Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

More Than 60% Returns For These Two Hedgies’ Favorite Health Care Picks

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).

Sergey Nivens/

Sergey Nivens/

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.

James A. Silverman
James A. Silverman
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.

Perceptive’s stake in Retrophin Inc (NASDAQ:RTRX) received a 43% boost in the first quarter to 2.78 million shares valued at $66.73 million. The holding represents nearly 8% of the company’s outstanding stock. On the other hand, Opaleye decreased its stake in the company by 45% to 500,000 shares valued at $11.98 million. It still represents a significant 5.56% of the fund’s portfolio. The move was likely a part of Opaleye’s profit taking strategy, as Retrophin Inc (NASDAQ:RTRX)’s stock had appreciated by about 180% in the first three months of the year. However, it has further accelerated by another 40% since the end of March. Consequently the stock has become increasingly popular among the hedge funds that we track, since 20 firms had a stake in Retrophin Inc (NASDAQ:RTRX) at the end of the first quarter compared to 13 at the end of the previous quarter. Michael Blutt’s Consonance Capital Management is the largest investor among these, owning 3.11 million shares valued at $74.46 million.

Joseph Edelman
Joseph Edelman
Perceptive Advisors

Although a much smaller holding than in the other two, Prospective’s stake in Cempra Inc (NASDAQ:CEMP) was also hiked by 131% during the first quarter to 572,500 shares valued at $19.64 million. Opaleye puts a much larger weight on the company as it is the fund’s second-largest equity holding, consisting of 500,000 shares valued at $17.16 million. So far this year, Cempra Inc (NASDAQ:CEMP)’s stock has appreciated by nearly 64%. Among the funds that we track Dennis Purcell’s Aisling Capital heads the list of Cempra Inc (NASDAQ:CEMP)’s investors, holding some 3.29 million shares valued at $112.99 million.

Disclosure: None

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.