eHealth, Inc. (NASDAQ:EHTH) appears to have a major proponent in James E Flynn’s Deerfield Management, as the health-focused hedge fund continues to stockpile the company’s common shares. In a filing released by the U.S Securities and Exchange Commission on Tuesday, it was reported that the fund has added exactly 1 million shares to their growing collection, which now totals 3.26 million, giving them an 18.37% passive stake in the company.
At the end of the first quarter, Deerfield had re-opened a position on eHealth, Inc. (NASDAQ:EHTH) with 271,000 shares. They increased their holding by 389% over the next quarter, upping their stake to 1.32 million shares, and then raised it another 72% in the third quarter to the 2.26 million shares they held before this latest purchase.
Despite their eHealth, Inc. (NASDAQ:EHTH) buying spree, the holding is not their largest. As of September 30 that honor went to Auxilium Pharmaceuticals, Inc. (NASDAQ:AUXL), with Deerfield owning 6.27 million shares worth $187 million. Deerfield also had large investments in Allergan, Inc. (NYSE:AGN) (491,399 shares worth $87.6 million) and NxStage Medical, Inc. (NASDAQ:NXTM) (6.14 million shares worth $80.6 million).
Unfortunately for Deerfield, eHealth, Inc. (NASDAQ:EHTH) has not been a particularly good investment for them thus far. Since that $61 peak on January 17, the stock tumbled to $20 by August 1. It remained mostly steady from then until last week. Just a day after Deerfield’s purchase of the 1 million shares on January 14 at an average price of just over $20, eHealth’s stock crashed 50% on January 15, after its preliminary 2014 fourth-quarter and full-year results, which were announced after trading closed on Wednesday, came in below expectations and below their own guidance.
As revealed during eHealth, Inc. (NASDAQ:EHTH)’s conference call on January 15, they were forced to adjust their revenue forecasts for the year to $178 million to $180 million, down from their previous guidance of $185 million to $194 million. EBITDA for 2014 meanwhile plunged from an estimated $13.5 million to $18.5 million, to just $1.5 million to $4 million. EBITDA for the fourth quarter was estimated to be between -$16.3 million and -$13.8 million.
Investors have had a strong negative reaction to the latest results, with an investigation being launched on January 20 that will seek to uncover whether any securities violations have taken place. The claim centers on whether or not eHealth, Inc. (NASDAQ:EHTH) and its directors and officers made materially false and misleading statements regarding the prospects and operations of the company.
During the conference call, Chief Financial Officer Stuart Huizinga cited two main reasons for why the company’s fourth quarter results were so poor. Firstly, eHealth, Inc. (NASDAQ:EHTH) spent significantly more than it intended on marketing costs in its Medicare business, due to increasing demand and applications. While that increased costs in the short-term, the results from that should be beneficial long-term as revenue will be generated from those new members throughout their lifetimes.
Secondly, a regulatory change in how Medicare carrier commissions are paid and reported is forcing a few million dollars of their revenue that would have previously been reported in the fourth quarter, to instead be reported after January 1. So despite the bad vibes on the stock at the moment, there is the potential for a quick turnaround in the first quarter, with revenue that should exceed expectations.
While Deerfield is by far the largest private shareholder of eHealth, Inc. (NASDAQ:EHTH) now, there are a few other notable shareholders, including Israel Englander’s Millennium Management with 361,096 shares, Decade Capital Management, a Millennium Management subsidiary, with 255,700, and Jeremy Green’s Redmile Group, with 177,788 shares.
Disclosure: none
