David Kim and Ken Greenberg’s Ghost Tree Capital has filed its most recent 13F with the SEC recently, and we poured through it to analyze the fund’s newest picks and top plays, the latter of which we’ll discuss in this feature. It was an active quarter for the fund, which added 33 new positions to its portfolio, while axing 44 previously held ones. All told, the value of the fund, which is 100% invested in the healthcare sector, increased to $208.40 million at the end of 2014, up from $184.24 million at the end of the third quarter.
New York-based Ghost Tree Capital was founded in 2013 by Kim and Greenberg, who previously worked together at Diamondback Capital. Prior to that, Kim, the CIO and principal owner of Ghost Tree and a graduate of The Johns Hopkins University School of Medicine, worked at Citadel Investment. Greenberg, currently a senior analyst, was previously a principal at MPM Capital, and before that, an associate at McKinsey & Company. Greenberg graduated from the University of Pennsylvania – The Wharton School with a MBA in General Management & Healthcare. Ghost Tree maintains a highly diversified portfolio, with no single holding accounting for more than 5.65% of the fund’s equity portfolio value at the end of 2014.
The top biotech holding of Ghost Tree heading into 2015 was Zimmer Holdings Inc. (NYSE:ZMH), in which the fund held an 86,200 share stake. That was a 73% increase from the previous quarter, when it held 50,000 shares. Since the fund opened a position in the fourth quarter of 2013, Zimmer Holdings has enjoyed a strong run, up over 30%. The company is involved in the manufacture of various medical devices, including spinal and trauma devices, and dental implants. The $20.49 billion market cap company operates in more than 25 countries around the world, and sells its products in more than 100.
Zimmer is still in the process of merging with Biomet, a private Indiana medical devices manufacturer, for $13.35 billion. That deal, which was announced in April, is still awaiting regulatory approval from the European Commission and the Japan Fair Trade Commission. In its most recent quarterly results, Zimmer Holdings announced net sales of $1.22 billion, down 1.4% year-over-year, and adjusted earnings of $1.71, a 3% increase. Zimmer Holdings goes ex-dividend on March 4, with stockholders as of March 6 being paid the $0.22 dividend on April 24.
Avalanche Biotechnologies Inc (NASDAQ:AAVL) lands in the second position on Ghost Tree’s biotech rnakings, with it owning 125,000 shares at the close of 2014, up 150% from the previous quarter. As we reported earlier today, Avalanche is also a top pick of another healthcare-focused fund, VHCP Management, which also has it placed second in financial relevance in its portfolio. VHCP’s stake was unchanged from the previous quarter at 1.38 million shares.
Avalanche Biotechnologies is up a strong 31.48% since its IPO in August 2014. However it was enjoying a much stronger overall run until early January, when it was up over 100% at one point. Since then shares have crumbled by 37.5%, leaving the stock down a gruesome 31.85% year-to-date as Avalanche announced a new public offering of 2.0 million shares on January 5. The clinical-stage biotech company is developing gene-therapy treatments to treat opthalmic diseases, with AVA-101 for Wet AMD (Age-related Macular Degeneration) being the furthest along. Phase 2 data from that study is expected in mid-2015.
Wright Medical Group Inc (NASDAQ:WMGI) rounds out Ghost Tree’s top 3 biotech picks, and the holding was a new position for the fund during the fourth quarter, as it reported ownership of 235,000 shares. Wright Medical Group, which builds devices and treatments primarily for joint issues, announced fourth quarter results on February 25 that were in line with its preliminary estimates, with revenues of $83.3 million, up 25% year-over-year on a constant currency basis.
The company’s foot and ankle division experienced particularly strong growth, up 39% from the previous quarter, with strong gross margins of 77.1%. Despite that, Wright Medical still suffered a loss of $107 million for the quarter, though that was improved from the $135.2 million loss in the fourth quarter of 2014. Shares are down 5.95% year-to-date. Samuel Isaly’s Orbimed Advisors was the largest shareholder among funds we track, owning 2.53 million shares at the end of 2014. William Leland Edwards’ Palo Alto Investors was extremely bullish on Wright Medical heading into 2015, increasing its position by 145% to 2.04 million shares during the fourth quarter.