For two health care funds that started this year, the currentretreat of many biotech stocks makes now a good time to shopselectively for inexpensive shares.
"We think it's the best of times to come out with a fund likeours because there are bargains," said John Kaweske, whomanages the Global Health Sciences Fund, a new closed-endfund. GHS in January raised $300 million in an initial publicoffering of 20 million shares (NYSE:GHS) priced at $15 pershare. Kaweske already manages the $1.1 billion FinancialHealth Sciences Portfolio. Both are owned by Invesco Trust Co.
Global Rx Fund, an open-end fund recently started by JohnHancock, is following a similar strategy. With more than $10million in assets, "the approach we're taking is to nibble awayat health care issues," said Ben Williams, the fund's health careanalyst. "On the biotech side, our feeling is that selectivity isextremely important."
Like GHS, Global Rx is focusing on top-tier stocks with earningsor near-term pipelines. Global Rx will also pick out some of thetop members of the recent class of IPOs.
"We're in no hurry to buy stocks," said Williams. "Theimplication isn't that they're going down, but that they're notgoing to rise rapidly. We're exercising caution because we feelthe speculative flow has run its course.
"The massive amount of financing we've had portends a periodof underperformance," he said, adding that gains will be morehard-won this year than last. "We won't see such rapid gainsfrom merely announcing milestones."
"It's time to be very selective and to move slowly, mainlybecause we're in an environment where money is moving intocyclical issues, and we expect a further correction," saidKaweske. He expects that process to be completed in the nextcouple of months.
GHS, which closed Friday unchanged at $13.63, is 50 percentinvested, and Kaweske said he hopes to be fully investedwithin the next two or three months as the stocks becomecheaper.
Because the fund can sell short, it is a quasi-hedge fund,Kaweske said. "We wanted to create a fund that hadconsiderable flexibility compared to existing health care funds,including the ability to sell short," Kaweske told BioWorld. "Thisis the only health care fund that has that ability. Plus we canuse puts and calls and indexes."
GHS can also put up to 25 percent of its holdings into privateplacements. In comparison, Kaweske's other fund can invest upto 10 percent of its holdings in restricted securities. GlobalHealth Sciences is also allowed to invest in foreign securities.
"The fund's smaller size also means that we can invest more insmall- and medium-capitalization companies," Kaweske said."The market for the next few years will be more in thesecompanies."
Kaweske said that about 12 percent to 14 percent of GlobalHealth Sciences investments would be in biotech.
Global Rx plans to put up to 10 percent of its funds in privateplacements, said manager Paul Secord. About 10 percent to 12percent of the overall fund's assets will be placed in biotechcompanies.
Other funds that invest in privately held companies includeHambrecht & Quist Healthcare Investors, Chancellor CapitalManagement's Citicare and Biotechnology Investments Ltd.H&Q, a $135 million closed-end fund, invested in six later-stagefinancings last year, said fund manager Alan Carr. At least halfof its positions are in biotech, Carr said.
Citicare, a $120 million open-end fund managed by ParagSaxena, can invest up to 10 percent by value in privateplacements. About 30 percent to 34 percent of the fund'sholdings are in biotech companies. BIL, a London-based closed-end fund, has about 37 percent of its investments in privatecompanies.
-- Karen Bernstein BioWorld Staff
(c) 1997 American Health Consultants. All rights reserved.