||Achillion Pharmaceuticals, Acadia Pharmaceuticals, Dyax|
||Versartis, Akebia Therapeutics, Synexis|
||Gilead Sciences, Prothena, PTC Therapeutics|
About the fund: If there's any life sciences hedge fund manager devoted to the scientific fundamentals of the sector, it's RA Capital's Peter Kolchinsky. He co-founded the firm in 2001 with Rich Aldrich, a founding employee of Vertex ($VRTX) who was its senior vice president and chief business officer from 1989 to 2001. Aldrich brought to the table his business acumen and seed financing of $4 million, while Kolchinsky was fresh out of Harvard with a Ph.D. in virology.
That's according to an Xconomy profile of Kolchinsky from 2008. Aldrich eventually moved on to co-found healthcare venture capital firm Longwood with former Sirtris execs Christoph Westphal and Michelle Dipp, one of 2012's Top Women in Biotech.
Most life sciences fund managers have a staff full of analysts who are Ph.D.s or M.D.s, but few can claim either of those titles in their own right. RA Capital typically holds big stakes in what it sees as undervalued public companies that it has evaluated on the scientific and market fundamentals. In the past few years, it started more actively making crossover investments into private companies. Getting in ahead of an IPO enables crossover investors to stake a claim and subsequently purchase larger stakes at lower valuations, before they are available to other public investors.
Kolchinsky likes to identify major investment themes, scour the field of available companies working there (public or private) and invest in one, or more, of them. His fund is heavily concentrated in relatively few companies--only 28 positions for this almost $1 billion fund. All told, RA Capital has about $1.4 billion under management.
In broad strokes, some of the trends currently guiding RA Capital are disease prevention, cures, cost-effective diagnostics and interventions, genetic testing and personalized medicine, nurse-enabling technology, patient/physician convenience and small molecule replacements for biologics.
In biotech, Kolchinsky is intrigued by the transformative technology he sees in pipelines including messenger RNA, protein-folding correctors, gene therapy and exon skipping. But he acknowledges that investors too often raise valuations across the board for companies in a particular segment, such as cancer immunotherapy and gene therapy, particularly if it still feels new. "The inefficiencies are transient and the strongest companies eventually stand out."
RA Capital is hardly pristine. In mid-September it settled with the U.S. Securities and Exchange Commission to pay $3.6 million in disgorgement, interest and penalties related to 17 instances from July 2009 through July 2013 when the firm bought shares in a follow-on offering too soon after selling short the same stock. This allows a fund to buy shares in a company offering at a lower-than-market price to cover its short position. This episode highlights a fundamental tension that plagues life science hedge funds between supporting innovative companies and deriving financial benefit--regardless of whether it's to the detriment of those same companies.
Show me the money: RA Capital has ridden the HCV acquisition thesis hard, starting with Pharmasset. Gilead ($GILD) said it would acquire Pharmasset in November 2011 for $11 billion. That kicked off the ongoing biotech rally and continues to offer it fuel via Gilead's ever-climbing Sovaldi billions. With the acquisition of Idenix by Merck ($MRK) for $3.9 billion announced in early June, Achillion ($ACHN) became the next anticipated HCV buyout target. Its share price peaked on this speculation in early September.
RA Capital has been a major beneficiary; it held 23% of Achillion at June 30. It has since trimmed its position to 10.6%, according to a Sept. 23 SEC filing, to take advantage of the share price spike on the acquisition speculation. In early September, Achillion was up as much as 300% for the year.
Kolchinsky told FierceBiotech that he still likes the acquisition potential for Achillion, which he expects to get snapped up in what he thinks will be a race to a triple combination, pan genotypic, oral HCV regimen that's only 6 weeks in duration.
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