Bloomberg recently came out with its list of best performing hedge funds of 2015 and the fund that managed to beat all its rivals and emerge at the top of the list was biotech-focused hedge fund Perceptive Advisors. The New York-based fund was founded by Joseph Edelman in 1999. Since its inception, the fund has had several years when it has delivered spectacular returns for its investors. According to Bloomberg, Perceptive Advisors’ flagship fund, Perceptive Life Sciences, gained 51.8% in 2015. Insider Monkey’s analysis of Perceptive Advisors’s 13F holdings in companies with a market capitalization of at least $1 billion revealed that the 44 long positions held by the fund during 2015 delivered a weighted average return of 46.5%. In a recent interview with Bloomberg, Mr. Edelman revealed that the fund mainly invests in small and mid-cap biotech companies because of their phenomenal risk-reward ratio. Moreover, he added that his focus is on ‘removing bias from decision-making’ i.e. if his future expectations for a stock justify buying it at its current price, he doesn’t take into account its prior price movement or the price at which he first bought it. According to Mr. Edelman, to successfully invest in the biotech space one needs to be objective and fickle minded because ‘new information can come in fairly frequently through data’. In this article, we are going to take a closer look at Edelman’s top five stock picks revealed in Perceptive’s latest 13F filing.
We track prominent 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. Our backtests showed that imitating 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 Retrophin Inc (NASDAQ:RTRX)
– Shares Owned by Perceptive Advisors (as of December 31): 2.58 million
– Value of Holding (as of December 31): $49.76 million
Retrophin Inc (NASDAQ:RTRX) has lost more than half of its market capitalization since August and is trading down by over 24% year-to-date. Following these declines, the stock is now trading at a low trailing price-to-earnings multiple of only 5.33. During the fourth quarter, Perceptive Advisors reduced its stake in the company by 3%. On February 25, Retrophin Inc (NASDAQ:RTRX) reported its fourth-quarter results, declaring EPS of $0.07 on revenue of $30.40 million versus analysts’ projection of a per share loss of $0.22 on revenue of $29.40 million. Paul Orlin and Alex Porter‘s Amici Capital also reduced its stake in the company by 14% to 942,130 shares during the fourth quarter.
#4 TESARO Inc (NASDAQ:TSRO)
– Shares Owned by Perceptive Advisors (as of December 31): 968,659
– Value of Holding (as of December 31): $50.68 million
Amid a nearly 25% rise of the stock, the fund inched down its position in TESARO Inc (NASDAQ:TSRO) by 2% during the fourth quarter. However, so far this year TESARO Inc (NASDAQ:TSRO)’s stock has declined by 30%. The company reported its fourth quarter results on February 25, and while the Street had expected a loss of $1.63 per share on revenue of $3.45 million, the company posted a loss of $1.89 per share and revenue of $0.23 million. On the same day, the company also announced that it has entered a private placement with institutional investors to sell 4.4 million units of its common stock at $35.19 per share for proceeds worth $155 million. Samuel Isaly‘s Orbimed Advisors increased its stake in the company by 2% to 1.76 million shares during the last three months of 2015.