from a high of $7.49 on Monday before the announcement of the results and ended last week down to $4.40. Most of that drop having come on Monday after the results were announced. Baupost, run by well known manager Seth Klarman held around 18% of the company and its dropping of seemingly all of those shares on Monday certainly did nothing to help the companies stock price.
Baupost did not enjoy the easiest week itself however. Aside from its troubles in pharmaceuticals the company had its lawsuit, potentially worth around $1 billion to the company, against Bank of America thrown out of court last week.
A judge in the New York Supreme Court dealing with the case in which several financial institutions are trying to force Bank of America Corp (NYSE:BAC), which bought Countrywide Financial Corp in 2008, to buy back mortgages that institution sold them. The case is based on mortgage backed securities which the plaintiffs say were misrepresented by Countrywide. The case in general continues though Baupost’s chances of recouping its losses are now gone.
In other pharmaceutical movements SAC Capital Advisers purchased an even greater stake in Amarin Corporation plc (NYSE:AMRN) Corporation plc last week as that company’s stock continued to gain on news that it had received a patent for a new heart drug. The fund increased its stake from 5.4 million shares to 7.2 million shares. The increase leaves SAC holding around 5.2% of the research company. Amarin Corporation plc (NYSE:AMRN) is a pharmaceuticals research company based in Ireland and tests several drugs for the cardiovascular system using several propriety delivery techniques. the company’s movement ahead in the process to have its drug put onto the shelves has gone some way in giving it a relative high in its value of $9.69 per share. I
f things go well for the company particularly in relation to regulators advice on the drug and the company’s own trials. So far it looks like SAC has put a good bet on Amarin though having doubled down on that bet this week may not have been the least risky strategy.
Pharmaceutical companies, particularly ones involved in active research of just a few products are a risky bet at any time. The activity and side effects of many drugs cannoty be properly studied until the human trial stage of testing and by then the expectation behind the drug have already inflated the price of the shares.
Last week alone we’ve seen two companies, not a million miles apart in operation, see two totally different results that are almost exogenous to what the company does. Pharmaceutical research companies can offer a massive pay off if in the end once their flag ship drug makes it to market but if it stumbles the price of stock comes crumbling. That is a high risk to take.