[HQH is a closed-end fund that (along with the sister fund, H&Q Life Sciences (HQL) ) is unique within the biotech arena in that it trades on the stock exchange and invests in private as well as public companies. The Fund’s style is “long-term buy and hold,” and hence some of the positions they buy as private companies end up being substantial portions of the portfolio after the companies go publci. (CONR is a case in point.)
The private foundation that I advise on its investments holds HQH as its largest portfolio position because it’s a relatively low-risk, no-hassle way to participate in the biotech sector. (For my personal portfolio, I have owned HQH and HQL in IRA accounts on and off during the past decade—buying mainly when the funds were available at a hefty discount to net asset value (NAV), as they were when biotechs were out of fashion.)
Currently (based on Friday’s closing price), HQH trades at a 3% discount to NAV and HQL trades at almost exactly NAV. These two funds have similar portfolios, so I recommend buying whichever one has the larger discount (or smaller premium) to NAV at the time of purchase.
The NAV and discount/premium for both funds are displayed every day after the close at: http://www.hqcm.com/hqh.asp .
Tax note: HQH and HQL distribute about 2% of NAV each quarter; hence, to avert taxable capital gains on a regular basis, these funds are better suited for a tax-exempt account such as an IRA than for a taxable account.
The following is an excerpt from the commentary by the HQH portfolio manager from the Fund’s SEC filing for the fiscal year ending 9/30/05.]
>> “…the Fund's 2005 fiscal year NAV performance (more than 7500 basis points ahead of the NBI) was quite acceptable to us.
For your Fund, factors that affected the stock price of key holdings include positive results reported for Cubist Pharmaceuticals' Cubicin product in the treatment of endocarditis and bacteremia; Alkermes' Vivtrex in the treatment of alcoholism; Endo Pharmaceuticals' Oxycodone and Oxymorphone in the treatment of pain; Myogen's Darusentan in the treatment of resistant hypertension; and in several of Medimmune's clinical programs. The Fund has also benefited from what we believe is a developing appreciation for the benefit of Conor Medsystems' unique drug eluting stent technology, the potential of Momenta Pharmaceuticals' m-enoxaparin, and the continued quality of Gilead Sciences' impressive launch of its HIV drug Truvada. We expect the Fund to benefit from the anticipated acquisition of Ivax by Teva Pharmaceutical Industries and Medicis Pharmaceutical's anticipated acquisition of Inamed. Finally, the Fund significantly benefited from the acquisition of Idun, a venture holding, by Pfizer.
…During the six-month period ended September 30, 2005, within the public portfolio, among others, the Fund established positions in Affymetrix, Inc., Align Technology, Inc., Medco Health Solutions, Inc., Medicis Pharmaceutical Corporation, MGI Pharma, Inc., and ZymoGenetics, Inc. During the same six-month period, among others, the Fund exited its positions in Amgen, Inc., Chiron Corporation, Par Pharmaceutical Companies, Inc., and Pfizer, Inc. The Fund also exited its position in Provident Senior Living Trust when it was acquired by Ventas, Inc. and the Ventas shares were subsequently sold by the Fund.
Within the venture portfolio, the Fund made follow on investments in Agensys, Inc., CardioNet, Inc., Concentric Medical, Inc., Raven biotechnologies, Inc., and TherOx, Inc. Within the venture portfolio, the Fund also established positions in Labcyte, Inc. and TargeGen, Inc. The Fund exited its venture position in Triad Therapeutics, Inc. The Fund also exited it's venture position in Idun Pharmaceuticals, Inc. when it was acquired by Pfizer, Inc.” <<
-- [The top holdings of the HQH Fund at 9/30/05 are as follows. CONR, the largest holding by a wide margin, represents 5% of the portfolio. A concentration as high as 5% in one stock is unusual for this Fund; the fact that the Fund has not sold any of the shares acquired when CONR was private is what accounts for the large stake.]
Top-10 Holdings at 9-30-05 Conor Medsystems, Inc. 5.08% Cubist Pharmaceuticals, Inc. 3.52% Gilead Sciences, Inc. 2.70% Concentric Medical, Inc. (Restricted) 2.44% Teva Pharmaceutical Industries, Ltd. 2.43% MedImmune, Inc. 2.35% IDEXX Laboratories, Inc. 2.34% Myogen, Inc. 2.28% Theravance, Inc. 2.14% WebMD Corporation 2.00%
-- [How to interpret the holdings tables below: The private-company investments are those listed as convertible securities; these are convertible “preference” shares that convert into common shares upon an IPO].
