The health care sector has appreciated by nearly 30% over the past year. We decided to take a look at three companies that two health care-focused funds, namely James A. Silverman‘s Opaleye Managment and Joseph Edelman‘s Perceptive Advisors, are each heavily betting on, and as you’ll see, doing so quite successfully. The list includes Neurocrine Biosciences, Inc. (NASDAQ:NBIX), Retrophin Inc (NASDAQ:RTRX), and Cempra Inc (NASDAQ:CEMP).
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 (and money) 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 142% (read the details here). Follow the smart money into only their best investment ideas all while avoiding their high fees.
Edelman launched the biotech-focused Perceptive Advisors in 1999 and the fund delivered a staggering 129% return in its maiden year, followed by an even higher 155% return in the next year. The firm’s public equity portfolio value stood at $1.29 billion at the end of the first quarter of 2015, with the health care sector representing 88% of this amount. As for Opaleye Management, the firm was formerly known as Risk Reward Capital Management Corp. and went under investigation in 2011 owing to claims that the company used its ‘expert network’ to gain insider information on biotech stocks. It is a smaller of the two firms, with a public portfolio value of $215.39 million at the end of March.
Follow James A. Silverman's Opaleye Management
During the first quarter, Perceptive increased its stake in Neurocrine Biosciences, Inc. (NASDAQ:NBIX) by 4% to 3.74 million shares valued at $148.57 million. The holding represents 4.38% of the $4.17 billion health care company’s outstanding shares and 11.55% of the fund’s portfolio. Opaleye also increased its stake in Neurocrine by acquiring 100,000 shares during the same quarter, taking the total stake to 145,000 shares valued at $5.76 million. So far this year, Neurocrine Biosciences, Inc. (NASDAQ:NBIX)’s stock has appreciated by a whopping 118%. The company’s net loss of $0.01 per share for the first quarter beat expectations by $0.29, while revenues came in at $19.8 million. Samuel Isaly‘s Orbimed Advisors is the largest stockholder of Neurocrine Biosciences, Inc. (NASDAQ:NBIX) within our database, with some 5.83 million shares valued at $231.65 million.