OrbiMed Advisors' 90 Stock Portfolio: Top 5 Holdings Analyzed - Sure Dividend

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OrbiMed Advisors’ 90 Stock Portfolio: Top 5 Holdings Analyzed


Updated on September 20th, 2021 by Nikolaos Sismanis

Founded in 1989, OrbiMed Advisors is an investment firm with approximately $21.4 billion of assets under management (AUM). The company invests in a wide spectrum of healthcare businesses: from private start-ups to large multinational companies.

Scouting the world for innovations that will assist in making human lives healthier, the OrbiMed team has helped nurture and commercialize some of today’s most successful healthcare companies. OrbiMed was founded in New York City but has also expanded its operations in San Francisco, Shanghai, Mumbai, Herzliya, and Hong Kong.

Investors following the company’s 13F filings over the last 3 years (from mid-August 2018 through mid-August 2021) would have generated annualized total returns of 4.90%. For comparison, the S&P 500 ETF (SPY) generated annualized total returns of 18.08% over the same time period.

Note: 13F filing performance is different than fund performance. See how we calculate 13F filing performance here.

You can download an Excel spreadsheet with metrics that matter of OrbiMed Advisors’ current 13F equity holdings below:

 

Keep reading this article to learn more about OrbiMed Advisors.

Table Of Contents

OrbiMed Advisors’ Investing Strategies

OrbiMed focuses solely on investing in the healthcare sector, leveraging its team’s expertise in the industry to identify the most promising companies and helping them to commercialize a new, revolutionary product.

To separate its operations based on its different types of investments, OrbiMed allocates capital by embodying three different strategies:

Public Equity:

OrbiMed manages numerous public-equity funds, including both long and short event-driven funds, and various investment trusts. This segment focuses on all types of publicly traded healthcare companies, such as biopharmaceuticals, medical devices, and healthcare services stocks. We have included some of OrbiMed’s largest public equity holdings below.

Private Equity

OrbiMed’s second investment strategy revolves around seeking the most promising private start-ups, to which the fund is usually a leading investor, intending to have an active role in the company’s journey.

OrbiMed’s expertise in identifying the future winners in the healthcare sector has been well-established, considering that the company numbers more than 140 successful exits. Some of them include:

Galecto (GLTO):

Galecto is a clinical-stage biotech firm that develops molecules to treat fibrosis, cancer, inflammation, and various other related diseases. OrbiMed’s managers participated in Galecto’s Series C round back in October of 2018 when the company raised $79 million.

Exactly 2 years after the company IPOed on the NASDAQ, it is currently valued at around $373 million. Considering that shares are missing from the fund’s latest 13f filing, it’s more than likely that management sold its position, booking a quick profit in a relatively short period of time.

Invitae (NVTA):

One of OrbiMed’s most successful early picks was its participation in Invitae’s Series F private round, helping the company raise $120 million. Today, Invitae is one of the most hyped DNA-processing companies, growing revenues at 35% year-over-year and boasting a market cap of $6.45 billion, clearly displaying OrbiMed’s investment intuition.

Arrowhead Pharmaceuticals (ARWR):

Arrowhead Pharmaceuticals develops medicines that treat intractable diseases by silencing the genes that cause them. In 2016, the company announced a private offering with a select group of investors, including Orbimed, RA Capital Management, and Perceptive Advisors, raising $45 million at a price of $5.90 per share. Today, shares are trading at $85, implying a more than 10-fold increase of OrbiMed’s funds within just a few years. To mitigate its risk OrbiMed had been gradually trimming its position, booking some profits, and recently exited its equity stake completely.

We have previously covered OrbiMed’s co-investors mentioned like RA Capital and Perceptive advisors, which you can find here, and here, respectively.

Private Credit/Royalty

OrbiMed’s third investment strategy is providing healthcare firms with non-dilutive structured debt in exchange for royalty rights on their product sales. For the fund to minimize the risk of a company defaulting, management will only loan to commercial-stage companies to ensure its royalties will start flowing in from the get-go.

By making sure that OrbiMed’s debt is non-dilutive, it also ensures that its investment’s original shareholders are also incentivized to perform well. This is because they retain their original equity, therefore creating a win-win situation for all.

OrbiMed’s Portfolio & Top Holdings

The fund’s public-equity portfolio is well-diversified, comprising 96 individual stocks, all of which operate in the healthcare sector. No holding accounts for more than 7.5% of its total portfolio, except for Springworks, which accounts for that much.

The 10 largest holdings collectively occupy just over 42.8% of the portfolio’s total weight, which suggests a diversified capital allocation.

Source: OrbiMed’s 13f filing, Author

During the quarter covering the fund’s latest 13f filing, the company made the following noteworthy new Buys/Sells:

New Noteworthy Buys:

New Noteworthy Sells:

Some of its top holdings include:

Springworks Therapeutics, Inc. (SWTX)

Springworks is OrbiMed’s largest holding, with the fund holdings around 12.3% of the company’s shares. Unlike Galecto and Invitae, which the fund sold upon their IPOs, Springworks equity was held upon its transition from a private to a public company, hence the fund’s large stake.

