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Farallon Capital Management, LLC, is a global institutional asset management firm founded in 1986 by Thomas Steyer. It invests globally across asset classes, seeking superior risk-adjusted returns through bottom-up fundamental analysis that emphasizes capital preservation. While its investment philosophy remains consistent, its execution is flexible, allowing capital to shift among strategies, asset classes, and geographies based on prevailing opportunities. Farallon is headquartered in San Francisco and has offices in London, Singapore, Hong Kong, Tokyo, and São Paulo.
Abbreviated financial summaries and metrics for these securities are included below. Detailed analysis and recommendations require a subscription (more information at the bottom of the article).
Farallon started new positions in Microsoft Corp. (MSFT), Comcast Corp. (CMCSA), Time Warner Cable (TWC), and Spreadtrum Communications (SPRD) and it sold positions in AutoZone Inc. (AZO) and Pfizer Inc. (PFE).
Why sell Pfizer Inc. (PFE)?
Pfizer posted a 2% decline in third-quarter sales to $12.6 billion year-over-year, missing analyst estimates. But it reported adjusted EPS of $0.58, which was above analyst estimates. The operational decrease primarily resulted from continued erosion for branded Lipitor in the U.S., developed Europe, and certain other markets. Plus, revenues were negatively impacted by other product losses of exclusivity, the ongoing expiration of the Spiriva collaboration in certain countries, decreased government purchases of Prevnar and Enbrel in some emerging markets, and other events. Revenues were positively impacted by the overall growth of Lyrica, Enbrel, Inlyta, and Xalkori, as well as Celebrex and Xeljanz in the U.S. Also, reported revenues included $67 million from the transitional manufacturing and supply agreements with Zoetis.
Pfizer’s oncology business grew 26% due to the continued strong performance of some new products—primarily Inlyta and Xalkori. Despite macroeconomic and other factors, the emerging markets business grew 5% operationally, primarily due to volume growth for key products in the primary care area such as Lipitor, Norvasc, Lyrica, and Celebrex, especially in China. In terms of guidance, the company said it’s narrowing the ranges for certain components of its full-year 2013 financial guidance. It narrowed the reported revenue range to between $50.8 billion and $51.8 billion from between $50.8 billion and $52.8 billion. It narrowed its adjusted diluted EPS range to between $2.15 and $2.20 from between $2.10 and $2.20.
The company has been impacted by the expiry of patents on its successful drugs in the recent past. However, it’s expecting positive results from the new products in developments like Prevnar 13 (a meningitis treatment for adults), Xeljanz (a rheumatoid arthritis treatment), Eliquis (a deep vein thrombosis treatment), and Duavee ( a treatment for symptoms associated with menopause). It said it has initiated a phase 3 program for bococizumab (RN316), its PCSK9 inhibitor for LDL cholesterol reduction, and it’s initiating a phase 3 program with its collaboration partner, Merck, for ertugliflozin, its SGLT2 inhibitor for the treatment of type 2 diabetes. It also plans to begin a phase 3 program for its biosimilar of Herceptin for metastatic breast cancer in the next few months. The company is also is planning to continue developing tanezumab for the treatment of osteoarthritis, chronic low back pain, and cancer pain. It has entered into a collaboration agreement with Eli Lilly & Company to jointly develop and globally commercialize tanezumab.
In July, Pfizer announced plans to move forward to internally separate its commercial operations into three business segments, two of which will include Innovative business lines and the third of which will include the Value business line. Each of the three segments will include developed markets and emerging markets. Beginning with first-quarter 2014 financial results, the company will provide financial transparency for each of these three business segments, which will include a 2014 baseline management view of profit and loss for each segment. The company has seen speculation that it could split up to unlock shareholder value.
Farallon manages approximately $19 billion for institutions, including college endowments, charitable foundations, pension plans, and high–net worth individuals. According to its website, Farallon pursues multiple investment strategies on an opportunistic basis, which includes five core investment strategies: credit investments, value investments, merger arbitrage, real estate–related investments, and direct investments. Each investment is evaluated independently on a fundamental basis.
Farallon invests globally, focusing on both developed and emerging markets. It invests in public and private debt and equity securities and direct investments in private companies and real estate. It prioritizes preserving capital. While it values and employs risk management analytics, it primarily manages risk through rigorous research and analysis. It also seeks to build strong relationships with the management of the companies it invests in.
Farallon Capital Management founder Thomas Steyer attended Philips Exeter Academy and graduated from Yale University. He received his MBA from Stanford Business School, where he was an Arjay Miller Scholar. He announced in October 2012 that he would be stepping down from his position at Farallon in order to focus on political activism—in particular, advocating for alternative energy.