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Sydnee Gatewood
Sydnee Gatewood
Articles (2960) 

Seth Klarman Axes Akebia Therapeutics Stake From Portfolio

Guru's firm divests of holding in biotech company focusing on kidney disease

Baupost Group leader Seth Klarman (Trades, Portfolio) disclosed last week he divested of his position in Akebia Therapeutics Inc. (NASDAQ:AKBA).

The guru's Boston-based hedge fund manages about $29 billion in assets as of June 30, 2019. It searches for value among a broad range of opportunities, including stocks, distressed debt, liquidations and foreign securities. With a long-term horizon, the renowned investor typically seeks securities trading well below his estimate of intrinsic value and waits for the price to rise. In March, Bloomberg reported that for the first time since 2011, Klarman was seeking more capital as the Covid-19 pandemic revealed more value opportunities.

Having reduced the stake for the past several quarters, GuruFocus Real-Time Picks, a Premium feature, showed the guru sold his 15 million remaining shares of the Cambridge, Massachusetts-based biotech on Sept. 30, impacting the equity portfolio by -2.55%. The stock traded for an average price of $2.51 per share on the day of the transaction.

GuruFocus data indicates Klarman's firm has lost an estimated 45.84% on the investment since it was established in the fourth quarter of 2018.

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The biopharmaceutical company, which focuses on developing therapeutics to treat kidney disease, has a $465.78 million market cap; its shares were trading around $3.33 on Tuesday with a price-book ratio of 1.25 and a price-sales ratio of 1.2.

The GF Value Line suggests the stock is currently a potential value trap as the underlying company has some financial weaknesses.

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Akebia reported its second-quarter financial results on Aug. 10, posting an earnings loss of $1.28 per share. Revenue declined slightly from the year-ago quarter to $90.1 million due to lower collaboration sales.

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Despite the declines, President and CEO John P. Butler noted in a statement that Akebia had an "incredible quarter" as it made significant progress in "advancing our vadadustat clinical development program, bringing us that much closer to achieving our purpose to better the life of each person impacted by kidney disease."

"We reported exciting, positive top-line data from our global Phase 3 INNO2VATE program highlighting vadadustat's potential as a new oral standard of care for treating anemia due to CKD in adult patients on dialysis, and topped off the quarter with the first regulatory approval of vadadustat in Japan," he said.

In September, the company shared its top-line data from PRO2TECT, which evaluated the safety and efficacy of vadadustat. Akebia reported that the drug met its primary and secondary objectives and that the company is preparing to file a New Drug Application with the U.S. Food and Drug Administration.

GuruFocus rated Akebia's financial strength 4 out of 10 on the back of a cash-to-debt ratio that is underperforming other players in the space as well as in comparison to its own history. The Sloan ratio also indicates it has poor earnings quality, while the Altman Z-Score of -2.02 warns it could be in danger of going bankrupt. The weighted average cost of capital also eclipses the return on invested capital, implying that it is not turning a profit on its projects and is destroying value as it grows.

The company's profitability fared even worse, scoring a 1 out of 10 rating. While Akebia's margins are negative, they are still outperforming over half of competitors. Its negative returns, however, are underperforming a majority of industry peers. The company also has a low Piotroski F-Score of 3, which indicates operating conditions are in poor shape, and has recorded a decline in revenue per share over the past 12 months.

With a 3.95% stake, David Abrams (Trades, Portfolio) is now the company's largest guru shareholder. Steven Cohen (Trades, Portfolio), Jim Simons (Trades, Portfolio)' Renaissance Technologies and Caxton Associates (Trades, Portfolio) also have positions in Akebia as of June 30.

Portfolio composition

Klarman's $7.98 billion equity portfolio, which was composed of 30 stocks as of the end of the second quarter, was most heavily invested in the communication services sector at 41.88%. He also had smaller holdings in the consumer cyclical (21.08%) and health care (15.83%) spaces.

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Other health care stocks the guru held as of the three months ended June 30 were HCA Healthcare Inc. (NYSE:HCA), Atara Biotherapeutics Inc. (NASDAQ:ATRA), Translate Bio Inc. (NASDAQ:TBIO), McKesson Corp. (NYSE:MCK), Theravance Biopharma Inc. (NASDAQ:TBPH) and AmerisourceBergen Corp. (NYSE:ABC).

Disclosure: No positions.

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About the author:

Sydnee Gatewood
I am the editorial director at GuruFocus. I have a BA in journalism and a MA in mass communications from Texas Tech University. I have lived in Texas most of my life, but also have roots in New Mexico and Colorado. Follow me on Twitter! @gurusydneerg

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