Sio Capital Remains Bullish On These Stocks Despite Weak Performance

As a healthcare-focused fund, Michael Castor‘s Sio Capital registered a terrible 2016, as it lost 18.7% net, compared to the 12% gain registered by the S&P 500 and the 8.3% drop of the MSCI World Healthcare Index. In its annual letter, the investor said that two main factors for the weak performance were speculative investments, and two “outliers” which were among the top detractors.

One of these detractors was Quotient Ltd (NASDAQ:QTNT), with other detractors including Adamis Pharmaceuticals Corp (NASDAQ:ADMP) and Pfenex Inc (NYSEMKT:PFNX). On the other hand, among the positions that had a positive contribution to Sio Capital’s returns last year were Amgen, Inc. (NASDAQ:AMGN) and ChemoCentryx Inc (NASDAQ:CCXI). Further in this article, we are going to take a closer look at the fund’s comments regarding these stocks.

In the long-run, Sio Capital thinks that gene sequencing will represent a good investment opportunity in the future as the procedure will become more affordable and companies will be able to use the data in a more effective way. In terms of healthcare policy, Sio Capital expects that Republicans and President Trump won’t “repeal” the Affordable Care Act (Obamacare), but will rather implement a number of changes to the policy.

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In Quotient Ltd (NASDAQ:QTNT), Sio Capital held some 2.24 million shares worth $10.83 million at the end of December, according to its latest 13F. The fund has held shares of the diagnostics company since the fourth quarter of 2014 and has previously discussed the stock in its letters. Michael Castor’s fund pointed out the 50% drop registered by the stock in October on the back of news that some of Quotient’s antigen tests were not “performing adequately”. However, it thought that the company would overcome those challenges, which Quotient did as it reported in January. Quotient Ltd (NASDAQ:QTNT) is developing tests as part of its MosaiQ platform for patients in need of blood transfusions. It plans to register the platform in Europe in June and in the U.S. four months later.

“QTNT faced headwinds this year as they needed to raise cash at approximately the same time that a large institutional shareholder closed its business and sold its large QTNT share holdings (this saturated market demand and weighed on price). Finally, Quotient’s disclosure of their problems (now solved) transitioning from R&D-scale to commercial-scale manufacturing led to this stock’s terrible performance. Quotient remains one of the positions about which we are most enthusiastic. Liquidity has increased. We will be prudent about trimming our position to reflect our enthusiasm while still holding an appropriate weight,” Sio Capital said.

Among the funds we track, the number of investors bullish on Quotient Ltd (NASDAQ:QTNT) inched down by two to nine; these funds held nearly 31% of the company’s outstanding stock heading into 2017.

In Adamis Pharmaceuticals Corp (NASDAQ:ADMP), Sio Capital raised its stake by 57% on the quarter to 1.05 million shares worth $3.31 million held at the end of the year. Adamis Pharmaceuticals Corp (NASDAQ:ADMP) is developing a number of drug-device combinations, including an Epinephrine pre-filled syringe, which will compete with Mylan’s Epipen. The investor is betting that Adamis’ approval for the syringe will be announced in June. Taking into account the approval of the product this year, as well as Adamis’ progress in other segments, pipeline products, as well as financing decisions. In this way, the fund has a price target of $12-$15 for Adamis Pharmaceuticals Corp (NASDAQ:ADMP).

On the next page, we are going to take a closer look at two contributors to Sio’s returns, as well as one company in which the fund liquidated its stake last quarter.

In Amgen, Inc. (NASDAQ:AMGN)‘s case, it’s worth mentioning that Sio Capital initiated a stake in the company twice last year. It added a 77,700-share stake during the first quarter, sold it during the third and then bought 16,430 shares worth $2.40 million during the last three months of the year. The fund took into account the company’s valuation and said that it underperformed its peers at the beginning of 2016, as investors were concerned about the possibility of generic competition for each of Amgen, Inc. (NASDAQ:AMGN)’s products. However, Sio bet on the stock considering that many threats wouldn’t materialize and profited as the stock gained ground. The fund again added the stock to its equity portfolio in November after the company had said that it would be “less aggressive taking price increases”, which led to a drop below the level that the fund considered reasonable. There were 60 funds tracked by us holding shares of Amgen, Inc. (NASDAQ:AMGN) at the end of 2017, up by one over the quarter.

ChemoCentryx Inc (NASDAQ:CCXI) is one of Sio Capital’s speculative investments. During the fourth quarter, the fund cut its stake by 47% to 325,250 shares worth $2.41 million. ChemoCentryx Inc (NASDAQ:CCXI) is engaged in the development of acaccopan for the treatment of autoimmune conditions through blocking the activity of C5a peptide which dampens inflammation. The drug should be effective in treating vasculatis, which is currently an unmet medical need. The fund pointed out that the clinical data is promising and that the company already sold European rights to Galenica, which will result in reduced costs. The number of funds from our database bullish on ChemoCentryx Inc (NASDAQ:CCXI) remained unchanged at 11 during the fourth quarter, while the total value of their holdings appreciated to $73.50 million from $60.45 million and represented roughly 21% of the company’s stock.

In Pfenex Inc (NYSEMKT:PFNX), Sio Capital liquidated its position, by having sold 64,556 shares it had held at the end of September. The investor is still optimistic about Pfenex Inc (NYSEMKT:PFNX)’s work in the development of biologic drugs, but opted to close the position “in light of the delays and the potential need for cash.” Nevertheless, there were nine funds in our database that held some 9% of Pfenex Inc (NYSEMKT:PFNX)’s outstanding stock at the end of 2016, up by one fund over the quarter.

Disclosure: None