Adage Harvard Cubs Reap $1 Billion in Day With Biotech Wager

Jul 24, 2014 1:59 pm ET

(Adds ages in third paragraph, updates shares in fifth.)

July 24 (Bloomberg) -- Adage Capital Management LP, 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, 54, and Robert Atchinson, 56, 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 LP in Boston, said in a telephone interview. “I am a huge fan.”

Puma gained $174.40 a share yesterday, 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. The shares pared gains today, falling 8.9 percent to $212.71 at 1:47 p.m. in New York.

Billionaire Founder

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.

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.

Auerbach declined to comment on his net worth. Calls to Adage weren’t returned.

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.

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 Standard & Poor’s 500 Index of U.S. stocks 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.