Biotech Hedge Fund Deerfield Management’s Top Stock Picks

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James E. Flynn‘s Deerfield Management is one of the funds that is focused on the healthcare sector, investing around 70% of its portfolio in healthcare stocks. Among other things, Deerfield specializes in R&D, hostile takeovers and financial advisory services. In its last 13F filing, Deerfield disclosed an equity portfolio valued at $2.78 billion. The equity portfolio is diversified, as the largest stake represents around 7.20% of the total equity portfolio value. In this article we will take a look at the five largest positions in terms of value from Deerfield Management’s 13F portfolio. We will skip Auxilium Pharmaceuticals, which was the largest holding at the end of 2014, since the company has been acquired by Endo Pharmaceuticals for $2.6 billion. Mr. Flynn has been betting on other takeover targets, among the largest being Allergan, Inc. (NYSE:AGN), which was the fourth-largest holding in Deerfield’s equity portfolio.

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Investing in healthcare companies requires a lot of expertise and involves a significant risk, but can also provide high payoffs if the investor is meticuluous enough. The healthcare sector has provided some of the best returns across all sectors, gaining around 24.50% in the last 52 weeks. Many healthcare stocks have provided great returns to investors as some companies from the sector have consolidated, while other companies have provided impressive results from their trials and new developments aimed towards revolutionizing treatments of certain diseases and therapies.

Auspex Pharmaceuticals Inc (NASDAQ:ASPX) is the largest position in Deerfield’s equity portfolio, excluding Auspex. The fund reported holding 2.95 million shares of the company in its latest 13F filing, up by 18% on the quarter, with the value of the stake amounting to $154.77 million. However, at the beginning of February, Mr. Flynn further raised his stake in Auspex Pharmaceuticals Inc (NASDAQ:ASPX) to 4.4 million shares. Auspex Pharmaceuticals Inc (NASDAQ:ASPX) went public at the beginning of March 2014 and since then its stock surged by some 172%. Israel Englander’s Millennium Management has reported ownership of 1.04 million shares in its latest 13F filing, cutting the stake by around 12% during the last quarter.

Horizon Pharma PLC (NASDAQ:HZNP) is another stock that has enjoyed a great performance, as it gained 68% over the last year. Mr. Flynn first disclosed a position in the specialty pharmaceutical company at the end of December 2013 and a year later he has raised his stake by 110% during the fourth quarter, to 11.70 million shares. In its last financial report, the company posted a revenue increase of 250% on the year to $103.80 million and earnings per share (EPS) of $0.27 on an adjusted basis. Horizon Pharma PLC (NASDAQ:HZNP) has also raised its guidance for 2015 in line with estimates and has a consensus ‘Buy’ rating from analysts. During the last quarter of 2014, Horizon Pharma PLC (NASDAQ:HZNP) was also on the radar of another healthcare-focused investor, Kevin Kotler of Broadfin Capital, who raised his stake by 76% to around 8.92 million shares.

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