>> HQH HOLDINGS AS OF SEPTEMBER 30, 2005
Convertible securities: 13.5% of NAV Agensys, Inc. Series C 3,300,300 Agilix Corporation Series B 571,429 Avalon Pharmaceuticals, Inc. 8% Cvt. Note, due 2006 128,249 Avalon Pharmaceuticals, Inc. Series B 1,307,812 CardioNet, Inc. 8% Cvt. Note, due 2006 300,000 CardioNet, Inc. Series C 5,520,004 Ceres, Inc. Series C 2,250,000 Ceres, Inc. Series C-1 164,658 Ceres, Inc. Series D 1,667,802 Concentric Medical, Inc. Series B 6,794,116 Concentric Medical, Inc. Series C 2,441,860 Concentric Medical, Inc. Series D 956,200 Corus Pharma, Inc. Series C 3,000,000 CytoLogix Corporation 6.75% Cvt. Note 168,337 CytoLogix Corporation Series A 399,984 CytoLogix Corporation Series B 187,382 EPR, Inc. Series A 2,222 Galileo Pharmaceuticals, Inc. Series F-1 489,556 I-trax, Inc. Series A 2,192,000 Labcyte, Inc. Series C 1,920,000 Masimo Corporation Series D 1,760,000 Medical Devices and Diagnostics - 4.5% OmniSonics Medical Technologies, Inc. Series B 2,181,224 OmniSonics Medical Technologies, Inc Series C 1,800,001 PHT Corporation Series D 4,200,000 PHT Corporation Series E 939,506 Raven biotechnologies, Inc. Series B 1,509,091 Raven biotechnologies, Inc. Series C 2,331,600 Raven biotechnologies, Inc. Series D 1,200,000 TargeGen, Inc. Series C 2,760,000 Therion Biologics Corporation Series A 57,837 Therion Biologics Corporation Series B 292,800 Therion Biologics Corporation Series C 497,409 Therion Biologics Corporation Series C-2 40,665 TherOx, Inc. Series H 247,825 TherOx, Inc. Series I 577,100 Xanthus Life Sciences, Inc. Series B 2,100,000 Zyomyx, Inc. Series A New 30,000
TOTAL CONVERTIBLE SECURITIES (Cost $69,332,227) $56,287,360
COMMON STOCKS: 81.2% of NAV
(Marketed) Biopharmaceuticals - 20.7% of NAV Cubist Pharmaceuticals, Inc. 14,691,055 Endo Pharmaceuticals Holdings 3,339,084 Forest Laboratories, Inc. 4,968,675 Genzyme Corporation 4,885,347 Gilead Sciences, Inc. 11,255,027 Inspire Pharmaceuticals, Inc. 4,245,406 Martek Biosciences Corporation 2,381,814 MedImmune, Inc. 9,814,022 MGI Pharma, Inc. 6,060,600 Millennium Pharmaceuticals, Inc. 5,737,950 Nabi Biopharmaceuticals 2,371,100 OSI Pharmaceuticals, Inc. 5,584,840 Pharmion Corporation 2,305,317 Schering-Plough Corporation 3,279,590 The Medicines Company 3,854,175 Vivus, Inc. 1,668,991
Drug Delivery - 4.5% of NAV Alkermes, Inc. 4,719,792 Connetics Corporation 3,697,202 DepoMed, Inc. 4,859,566 Noven Pharmaceuticals, Inc. 3,681,860 Penwest Pharmaceuticals Co. 1,976,928
Drug Discovery Technologies - 2.3% of NAV Avalon Pharmaceuticals, Inc. (Restricted) 552,085 Senomyx, Inc. 3,636,127 ZymoGenetics, Inc. 5,516,775
Emerging Biopharmaceuticals – 20.1% of NAV ACADIA Pharmaceuticals, Inc 5,788,842 Ariad Pharmaceuticals, Inc. 5,292,694 Barrier Therapeutics, Inc. 3,681,364 DOV Pharmaceutical, Inc. 5,730,750 Dyax Corporation 659,961 Exelixis, Inc. 5,595,073 Incyte Corporation 840,454 Kosan Biosciences, Inc. 3,033,044 Medarex, Inc. 4,474,400 Momenta Pharmaceuticals, Inc. 1,648,625 Myogen, Inc. 7,896,940 Myogen, Inc. warrants 1,604,163 Neurogen Corporation 2,037,099 Nitromed, Inc. 2,068,614 Nuvelo, Inc. 5,020,378 Protein Design Labs, Inc. 6,633,200 Seattle Genetics, Inc. 3,289,545 Telik, Inc. 5,704,797 Tercica, Inc. 3,830,192 Theravance, Inc. 8,911,303
Generic Pharmaceuticals – 7.4% of NAV Barr Pharmaceuticals, Inc. 6,162,024 Impax Laboratories, Inc. 5,606,777 IVAX Corporation 2,693,992 Medicis Pharmaceutical Corporation 6,056,160 Teva Pharmaceutical Industries, Ltd. 10,149,654
Healthcare Services - 7.9% of NAV DakoCytomation, Inc. (Restricted) 271,961 Eclipsys Corporation 6,475,920 Emageon, Inc. 6,026,322 Medco Health Solutions, Inc. 7,731,030 Syntiro Healthcare Services (Restricted) 306 Tenet Healthcare Corporation 4,211,250 WebMD Corporation 8,359,860
Medical Devices and Diagnostics – 18.3% of NAV Adeza Biomedical Corporation 2,125,848 Affymetrix, Inc. 6,368,182 Align Technology, Inc. 5,726,448 Conor Medsystems, Inc. (Restricted) $ 21,190,890 Gen-Probe, Inc. 6,725,200 IDEXX Laboratories, Inc. 9,741,072 Intralase Corporation 4,699,271 Masimo Corporation (Restricted) 1,600 Medtronic, Inc. 4,021,500 Molecular Devices Corporation 1,414,274 Orchid Cellmark, Inc. 4,186,871 Orthovita, Inc. 4,365,600 Songbird Hearing, Inc. (Restricted) 2,085 VNUS Medical Technologies, Inc. 5,698,438
TOTAL COMMON STOCKS (Cost $266,357,367) $338,842,569
SHORT-TERM INVESTMENTS - 4.5% of NAV (Cost $18,578,895) $18,578,895
TOTAL INVESTMENTS (Cost $354,268,489) $413,708,824 <<
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