What a week!
That’s what the folks at health care–oriented hedge fund firm Perceptive Advisors must have been saying in recent days.
After all, since May 25 no fewer than three of its stock holdings enjoyed huge one-day surges. In one case the stock more than tripled. As a result, the firm’s volatile but otherwise very successful flagship fund was able to heavily cut into its early-year loss.
With one day to go in the trading month, the New York firm’s main fund, Perceptive Life Sciences Offshore Fund, had gained 5.3 percent in May alone, reducing its loss for the year to less than 8 percent. This means the fund more than halved the 17 percent or so loss it posted in the first two months of the year.
The firm, founded in 1999, is headed by Joseph Edelman, who made his debut on Alpha’s Rich List this year, earning $300 million after Perceptive Life Sciences generated a 51.8 percent gain last year, making it the top-performing fund among those run by the top 25 earners on the Rich List.
Edelman specializes in biotechnology, pharmaceutical, medical device, diagnostics and health services companies. But mindful of how volatile this sector can be, he is generally well diversified.
In any case, Edelman’s recent good fortune began on May 25, when shares of Sarepta Therapeutics, a Cambridge, Massachusetts, medical research and drug development company and his third-largest holding, jumped 27 percent. This is a stock that surged 167 percent last year but had plunged 64 percent in the first two months of the year.
On that day Sarepta received mixed, confusing news from the Food and Drug Administration regarding the possible approval of its muscular dystrophy drug, Eteplirsen, which sent the stock soaring, probably in part because the large number of short-sellers in the stock covered their shares.
Then, the following day, shares of Minerva Neurosciences surged 233 percent after the drug development company reported positive news on two different drugs currently in different stages of trials. This stock, however, is a small holding for Perceptive.
Then, on May 31, shares of Celator Pharmaceuticals jumped 71 percent after the company announced it had agreed to be acquired by Jazz Pharmaceuticals for $1.5 billion.
Other Perceptive holdings in biopharmaceutical stocks rose by mid- to upper-single digit rates the same day in sympathy, including Neurocrine Biosciences, Perceptive’s second-largest holding, and Tesaro, its fourth-largest holding.
Edelman and his team — who declined to comment — know full well that they are playing in a highly volatile arena. It is why they like to focus on the Life Sciences Fund having compounded at 29.1 percent a year since its inception.
Alas, on Thursday, June 2, shares of Sarepta plummeted more than 26 percent when the FDA announced new streamlined rules for its so-called compassionate use program. Wall Street grew worried that the program could heavily affect Sarepta’s ability to eventually make money from its key drug currently in development and for which it is awaiting FDA approval.
On Friday many biotech and biopharma stocks fell more than 1 percent. Amicus Therapeutics, Perceptive Life Science’s largest holding, fell more than 6 percent. Neurocrine was down more than 2 percent.
That was yet another reminder that volatile funds like Perceptive must be evaluated over a full cycle, not on a month-to-month basis.
