Billionaire investors have proven that they can profit in good and bad times, and while no one should blindly follow in the footsteps of these gurus, tracking the buying and selling activity of the world's best and brightest can be a very good source for investment ideas. With that in mind, I scoured the quarterly 13-F reports of some of my favorite billionaire investors and discovered these three intriguing stocks to add to my portfolio.
No. 1: Novavax, Inc.
George Soros is arguably the most influential hedge fund manager in history, and although the stocks he owns in his portfolio change frequently, I found his new 30,000 share purchase of Novavax, Inc. (NASDAQ:NVAX) very intriguing.
While Soros manages billions of dollars and, therefore, this is a tiny position for him, his buying could suggest he's kicking the tires ahead of data from a phase 3 study of a vaccine to combat respiratory syncytial virus, or RSV, a common cause of infant and elderly hospital admissions.
Currently, there's no approved vaccine to prevent RSV, and in mid-stage trials involving over 1,600 elderly people, Novavax's RSV-F protein vaccine became the first vaccine to show efficacy in this patient population.
If results from late-stage trials confirm those mid-stage trial results (data is anticipated in the third quarter), then RSV-F's fast-track status could mean this vaccine will be available as early as 2017. Because RSV leads to 132,000 infant hospitalizations and 180,000 elderly hospitalizations in the U.S. every year, this vaccine could be a top seller.
It's anyone's guess how much revenue this vaccine could ultimately bring in for Novavax, but management has said in the past that this drug's peak potential could eclipse $6 billion per year. That's a pie-in-the-sky forecast, but if RSV-F works in seniors, and additional trials show it can be used in pregnant mothers to prevent RSV in infants, then billions of dollars in sales isn't that unreasonable. After all, the company estimates up to 111 million seniors could be targeted with this vaccine in the U.S. alone by 2020. If the company can effectively tap into that patient population, Novavax's $1.7 billion market cap could be too low.
No. 2: Agile Therapeutics
Bruce Kovner amassed a net worth north of $5 billion, and in Q1, his Caxton Corp. significantly increased exposure to clinical-stage drugmaker Agile Therapeutics (NASDAQ:AGRX). Caxton came into January owning about 23,000 shares in the company, and it exited March owning 1.4 million shares.
The bet is a big vote of confidence for Agile Therapeutics, a tiny company with a market cap of just $234 million that's developing Twirla, a once-weekly contraceptive patch for women. Results from Twirla's phase 3 study are expected before the end of the year.
If results are positive, Twirla could be perfectly positioned to elbow away market share from daily oral contraceptives, and since the market for oral contraceptives exceeds $5 billion, it wouldn't take a lot of market share to make this company undervalued.
Adding conviction to the idea of buying Agile Therapeutics for your portfolio is the fact that Caxton wasn't the only influential fund to buy shares last quarter. Healthcare-focused hedge funds Vivo Capital, LLC and RA Capital Management also bought 2 million shares and 1.06 million shares, respectively.
Given Agile Therapeutics is targeting a big patient population, and Twirla could be a simpler alternative to daily oral dosing, I can see why these billionaires are so interested in owning it.
No. 3: Flexion Therapeutics
Flexion Therapeutics' (NASDAQ:FLXN) shares soared recently when management reported that the FDA gave it an all-clear to file for approval of its osteoporosis drug Zilretta, which targets knee pain. The fact that shares have soared over 80% since March is likely being cheered by investment teams at Millennium Management and Renaissance Technologies, two Goliath hedge funds piloted by multibillionaire investors that snapped up 125,414 shares and 124,500 shares of Flexion Therapeutics in the first quarter, respectively.
Although there's no guarantee the FDA will approve Zilretta, the drug targets a massive market opportunity that could make it a billion-dollar blockbuster. Every year, 12 million patients in the U.S. are treated for osteoarthritis pain in the knee, and roughly 5 million of those patients are treated with quarterly corticosteroid shots that frequently wear off before the next injection.
In clinical trials, Zilretta provided pain relief for up to three months, and Zilretta patients saw a 50% reduction in pain from baseline over weeks 1 through 12. That performance may be good enough for Zilretta to replace corticosteroid use in many of these patients. If so, it could be a top seller because management has indicated pricing could be as much as $2,000 per patient per year.
Given the market size and that pricing forecast, it wouldn't take much market share for this drug to be a game-changer for investors, especially since Flexion Therapeutics' market cap is only $348 million.
Tying it together
Hedge funds buy and sell stocks for various reasons, and without knowing their specific reasons for buying these three particular stocks, it would be (small-f) foolish to follow blindly in their footsteps without researching these companies on your own.
Unquestionably, these are highly speculative, and that means risk-averse investors should avoid them. But if you can stand the risk, and you invest in clinical-stage biotech stocks like I do, then these companies' catalysts could make them worth stashing away.
Todd Campbell has no position in any stocks mentioned (but he will as soon as the embargo period associated with this story ends). Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may have positions in the companies mentioned. Like this article? Follow him on Twitter where he goes by the handle @ebcapital to see more articles like this. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days.