Despite COVID-19's devastating impact, one legendary stock picker might have just cracked the market code. While the broader market tumbled, investing firm Renaissance Technologies and its founder Jim Simons could mark 2020 as a year of record-smashing growth. Since the start of this year through April 14, the firm’s core Medalian hedge fund notched a 24% gain.
So, how has Simons managed to do it? When the professor and mathematician left the world of academia and launched Renaissance in 1982, he fundamentally changed the investing process, pioneering a new quantitative approach that relies on algorithms to uncover patterns in the market. Using this strategy, the firm has become one of the best-performing quant shops on the Street.
Traditional methods like relying on intuition, speaking with companies and analyzing balance sheets didn’t stand a chance against Simons and his computer models. Medallion has returned 66% per year, or 39% after fees, since 1998, leaving other gurus like Warren Buffet and Ray Dalio in the dust. While Simons, who is now worth an estimated $23 billion, remains active at the firm but doesn’t directly oversee the fund anymore, he is in a league of his own, and is considered one of the all-time investing greats.
Looking at Renaissance’s recent activity as a starting point, we poured through its latest 13F filing in an attempt to find compelling opportunities among its purchases. Narrowing in on three healthcare stocks, TipRanks’ database revealed that each is also admired by the analyst community, enough so to earn a “Strong Buy” consensus rating. It doesn’t hurt that all three sport some serious upside potential as well.
Durect Corporation (DRRX)
Using its endogenous epigenetic regulator program, Durect develops innovative treatments for acute organ injuries and chronic liver diseases. While it has experienced a pullback recently, some believe the weakness presents a buying opportunity.
Among the bulls is Simons’ firm. In the last quarter, Renaissance gave its DRRX holding a boost when it added 989,000 shares. Its new position, which now lands at 5,208,212 shares, is valued at $8,073,000.
Turning now to the Wall Street analysts, several take an optimistic approach when it comes to DRRX, including B.Riley FBR’s Mayank Mamtani. To back up his bullish thesis, the five-star analyst cites management’s update on the progress of lead development candidate, DUR-928, an epigenetic modulator. According to the company’s announcement, it’s collaborating with the FDA to study DUR-928 in a Phase 2 clinical trial involving COVID-19 patients in the hospital with acute organ injury.
In preclinical studies, DUR-928 has already been able to stabilize mitochondria, modulate inflammatory responses and promote cell survival and tissue regeneration. Additionally, Mamtani points out that the candidate “may play an important role for up to half of hospitalized patients with COVID-19 reported to have had elevated liver enzyme levels, indicative of liver injury and more than a third of hospitalized patients reported to have kidney damage.” He added, “We are encouraged by DRRX's commitment to leverage DUR-928's unique mechanism to help combat the public health crisis, with an incremental cost of ~$3 million that has relatively limited impact on cash runway.”
That being said, DUR-928's potential extends beyond COVID-19. Enrollment for the Phase 1b open label NASH program has been completed, with top-line data slated for release in Q2. The company has also been ramping up preparations to initiate a Phase 2b program for IV-administered DUR-928 in severe alcoholic hepatitis (AH) patients. These preparations include reaching an agreement on trial design and key study endpoints with the FDA. It should be noted that enrollment is now expected to begin in the second half of 2020 thanks to COVID-19-related impacts.
As for its other candidate, POSIMIR, the company is currently managing information requests (IRs) regarding the NDA review. Mamtani thinks this “suggests an active engagement of agency in the review process.”
Taking into account everything DRRX has to offer, Mamtani stated, “Given the recent pullback, we find both an undervalued AH opportunity and NT catalysts in top-line Phase 1b NASH results and the POSIMIR decision to offer an additional attractive entry point for DRRX shares.”
To this end, Mamtani left a Buy rating and $5 price target on the stock. Should this target be met, a twelve-month gain of 100% could be in store. (To watch Mamtani’s track record, click here)
Do other analysts agree with Mamtani? It turns out that they do. With 100% Street support, or 3 Buy ratings to be exact, the message is clear: DRRX is a Strong Buy. At $5.25, the average price target implies 110% upside potential. (See Durect stock analysis on TipRanks)
Heron Therapeutics (HRTX)
By applying innovative science and technologies with well-known pharmacology, Heron hopes to develop patient-focused solutions that address unmet medical needs. While HRTX did receive a CRL regarding its HTX-011 product, some believe it has the potential to be a best-in-class drug for post-operative pain.
