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Esperion Therapeutics Inc (ESPR), Cempra Inc (CEMP), Zeltiq Aesthetics Inc (ZLTQ): Aisling Capital’s Winning Plays in Small-Cap Healthcare Stocks

On Tuesday, Esperion Therapeutics Inc (NASDAQ:ESPR)‘s stock closed the trading section as one of the market leaders, ending the day up by 29%. The jump came on the back of positive results from the company’s ETC-1002-009 Phase b2 study, which evaluated the efficacy and safety of ETC-1002 (bempedoic acid) in patients with hypercholesterolemia on stable statin therapy. The news have definitely pleased investors that were betting on the company. One of them is Dennis Purcell of Aisling Capital, who invested more than 12% of his fund’s equity portfolio in Esperion, the holding being the largest in the fund’s equity portfolio. At the end of 2014, Aisling held 2.05 million shares of Esperion Therapeutics, the value of the stake amounting to $83.09 million. As the stock gained over 140% since the beginning of the year, Aisling’s stake is currently valued at $198.23 million.

Esperion Therapeutics

Esperion Therapeutics Inc (NASDAQ:ESPR)’s top-line results in a 12-week study, demonstrated an up to 30% reduction in high-sensitivity C-reactive protein from ETC-1002. Therefore, the study met its primary endpoint of greater LDL-cholstrol lowering from baseline with ETC-1002 compared with placebo. Aside from the study results, the company also announced an underwritten public offering, during which it plans to sell $150 million worth of stock and $22.5 million of stock as over-allotment options.

As Esperion Therapeutics Inc (NASDAQ:ESPR) was conducting its study, investors became more and more confident about the company’s prospects and the number of funds holding shares of the company among those that we track, surged to 14 from 5 a quarter earlier. Moreover, the aggregate value of the positions in Esperion held by the funds that we track jumped to $197.39 million, from $80.10 million in the previous quarter. Another investor bullish on the company is Matthew Halbower of Pentwater Capital Management, which owns 1.47 million shares as of the end of 2014, up by 49% on the quarter. However, other investors own less significant stakes in the company.

Aisling Capital is a healthcare-focused hedge fund that held around $659.64 million in assets. Due to the fund’s small equity portfolio and focus on healthcare picks, it makes sense that the fund invests in a range of small-cap companies, which are more likely to be trading at a discount or are still at the development stage. Investing in small-cap healthcare picks pays off big time for Aisling Capital, as we will see next, when we take a look at the fund’s other top holdings. In this way, following Aisling’s activity as well as other hedge funds that invest in small-cap stocks might be profitable for smaller investors looking to beat the market. We have analyzed the data from 13F filings between 1999 and 2012 among the hedge funds that we track and determined that a portfolio consisting of 15 most popular small-cap picks among hedge funds can beat the market by 1 percentage point per month. Since we have been sharing these 15 stocks in our newsletters, in August 2012, our strategy generated a cumulative return of over 131% in 2.5 years, while the S&P 500 ETS (SPY) appreciated by some 57.2%.

Without any further ado, let’s see which companies represent Aisling’s two other largest holdings in terms of value. On the second spot, after Esperion Therapeutics Inc (NASDAQ:ESPR) is Cempra Inc (NASDAQ:CEMP), an $1.80 billion clinical-stage pharmaceutical company that is focused on developing differentiated antibiotics for the acute care. The fund disclosed ownership of 3.29 million shares of the company, valued at $77.42 million. The stock surged by over 300% in the last six months and the value of the Aisling’s stake surged from $35.33 million disclosed initially as of the end of June (the number of shares remained unchanged). Other shareholders of Cempra Inc (NASDAQ:CEMP include James A. Silverman’s Opaleye Management and Kevin Kotler‘s Broadfin Capital, which held 504,800 shares and 284,600 shares respectively. However, Broadfin cut its stake by 71% during the fourth quarter and it currently amasses 0.58% of the fund’s equity portfolio, while in Opaleye’s equity portfolio the holding in Cempra Inc (NASDAQ:CEMP amasses 6% of value.

Aisling is also bullish on Zeltiq Aesthetics Inc (NASDAQ:ZLTQ), of which it holds almost 2.60 million shares, valued at $72.50 million. Similar to Esperion and Cempra, Aisling added Zeltiq to its equity portfolio during the second quarter of 2014. Meanwhile, the stock of the $1.30 billion medical technology company more than doubled in value since the end of June. Zeltiq Aesthetics Inc (NASDAQ:ZLTQ) currently markets one product, the CoolSculpting System, which is designed to reduce stubborn fat bulges. The company posted strong results for the last year, with revenue up by 56% on the year to $174.5 million and a net income of $0.04 per share, versus a loss of $0.53 per share in 2013. In addition, Zeltiq Aesthetics Inc (NASDAQ:ZLTQ) raised its revenue guidance for 2015, expecting sales between $230 and $235 million. Steve Cohen‘s Point72 Asset Management is another shareholder of the company, which surged its position by 105% during the last three months of 2014 to 1.30 million shares.

Disclosure: none