Baupost Group opens PBF position, raises MU and THRX share, and sells AIG, AUY, and KGC—13F Flash C

Market Realist

Baupost Group positions update: 3Q 2013 (Part 3 of 6)

(Continued from Part 2)

The Baupost Group, LLC, is a hedge fund founded and run by Seth Klarman in 1982. Its investment approach emphasizes risk management. The firm, one of the largest hedge funds in the world, is a value investing manager. It has about $30 billion in assets under management.

Abbreviated financial summaries and metrics for these securities are included below. Detailed analysis and recommendations require a subscription (more information at the bottom of the article).

Baupost started a new position in PBF Energy (PBF), increased positions in Micron Technology Inc. (MU) and Theravance Inc. (THRX), and sold American International Group (AIG) as well as gold miners Yamana Gold Inc. (YRI) and Kinross Gold Corp. (KGC).

Why buy Theravance Inc. (THRX)?

According to its 3Q filing, Baupost increased its position in bio-pharmaceutical company Therevance to 21.62% from the previous quarter.

Theravance posted revenue decline for 3Q 2013 to $0.4 million, compared to $1.4 million for the same period in 2012. Net loss for the third quarter of 2013 was $47.0 million, or -$0.44 per diluted share. However, the company said it’s in a strong position as it looks forward to other significant events prior to year-end. These include a potential decision on its respiratory portfolio drug RELVAR ELLIPTA in the EU, a Prescription Drug User Fee Act (PDUFA) goal date in December 2013 for ANORO ELLIPTA, and results from a phase II study of TD-9855 in attention-deficit/hyperactivity disorder (or ADHD). Moreover, its partner GlaxoSmithKline (GSK) recently began shipping BREO ELLIPTA for chronic obstructive pulmonary disease (or COPD) into the U.S. market.

In 2Q 2013, Theravance announced plans to separate its businesses into two independent publicly traded companies. One company, Theravance, Inc., a royalty management company, will focus on managing all development and commercial responsibilities under the LABA collaboration with GSK. The other company, Theravance Biopharma, Inc., will be a bio-pharmaceutical company focused on discovery, development, and commercialization of small-molecule medicines in areas of significant unmet medical need. The process is expected to complete in late 2013 or early 2014.

For full year 2013, Theravance expects non-GAAP earnings in the range of $125 million to $130 million, but mostly at the upper end of the range.

It recently announced positive results from a phase III efficacy and safety study of fluticasone furoate “FF”/vilanterol “VI,” designed to support a potential filing for an asthma indication for adults in the U.S. It said this is an important outcome for FF/VI and it will continue working with GSK to determine how it can make this potential treatment available to appropriate patients who could benefit from a new asthma medicine. The stock is up 64% year-to-date.

THRX

Baupost founder Seth Klarman is also the author of a book on value investing titled Margin of Safety: Risk-Averse Value Investing Strategies for the Thoughtful Investor. In his book, Klarman explains the margin of safety as “buying assets at a significant discount to underlying business value, and giving preference to tangible assets over intangibles.”

Klarman is a graduate of Cornell University and Harvard Business School. Before founding Baupost, Klarman worked for Max Heine and Michael Price of the Mutual Shares fund (now part of Franklin Templeton Investments). Despite his unconventional strategies, Klarman has consistently achieved high returns. He’s a very conservative investor, and he often holds significant amounts of cash in his investment portfolios. He often makes unusual investments, buying unpopular assets while they’re undervalued, using complex derivatives, and buying put options. He’s known to keep a very low profile, but he has considerable influence. He has been called the “Oracle of Boston” and is also sometimes referred to as “the Warren Buffett of his generation.”

Continue to Part 4

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