James E. Flynn‘s Deerfield Management is one of the funds that is focused on the healthcare sector, investing around 70% of its portfolio in healthcare stocks. Among other things, Deerfield specializes in R&D, hostile takeovers and financial advisory services. In its last 13F filing, Deerfield disclosed an equity portfolio valued at $2.78 billion. The equity portfolio is diversified, as the largest stake represents around 7.20% of the total equity portfolio value. In this article we will take a look at the five largest positions in terms of value from Deerfield Management’s 13F portfolio. We will skip Auxilium Pharmaceuticals, which was the largest holding at the end of 2014, since the company has been acquired by Endo Pharmaceuticals for $2.6 billion. Mr. Flynn has been betting on other takeover targets, among the largest being Allergan, Inc. (NYSE:AGN), which was the fourth-largest holding in Deerfield’s equity portfolio.
Investing in healthcare companies requires a lot of expertise and involves a significant risk, but can also provide high payoffs if the investor is meticuluous enough. The healthcare sector has provided some of the best returns across all sectors, gaining around 24.50% in the last 52 weeks. Many healthcare stocks have provided great returns to investors as some companies from the sector have consolidated, while other companies have provided impressive results from their trials and new developments aimed towards revolutionizing treatments of certain diseases and therapies.
Auspex Pharmaceuticals Inc (NASDAQ:ASPX) is the largest position in Deerfield’s equity portfolio, excluding Auspex. The fund reported holding 2.95 million shares of the company in its latest 13F filing, up by 18% on the quarter, with the value of the stake amounting to $154.77 million. However, at the beginning of February, Mr. Flynn further raised his stake in Auspex Pharmaceuticals Inc (NASDAQ:ASPX) to 4.4 million shares. Auspex Pharmaceuticals Inc (NASDAQ:ASPX) went public at the beginning of March 2014 and since then its stock surged by some 172%. Israel Englander’s Millennium Management has reported ownership of 1.04 million shares in its latest 13F filing, cutting the stake by around 12% during the last quarter.
Horizon Pharma PLC (NASDAQ:HZNP) is another stock that has enjoyed a great performance, as it gained 68% over the last year. Mr. Flynn first disclosed a position in the specialty pharmaceutical company at the end of December 2013 and a year later he has raised his stake by 110% during the fourth quarter, to 11.70 million shares. In its last financial report, the company posted a revenue increase of 250% on the year to $103.80 million and earnings per share (EPS) of $0.27 on an adjusted basis. Horizon Pharma PLC (NASDAQ:HZNP) has also raised its guidance for 2015 in line with estimates and has a consensus ‘Buy’ rating from analysts. During the last quarter of 2014, Horizon Pharma PLC (NASDAQ:HZNP) was also on the radar of another healthcare-focused investor, Kevin Kotler of Broadfin Capital, who raised his stake by 76% to around 8.92 million shares.
Next in line is Allergan, Inc. (NYSE:AGN), one of the most widely discussed healthcare companies throughout 2014. The company became a potential takeover target by activist investor Bill Ackman of Pershing Square, who planned to purchase the pharmaceutical company together with Valeant Pharmaceuticals Intl Inc (NYSE:VRX). As Allergan, Inc. (NYSE:AGN) has been fighting the offer, its stock has been growing as investors were betting on Mr. Ackman winning the proxy fight with the company. The story took another step after another pharmaceutical company Actavis plc (NYSE:ACT) stepped in with a higher bid. All in all, the bets of activists have paid off and even better than expected, we can say. Meanwhile, many large investors have been bullish on Allergan, the company quickly becoming one of the most popular healthcare stocks. Deerfield initiated a stake in Allergan, Inc. (NYSE:AGN) in the middle of 2013, and throughout 2014 it has been constantly increasing the position. At the end of last year, the hedge fund held 606,600 shares of the company, valued at $128.96 million.
Deerfield’s stake in French-based Flamel Technologies S.A. (ADR) (NASDAQ:FLML) remained unchanged over the quarter at 5.26 million shares worth $90.08 million. The stock of the biopharmaceutical company gained 20% in the last quarter of 2014, but since the beginning of the year it fell by 9%. During the fourth quarter, Flamel Technologies S.A. (ADR) (NASDAQ:FLML) has attracted more interest from investors as the number of funds holding the stock increased to 27 which held around $284.33 million worth of the company’s stock, versus 18 funds holding $223.26 million of stock in the previous quarter. Broadfin Capital is also a shareholder of Flamel Technologies S.A. (ADR) (NASDAQ:FLML), disclosing ownership of 5.15 million shares in its last 13F filing.
And the last but not least is Avalanche Biotechnologies Inc (NASDAQ:AAVL), another biotech stock. Deerfield cut its position by 22% to 1.61 million shares, valued at $87.19 million. It seems like it was the right call, as Avalanche Biotechnologies Inc (NASDAQ:AAVL)’s stock lost around 33% since the beginning of the year. Mr. Flynn added the company to his fund’s equity portfolio during the third quarter and saw the stock jump by over 50% in the last three months of 2014. On the other hand, Venrock Healtchare Capital Partners, a fund specialized in biotech companies, initiated a $73.08 million position in Avalanche Biotechnologies Inc (NASDAQ:AAVL) during the fourth quarter of 2014 that contained 1.38 million shares.
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