One of its fans is Renaissance. The billionaire’s fund snapped up 870,892 shares, increasing its HRTX holding by a whopping 482%. As for the new value of Renaissance’s position, it comes in at over $12.3 million.
Wall Street analysts also have good things to say about HRTX. Representing Leerink, analyst Ami Fadia notes that HTX-011 review is on track for the June 26 PDUFA date, based on HRTX’s recent conversation with the FDA. Management also stated that the FDA communications suggest things are progressing well, with label discussions not expected to kick off before early June. With respect to HTX-011's CE marking in the EU, there will be a delay as a result of COVID-19, but management thinks the decision could come in the second half of 2020 and that the device shouldn’t encounter any review issues.
Calling the HTX-011 growth opportunity underappreciated, Fadia argues “HTX-011's potential is supported by the strong pain reduction, safety, and opioid-sparing data from the Phase 3, and the total knee arthroplasty (TKA) and breast augmentation nerve block Phase 2b data.” She added, “We believe management has taken the appropriate steps to resolve the issues in the CRL, the additional three-month delay is not reflective of additional issues specific to HTX-011, and management can get approval by the June 26, 2020, PDUFA date.”
On top of this, COVID-19 has had a relatively limited impact on Cinvanti sales, and the asset has held up well as arbitrage progresses. “Management remains confident in growth back in the franchise starting 2021, recapturing not only the clinic share lost during the arbitrage period but also continuing to gain share among those clinics that have been waiting until post arbitrage before adopting Cinvanti,” Fadia said.
Bearing this in mind, Fadia stayed with the bulls. Along with an Outperform call, she reiterated the $26 price target. This target conveys her confidence in HRTX’s ability to climb 64% higher in the next year. (To watch Fadia’s track record, click here)
With only Buy ratings assigned in the last three months, 6 to be exact, the consensus is unanimous: HRTX is a Strong Buy. In addition, the $38 average price target is more aggressive than Fadia’s and implies 136% upside potential. (See Heron stock analysis on TipRanks)
Aurinia Pharmaceuticals (AUPH)
Last up to bat, we have Aurinia, which wants to transform the way autoimmune diseases are treated. As its Voclosporin therapy represents a huge opportunity, Wall Street is getting behind this healthcare company.
Simons’ firm didn’t miss out on an opportunity to tack on more shares to its AUPH holding. Renaissance bought up 860,266 shares, bringing its total stake in the company to 1,438,800 shares. After the position was bumped up by 149%, the new value is $20.9 million.
Meanwhile, Cowen analyst Ken Cacciatore also likes what he’s seeing. He points out that the rolling NDA submission for Voclosporin, a next-generation calcineurin inhibitor that blocks IL-2 expression and T-cell mediated immune responses, in lupus nephritis (LN) is moving right on track, and should be completed by the end of Q2. This means that an approval could potentially come in the first half of 2021. “Our conviction in this management team and opportunity remains unchanged. This asset is still materially discounted at this valuation level, in our view,” he commented.
According to Cacciatore, the robust results from the Phase 3 AURORA study “confirmed Voclosporin’s safety profile, clarifying the prior imbalance in deaths from the low-dose Voclosporin arm in Phase 2.” The analyst added, “Based on these results, and given the unmet need and significant market opportunity in LN, we believe Voclosporin could easily reach $1 billion-plus in this indication alone.”
When it comes to AUPH’s intellectual property, Cacciatore thinks it is strong enough to enable more durability than others might expect. Expounding on this, he said, “Specifically, our legal consultants believe the patent claim of dose adjustments based on eGFR – and the unexpected findings of potentially improved efficacy at those lowered optimized doses – appears solid and defendable (after a full review of the prosecution history). And we believe the Voclosporin label will include language describing these findings/instructions, meaning generics would infringe.”
Based on the clear pathway to approval for Voclosporin, most likely via a priority review, and the strength of its intellectual property, the deal is sealed for Cacciatore. As a result, he maintained an Outperform rating and $30 price target. Given this target, shares could rise 77% in the next twelve months. (To watch Cacciatore’s track record, click here)
As for other analysts, it turns out that they have also been impressed. 6 Buys and no Holds or Sells have been received in the last three months, making the consensus rating a Strong Buy. A twelve-month gain of 52% could be in the cards if the $25.80 average price target is met. (See Aurinia stock analysis on TipRanks)
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