A Look at Top Picks of This Billion-Dollar Healthcare-Focused Fund

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Deerfield Management, a healthcare-focused fund managed by James E. Flynn  has issued its 13F filing for the end of the third quarter, revealing an equity portfolio worth $2.5 billion held as of the end of September. Among Deerfield’s top picks are Horizon Pharma PLC (NASDAQ:HZNP), NxStage Medical, Inc. (NASDAQ:NXTM), GlaxoSmithKline plc (ADR) (NYSE:GSK), Aetna Inc (NYSE:AET), and Flamel Technologies S.A. (ADR) (NASDAQ:FLML) and in this article we are going to take a closer look at these companies and see if Flynn’s peers have the same opinion about these stocks.

Why do we pay attention to hedge fund sentiment? Most investors ignore hedge funds’ moves because as a group their average net returns trailed the market since 2008 by a large margin. Unfortunately, most investors don’t realize that hedge funds are hedged and they also charge an arm and a leg, so they are likely to underperform the market in a bull market. We ignore their short positions and by imitating hedge funds’ stock picks independently, we don’t have to pay them a dime. Our research has shown that hedge funds’ long stock picks generate strong risk adjusted returns. For instance the 15 most popular small-cap stocks outperformed the S&P 500 Index by an average of 95 basis points per month in our back-tests spanning the 1999-2012 period. We have been tracking the performance of these stocks in real-time since the end of August 2012. After all, things change and we need to verify that back-test results aren’t just a statistical fluke. We weren’t proven wrong. These 15 stocks managed to return 102% over the last 37 months and outperformed the S&P 500 Index by 53 percentage points (see the details here).

#5 Flamel Technologies S.A. (ADR) (NASDAQ:FLML)

Shares held (as of September 30): 4.07 million
Total Value (as of September 30): $66.43 million
Percent of Portfolio (as of September 30): 2.57%

Deerfield kept its position in Flamel Technologies S.A. (ADR) (NASDAQ:FLML) unchanged in the third quarter at 4.07 million shares. On November 12, Flamel reported third-quarter earnings per share of $0.28 on revenue of $47.3 million, exceeding EPS estimates by $0.05. Revenue surged by 1,531% year-over-year as the company’s Bloxiverz and Vazculep did well and management reiterated yearly sales guidance in the range of $170 million to $185 million. Moreover, the company licensed its LiquiTime drug delivery platform to Perrigo for the OTC drug market for an upfront payment of $6 million and additional milestone payments and mid-single digit royalties. Among the funds we track, 17 reported stakes equal to nearly 29% of the company’s outstanding stock as of the end of September.

#4 Aetna Inc (NYSE:AET)

Shares held (as of September 30): 636,039
Total Value (as of September 30): $69.59 million
Percent of Portfolio (as of September 30): 2.69%

Deerfield is a fan of Aetna Inc (NYSE:AET), as the fund upped its holdings in the company by 72% to 636,039 shares. Given that more Americans have health insurance than before because of the Affordable Care Act, analysts are bullish on Aetna. One analyst has a ‘Strong Buy’ rating, 15 have a ‘Buy’ rating, and three have a ‘Hold’ rating, with a consensus price target of $132.61 per share among them. Larry Robbins’ Glenview Capital owned 5.56 million shares of Aetna at the end of the third quarter.

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