The largest quarterly contributor to performance was Precigen (PGEN $3.19), which contributed more than 500bps. We led a private investment in December 2024 through a preferred investment with warrants. We’ve known the company for over a decade and saw a lucrative opportunity to solve the company’s capital needs in advance of an August FDA decision on its first drug, Papzimeos, in which we had high confidence.
Flexibility is a significant asset in markets. Our ability to create a mutually beneficial structure paid off. We structured the transaction based on Warren Buffett’s deals with Goldman Sachs and Occidental Petroleum. Another asset is hunger. Our team logged significant hours over the holiday season to execute this deal. I thank them greatly.
The FDA approved Papzimeos early, with a broader label than expected. When we did the deal in Dec, the stock was around $0.75. It ended July at $1.71 and surged to over $5 after approval. It’s since pulled back to a low of $3.00, on par with historical post-approval pullbacks.
In September, the company raised a $125M credit facility which gives them time to commercialize Papzimeous, a process that’s fraught with risk and delays. Since the papillomatosis patient population is in dire need with no other treatment options, there’s a high incentive for providers and payers to work expeditiously.
We value the papillomatosis indication at ~$5.50 (including international), approximately 80% upside from the current price. We also like Precigen’s pipeline, which includes a comparable drug for genital warts (also caused by the HPV virus), a treatment for HPV cancers based on the same underlying Adenoverse platform and the Ultra CAR-T platform.
While all are early stage, we think they represent significant value. If all are successful, we think the company’s value has the potential to be more than 10-15 times where it trades today.
Given the binary nature of drug development and the low odds of any drug’s success, there are ample risks, and the odds all succeed are low. We think CEO Helen Sabsevari is an excellent drug developer who understands how to get drugs approved better than most. Given Precigen’s outsized move and the conversion of our preferred shares to common stock during the quarter to take advantage of the conversion price, it has become our largest exposure in the portfolio, leading us to pare back the position some.
We added no new names in the quarter. With rising valuations, we are seeing less compelling new opportunities, though they do exist. Given our enthusiasm for the current portfolio, the bar is high. We did add, aggressively in some cases, to names already in the strategy.
We started a small position in UnitedHealth (UNH $367.69) in the second quarter and added aggressively during its third quarter sell-off. Our average cost is $289.79. It was our fifth largest holding at the end of the quarter.
UnitedHealth is the industry leader. Several industry headwinds, including cost and reimbursement pressures, challenged the industry. Given UNH’s reputation as a reliable earnings-beater, the fall from grace was particularly hard. We have confidence that the business isn’t impaired, and the industry is facing a classic insurance cycle.
It will take several years to fully repair earnings. We think the company can double its earnings over the next 3-5 years, enabling it to compound in the low-to-mid teens.
Healthcare accounted for 26.2% of the portfolio. Excluding Precigen, which has a different risk-return profile than most names in the sector, the weight was 19.8%. Until recently, healthcare has greatly lagged the market, creating compelling opportunities. Our exposure provides good diversification and ballast to the portfolio.
Given we believe we are in the later stages of the secular bull market (though there could be years left), we are balancing letting our winners run (monetizing the current environment) with redeploying into mispriced laggards we believe would outperform in a different market environment.
We have roughly ~43% of the portfolio in what we would characterize as momentum areas of the market (AI/tech, crypto, financials). We have exited names we thought were fully valued with unattractive risk/return. We continue to think our remaining names are positioned to outperform. We have other winners I wouldn’t classify as “momentum”, like QXO (QXO $19.73), Royalty Pharma (RPRX $36.14), and Expedia (EXPE $216.81).
We’ve been adding to laggards where we have high conviction. Crocs (CROX $80.39) is facing tariff headwinds but has an innovative marketing approach and a 15% free cash flow yield. Next year should be a transformative year for Mattel (MAT $18.10) in its transition to a more digital IP company. We believe IAC ($33.41) remains extremely undervalued, and Barry Diller is focused on closing the value gap. Biogen (BIIB $149.61) has near-term pressures from a declining multiple sclerosis franchise, but based on our internal valuation, the market isn’t appropriately valuing the pipeline potential.
We remain excited about the portfolio’s potential in a variety of market environments.
FOR INSTITUTIONAL INVESTORS ONLY
The views expressed in this commentary reflect those of Patient Capital Management portfolio managers and analysts as of the date of the commentary. Any views are subject to change at any time based on market or other conditions, and Patient Capital Management disclaims any responsibility to update such views. These views are not intended to be a forecast of future events, a guarantee of future results or investment advice. Because investment decisions are based on numerous factors, these views may not be relied upon as an indication of trading intent on behalf of any portfolio. Any data cited herein is from sources believed to be reliable but is not guaranteed as to accuracy or completeness.
The information presented should not be considered a recommendation to purchase or sell any security and should not be relied upon as investment advice. It should not be assumed that any purchase or sale decisions will be profitable or will equal the performance of any security mentioned. References to specific securities are for illustrative purposes only. Portfolio composition is shown as of a point in time and is subject to change without notice.
All historical financial information is unaudited and shall not be construed as a representation or warranty by us. References to indices and their respective performance data are not intended to imply that the Strategy’s objectives, strategies or investments were comparable to those of the indices in technique, composition or element of risk nor are they intended to imply that the fees or expense structures relating to the Strategy or its affiliates, were comparable to those of the indices; since the indices are unmanaged and cannot be invested in directly.
Portfolio holdings and portfolio discussion are for a representative Opportunity Equity account. Holdings discussed may or may not be included in all portfolios subject to account guidelines. Returns for periods greater than one year are annualized.
The performance information depicted herein is not indicative of future results. There can be no assurance that Opportunity Equity's investment objectives will be achieved and a return realized.
Investors should carefully review and consider the additional disclosures, investor notices, and other information contained elsewhere in this document as well as the Offering Documents prior to making a decision to invest.
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Past performance is no guarantee of future results.
©2025 Patient Capital Management, LLC
Opportunity Equity Annualized Performance (%) as of 9/30/25
| QTD | YTD | 1-Year | 3-Year | 5-Year | 10-Year | Since Inception (12/30/1999) | |
| Opportunity Equity (gross of fees) | 14.4% | 19.8% | 29.9% | 29.1% | 12.3% | 11.6% | 9.1% |
| Opportunity Equity (net of fees) | 14.1% | 18.9% | 28.7% | 27.8% | 11.2% | 10.5% | 8.0% |
| S&P 500 Index | 8.1% | 14.8% | 17.6% | 24.9% | 16.5% | 15.3% | 8.1% |
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