12:00 AM
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Jan 28, 2013
 |  BioCentury  |  Finance

Oleg's asymmetry

Ex-BVF investor Nodelman fundraising for 'asymmetric' healthcare fund EcoR1

Longtime BVF Partners portfolio manager Oleg Nodelman is betting there's room for a new fund focused on what he calls "asymmetric opportunities."

Last October, Nodelman left the hedge fund after about 11 years to launch EcoR1 Capital.

According to a December letter to potential LPs, Nodelman is fundraising and hopes to launch the fund this half. The letter doesn't specify how much Nodelman hopes to raise.

Nodelman declined to be interviewed, but his letter defines asymmetric opportunities as those with a "potential return that is exponentially greater in probability and absolute dollars than the potential loss."

According to his letter, a herd mentality is pervasive among traditional biotech investors. Valuations follow suit, he wrote, often "dramatically overshooting both for perceived successes and failures."

That leaves bottom fishers to prosper.

"The companies I invest in are often so cheap and hated that even if nothing works out, it is still possible for investors to make money," he wrote.

Nodelman cited Targacept Inc. (NASDAQ:TRGT), which he called "one of the most compelling, forgotten and overlooked investment opportunities."

"Targacept is not without risk, but the market is pricing the stock as if everything that will happen over the next year has already failed," he wrote. "I believe the opportunity to own this stock today defines asymmetry."

Shares of Targacept closed at $4.39 on Friday, well below the company's 52-week high of $7.70 last March, before it and AstraZeneca plc (LSE:AZN; NYSE:AZN) abandoned plans to seek approval of TC-5214 for major depressive disorder.

The decision came after TC-5214 failed a quartet of clinical trials.

Once he's identified candidate companies, Nodelman said he considers the "basic tenets" of the business, including a solid cash position, "hidden intrinsic value in the form of IP or know how" and alignment of incentives between investors and management.

Nodelman did not disclose the number of companies he believes fits his strategy, though he said his universe of the "generally orphaned companies" includes the majority of the 600 or so publicly traded biotechs.

Tables

Earnings on deck
Company Date Pre/post mkt 4Q12 est 4Q11 EPS Expected chg
Biogen Idec Inc. (NASDAQ:BIIB) 1/28 Pre $1.46 $1.51 -3%
Illumina Inc. (NASDAQ:ILMN) 1/28 Post $0.41 $0.35 17%
Eli Lilly and Co. (NYSE:LLY) 1/29 Pre $0.79 $0.87 -9%
Pfizer Inc. (NYSE:PFE) 1/29 ...

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