This Fund’s Picks Gained 200% In A Year And Why No One Knows About It

You probably haven’t heard of Alex Denner‘s Sarissa Capital Management, which is a shame, as the fund is coming off a first-quarter in which its stock picks in companies valued at $1 billion or more delivered weighted average returns of 53.2%, pushing its 1-year returns to an even 200%.

With the media paying most of its attention to the hedge funds run by billionaires (many of which are now delivering tepid returns), the next wave of promising hedge fund managers like Alex Denner are being ignored in favor of the same stale stories rehashing Buffett’s investment in Apple Inc. (NASDAQ:AAPL), Ackman’s investments in Valeant Pharmaceuticals Intl Inc (NYSE:VRX) and Herbalife Ltd. (NYSE:HLF), and Einhorn’s activist battle with General Motors Company (NYSE:GM).

We get it, those investors earned their reputations and built loyal followings through decades of outperformance (even if the argument could be made that it was easier to beat the market back then). However, the legends of the past should eventually give way to the legends of tomorrow, which doesn’t seem to be happening in the hedge fund news world. It’s somewhat akin to a fantasy baseball site that focuses only on washed-up players like Ichiro because they have name recognition rather than the young stars that are actually better players now (before anyone cries foul, I’m not necessarily calling Buffett, Ackman or Einhorn washed-up). The readers of that site are probably not going to make for very good fantasy baseball players.

The same can be said of investing in hedge funds or mimicking hedge funds’ moves. Of the top-25 best performing funds in our system in the third-quarter of last year, seven of those funds were again in the top-25 in the first-quarter of this year, including Sarissa Capital, despite the fact that statistically, only one of them should’ve shown up again (considering we rank over 650 hedge funds on the performance of their stock picks). The sooner one can identify winning hedge funds, the sooner their picks can be exploited.

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Now then, let’s check out three stocks which Mr. Denner’s fund held throughout the 1-year period ended March 31 of this year, contributing to his immense success during that time. It should be noted that one of the fund’s biggest contributors, with gains of nearly 300%, was Ariad Pharmaceuticals, which was acquired by Japanese firm Takeda in February (and therefore won’t be covered in this article).

The Medicines Company (NASDAQ:MDCO)

Sarissa Capital continued to own 1.75 million shares of The Medicines Company (NASDAQ:MDCO) on March 31, unchanged over the quarter and year. The only difference in the position? It was valued at $55.66 million on March 31, 2016, which had jumped to $85.67 million a year later, making the fund a tidy $30 million. It also now ranks as the fund’s top stock pick.

The Medicines Company (NASDAQ:MDCO) has been exploring its strategic options for several months, which could include a sale or the spin-off of its infectious diseases unit. Cowen analyst Chris Shubutani recently hiked his price target on the stock to $61 from $39, citing favorable views from cardiologists that the company’s Inclisiran could grab meaningful market share away from competing drugs assuming similar efficacy and safety, due to the treatment’s more convenient dosing regimen.

Subscribe to real-time e-mail alerts on The Medicines Company below to have the latest hedge fund news regarding the stock sent directly to your inbox. You can also begin trading it by signing up for a Scotia iTrade account.

We’ll check out two other stock picks of Sarissa Capital on the next page.

Biogen Inc (NASDAQ:BIIB)

Biogen Inc (NASDAQ:BIIB) is Sarissa Capital’s second-largest position as of March 31, with its 310,000 shares being valued at $84.76 million. This is another stock that Sarissa Capital made no changes to during the previous 1-year period, though the results were less impressive than they were with The Medicines Company, as the holding gained a little over $4 million in value.

Piper Jaffray analyst Joshua Schimmer made an extremely bullish call on Biogen Inc (NASDAQ:BIIB) yesterday, raising his price target to $442 from $332, suggesting greater than 70% upside potential. The call was curious in the sense that it assigned more than $20 billion in value to Biogen while not even being based on any tangible Biogen news (it was actually driven by results from an Ionis Pharmaceuticals Inc (NASDAQ:IONS) study which Schimmer believes showed that Biogen’s own Alzheimer’s treatment aducanunab is likely to be targeting the right pathway).

AbbVie Inc (NYSE:ABBV)

Lastly is AbbVie Inc (NYSE:ABBV), in which Sarissa Capital owned just 10,000 shares of on March 31. That’s down from 1.58 million shares a year earlier, when AbbVie was the fund’s top holding. It sold off most of the shares in the second-quarter of last year, capitalizing on a strong run for the stock that saw its gains for the quarter peak at 15% at one point. Shares have posted only modest gains since the end of that quarter.

The big concern with AbbVie Inc (NYSE:ABBV) is that it’s heavily reliant on sales of Humira right now, which it lost patent protection for last year and which accounts for over 60% of its revenue. However, those concerns somewhat overlook the fact that it’s used to treat multiple indications, which provides the same level of diversity as if it had a different drug for each indication. Nor does the patent protection loss appear to be having much of an effect, as AbbVie expects Humira to grow even further by 2020 (though at a very modest rate in the single digits). AbbVie also has a robust late-stage pipeline, which includes Imbruvica and Venclexta, each of which is also being targeted at multiple indications.

Disclosure: None