Billionaire Steven Cohen’s hedge fund, Point72 Asset Management, holds shares in a clinical-stage biotechnology company whose stock price has surged over 1600% in the past year. This stock is France-based Abivax (ABVX). For ordinary investors, whether to follow up with an investment now is worth careful consideration.
Investing in clinical-stage biotech companies typically comes with enormous upside potential, but also carries above-average risks. Discerning the gems and allocating capital to promising companies while avoiding potentially wealth-destroying “value traps” is a complex task. One viable strategy is to monitor the moves of well-known Wall Street investment institutions.
Steve Cohen is such a bellwether. As the founder and CEO of Point72 Asset Management, the hedge fund he leads has delivered outstanding long-term performance. According to the latest disclosures, Point72 holds shares in the French biotech company Abivax. This company is still in the clinical stage and not yet profitable, yet its stock price has skyrocketed, posting an astonishing gain of over 1600% in the past 12 months.
So, is Abivax a quality stock worth buying for ordinary investors?
Point72’s holdings might offer some insights into how to invest in high-risk biotech stocks. As of the latest reporting period, Point72 held dozens of stocks, with none comprising more than 2.5% of the portfolio. This indicates that Cohen’s hedge fund employs a highly diversified investment strategy. For a company like Abivax, which has no revenue and whose stock price could plummet due to clinical trial setbacks or regulatory hurdles, the optimal investment approach is precisely what Point72 does: include it as a small part of a broader, diversified portfolio. In fact, as of the fourth quarter, Abivax accounted for a mere 0.43% of Point72’s investment portfolio.
Point72 first bought Abivax shares in the fourth quarter of 2023. Since then, as clinical trials for its core candidate drug, obefazimod, have progressed, the company’s stock price has soared. During this period, Cohen’s fund has partially taken profits off the table. Data shows that Point72 reduced its stake in Abivax by 17.65% in the fourth quarter. This can be seen as a model operational pattern for investing in high-risk, small-cap biotech companies: first, seek out companies developing promising, potentially best-in-class drugs, much like Abivax is doing; then, before major clinical progress is made, buy a small number of shares using a tiny fraction of the overall portfolio’s capital; once progress is made and the stock price surges, sell some shares promptly to lock in profits, while retaining a portion to potentially benefit from future scenarios like an acquisition or the eventual commercialization of a approved core product.
Abivax’s current market capitalization of €7.13 billion (approximately $8.3 billion) is quite rare for a clinical-stage biotech company. This typically suggests that market expectations for the clinical and regulatory success of obefazimod are already largely priced into the current stock. Consequently, the future upside potential for the stock may be relatively limited, while the downside risk in case of any setbacks could be enormous. From this perspective, the stock currently carries considerable risk. For investors who can tolerate volatility, it might still be worth considering establishing a very minimal position, but it must be treated as a tiny component of a high-risk, high-reward investment portfolio.
