In two separate filings today Kevin Kotler‘s Broadfin Capital has revealed increasing its passive stake in Zogenix, Inc. (NASDAQ:ZGNX) to 10.74 million shares from 6.24 million and its activist stake in Derma Sciences Inc (NASDAQ:DSCI) to 2.13 million from 1.86 million. This effectively means that Broadfin now has ownership of 7% of Zogenix’s outstanding shares and 8.3% of Derma’s.
Kotler founded Broadfin Capital in 2005 after having worked for The Galleon Group, ABN AMRO, and ING Barings. The New York based firm manages three accounts with the help of 10 employees and provides investment advisory services to 10 clients. The fund is highly concentrated in the health care sector and 92% of its holdings account for it. The sector has performed particularly well over the last year, outperforming S&P500 by nearly 5 percentage points. Broadfin’s portfolio value towards the end of 2014 stood at $1.15 billion. From a total of 79 positions, the top 10 holdings constituted 49.21% of Broadfin’s portfolio value.
Both Zogenix, Inc. (NASDAQ:ZGNX) and Derma Sciences Inc (NASDAQ:DSCI) are microcaps with market capitalizations of $204.72 million and $205.87 million respectively. The most popular stock picks of hedge funds, on the other hand are all large cap companies. However, our research has shown that these large cap stocks do not provide the highest returns. Instead, our small cap strategy, which is based on the favourite picks of hedge funds in this category is clearly a better performer in comparison. It beat the S&P 500 ETF (SPY) by a staggering 76.7 percentage points since August 2012 through March 2015 and returned 132%. We have also been sharing these stock picks in our newsletters since 2012.
Zogenix, Inc. (NASDAQ:ZGNX) is a pharmaceutical company that commercializes and develops products for the treatment of central nervous system disorders and pain. Its lead product candidate, Zohydro (hydrocodone bitartrate), an agonist, is used for the treatment of chronic pain requiring opioid therapy. The stock is down by about 61% over the last 52 weeks. The latest drivers of this dive have been the company’s fourth quarter financial results, which included net per share loss of $0.14, that missed estimates by $0.03 and revenues of $14.9 million which beat expectations by $2.16 million, and the sale of its painkiller drug Zoyhydro to Pernix Therapeutics Holdings Inc (NASDAQ:PTX) for about $400 million last week. The intention with the sale was to cut costs since Zoyhdro couldn’t fare well in the U.S market owing to the its classification among the opiod class of drugs, the abuse of which is a growing problem in U.S. Zogenix, Inc. (NASDAQ:ZGNX) now plans to focus two other drugs in its pipeline , brabafen, to treat Dravet syndrome, and relday, to fight schizophrenia.
Among over 700 hedge funds that we track the largest stake holders in Zogenix, Inc. (NASDAQ:ZGNX) besides Broadfin were Steven Boyd’s Armistice Capital with 9.4 million shares valued at 12.88 million and Julian Baker and Felix Baker’s Baker Bros. Advisors with 2.35 million shares valued at $3.2 million.
Derma Sciences Inc (NASDAQ:DSCI) gained popularity among the hedge funds during the fourth quarter as the number of funds invested in the company swelled to 18 with total investment of $117.26 million versus 16 firms with $95.28 million. Baker Bros. Advisors and Mitchell Blutt’s Consonance Capital Management were significant stakeholders in the company with their respective holdings being 3.53 million shares valued at $32.93 million and 1.63 million shares valued at $15.2 million.
Derma Sciences Inc (NASDAQ:DSCI) is a tissue regeneration company which is focused on three segments of the wound care marketplace: advanced wound care, traditional wound care, and pharmaceutical wound care. The company’s stock price has declined by nearly 32% over the last year. Although net loss per share of $0.37 beat estimates by $0.08, fourth quarter revenues of $22.87 million came in $0.04 million lighter than expected.
Derma Sciences Inc (NASDAQ:DSCI) also hit its new 52 week low just last week and Broadfin’s move to increase its stake in the company comes amid this recent slump. Derma is a company that operates in the advanced medical equipment and technology industry. However, over the last year, unlike Derma Sciences Inc (NASDAQ:DSCI), the industry has performed exceptionally well, outperforming the S&P 500 by 16 percentage points.