It’s never an encouraging sign when investors feel the unexpected desire to head for the exit. However, when they do, the last thing they want to see is an exit door closing, preventing them from getting out. This is what happened to Pengana Capital (ASX: PCG) investors earlier this week.
The fund manager paused redemptions in one of its funds after a biotech stock it bought three years ago turned to ashes.
Front and centre of the furore is the aspiring biotech stock Opthea (ASX/NASDAQ).
Phase 3 trial fail
The fortunes of the one-time ASX darling – which previously traded with a market cap north of $1 billion – recently unravelled when it advised of failed late-stage trials for its OPT-302 eye treatment.
Opthea had pinned its fortunes on OPT-302 - used alongside another drug known as Aflibercept - to treat wet macular degeneration – an eye disorder that causes blurred vision.
News of OPT-302’s failure will trigger obligations to pay back development funding and catapult the company into insolvency.
Poor trial results could see Opthea repay more than $1 billion in development funding to financiers such as The Carlyle Group.
This outcome has created sleepless nights for investors, with Opthea having suspended trading - with its share price having shed 47% since 7 February – until 31 March.
As of 28 February, Opthea had an unaudited cash and cash equivalents balance of US$113.8 million and the company’s directors currently rely on "safe harbour" provisions.
Pengana freezes fund
Included among the biotech stock’s larger shareholders is Pengana Capital which saw its share price tumble yesterday after freezing redemptions from its unlisted High Conviction Equities Fund.
Managed by portfolio managers James McDonald and Jeremy Bendeich, The High Conviction Equities Fund (HCEF) has 44.7% of its portfolio invested in healthcare companies including Opthea and Clarity Pharmaceuticals.
Other stocks included in the HCEF fund Greatland Gold and IperionX.
The HCEF fund has since advised clients, that with Opthea shares currently suspended from trading, applications and redemptions in the Pengana High Conviction Equities Fund have also been suspended.
Other major casualties
Pengana is by no means the only investment manager to have their fingers burned with Opthea.
Phil King’s Regal Partners (ASX: RPL) was the failed biotech stock’s biggest shareholder, with a 30% stake.
It’s understood that the funds' exposure to the biotech stock may account for almost half of the firm’s $222 million bet.
Meanwhile, the $678 million Hearts & Minds Investments fund (ASX: HM1) owns 28 million shares or 1.5% of the stock.
Then there’s the unlisted VGI Global Investments Fund. This fund recently advised that its holdings in Opthea contributed to a 3% fall in value.
While shares in both Pengana Capital and Regal Partners were down around 9% and 10% respectively today, the Hearts & Minds Investments fund managed to end today’s trading 2% higher.
Regal, has since dropped the value of its stake in the biotech by two-thirds from 60, where they traded before being suspended, to just 20¢.
