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Primecap's Biogen Exposure Could Be History Repeating

Primecap’s managers have been here before and have proven adept at taking advantage of such opportunities.

Securities In This Article
Vanguard Capital Opportunity Inv
(VHCOX)
Vanguard PRIMECAP Inv
(VPMCX)
PRIMECAP Odyssey Growth
(POGRX)
PRIMECAP Odyssey Stock
(POSKX)
Vanguard PRIMECAP Core Inv
(VPCCX)

Biogen’s BIIB March 21, 2019, share price drop of 29.2% on news that it has discontinued late-stage trials of an Alzheimer’s treatment hurt few asset managers more than Pasadena-based Primecap Management Company. As of year-end 2018, Primecap firmwide owned 7.5% of Biogen’s shares outstanding. All six Primecap strategies owned Biogen, but its Vanguard funds had the most exposure. Biogen was the second-biggest position in Vanguard Capital Opportunity VHCOX, third-biggest position in Vanguard Primecap VPMCX, and eighth-biggest position in Vanguard Primecap Core VPCCX. It was a top-25 holding in Primecap Odyssey Growth POGRX and a top-40 holding in both Primecap Odyssey Aggressive Growth POAGX and Primecap Odyssey Stock POSKX.

Primecap was in a similar but even more severe position in early 2005 with respect to Biogen. It then owned firmwide about 10% of Biogen’s shares outstanding. On Feb. 28, 2005, Biogen voluntarily suspended sales of its multiple sclerosis treatment TYSBRI, and Biogen’s stock price shed 42.6% that day. Primecap’s Alfred Mordecai had just been named as a portfolio manager in November 2004 and was then the firm’s biotech analyst in charge of covering Biogen. He discussed this experience at length with Morningstar during a June 2018 stewardship visit, citing it as an example of how Primecap’s tolerance for pain distinguishes it. Mordecai re-evaluated Biogen’s post-TYSBRI prospects, and Primecap’s managers held fast, in some cases adding Biogen exposure. That proved to be the right call. Between March 1, 2005, and March 21, 2019 (thus including the most recent swoon), Biogen’s shares returned 13.9% annually, versus 10.2% and 8.6% for the Russell 1000 Growth and S&P 500 indexes, respectively.

Primecap’s managers may follow a similar script this time around with Biogen, or they may decide to act differently. Either way, they have been here before and have proven adept at taking advantage of such opportunities. Each Primecap strategy retains its Morningstar Analyst Rating of Gold.

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About the Author

Alec Lucas

Director of Manager Research
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Alec Lucas is director of manager research, active funds research, for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He is a voting member of the Morningstar Medalist Ratings Committee for U.S. and international fixed-income strategies, covers fixed-income strategies from asset managers such as Baird and American Funds.

Lucas is also active in parent research. He is a voting member of the U.S. parent ratings committee and previously served as the lead analyst for Franklin Templeton, Capital Group, and Vanguard, among other firms.

Lucas was a strategist on Morningstar's equity strategies team prior to assuming his current role in June 2022. He covered equity strategies from asset managers such as Primecap and American Funds and received the 2019 Citywire Professional Buyer Rising Star Award.

Before joining Morningstar in 2013, Lucas worked as a minister as well as a professor for Loyola University Chicago, among other institutions. From 2010 to 2011, he was a Fulbright Scholar at the University of Heidelberg.

Lucas holds bachelor's degrees in philosophy and classics from the University of Missouri-Columbia, where he graduated summa cum laude and with departmental honors, and a Master of Divinity, summa cum laude, from Trinity International University. He also holds a doctorate in theology, with distinction, from Loyola University Chicago and has published several articles and one book within that field.

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