Deerfield Management’s Top Health Stocks ~ Auspex Pharmaceuticals Inc (ASPX), Horizon Pharma PLC (HZNP), AbbVie Inc (ABBV)

James Flynn‘s Deerfield Management has filed its 13F with the SEC for the reporting period of March 31, with the investment manager disclosing a public equity portfolio valued at $3.09 billion. The fund primarily invests in the healthcare sector, with 94% of the value of its public equities residing in health stocks, owing to managing partner and CEO Flynn’s background working in and investing in the healthcare sector. That expertise makes Flynn a wise choice to track when it comes to a sector that can be one of the most challenging to understand for investors. Auspex Pharmaceuticals Inc (NASDAQ:ASPX), Horizon Pharma PLC (NASDAQ:HZNP), AbbVie Inc (NYSE:ABBV), and NxStage Medical, Inc. (NASDAQ:NXTM) are among the top healthcare stock picks of Flynn, which we’ll look at in this article.

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Let’s first take a step back and analyze how tracking hedge funds can help an everyday investor. Through our research we discovered that a portfolio of the 15 most popular small-cap picks of hedge funds beat the S&P 500 Total Return Index by nearly a percentage point per month on average between 1999 and 2012. On the other hand the most popular large-cap picks of hedge funds underperformed the same index by seven basis points per month during the same period. This is likely a surprise to many investors, who think of small-caps as risky, unpredictable stocks and put more faith in large-cap stocks. In forward tests since August 2012 these top small-cap stocks beat the market by an impressive 84 percentage points, returning over 144% (read the details here). Hence a retail investor needs to isolate himself from the herd and take advantage of the best growth opportunities in the market by concentrating on small-cap stocks.

James E. Flynn
James E. Flynn
Deerfield Management

Auspex Pharmaceuticals Inc (NASDAQ:ASPX) is the largest healthcare stock pick of Flynn, who owns 4.45 million shares valued at $446.11 million. Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) announced the completion of its acquisition of Auspex Pharmaceuticals Inc earlier this month for an equity value close to $3.5 billion. Shares of Auspex Pharmaceuticals Inc (NASDAQ:ASPX) grew over 92% in 2015 thanks in part to its acquisition, and a hefty 454% over the past year. Some of the major shareholders of Auspex were Israel Englander‘s Millennium Management, Alpine Associates, and Water Island Capital.

Deerfield Management’s second-largest health investment was in Horizon Pharma PLC (NASDAQ:HZNP), in which it owns 12.79 million shares valued at $332.23 million. The specialty biopharmaceutical company has a market cap of $5.02 billion and its shares currently trade at $32.28. Horizon Pharma completed the acquisition of Horizon Therapeutics Inc (NASDAQ:HPTX) on May 7 with a tender offer for 86% of the outstanding shares of the latter. With this acquisition, Horizon Pharma PLC (NASDAQ:HZNP) added two successful medicines for the treatment of urea cycle disorders, RAVICTI and BUPHENYL, to its portfolio. The biopharmaceutical company reported net sales of $113.1 million during the first quarter of 2015 with a net loss of $19.6 million. Broadfin Capital and Healthcor Management LP are two other health-focused investment firms that hold major positions in Horizon Pharma PLC (NASDAQ:HZNP), which has gained an even-more-impressive 152% year-to-date.