Redmile Group Sticking With Healthcare Picks After Rough Q1

Redmile Group is a San Francisco-based, healthcare-focused hedge fund founded and managed by Jeremy Green, an Oxford alum with more than 20 years of experience in wealth management and investment banking. In late February, the firm disclosed having discretionary assets under management of more than $2.15 billion. More recently, in its 13F filing for the first quarter of 2016, Redmile reported holding about $977 million in long equity positions. It was a rough first quarter for healthcare investors, and Mr. Green’s fund was no exception. The fund’s 26 holdings in companies with market caps larger than $1 billion as of December 31 posted a weighted average loss of 20% during the first quarter of the year, making it one of the worst performing funds in our database for the quarter, alongside other healthcare-focused funds such as Baker Bros. Advisors, Deerfield Management, and OrbiMed Advisors. Despite the weakness, which was of course related to the overall feebleness in the healthcare segment, Redmile continued to stick with its top healthcare picks going into the second quarter of the year. We’ll take a look into the firm’s top five stock picks as of March 31 in this article, which accounted for roughly 35.5% of the value of the fund’s equity portfolio.

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#5. Array Biopharma Inc (NASDAQ:ARRY)

 – Number of shares owned by Redmile (as of March 31): 19.15 Million

 – Value of Redmile’s stake (as of March 31): $56.5 Million

Array Biopharma Inc (NASDAQ:ARRY) fell one spot in the fund’s portfolio over the first quarter, though the fund raised its stake in it by 8% during the period. Redmile also remained the largest institutional investor of record as of March 31, trailed by Samuel Isaly’s OrbiMed Advisors, which disclosed ownership of 10.68 million shares of the company, and 18 other hedge funds in our database.

Shares of Array Biopharma Inc (NASDAQ:ARRY) have managed to recuperate 54% of their value since their early February lows, including 30.5% gains in the second quarter. The recent gains have been helped by several analysts who recommended the stock, as well as accompanying the overall rebound in healthcare ETFs.

#4. Penumbra Inc (NYSE:PEN)

 – Number of shares owned by Redmile (as of March 31): 1.26 Million

 – Value of Redmile’s stake (as of March 31): $58.3 Million

Also falling one place in Redmile’s list quarter-over-quarter was Penumbra Inc (NYSE:PEN), in which the fund trimmed its holding by 18% in the first quarter, a period during which the stock lost 14.5% of its value. Despite this reduction, Redmile remained the second-largest shareholder of the small-cap interventional therapies company in our database. It should be noted that over the March quarter, the number of hedge funds in our database long the stock almost doubled, to 11 from six.

Many of the funds that started new stakes in Penumbra Inc (NYSE:PEN) over the first quarter are reaping the benefits of their investments, as the stock has gained more than 19.6% since the beginning of the second quarter, accompanying the general recuperation in healthcare stocks. In early May, the company posted first quarter EPS of $0.02 on revenue of $57.9 million, which was up by 48.5% year-over-year. However, the stock fell sharply following the report before recuperating toward the end of the month. Rock Springs Capital Management disclosed a 12% increase to its stake in the company during the first quarter, taking it to 228,500 shares valued at $10.5 million.

We’ll study Redmile Group’s top three healthcare picks on the next page.

#3. Clovis Oncology Inc (NASDAQ:CLVS)

 – Number of shares owned by Redmile (as of March 31): 3.09 Million

 – Value of Redmile’s stake (as of March 31): $59.5 Million

Following a 73% increase to Redmile’s holding over the first quarter, Clovis Oncology Inc (NASDAQ:CLVS) jumped three spots in the fund’s portfolio. For its part, Redmile became the fourth-largest hedge fund investor among the 24 funds in our database long the stock on March 31. Interestingly, these 24 firms held more than 54% of the company’s float, making them extremely overweight the stock. Zach Schreiber’s Point State Capital alone owned more than 9.3% of the company’s outstanding stock, or 3.59 million shares.

Unlike its peers above, Clovis Oncology Inc (NASDAQ:CLVS) has not yet managed to recuperate from a rocky start to the year. The shares of the company, which lost 45.14% over the first quarter, have fallen by an extra 10.5% in the second quarter, taking their year-to-date loss to almost 51%. Among recent news dragging down the stock was the announcement that the company would cut 35% of its staff by the end of the year, anticipating that the FDA is likely to reject its rociletinib drug for the treatment of EGFR-positive, non-small cell lung cancer. That could lead to the termination of the compound’s development as the company shifts its focus to its second asset, rucaparib, which seems to have a better chance of approval.

#2. Medivation Inc (NASDAQ:MDVN)

 – Number of shares owned by Redmile (as of March 31): 1.78 Million

 – Value of Redmile’s stake (as of March 31): $82.1 Million

Medivation Inc (NASDAQ:MDVN) remained the in the runner-up position in the fund’s portfolio, with the position having been upped by 12% during the first quarter. On top of Mr. Green’s fund, another 48 firms in our database held long positions in the stock, with their positions accounting for more than 20% of the company’s float at the end of the first quarter. The largest stake among them was held by Fred Knoll’s Knoll Capital Management, which owned 4.39 million shares worth more than $202 million.

Unlike most healthcare stocks, Medivation Inc (NASDAQ:MDVN) is up year-to-date, by more than 25%, and by more than 122% since its February lows, mostly helped by the interest of several major pharma companies in taking over the mid-cap biopharma. At first, it was only Sanofi SA (ADR) (NYSE:SNY) that seemed drawn to the company; however, as its offers were rejected, Pfizer Inc. (NYSE:PFE), AstraZeneca plc (ADR) (NYSE:AZN) and Novartis AG (ADR) (NYSE:NVS) have all reportedly entered into what now appears to be quite the bidding war.

#1. Amicus Therapeutics, Inc. (NASDAQ:FOLD)

 – Number of shares owned by Redmile (as of March 31): 10.71 Million

 – Value of Redmile’s stake (as of March 31): $90.5 Million

Amicus Therapeutics, Inc. (NASDAQ:FOLD) remained Redmile’s top pick, with the fund boosting its stake in the company by 5% between January and March. Among the other 21 funds in our database with long stakes in the company, only one held a more valuable position than Redmile, that being Perceptive Advisors. The firm run by Joseph Edelman disclosed ownership of 15.23 million shares of the company as of March 31.

Shares of Amicus Therapeutics, Inc. (NASDAQ:FOLD) are down by 20.1% year-to-date, however, they have rebounded by more than 50% since their February lows. The rebound has stalled in the second quarter however, with shares posting a loss of more than 8.25% thus far, mostly driven by the announcement of a first quarter net loss of $0.35 per share, which missed estimates by $0.01. The company also released an update to its full-year net cash spend guidance, putting it at between $135 million and $155 million. More recently, a ‘Buy’ rating from Bank of America, and European Commission approval for the company’s oral small molecule pharmacological chaperone Galafold (migalastat) have set shares trending back in the right direction.

Disclosure: Javier Hasse holds no positions in any of the securities mentioned in this article.