Trellus Management’s Top Biotech Stock Picks For Q4

Trellus Management is a New York-based long/short equity hedge fund founded by Adam Usdan in 1994. The fund manages client focused equity portfolios and invests in public equity markets around the world. Trellus Management recently filed its 13F with the SEC for the reporting period of September 30. According to the filing, the fund had open positions in 86 stocks and options at that time, and its U.S equity portfolio was worth $68.16 million. The filing also revealed that during the July-September period Trellus Management initiated a stake in 25 stocks, and sold out of its stake in 36 stocks. In a previous post we analyzed Trellus Management’s top tech stock picks and in this article we will be taking a closer look at the fund’s top biotech stock picks.

But before that, let’s first understand why we pay attention to hedge fund sentiment. Most investors ignore hedge funds’ moves because as a group their average net returns trailed the market since 2008 by a large margin. Unfortunately, most investors don’t realize that hedge funds are hedged and they also charge an arm and a leg, so they are likely to underperform the market in a bull market. We ignore their short positions and by imitating hedge funds’ stock picks independently, we don’t have to pay them a dime. Our research have shown that hedge funds’ long stock picks generate strong risk adjusted returns. For instance the 15 most popular small-cap stocks outperformed the S&P 500 Index by an average of 95 basis points per month in our back-tests spanning the 1999-2012 period. We have been tracking the performance of these stocks in real-time since the end of August 2012. After all, things change and we need to verify that back-test results aren’t just a statistical fluke. We weren’t proven wrong. These 15 stocks managed to return 102% over the last 37 months and outperformed the S&P 500 Index by 53 percentage points (see the details here).

#5 Ampio Pharmaceuticals Inc (NYSEMKT:AMPE)

Shares Owned by Trellus Management (as of September 30): 116,700 shares

Value of Holding (as of September 30): $337,000

Trellus Management didn’t made any changes to its stake in Ampio Pharmaceuticals Inc (NYSEMKT:AMPE) during the third quarter. Apart from owning equity shares, the fund also continued to hold call options underlying 80,000 of the company’s shares, valued at $231,000 as of September 30. Ampio Pharmaceuticals Inc (NYSEMKT:AMPE) is a biopharmaceutical company that develops therapies to treat prevalent inflammatory conditions. After more than doubling during the first quarter, shares of the company witnessed a massive fall in April when it announced that the multiple injection STRIDE study it conducted for its pain reliever Ampion did not reach its primary endpoint. Though the stock has recovered since then, it still trades down by 2.33% year-to-date. On November 2, the company announced that it intends to distribute most of its 11.63 million shares of Aytu BioScience stock directly to Ampio Pharmaceuticals’ shareholders. With almost 3.39 million shares, Fred Knoll‘s Knoll Capital Management was the largest shareholder of the company at the end of June among the hedge funds we track.

#4 Lion Biotechnologies Inc (NASDAQ:LBIO)

Shares Owned by Trellus Management (as of September 30): 60,539 shares

Value of Holding (as of September 30): $349,000

Even though shares of Lion Biotechnologies Inc (NASDAQ:LBIO) slumped by more than 37% during the third quarter, Trellus Management displayed its conviction in the stock by adding an additional 57% or 22,039 shares of the company to its holding during the quarter. Similar to Ampio Pharmaceuticals, shares of Lion Biotechnologies Inc (NASDAQ:LBIO) also saw a rapid rise during the first quarter. However, they have lost nearly half of their market cap from their peak in mid-March and are currently trading down by 10.55% year-to-date. Lion Biotechnologies is engaged in developing adoptive cell therapy (ACT) for the treatment of metastatic melanoma and other solid cancers. On October 7, the company was awarded an exclusive worldwide license by the National Institutes of Health (NIH) to develop and commercialize TIL therapy in four additional tumor indications. Following this announcement, analysts at Chardan Capital reiterated their ‘Buy’ rating on the stock later that day and also upped their price target on it to $20 from $15. Julian Baker and Felix Baker‘s Baker Bros. Advisors increased their stake in the company by 492,429 shares to 1.82 million shares during the April-June period.

See if Trellus Management’s top three biotech stock picks are worth adding to your healthcare portfolio on the next page.