Ex-Harvard Endowment Bosses Make $1 Billion In A Day With Biotech Bet

Jul 24 2014 | 6:12am ET

By Charles Stein and Robert Langreth (Bloomberg) -- Adage Capital Management, the Boston hedge fund started by two former money managers at Harvard University’s endowment, made almost $1 billion yesterday as a biotech company the firm backed surged following a successful medical trial.

Puma Biotechnology Inc. shares almost quadrupled after the company said its experimental drug blocked the return of breast cancer in women with a type of early-stage disease. Adage owned 5.69 million common shares of Puma as of March 31, making it the largest outside investor with a 19 percent stake, according to data compiled by Bloomberg.

Adage, founded in 2001 by Phillip Gross and Robert Atchinson after they left Harvard’s endowment, has owned shares of Puma since at least the first quarter of 2012, when the company went public. The founders run the hedge fund in the same style they oversaw their $5 billion equity group at Harvard, taking long and short bets on individual stocks within industries, said Jack Meyer, who headed the endowment at the time Gross and Atchinson left.

“They consistently add value,” Meyer, who now runs hedge fund Convexity Capital Management in Boston, said in a telephone interview. “I am a huge fan.”

Puma gained $174.40 a share, translating into a one-day profit of $992 million for Adage, assuming the firm’s stake in the company hasn’t changed from the end of the first quarter, when it was last disclosed. Adage disclosed owning 3.2 million shares at the end of the first quarter of 2012 and subsequently increased its holding, according to data compiled by Bloomberg.

Billionaire Founder

Alan Auerbach, the founder of the Los Angeles-based biotech company and owner of about a fifth of Puma, saw his net worth surge to $1.4 billion, according to the Bloomberg Billionaire’s Index.

Puma’s drug, neratinib, improved disease-free survival by 33 percent compared with a placebo in a trial of 2,821 women with early-stage HER2-positive breast cancer, the company said July 21 in a statement. Puma said it would apply for U.S. regulatory approval in the first half of 2015 based on the results.

Calls to Adage and Puma weren’t returned.

At Harvard, Gross and Atchinson ran a team that managed $5 billion in domestic equities, according to an article in Harvard Magazine at the time, which said that the team’s returns beat the S&P 500 Index by 4.5 percentage points a year over the previous decade.

Auerbach sold his previous venture, Cougar Biotechnology Inc., to Johnson & Johnson for about $1 billion in 2009. The experimental prostate-cancer treatment being developed by Cougar was approved by the Food and Drug Administration in 2011 and is marketed as Zytiga. His stake in Puma includes more than 4 million common shares and a warrant to buy 2.1 million shares for $16 each.

Copyright 2014 Bloomberg. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

In Depth

Related-Company Fees: Normal Industry Practice or Conflicted Compensation?

Nov 11 2015 | 4:23pm ET

Regulatory agencies as well as investors are increasingly exploring whether certain...


Ferrari Roars in Wall Street Debut

Oct 21 2015 | 4:28pm ET

Shares of supercar maker Ferrari jumped as much as 15 percent to a high of nearly...

Guest Contributor

Private Debt - What is the Opportunity?

Nov 11 2015 | 3:28pm ET

In this contributed article, Rob Allard, founding partner of Firebreak Capital...


Editor's Note

    Oct 21 2015 | 10:41am ET

    One of the most unique charity benefits in the hedge fund industry, A Leg To Stand On's (ALTSO's) Hedge Fund Rocktoberfest - NYC, raised nearly $500,000 last Thursday thanks to the generous support of major sponsors and nearly 1,400 attendees from the Tri-State finance, business and hedge fund communities. Read more…