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Helical Portfolio Changes

Recs

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October 24, 2013 – Comments (0) | RELATED TICKERS: NVO , EXETF , BAX

I last commented on the performance of the Helical Portfolio through the end of August.  The portfolio continues to perform well, but this post is focused on the changes since that time.  There have been 6 transactions in the past couple of months, 5 buys and a partial sale.

The one sale was to again lighten up on ICON plc. On 10/8, I sold 50 sh for a total of $1,943.47.  The sale was done to reduce risk and raise cash.  ICON continues to be the largest holding at just under 10% of the Helical Portfolio.  I consider ICON to be a medium risk company, and thus have a guideline that allows it to be as much as 14% of the portfolio, but am more comfortable with it ~ 10%.  Also, as I made other purchases, and continue to be increasingly uncomfortable with the run the market has enjoyed, so I didn’t want to deplete the cash too much.  Today, cash is just slightly less than 14% of the portfolio.  I still like the ICON, and they should benefit from the biotech sectors strong ability to raise funds of late, but am content to continue to book occasional gains from here. [Aside: ICON is having a great day today, so I continue to be early with these sales, but portfolio discipline and risk balancing should serve me well long term].

The five buys were as follows:

9/3   BCRX (BioCryst)  300 sh at $6.5399 for $1968.97 – New position

9/4…EXETF (Extendicare)  300 sh at $6.16 for $1855.00 – New position

10/4…EXETF (Extendicare)  300 sh at $6.48 for $1951.00 – added to existing position

9/25   BAX (Baxter)  30 sh at $67.08 for $2019.40 – added to existing position

10/16…NVO (NovoNordisk)  15 sh at 169.7399 for $2553.10 -- added to existing position

The Baxter addition was done on a period of weakness in the stock due to an analyst downgrade over concerns that Biogen (and now Novo as well) would erode the companies hemophilia franchise.  I continue to think the company is well priced and stands to benefit from increases in healthcare enrollment and hospital usage.  Owning Novo as well as Baxter modestly hedges the hemophilia concern, and I may consider adding Biogen as well (explanation down a few paragraphs).  I have considered Baxter as a low risk holding, due in part to size, dividend, solid balance sheet, and products.  I may consider moving the company to medium risk (not yet) due to concerns over hemophilia, which does make a substantial contribution to margins and profits.  Baxter is ~7.3% of the portfolio today.

Extendicare is a new holding, and I made two small purchases.  The company is just 4.2% of the Helical Portfolio today.  The business owns and operates post-acute and senior care facilities in both the US and Canada.  Operations in the US have been crushed by reductions in reimbursement the past few years, while Canadian operations have been stronger and more consistent.  The company has a stated intent to split the US and Canadian businesses, and the investment thesis is that this will unlock value.  The US side may also consider a sale-leaseback of the properties (we’ll see).  Some value investors I respect consider this a good special situation holding, and I concur that it may be.  But, given the need for the catalyst I tend to consider Extendicare high risk and thus wish to keep the position modest.  Given the company has been overt in its intentions I am likely over considering the risk, but as this type of special situation analysis is not my area of expertise it makes sense for me personally to consider it as higher risk than others might.  I do after all consider risk to be more a perspective than a measure.

BioCryst is an entity I have previously noted would be a rarity in the Helical Portfolio i.e. a development stage pharmaceutical company.  This is what many would call Biotech investing, though I prefer a broader definition of that term.  So why own BioCrsyt and what is so special about it?  I’d love to expand on its revolutionary platform, seasoned management, and unique market opportunity, and I could a little, .. but that isn’t really why I own it.  This is a pure jockey play.  The jockey’s in question, and they are really more like stable owners, are Julian and Felix Baker.  These brothers run a set of concentrated advisory funds that own large positions in select biotechnology companies.  For example, Baker Brothers Advisors owns 44% of current Helical Portfolio holding Genomic Health, and over 15% of former holding Seattle Genomics.  Here is a look at their top positions via Insider Monkey; a list littered with strong past performing firms.  I recently compiled Julian Bakers form 4 filings from the past 10 years into a spreadsheet and could hardly help but notice how astutely they have invested. Many holdings have been accumulated over a long term and with a buy-to-hold intention.  I note that even past failures have been turned to current successes via reverse mergers to form newly focused firms (Trimeris becomes Syngeva, and Intrabiotics into Ardea).  Biocryst is a company the Bakers lightened up on in 2009 (at a good price in hindsight) but bought back into this past August.  Still, development stage pharma is always high risk, and I did not get near the price the Bakers did (too slow), so this is modestly positioned at just 2.1% of the portfolio.

Lastly, I added to my position in Novo Nordisk.  Last year I posted a blog on an article from PharmExecutive Magazine.  The article audits and ranks the pharmaceutical industry in terms of ‘how well companies are advancing shareholder value’.  A quick look at past audits showed the top listed firms tended to perform well moving forward, even though the audit data was from the prior year, old by the time of publication, and had significant momentum oriented ranking criteria.  Last year’s top 5 companies were (1 to 5) Biogen-Idec, Shire, Novo Nordisk, Bristol-Myers Squibb, and Celgene.  I considered Biogen, Shire and Novo, and bought just Novo.  The performance of these 5 from 10/15/2012 to 10/15/2013 was 58.3%, 37%, 1.2%, 39.7%, and 99.1% respectively (with the Nasdaq biotech index up ~41% in that period).  So, yes, I picked the worst of the litter for that time frame.  This year’s audit (12th annual) has Novo in first place (for 2012 data), followed by Gilead, Biogen-Idec, Celgene, and Roche.  So despite trailing the winners last time around, I’m adding to my position in Novo, which is now up to ~6.1% of the Helical Portfolio.  Again, I’m considering Biogen and Roche as well (no ADR on the latter, so it would be OTC). [Aside, the 12th annual industry audit was released a month later than usual this year, which had me inquiring to the magazine as to whether it had been discontinued.  Happy to see it was not.]

I’ll summarize Helical Portfolio performance after the end of the month.

Ralph

Helical Investor

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