The healthcare sector has appreciated by more than 14% so far this year, so we decided to take a look at how healthcare funds are gearing their portfolios heading into the second half of the year. We picked Mitchell Blutt‘s Consonance Capital Management, a New York-based long/short hedge fund which was founded by Blutt in 2005. Currently around 88% of Consonance’s public equity portfolio is invested in the healthcare sector, including investments in payors, pharmaceutical, specialty distributors, and device manufacturers. The firm also provides private equity financing including growth capital and leverage buyout. Regulatory assets under the fund’s management amount to $695 million. Let’s take a look at the fund’s top picks as of June 30, which include Retrophin Inc (NASDAQ:RTRX), Insys Therapeutics Inc (NASDAQ:INSY), and Eagle Pharmaceuticals Inc (NASDAQ:EGRX).
Why do we pay attention to hedge fund sentiment? Most investors ignore hedge funds’ moves because as a group their average net returns trailed the market since 2008 by a large margin. Unfortunately, most investors don’t realize that hedge funds are hedged and they also charge an arm and a leg, so they are likely to underperform the market in a bull market. We ignore their short positions and by imitating hedge funds’ stock picks independently, we don’t have to pay them a dime. Our research have shown that hedge funds’ long stock picks generate strong risk adjusted returns. For instance the 15 most popular small-cap stocks outperformed the S&P 500 Index by an average of 95 basis points per month in our back-tests spanning the 1999-2012 period. We have been tracking the performance of these stocks in real-time since the end of August 2012. After all, things change and we need to verify that back-test results aren’t just a statistical fluke. We weren’t proven wrong. These 15 stocks managed to return more than 123% over the last 35 months and outperformed the S&P 500 Index by 65 percentage points (see the details here).
During the June quarter Consonance increased its position in its largest holding, Retrophin Inc (NASDAQ:RTRX), by 9% to 3.40 million shares valued at $112.72 million. The stake represents 11.33% of the fund’s portfolio value and amasses more than 9% of the company’s outstanding shares. The $1.08 billion biopharmaceutical company’s stock price has surged by more than 147% so far this year. Recently, Retrophin Inc (NASDAQ:RTRX) sold its Rare Pediatric Disease Priority Review Voucher to Sanofi for $245 million, payable via an upfront fee of $150 million plus two additional payments of $47.5 million in each of 2016 and 2017. Kevin Kotler‘s Broadfin Capital is the second-largest stockholder of Retrophin Inc (NASDAQ:RTRX) within our database after Consonance, holding some 2.96 million shares valued at $70.98 million.
Consonance upped its stake in Insys Therapeutics Inc (NASDAQ:INSY) by 9% as well during the second trimester, to 2.98 million shares valued at $107.19 million. Insys Therapeutics Inc (NASDAQ:INSY)’s stock has appreciated by nearly 66% on a year-to-date basis. Although some investors have become weary of the investigations into doctors’ prescribing behavior, which could have a significant impact on Insys’ Subsys, an opoid pain medication, the sales of the drug have been soaring, registering a 40% increase in the second quarter on a year-over-year basis. Moreover, promising drugs are in the pipeline, including oral dronabinol, a variation of the marijuana drug Marinol that is used to treat nausea caused by chemotherapy, and anorexia caused by HIV. The market for the drug is $150 million in annual sales. Among the funds that we track Samuel Isaly‘s Orbimed Advisors is another prominent stockholder of Insys Therapeutics Inc (NASDAQ:INSY), holding 1.24 million shares valued at $72.27 million.
After a staggering increase of 60% in its Eagle Pharmaceuticals Inc (NASDAQ:EGRX) stake, Consonance holds some 1.18 million shares valued at $95.96 million of the specialty pharmaceutical company. The holding represents 9.61% of the fund’s portfolio value and amasses about 8.4% of the company’s outstanding shares. The stock price of Eagle Pharmaceuticals Inc (NASDAQ:EGRX) has been growing faster than the universe (or thereabouts), being up by more than 370% year-to-date. The company managed to beat both the top and bottom line estimates in its recent financial results for the second quarter. Dimitry Balyasny’s Balyasny Asset Management holds about 7,055 shares of Eagle Pharmaceuticals Inc (NASDAQ:EGRX) valued at $570,000 as of June 30.
Unsurprisingly, based on the staggering results of its top three picks, the returns of Consonance’s stock picks have been near the top of all the hedge funds we track at Insider Monkey. The fund’s picks in stocks with a market cap of $1 billion or greater delivered weighted average returns of 58.1% in the first half of 2015.