Marketocracy Commentary: The Top Health Care Analyst
This is a commentary from Marketocracy on Jack Weyland's VALUE model portfolio.
We recently updated the 5-year performance of Jack Weyland's model fund VALUE with the top ranked Health Care Mutual Funds as of 11/30/09. You can see below in the table that Jack has returned 67.58% YTD and averaged 23.35% per year for 5-years while the top-ranked mutual fund, BlackRock Health Sciences Ops has averaged only 10.43% per year.
At Marketocracy we track more than just performance. We have tracked every trade on every stock Jack has made over the last 7.4 years so we know HOW he made his money and WHERE he made his money.
Here's what Ken Kam wrote about Jack in an article in August 2009:
The Top Healthcare Investor's Top Pick
The President's plan to reshape healthcare creates both risks and opportunities for investors. This is not a time to have newly minted MBAs managing your healthcare investments. If you own funds that invest in healthcare stocks, it is especially important to look at the track records of the people who will be making investment decisions with your money.
I have been tracking Jack Weyland, an exceptional healthcare investor, since July 25, 2002. Over the 5 years ending June 30, 2009, Weyland has averaged 26.51% a year, while the top performing healthcare mutual fund, BlackRock Health Sciences (SHSAX), averaged just 6.93% according to Morningstar.
So far this year Weyland is up 74.89%. How does he do it, can he keep doing it, and what does he like now?
How Does He Do It?
Jack has a skill for buying companies that have disappointed Wall Street after they have been sold off. In a nutshell, he takes advantage of Wall Street's short-sightedness.
When he is buying, it often looks like he is trying to catch a falling knife. This is a strategy many have attempted but few can accomplish. Over the years, I've documented him doing it successfully 5 times.
1) In 2006 Philips (PHG) bought Intermagnetics General for $1.3 billion. Intermagnetics used super-conducting materials to improve magnetic resonance imaging technology. Their products were solid, but they were not able to market them well. Philips saw the value of the products and paid a premium to acquire the company.
2) In 2007, Coley Pharmaceuticals was acquired by Pfizer (PFE). Coley was a pioneer in a new class of drugs called TLR (Toll-like receptors) Therapeutics. When they announced that their first attempt to develop a cancer drug did not work the stock lost 60% of its value, falling to $3.50. Five months later Pfizer paid $8.00 a share for the company.
3) In 2006, Abbott Labs (ABT) bought Kos Pharmaceuticals for $3.7 billion. Kos Pharmaceuticals' main product was a drug that raises HDL - the good kind of cholesterol. Kos was another case of a good product in the hands of a second-class sales force.
4) In May of 2008, Intercell AG (VSE: ICLL) acquired Iomai Corporation for $6.60 per share. In January 2007, Wall Street questioned Iomai's ability to find a partner for its flu vaccine patch and the stock price fell from $6.17 to less than a $1 in January 2008.
5) In January of 2009, Endo Pharmaceuticals (ENDP) bought Indevus Pharmaceuticals. In June of 2008, the FDA handed Indevus a two-year delay on their lead drug candidate, Nebido. The stock dropped 70% to $1.19 on the news. Six months later Endo Pharmaceuticals acquired the company for $3.00 in cash with an additional milestone payment of up to $4.50 per share.
Can He Keep Doing It?
It is my experience that Wall Street often reacts to bad news by shooting first and asking questions later. This is not going to change anytime soon. Combine this with the fact that there will be setbacks in the development of almost any new drug and its easy to see that there will be lots more opportunities in the future that will be much like the ones Jack Weyland has shown over 7 years he knows how to exploit.
What Does He Like Now?
Right now Weyland's biggest position is Depomed (DEPO). On July 10, 2007, Depomed announced that results from its Phase 3 clinical trial of Gabapentin GR, failed to show statistically significant efficacy relative to a placebo. The stock, which had been trading at close to $5, dropped by more than 50% to $2.20 on the news. That's about when Weyland started buying.
What he saw was that Depomed had other products in its pipeline besides Gabapentin, and that their drug delivery technology could be of great value to other companies making Depomed a potential acquisition candidate.
Depomed has patented a unique way to control the delivery of drugs to the upper gastrointestinal (GI) tract which is the preferred site for many oral drugs. With this technology, one can make a tablet that delivers a steady dose of a drug for eight to nine hours. This gradual, extended release profile allows for more of the drug to be absorbed in the upper GI tract, and minimizes the amount that passes to the lower GI tract and is wasted, or worse causes complications.
One can see that the drug delivery technology alone might be worth a lot of money to a drug company with an oral drug that is coming off patent. By using Depomed's technology to create a new extended release version of the drug, a potential acquirer might be able to get a new patent on the extended release version of the drug.
Depomed seems to fit the characteristics of the stocks Jack Weyland has done particularly well with. At a time when the healthcare sector is going through big changes, I sleep better at night knowing that someone with a track record like Jack Weyland's is watching over my healthcare stocks.