Two Stocks That Have Deerfield Management And Anchor Bolt Capital Excited

In a recent filing with the Securities and Exchange Commission (SEC), James E. Flynn (pictured) has revealed his latest play: Akari Therapeutics PLC (ADR) (NASDAQ:AKTX), a clinical-stage biopharmaceutical company formerly known as Celsus Therapeutics PLC. Flynn’s Deerfield Management has built a position that amasses 115.0 million shares, which account for 9.77% of the company’s common stock. According to a separate filing with the SEC, Robert Polak, the manager of Anchor Bolt Capital, has reignited his interest in Hornbeck Offshore Services, Inc. (NYSE:HOS), a provider of equipment and services for oil drilling companies. Having previously reduced his stake in the company, Polak has doubled the position reported in Anchor’s latest 13F filing, taking it to 2.3 million shares or 6.42% of the company’s outstanding shares.

Founded in 1994, Deerfield Management invests mainly in healthcare stocks and administers four hedge funds with a total of $5 billion in assets under management. James Flynn took the helm in 2000 and has built an equity portfolio with an estimated market value of $3 billion at the end of the second quarter. At the end of July, Deerfield announced the launch of Deerfield Healthcare Innovations Fund, which will focus on innovative treatments for genetic disorders and cancer. According to Deerfield’s latest 13F filing, Flynn’s largest equity bet is Horizon Pharma PLC (NASDAQ:HZNP), despite being trimmed by 5% to 12.2 million shares during the quarter. Flynn’s interest in Dyax Corp. (NASDAQ:DYAX) also intensified, as he boosted his stake by 120% to amass 2.48 million shares, while his investment in Flamel Technologies S.A. (ADR) (NASDAQ:FLML), his second-biggest equity position, was left untouched at 4.07 million shares.

But why do we track hedge fund activity? From one point of view we can argue that hedge funds are consistently underperforming when it comes to net returns over the last three years, when compared to the S&P 500. But that doesn’t mean that we should completely neglect the hedge funds’ activities. There are various reasons behind the low hedge fund returns. Our research indicated that hedge funds’ long positions actually beat the market. In our back-tests covering the 1999-2012 period hedge funds’ top small cap stocks edged the S&P 500 index by double digits annually. The 15 most popular small cap stock picks among hedge funds also bested passive index funds by around 60 percentage points over the 36 month period beginning in September 2012, returning 118% (read the details here).

Deerfield’s investment in Akari Therapeutics PLC (ADR) (NASDAQ:AKTX) is part of a private placement financing announced by the company today. Peter Kolchinsky‘s RA Capital Management and Daniel Gold’s QVT Financial are among the other investors who have participated in the offering. Approximately 3.95 million American Depositary Shares (ADSs), representing 395 million ordinary shares, were offered at a price of $18.94 per ADS, bringing Akari Therapeutics roughly $75 million in gross proceeds. The company will use the money to fund the stage two development of its main asset, Coversin, a C5 complement inhibitor.

“We are excited to advance the development of Coversin into several clinical indications. We believe that Coversin has potential to be the next and best-in-class C5 complement therapeutic and this financing provides us with the resources to advance our corporate and clinical goals,” said Gur Roshwalb, Chief Executive Officer of Akari.

Anchor Bolt Capital’s biggest equity position is LyondellBasell Industries NV (NYSE:LYB), a chemical company with a global presence. During the second quarter, Polak doubled his stake to 1.27 million shares worth $131 million at the end of June. He is also very bullish on Magna International Inc. (USA) (NYSE:MGA), having increased his holding by 160% to more than 1.86 million shares. Although hedge fund titans like Leon Cooperman and David Einhorn are still buying General Motors Company (NYSE:GM), Polak saw fit to reduce his position by 11%, leaving Anchor Bolt with 2.97 million shares. An understudy of billionaire Ken Griffin, Polak decided to set out on his own in 2012, founding Anchor Bolt. Three years later, he is running a public equity portfolio with an estimated market value of $2.79 billion, with bets across a host of sectors, the technology and consumer discretionary sectors being chief among them.

Hornbeck Offshore Services, Inc. (NYSE:HOS) has a market cap of $592 million and is traded at a trailing Price to Earnings (P/E) ratio of 5.xx, significantly lower than the industry average P/E of 40.20. For the three months ending June 30, 2015, the company posted revenues of $136 million, down by 20% compared to the same period last year, while earnings decreased to $0.53 per share. Wall Street expects Hornbeck’s financials to deteriorate during this quarter as well, with analysts reaching a consensus of $127 million in revenues and earnings of $0.29 per share. William C. Martin, the manager of Raging Capital Management, is very optimistic about the prospects of Hornbeck Offshore Services, Inc. (NYSE:HOS), having increased his holding of the stock by 288% during the second quarter to amass 1.54 million shares. Debra Fine, on the other hand, decided to slightly reduce her exposure to the stock, trimming her position by roughly 2%. Her fund Fine Capital Partners reported ownership of 3.5 million shares, worth approximately $72 million, in its latest 13F filing. During the second quarter, the number of hedge funds in our directory holding a long position in Hornbeck decreased by two, while the value of their overall investments was down by $8 million to $291 million.

Disclosure: None