Deerfield Management Co. is proving to be one of the most consistent large hedge funds focused on health care in the past five years.
The hedge fund firm has been profitable for at least the past five years, posting double-digit gains in four of them, including nearly 11 percent last year when broad equity indexes finished in the red, according to an investor in the fund. Deerfield did not return a call seeking comment.
Sure, Joseph Edelman’s Perceptive Advisors has generated greater total returns over this period, posting annual gains of more than 40 percent in three of the five previous years, including 2017. However, last year it suffered an 8.6 percent loss in its Perceptive Life Sciences Offshore Fund.
Larry Robbins’ Glenview Capital Management, which has held a very large allocation to health-care stocks over recent years, lost more than 16 percent in 2018, with most of the losses coming in December, according to HSBC data. However, the firm wiped out those losses in January after posting a 17.1 percent gain for the month, the best monthly performance in its 18-year history, according to HSBC.
Tiger Cub Arnold Snider founded Deerfield in 1994 with $17 million in equity. Snider, who had previously worked for Julian Robertson Jr.’s Tiger Management, retired in 2005 and died in 2014. Deerfield is now led by James Flynn, who has been with the firm since 2000.
Deerfield says on its website that it manages more than $8 billion. Not all of it is believed to be invested in hedge funds. According to the website, some of the funds’ profits are donated to the Deerfield Foundation.
The hedge fund firm is well diversified, holding equity or debt in more than 100 companies. It also makes private investments in companies.
At the end of last year, Deerfield held 88 U.S. common stocks, according to its latest 13F filing. Of the 88, 16 are new positions established in the fourth quarter. Deerfield also liquidated 19 positions.
Horizon Pharma was its largest long at yearend and has been a top-four holding for more than two years, according to regulatory filings. Deerfield took its initial position in the company's stock in the first quarter of 2013.
The biopharmaceutical company is based in Ireland, a corporate tax haven, but produces virtually all of its sales in the U.S. Horizon Pharma specializes in treating rare and rheumatic conditions. The stock has swelled about eight-fold since March 2013, including a surge of about 34 percent in 2018.
Two other stocks that were among Deerfield largest holdings last year were Homology Medicines and Mylan.
Mylan is the generic drug giant, which Deerfield has owned since the first quarter of 2015, according to regulatory filings. The stock plunged 35 percent last year, a big portion of that decline coming in the fourth quarter.
The company missed earnings estimates in the second quarter and faces generic competition for its EpiPen from Teva Pharmaceutical Industries.
Homology, which is developing a gene-editing technology, went public in late March at $16 a share.
Deerfield had earlier invested in the company when it was private and was the third largest shareholder with a 14.7 stake when it filed to go public, according to a regulatory filing at the time. Homology's stock closed at $22.36 at the end of last year.
The firm’s newest position in the fourth quarter was Britain's Orchard Therapeutics, which instantly became its second largest long position. The biotech company specializes in ex vivo gene therapies. Its American depositary shares went public in the fourth quarter, pricing at $14 each on October 31. The stock closed at $15.61 on Thursday.
Deerfield also made a private investment in Orchard. It held 6.7 percent of the shares pre-IPO, making it the third largest shareholder at the time.