Growing M&A momentum drives gains in Rhenman’s flagship healthcare hedge fund

Medical research

A pick-up in M&A activity within certain healthcare stocks is helping Stockholm-based global healthcare-focused hedge fund Rhenman & Partners Asset Management generate further gains in its flagship equity strategy.

The Rhenman Healthcare Equity Long/Short hedge fund advanced 4.36 per cent in its euro-denominated share class during September, which brought its year-to-date return to more than 8 per cent.

The strategy’s SEK class meanwhile grew 6.14 per cent last month, and is now up 7.59 per cent since the start of 2020.

The fund – which trades a range of small, medium and large pharmaceuticals, biotechnology, medical technology and service company names – took profits from positions in Immunomedics and Novocure, while the worst contributors were Nektar Therapeutics and MacroGenics.

US biotech firm Immunomedics, which specialises in antibody-based drugs for cancer and autoimmune diseases, attracted a takeover bid from Gilead Sciences at a premium of 108 per cent, corresponding to a company valuation of USD21 billion, which sent its share price soaring.

“That also affects similar companies, so we got some nice tailwinds from contributions of similar types of companies,” said CIO and founding partner Henrik Rhenman in a recent webcast, who noted that Immunomedics’ appeal was strengthened by the approval of its promising new cancer drug, sacituzumab govitecan.

Bets on Nektar Therapeutics and MacroGenics meanwhile faltered due to a lack of new data from ongoing clinical trials. But Rhenman remained upbeat on the prospects for both further down the line.

“We like these types of situation because if you have good technology and if you’re executing on clinical trials, it’s worth waiting. Usually the appreciation comes suddenly – you can’t just buy the stock after the fact. You want to be in these stocks before it happens.”

More broadly, med-tech and biotech have performed positively during the year, particularly due to acquisitions, as well as the return of elective procedures in hospitals amid the continued coronavirus challenge.

On the flipside, pharmaceuticals and services have fared less positively.

“Relatively speaking they are value stocks, and people are looking for risk, people are looking for higher growth, so they are suffering right now. But I would assume that they will be back in favour next year at the latest,” Rhenman explained, adding that the fund “could very well” increase its allocations to pharma “in the near future.”

Overall, there are now five M&A positions in the fund this year, compared to eight last year.

“Who would have expected such high activity just before the elections in the US? It’s very impressive – companies are looking through the election turmoil, the debate, the harsh words and looking on the long-term,” Rhenman said of the M&A momentum. “They want to buy good products, good technologies, and they need market share.”