5 Stocks That Healthcare Fund Deerfield Management Was Buying in Q2

Founded by James E. Flynn in 2000, Deerfield Management has grown to become one of the premier healthcare-focused investment management companies today. The success of the firm stems from its working style, which is fairly different from its peers. Unlike other healthcare-focused hedge funds that primarily invest in public companies, Deerfield works with healthcare companies from across the breadth of the healthcare spectrum, from early-stage startups to mature medical device and pharmaceutical companies. It not only invests in these companies, but also provides them with a host of other services including financial advisory, managing corporate transitions, and hostile takeovers.

According to Deerfield Management’s latest 13F filing, its equity portfolio was worth $2.54 billion at the end of June and 89% of that amount was held in stocks from the healthcare space. The filing also revealed that during the second quarter the fund’s equity portfolio experienced a quarterly turnover rate of 42.86%, which included Deerfield initiating a stake in 23 stocks and increased its holding in 17 stocks. In this article, we’ll take a look at five stocks that the fund was buying during the second quarter and discuss the performance of those stocks this year.

We track hedge funds and prominent investors because our research has shown that historically their stock picks delivered superior risk-adjusted returns. This is especially true in the small-cap space. The 15 most popular small-cap stocks deliver a monthly alpha of 80 basis points in our backtests that covered the period between 1999 and 2012 (see the details here).

#5 Global Blood Therapeutics Inc (NASDAQ:GBT)

– Shares Owned by Deerfield Management (as of June 30): 1.73 million

– Value of Holding (as of June 30): $28.76 Million

Let’s begin with Global Blood Therapeutics Inc (NASDAQ:GBT), in which Deerfield Management increased its stake by 46% during the second quarter. The company had its IPO last August following which its stock skyrocketed. However, its shares gave up a large amount of those gains in December and have lost 35% of their value in 2016. In June, the company announced that it had initiated a Phase 2a study assessing is lead product candidate GBT440 in adults with ideopathic (cause unknown) pulmonary fibrosis (IPF) and hypoxemia (low blood oxygen). On August 22, analysts at Wedbush reiterated their ‘Outperfrom’ rating and $66 price target on the stock, which represents potential upside of over 325%. During the second quarter, the ownership of the company among the hedge funds covered by us increased by five to 20 and the aggregate value of their holdings in it jumped by $59.8 million to $1.48 billion.

#4 Syros Pharmaceuticals Inc (NASDAQ:SYRS)

– Shares Owned by Deerfield Management (as of June 30): 2.09 million

– Value of Holding (as of June 30): $38.03 Million

Syros Pharmaceuticals Inc (NASDAQ:SYRS) was a new entrant to Deerfield Management’s equity portfolio during the second quarter. The stock made its debut in the equity markets at the end of June at $12.50 per share. Though it has lost nearly 30% of its value since June 30, it is still trading up by 2% from its IPO price. On August 30, shares of the company spiked by 15.8% after it revealed that scientific founders, Nathanael Gray and Richard Young, have employed a novel chemistry approach to design the first selective inhibitor of difficult-to-drug enzymes cyclin-dependent kinase 12 (CDK12) and CDK13. Earlier this month, analysts at HC Wainwright reiterated their ‘Hold’ rating and $10 price target on the stock. At the end of June, there were six hedge funds in our system long Syros Pharmaceuticals Inc (NASDAQ:SYRS), with the aggregate value of their holdings amounting to $75.46 million.

We’ll check out three more stocks that Deerfield was buying last quarter on the next page.

#3 DBV Technologies SA – ADR (NASDAQ:DBVT)

– Shares Owned by Deerfield Management (as of June 30): 1.74 million

– Value of Holding (as of June 30): $56.86 Million

Moving on, Deerfield Management boosted its stake in DBV Technologies SA – ADR (NASDAQ:DBVT) by 114% during the second quarter. DBV Technologies SA – ADR (NASDAQ:DBVT) is a France-based clinical-stage biopharmaceutical company that is developing a technology platform called Vaskin, which it says has the potential to change the field of immunotherapy. Apart from Aimmune Therapeutics Inc (NASDAQ:AIMT), DBV Technologies is the only company that is in late-stage development for a peanut allergy treatment, which is touted to be a multi-billion dollar market. On August 23, analysts at Leerink Swann reiterated their ‘Buy’ rating and $54 price target on the stock, which represents potential upside of 53.5%. Though the ownership of DBV Technologies among the hedge funds in our database declined by two to ten during the second quarter, the aggregate value of their holdings in it increased by $18.2 million to $298.42 million.

#2 Adeptus Health Inc (NYSE:ADPT)

– Shares Owned by Deerfield Management (as of June 30): 1.6 million

– Value of Holding (as of June 30): $82.7 Million

With Deerfield Management increasing its stake in the company by 68% during the second quarter, Adeptus Health Inc (NYSE:ADPT) jumped six spots in the fund’s portfolio to become its sixth-most valuable equity holding at the end of June. However, it remains to be seen if it can hold on to that spot, as Adeptus Health Inc (NYSE:ADPT)’s stock has already lost over 20% of its value since the end of the second quarter. A large part of that loss came earlier this month when Thomas Hall, the Chairman and CEO of Adeptus Health informed the company that he intends to retire as soon as a successor is found, or by mid-2017 at the latest. For its most recent quarter, the company declared EPS of $0.48 on revenue of $100.17 million versus analysts’ estimates of EPS of $0.51 on revenue of $93.92 million. The number of hedge funds long Adeptus Health among those we track inched down by one to 24 during the second quarter, but the aggregate value of their holdings in the company climbed by 29% to $307.27 million.

#1 GW Pharmaceuticals PLC- ADR (NASDAQ:GWPH)

– Shares Owned by Deerfield Management (as of June 30): 991,800

– Value of Holding (as of June 30): $90.82Million

A 27% rise in its stock during the second quarter coupled with Deerfield Management increasing its stake in the company by 48% during that time pushed GW Pharmaceuticals PLC- ADR (NASDAQ:GWPH) to the third position in the fund’s equity portfolio at the end of June, from 15th at the end of March. After suffering a major beating between July 2015 and March 2016, shares of GW Pharmaceuticals PLC- ADR (NASDAQ:GWPH) have had a terrific rise since and are currently up by 45.6% this year. A major part of the gains that the stock has seen came earlier this month amid rumors that the company is working with an investment bank to review takeover offers that it has received from unknown entities. The rally that the stock has enjoyed this year hasn’t impacted the bullish view  on it of analysts, who still think GW Pharmaceuticals is the best legal marijuana stock for investors to buy. On September 8, analysts at Cantor Fitzgerald reiterated their ‘Buy’ rating on the stock while setting a price target of $165 on it, a 60% upside call.

Disclosure: None