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Magnetar Capital starts new positions in 3Q 2013

Part 5
Magnetar Capital starts new positions in 3Q 2013 (Part 5 of 6)

Magnetar Capital starts new positions in DNR, OKE, LAMR, and KMI and sells PFE and ZTS—13F Flash E

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Magnetar Capital was founded in 2005 by Alec Litowitz and Ross Laser. It’s based in Evanston, Illinois. It seeks to deliver consistent long-term risk-adjusted returns by investing in and across alternative asset classes. It seeks opportunities where it can engineer and scale its processes, and it structures investments to be profitable across the broadest range of market conditions or outcomes. It operates in and across three major investment strategies: global event-driven, fixed income, and energy.

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).

In this six-part series, we’ll go through some of the main positions Magnetar traded this past quarter.

Magnetar started new positions in Denbury Resources Inc. (DNR), Oneok Inc. (OKE), Lamar Advertising Co. (LAMR), and Kinder Morgan Inc. (KMI) and it sold Pfizer Inc. (PFE) and Zoetis Inc. (ZTS).

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 the first quarter of 2014′s 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.

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Magnetar Capital founder and CEO Alec Litowitz and co-founder and president Ross Laser were joined by David Snyderman in 2005, shortly after launching the firm. Prior to founding Magnetar, Litowitz was a principal at Citadel Investment Group, where, during his nine-year tenure, he served as global head of equities and was a member of the management and investment committees. Prior to co-founding Magnetar, Laser was the president and managing partner at Glenwood Capital Investments, where he was a member of the Investment Committee and co-head of the Management Committee. Prior to joining Magnetar, Snyderman spent nearly seven years with Citadel Investment Group, most recently as a senior managing director and head of global credit.

A “magnetar” is a neutron star with an extremely powerful magnetic field. It releases a steady beacon signal and produces bursts of energy, resulting in the brightest objects observed in the universe. When the firm was launched in 2005, the founders selected the name because it represented what they sought to build at Magnetar Capital: a firm that attracts and retains world-class professionals, targets consistent long-term risk-adjusted returns, and fosters an environment that brings energy and passion to investing and building businesses.

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