James E. Flynn’s Deerfield Management has filed a Schedule 13G disclosing a 3.66% ownership stake in the newly public company Global Blood Therapeutics Inc. (NASDAQ:GBT), consisting of 1.11 million shares. The healthcare-focused firm had invested in the company prior to its IPO through a Series B financing, which suggests that the fund is quite familiar with what Global Blood has been developing.
Deerfield Management is a healthcare-focused hedge fund with more than $5 billion in assets under management established in January 1994. James Flynn, who currently serves as Managing Partner at Deerfield, joined the firm in 2000. Four years later, he began co-managing Deerfield Management with the firm’s founder Arnold Snider, who retired in 2005 and left his role as managing director to James Flynn. The New York-based hedge fund is a non-activist, relationship-based investor that manages an equity portfolio with a value of $3.0 billion as of June 30. Just recently, Deerfield Management has also disclosed that it had upped its stake in Imprivata Inc. (NYSE:IMPR).
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But why do we track the hedge fund activities? From one point of view we can argue that hedge funds are consistently underperforming when it comes to net returns over the last three years, when compared to the S&P 500. But that doesn’t mean that we should completely neglect the hedge funds’ activities. There are various reasons behind the low hedge fund returns. Our research indicated that hedge funds’ long positions actually beat the market. In our back-tests covering the 1999-2012 period hedge funds’ top small cap stocks edged the S&P 500 index by double digits annually. The 15 most popular small cap stock picks among hedge funds also bested passive index funds by around 66 percentage points over the 34-month period beginning with September 2012 (read the details here).
Global Blood Therapeutics Inc. (NASDAQ:GBT) is a clinical-stage biopharmaceutical company focused on blood-based therapies. The company aims at discovering, developing, and commercializing novel therapeutics to improve the lives of patients with grievous blood-based disorders. The stock of the biotech firm has more than doubled from the IPO price of $20 per share, so the market seems to be bullish on the company’s Sickle Cell drug. Global Blood was launched in 2012 with funding from the Boston venture capital firm Third Rock Ventures. In January 2015, the company completed a Series B financing worth $48 million, which included investments from Deerfield, as well as Peter Kolchinsky’s RA Capital, and Hal Mitnz’ Sabby Capital, among others.
On August 17, Global Blood Therapeutics has completed its initial public offering of 6.9 million shares, which included the exercise in full of options to purchase 900,000 additional shares. It is estimated that Global Blood raised $126.1 million from the offering, after deducting underwriting discounts and commissions and other related offering expenses. Consequently, the company plans to use the net proceeds to develop its novel therapeutics to treat grievous, non-malignant blood-based conditions, known as the sickle cell disease (SCD). The disease primarily affects African Americans in the United States; about 1 in 400 African Americans suffer from the SCD, so the market potential appears quite promising for Global Blood.
The biopharmaceutical company’s lead drug candidate is GBT440, which is a once-daily oral prophylactic therapy for patients with sickle cell disease. Even though the drug candidate is still in a Phase I/II study, Global Blood is optimistic that the drug will provide a long-term therapy that would stop the progression of the disease. However, there is tough competition for GBT440 out there in the market. Bluebird Bio Inc. (NASDAQ:BLUE) is currently developing a gene-therapy treatment for SCD as well, so it remains to be seen which company will succeed in bringing their drug candidates to the market. However, the sickle cell disease is not the only focus of Global Blood. The company also plans to develop GBT440 or one of its analogs as a potential therapy for acute and chronic hypoxemic lung disorders, which in turn broadens the market previously targeted. In the meantime, it is not surprising that Global Blood suffers losses from its operations; the company reported a net loss of $20.8 million for 2014, compared to a loss of $18.1 million in the prior year.
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