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.
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.
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.