Since the company’s initial listing price of around $23 around a year ago, shares are now trading to around $72, reaffirming the fund’s decision to hold on to the stock. Considering that OrbiMed’s participation in both of the company’s two funding rounds, the stock’s current market cap of $3.5 billion means that the fund is sitting on massive unreleased gains, making Springworks one of its most successful investments ever.

Investors should be wary of the fact Springworks is essentially still a pre-revenue company, currently trading at more than 200 times its forward sales. Once and if sales start snowballing its valuation could be well justified. Until then, however, the stock remains risky for the average investor. Hopefully, the company’s ~$462 million cash position should sustain the company till operating cash flows start kicking in.

The position was once again trimmed by 2% as of Orbimed’s latest 13F filing, most likely for the fund to book some gains off of the stock’s prolonged rally.

Boston Scientific Corp (BSX)

Boston Scientific is Orbimed’s second-largest holding, accounting for around 5.3% of its public equity portfolio. It is a relatively new position for the fund, initiated during Q2 of 2020. The company recently achieved FDA approval for its Ranger Drug-Coated Balloon to treat patients with peripheral artery disease, which should add to the company’s top line over time.

Shares are currently trading a forward P/E of 26.1 currently. While the stock is definitely not cheap, analysts expect sales to increase by around 18%+ next year, likely justifying the current premium.

OrbiMed held its position in Boston Scientific steady during the latest quarter.

Horizon Therapeutics Public Limited Company (HZNP):

Horizon Therapeutics is focused on researching, developing, and commercializing medicines that aim to meet critical needs for people impacted by rare and rheumatic diseases. The company’s pipeline is purposeful and applies scientific expertise to bring clinically meaningful therapies to patients. Horizon believes science and compassion must work together to transform lives.

The company’s financials have been growing rapidly since its IPO in 2011, with revenues and profitability snowballing since 2018. The market is currently valuing the stock at around 19.1 times its forward net income.

Orbimed trimmed its position by 7% during the quarter, which is likely attributable to Horizon’s shares tripling over the past year. Horizon is the fund’s third-largest holding.

Bristol-Myers Squibb Company (BMY)

Bristol-Myers Squibb, following its Celgene acquisition, has become one of the fund’s largest holdings. OrbiMed has been growing its equity stake in the company since 2007, which is a testament to the stock’s ability to deliver long-term returns.

The company’s current long-term debt position is at a huge $42.5B following the Celgene and MyoKardia acquisitions. Consequently, however, BMY currently displays a diversified portfolio of industry-leading assets. Revlimid is the second-bestselling drug in the world behind AbbVie’s immunology juggernaut Humira.

Despite BMY shifting towards a younger and more diversified portfolio of medicines, sales and profits are anticipated to remain robust at least in the medium term. Rhe stock is currently trading near an all-time low forward P/E of 7.7. The stock is also offering a satisfactory yield of around 3.16% at its current price levels, which dividend growth investors are likely to appreciate considering the stock’s rapid dividend increases.

OrbiMed held its position steady during the quarter.

Merck & Co (MRK)

One of the mega-cap pharma firms in the fund’s portfolio is Merck & Co, which accounts for around 4.8% of its holdings. The company has been enriching its treatment portfolio by executing various acquisitions, such as its recent acquisition of vaccine developer Themis.

The company has been a stable investment for OrbiMed, consistently raising its dividends and currently yielding a solid 3.57%. The company’s most recent dividend increase was by 6.6%, to a quarterly rate of $0.65, further reassuring investors of its financial resilience.

Source: Company filings, Author

The fund has been holding shares since early 2016, having enjoyed some low volatility, predictable returns from this pharma behemoth. Shares are currently trading near a decade-low forward P/E of around 12.6, which, combined with Merck’s robust focus on shareholder returns, could signal a great buying opportunity for new investors to jump in.

In addition to the dividend, Merck is also continuously buying back its shares. While not an aggressive buyback play, at its current valuation, the company should be able to reduce its share count quite rapidly. Stock repurchases at a forward P/E in the low teens are likely to unlock more shareholder value creation than rapid dividend increases.

OrbiMed trimmed its position by 4% in its latest filing after accumulating shares aggressively in the previous quarters.

Final Thoughts

OrbiMed’s choice to separate its investment strategies into three different categories has allowed its experienced team to scout and identify some of the healthcare sector’s current superstars from early on. While the company’s public equity portfolio has not outperformed the overall market, it’s important to remember that the fund’s multi-bagger investments are not included in our estimated returns, as they were private investments.

Considering that OrbiMed’s know-how in the healthcare sector is well-proven, investors can utilize its public-equities portfolio to be provided with some potentially attractive investments.

At the same time, we recommend that retail investors perform their own due diligence and be wary of their capital allocation in OrbiMed’s holdings. Several of those remain very speculative, featuring negative free cash flows, and generally require industry-related knowledge in order to understand their business models.

 

Additional Resources

See the articles below for analysis on other major investment firms/asset managers:

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