It is easy to imagine that hedge funds would not reveal their equity positions if it were not for reporting requirements enforced by the Securities and Exchange Commission. Indeed, quarterly 13F filings, as well as Form 4, and Schedule 13G and 13D filings do reveal potentially lucrative stock picks that these investors have spent a good deal of time and resources uncovering, which is the primary reason why individual investors should pay close attention to these public filings. While some tend to think that 13Fs are rather useless because of the delay in their filing, our research has proven otherwise. Alternatively, 13F skeptics can easily follow hedge funds’ 13G and 13D filings, which are much more timely and concern only major positions of hedge funds. Thus, the following article will reveal three healthcare-related moves made by several reputable hedge funds observed by the Insider Monkey team, which have been reported on such filings recently.
Most investors don’t understand hedge funds and indicators that are based on hedge funds’ activities. They ignore hedge funds because of their recent poor performance in the bull market. Our research indicates that hedge funds underperformed because they aren’t 100% long. Hedge fund fees are also very large compared to the returns generated and they reduce the net returns experienced by investors. We uncovered that hedge funds’ long positions actually outperformed the market. For instance the 15 most popular small-cap stocks among funds beat the S&P 500 Index by more than 53 percentage points since the end of August 2012. These stocks returned a cumulative of 102% vs. a 48.7% gain for the S&P 500 Index (read the details). That’s why we believe investors should pay attention to what hedge funds are buying (rather than what their net returns are).
According to a Schedule 13G filing, Zach Schreiber’s PointState Capital L.P. owns 2.95 million shares of Clovis Oncology Inc. (NASDAQ:CLVS), which account for 7.7% of the company’s outstanding common stock. The hedge fund firm held a 50,000-share stake in the biopharmaceutical company as of September 30. In July 2015, the company, which focuses on developing innovative anti-cancer agents, submitted a New Drug Application filing and a Marketing Authorization Application for its lead candidate rociletinib. However, the U.S. Food and Drug Administration recently asked Clovis Oncology to provide additional clinical data on this drug candidate, which sent the stock plummeting. In fact, the shares of Clovis have lost more than 70% since the announcement and are down by 52% for the year. Hence, it appears that hedge fund PointState found this massive pullback as an appealing point of entry.
In the meantime, Clovis Oncology Inc. (NASDAQ:CLVS) received more attention from the hedge funds monitored by Insider Monkey during the third quarter, as the number of top money managers invested in the biopharmaceutical company increased to 31 from 29 quarter-over-quarter. Similarly, the value of their stakes grew to $1.22 billion from $864.01 million quarter-over-quarter, which will be significantly lower now considering the recent drop in the company’s share price. Nevertheless, these hedge fund firms accumulated 34.60% of the company’s shares on September 30. Eric Chen’s Antipodean Advisors acquired a 1.31 million-share stake in Clovis Oncology Inc. (NASDAQ:CLVS) during the third quarter.
Let’s move on to the next page of the article, where we’ll discuss the moves made by Highbridge Capital Management and Orbimed Advisors on the other healthcare-related stocks.
In a Schedule 13G filed with the SEC, Glenn Russell Dubin’s Highbridge Capital Management reported ownership of 1.70 million shares of ZS Pharma Inc. (NASDAQ:ZSPH), including 1.67 million shares of common stock issuable upon the exercise of call options. The multi-billion dollar hedge fund owned call options underlying a mere 76,300 shares on September 30. Earlier this month, U.K-based drukmaker AstraZeneca plc (ADR) (NYSE:AZN) agreed to buy ZS Pharma for $2.7 billion, supposedly betting on the FDA approval of ZS-9. ZS Pharma Inc. (NASDAQ:ZSPH)’s high-potential drug is a treatment for hyperkalemia, which involves high potassium levels in the blood associated with kidney disease and heart failure. The biopharmaceutical company has filed for approval of the drug with the FDA and is awaiting its decision, which is expected to be communicated by May 26, 2016. Under the terms of the deal between the two parties, each shareholder of ZS Pharma is set to receive $90 in cash for each share of common stock owned. It appears that Highbridge Capital aims to profit from the discrepancy between the current share price and the sale price of $90 per share.
Two fewer hedge funds had ZS Pharma in their portfolios at the end of the third quarter relative to the end of the previous one. The 20 hedge funds invested in the biopharmaceutical company amassed 27.80% of the company’s shares on September 30. However, the value of their investments increased to $458.42 million from $217.78 million quarter-over-quarter. Steve Cohen’s Point72 Asset Management made the right move by acquiring a new stake of 778,120 shares in ZS Pharma Inc. (NASDAQ:ZSPH) during the third quarter.
According to a freshly-filed Form 4, Samuel Isaly’s Orbimed Advisors unloaded 138,398 shares of Otonomy Inc. (NASDAQ:OTIC) this week at a weighted average sale price of $28.62, trimming its overall holdings to 2.12 million shares. The clinical-stage biopharmaceutical company focuses on the development of therapeutics for the treatment of disorders and diseases of the ear, and has three product candidates in development. Earlier this year, Otonomy Inc. (NASDAQ:OTIC) submitted a New Drug Application for its lead drug candidate OTIPRIO and expects a decision by December 25, 2015. It appears that the company is already preparing for the commercialization of OTIPRIO in the United States, and anticipates that it will need additional financial support to fund the launch of this product and conduct its sales and marketing operations. Meanwhile, the shares of the company are 13% in the red year-to-date, so it remains to be seen what the FDA has to say about OTIPRIO and how the market will react to the decision.
The number of hedge funds with positions in the biopharmaceutical company climbed to 14 from 13 during the third quarter, while the value of their positions shrank to $74.20 million from $102.03 million quarter-over-quarter. These smart money investors accumulated 17.20% of the company’s outstanding shares at the end of September. Ken Griffin’s Citadel Advisors LLC owns 245,172 shares of Otonomy Inc. (NASDAQ:OTIC) as of September 30.