Timothy P. Lynch’s Stonepine Capital is a life science-focused hedge fund that seeks to utilize its industry experience to uncover undervalued and under-the-radar health companies. The fund takes a long-term approach to its small number of investments, which are focused on companies that have successfully commercialized products and which are in a strong financial position.
The fund has put its expertise to good use since its inception, boasting 17.72% compound annual returns through the first quarter of 2020. Stonepine Capital had one of its best years ever in 2019, returning 33.51%. It had a similar blowout year in 2016, delivering gains of 36.73%. The fund manages about $206 million in assets as of March 2020.
Let’s check out three of Stonepine Capital’s favorite health stocks, as well as one of its newest purchases and a formerly large position which it sold off in Q2.
Tim Lynch of Stonepine Capital
Stonepine Capital’s Favorite Health Stocks
IVERIC bio, Inc. (NASDAQ:ISEE) is now Stonepine Capital’s favorite health stock, leaping over Ligand Pharmaceuticals and into the top spot during Q2. Hedge funds fled Iveric (then called Opthotech Corporation) in droves late in 2016 after the company’s phase 3 trial of Fovista in combination with Eylea or Avastin for the treatment of wet age-related macular degeneration failed to produce positive results.
Iveric changed its name last year to coincide with its pivot into gene therapies and hedge fund interest in the stock has skyrocketed ever since, jumping by over 500% between the end of Q3 2019 and the middle of 2020. During that period, the company’s phase 2b trial for its C5 inhibitor Zimura for the treatment of geographic atrophy secondary to age-related macular degeneration and Stargardt disease, was successful.
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Ligand Pharmaceuticals Inc. (NASDAQ:LGND) slid down to second position in Stonepine Capital’s portfolio after the fund sold off 43% of its LGND shares during Q2. Stonepine remains a big believer in the company nonetheless, while several other funds tracked by Insider Monkey were selling off their positions entirely during Q2. Ligand made a splash in Q3 when it announced the acquisition of Pfenex and its proprietary protein expression system for $516 million. A recent regulatory filing revealed that Ligand expects royalty revenue to triple to $95 million by 2023.
Stonepine unloaded 37% of its position in CTI Biopharma Corp. (NASDAQ:CTIC) during Q2, though the stock remained its third-largest holding. That position paid off handsomely in late September when CTI Biopharma’s Pacritinib, which is being tested in phase 3 studies for the treatment of myelofibrosis and severe thrombocytopenia, was awarded an accelerated approval pathway by the FDA. That likewise accelerated the drug’s potential market launch and sent investors into a buying frenzy, as CTIC shares have jumped by 233% since the announcement. Pacritinib could now be launched in late-2021 and CTI Biopharma is in a strong financial position to capitalize on it, sitting on over $60 million in cash.
Hedge fund interest in small-cap biopharmaceutical company Cerecor Inc. (NASDAQ:CERC) has been muted since it went public in 2016. No more than six of the hedge funds tracked by Insider Monkey have owned CERC shares at the end of any quarter since then. Cerecor has now come onto the radar of Stonepine Capital, as the fund opened a new position in the stock during Q2. Cerecor’s CERC-6 received Orphan Drug Designation by the FDA in August. The treatment for lymphatic malformations, a potentially fatal affliction which affects between 30,000 and 60,000 Americans, would be the first approved to treat the condition.
Health Stock Sold Off by Stonepine Capital in Q2
Affimed NV (NASDAQ:AFMD) ranked as Stonepine Capital’s fifth-largest holding at the end of Q1, with the fund owning the largest Affimed stake among all of the hedge funds tracked by Insider Monkey. However, the fund decided to sell off its entire 3 million-share AFMD position during Q2, selling out as other hedge funds have increasingly been buying in (though with much smaller positions). The biopharma company launched the phase 1 trial of its cancer therapy AFM13 on October 1, with high hopes for the future success of this and other combination therapies that simultaneously target cancer cells while leaving healthy cells alone.
The top 10 stocks among hedge funds returned 185% since the end of 2014 and outperformed the S&P 500 Index ETFs by more than 109 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds' poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Below you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.
Video: Top 5 Stocks Among Hedge Funds
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Disclosure: None. This article is originally published at Insider Monkey.