How Hedge Funds Obtain Biotech Public Records before Retail Investors Get Their "Public" Information
While pedestrian investors wait on press releases, conference calls and trial results before acting on biotech stocks, some of the world's largest hedge funds have figured out how to speed up the process of publicity: Ask the FDA.
According to The Wall Street Journal, giants like SAC Capital Advisors and Millennium Management have started filing Freedom of Information Act (FOIA) requests to get their hands on FDA records before the general public. Under the law, the agency has to respond in a timely manner, and there's nothing illegal about making trading decisions based on public info, thus spurring the latest and most lucrative trend among biotech stock profiteers.
For example, SAC: Last year, the fund was considering upping its stake in Vertex ($VRTX) with an eye on the recently launched Kalydeco, WSJ reports, but just to be sure, SAC filed a FOIA request to get a look at the drug's adverse event reports. Liking what it saw, SAC snagged 13,500 shares in the first quarter, according to the newspaper, watching happily in April as Vertex leapt 62% in a single day on positive data for Kalydeco combined with VX-661.
Now that the secret's out among hedge fund managers, more and more are adding FOIA requests to their due-diligence processes. An FDA request-management contractor told WSJ that the volume of queries from investors has more than tripled over the past two years, fielding questions about the likes of Medivation ($MDVN), Regeneron ($REGN) and Sanofi ($SNY).
"It's an information arms race," Poliwogg Holdings partner Les Funtleyder told the Journal. "It's important to try every avenue. If anyone else is doing it, you need to, too."
Perhaps most alluring is the return on investment for FOIA-ing hedge funds: SAC had to fork over $72.50 for the Vertex documents it requested, WSJ points out; those 13,500 shares are now worth nearly $1 million.