Hungarian-born billionaire George Soros has long been a focal point for investors, thanks to the stellar performance of his namesake fund, Soros Fund Management. The fund, after all, has gained more than 100% on two separate occasions, and it has consistently beaten the broader markets by a wide margin.
Although Soros has ceded the day-to-day control of the fund to others, its quarterly activity is still worth following by any serious investor. Per the latest 13F filings, for example, the Soros Fund Management curiously decided to pick up $8.6 million worth of shares of the clinical-stage biotech Array BioPharma (NASDAQ: ARRY) during the second quarter of 2018.
This speculative addition to the fund's healthcare portfolio stands out for two reasons:
- First off, Soros' fund has been steadily shying away from healthcare stocks in general, and biotech stocks in particular, for a few quarters now. Put simply, the fund's quarterly activity indicates a largely bearish view toward healthcare stocks at large.
- Secondly, developmental stage biotechs rarely find their way into the portfolios of top investors because of their elevated risk profile.
So what does the Soros Fund Management see in Array to make it an exception to these two trends? Let's dig deeper to find out.
Array's transformation is close at hand
Array is a somewhat unique clinical-stage biotech for three overriding reasons. Firstly, the company has an advantageous cost-sharing relationship with Novartis (NYSE: NVS) for the MEK inhibitor binimetinib and the BRAF inhibitor encorafenib.
The quick-and-dirty version of the story is that Novartis had to jettison these two promising compounds as part of its acquisition of GlaxoSmithKline 's cancer business a few years back in order to satisfy the demands of the Federal Trade Commission.
As part of the deal, Novartis agreed to fund most of the two drugs' ongoing trials that were either active or planned at the time of the agreement. Array has thus been able to build up a sizable cash position of $440 million at last count, despite having a robust clinical pipeline and no approved products on the market. That's an extremely rare feat in the world of clinical-stage biotechs, where most companies have to repeatedly resort to secondary offerings to keep their doors open.
Next up, Array appears to be exceedingly close to becoming a commercial-stage operation. After strong late-stage results for binimetinib and encorafenib as a combo treatment for BRAF -mutant advanced melanoma, the Food and Drug Administration (FDA) agreed to review the experimental therapy without even holding an advisory committee meeting.
So, as things stand now, the FDA is expected to make a decision on this critical regulatory filing by June 30 of this year. This two drug melanoma treatment is also currently under regulatory review by the European Medicines Agency, the Swiss Medicines Agency, and the Australian Therapeutic Goods Administration.
Last but not least, Array also has multiple immuno-oncology licensing deals in place with top biopharmas like Bristol-Myers Squibb , Merck , Pfizer , among others . That's a reassuring sign that Array's platform is on the right track.
Is this biotech stock a buy?
Array definitely stands out from crowd due to its strong cash position, promising clinical pipeline of lucrative cancer medicines, and all-star lineup of development partners. From a pure value perspective, however, most of this good news is arguably already baked into the company's share price at this point.
The long and short of it is that Array's forward-looking price-to-sales ratio presently stands at a ginormous 15.6. To put this figure into the proper context, the industry average has historically stood around 5.
Having said that, Array could be a great buy for patient investors willing to hold it for five or more years. The company does have an attractive balance sheet and a robust clinical pipeline, after all, that should eventually generate substantial value for long-term shareholders.
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