Hedge Funds Hated These Healthcare Stocks in Q1

The healthcare sector is down by about 3.75% so far this year, after enjoying a lengthy bull run into the middle of 2015. While the current breather could serve as a good entry point for some hedge funds and investors, there are others that should best be approached with caution. We decided to group these stocks according to the loss of confidence in them during the first quarter from the smart money tracked by Insider Monkey. Read on to see the five healthcare stocks that saw the largest declines in hedge fund ownership during the quarter.

We track prominent investors and hedge funds because our research has shown that historically their stock picks delivered superior risk-adjusted returns. This is especially true in the small-cap space. The 15 most popular small-cap stocks among a select group of investors delivered a monthly alpha of 80 basis points between 1999 and 2012 (see the details here).

5. Sucampo Pharmaceuticals, Inc. (NASDAQ:SCMP)

 – Investors with Long Positions (as of March 31): 15

 – Aggregate Value of Investors’ Holdings (as of March 31): $23.61 Million

During the March quarter, Sucampo Pharmaceuticals, Inc. (NASDAQ:SCMP)’s stock price slumped by nearly 37%, while the total number of hedge funds holding the company in their portfolios slid by 32% to just 15. The company suffered from the volatile swings faced by the entire biotechnology sector as well as due to its reliance on just one drug, Amitiza, a chronic constipation therapy. However, Sucampo’s low forward earnings multiple of 9 and its recent upgrade by WallachBeth to ‘Buy’ from ‘Hold’ suggests there is some upside potential yet to be unlocked in the stock. WallachBeth has a price target of $16 on the stock, which suggests upside of about 28%. Jim Simons‘ Renaissance Technologies is certainly a believer of this thesis, as it raised its Sucampo Pharmaceuticals, Inc. (NASDAQ:SCMP) holding by 49% to 825,700 shares during the first quarter.

4. Zeltiq Aesthetics Inc (NASDAQ:ZLTQ)

 – Investors with Long Positions (as of March 31): 19

 – Aggregate Value of Investors’ Holdings (as of March 31): $371.81 Million

While the number of hedgies in our system bullish on Zeltiq Aesthetics Inc (NASDAQ:ZLTQ) dropped by 41% during the March quarter, the aggregate value of their holdings only dropped by about 6%. Given that the stock fell by 5% during the period, aggregate share ownership was nearly flat, despite the large decline in shareholders. Shares have made up most of those first quarter losses despite the company’s earnings report on May 10 sending shares down sharply. Zeltiq’s loss of $0.25 per share during the first quarter was in-line with estimates while its revenue of $64.5 million came in $2.7 million ahead of expectations and represented a 25.1% increase on a year-over-year basis. Steve Cohen‘s Point72 Asset Management cut its Zeltiq Aesthetics Inc (NASDAQ:ZLTQ) holding by 27% to almost 1.7 million shares during the March quarter.

There are three more healthcare stocks that hedge funds didn’t much care for in the first quarter; we’ll reveal them on the next page.

3. Pacira Pharmaceuticals Inc (NASDAQ:PCRX)

 – Investors with Long Positions (as of March 31): 22

 – Aggregate Value of Investors’ Holdings (as of March 31): $548.26 Million

Let’s move on to Pacira Pharmaceuticals, the $1.77 billion specialty pharmaceutical company focused on the development of medicines to help treat acute hospital care patients. The company has seen its stock price plummet by more than 40% so far this year, which has done nothing to help its popularity, which dropped by 17% during the first quarter in terms of the shareholders in our database long the stock. Pacira Pharmaceuticals Inc (NASDAQ:PCRX)’s Exparel, an injectable treatment designed to relieve pain after surgery, represented about 97% of the company’s top-line for the March quarter. However, sales growth for the drug showed considerable contraction and dimmed investors’ hopes of seeing 2016 growth close to the 27% growth that it registered in 2015. Alex Lieblong‘s Key Colony Management slashed its Pacira Pharmaceuticals Inc (NASDAQ:PCRX) holding by 25% to 301,000 shares during the first quarter.

2. Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA)

 – Investors with Long Positions (as of March 31): 70

 – Aggregate Value of Investors’ Holdings (as of March 31): $733.75 Million

The number of professional money managers backing Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) fell by 13% during the March quarter, while the stock price cratered by about 18.5%. Andreas Halvorsen‘s Viking Global, however, stood its ground and then some, hiking its stake in the company by 32% to 32.97 million shares during the period. Following asset sales amounting to nearly $2 billion to earn U.S antitrust clearance, Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) is now expecting its $40.5 billion acquisition of Allergan’s generic drug portfolio to be completed by June.

1. Valeant Pharmaceuticals Intl Inc (NYSE:VRX)

 – Investors with Long Positions (as of March 31): 71

 – Aggregate Value of Investors’ Holdings (as of March 31): $314.58 Million

The popularity of the Canada-based specialty pharmaceutical and medical device company, which is in the midst of recovery from accounting scandals and unsustainable levels of debt, dropped by 14.5% during the first quarter. Nonetheless, the overall level of interest among the professional investors tracked by Insider Monkey remains high, which indicates they believe the situation at Valeant Pharmaceuticals Intl Inc (NYSE:VRX) will soon improve. The stock did receive a boost recently when Valeant Pharmaceuticals Intl Inc (NYSE:VRX)’s new CEO Joseph Papa rejected a combined buyout offer from Takeda and TPG, according to The Wall Street Journal. Ahmet Okumus’ namesake firm Okumus Fund Management, nearly doubled its stake in Valeant during the first quarter, to 3.72 million shares.

Disclosure: None