A media-shy firm that beat the roaring 2017 market increased its position in global biopharma Alkermes PLC (ALKS, Financial) on Dec. 31.
Alkermes is part of Primecap Management’s sizable bet on health care, which makes up about a third of two of its growth portfolios and has spurred outperformance. The Primecap Odyssey Growth Fund returned 32.1% and the Primecap Odyssey Aggressive Growth Fund gained 32.6% for the year ended Oct. 31. Its Odyssey Value Fund, where health care is 17%, returned 28.5% for the period. All three beat the S&P 500’s rise of 23.6%.
Alkermes proved one of Primecap’s poorer performers in health care. The stock slumped 3% for the year, which may have attracted the value investing-based firm.
In an annual report, Primecap said it was “especially enthusiastic” about its pharmaceuticals holdings, which traded at a discount to the S&P 500.
“We believe favorable demographics and rising living standards in emerging market countries should result in above average growth for health care products and services over the long term,” fund managers said in the letter.
“In the near term, the Food and Drug Administration appears to be pursuing a more constructive agenda with respect to the pace of new drug approvals, albeit with a greater degree of focus on low-cost biologics,” they said.
Primecap boosted its position in Alkermes by 25.7% to 21,934,431 shares at an average price of $54.73. After the purchase, it owned roughly 14.26% of the company’s outstanding shares. Primecap has been aggressively building a position in the company, buying shares in each consecutive quarter since the second of 2016. Its former most recent purchase came on Nov. 30 at an average price around $51.
Dublin-based Alkermes focuses on central nervous system disorders, including schizophrenia, depression and multiple sclerosis.
The company reported 21% higher revenue for the third quarter at $217.4 million versus the comparable quarter the prior year, with revenue growth across its product line. Its net loss totaled $36.3 million, or 24 cents per diluted share, compared to $62.7 million, or 41 per diluted share.
Alkermes reiterated guidance for non-GAAP results and improved its guidance for GAAP net loss for the full-year of 2017. The company expects lower revenues as sales of its product Vivitrol slow more than expected, with lower cost forecasts offsetting the decline.
Alkermes reduced its total revenue guidance to a range of $850 million to $880 million from $870 million to $920 million. It expected a net loss between $160 million and $190 million, or between $1.04 and $1.23 per basic and diluted share. It previously expected a net loss of $180 million to $210 million, or $1.17 to $1.36 per basic and diluted share.
The pharmaceutical company has five drugs in its pipeline for the treatment of diseases including major depressive disorder, multiple sclerosis and schizophrenia.
See Primecap Management's investment portfolio here.
