We recently published a list of Top 10 investments of Caligan Partners. In this article, we take a look at how Verona Pharma plc (NASDAQ:VRNA) compares to Caligan Partners’ other top holdings.
Founded in 2017, Caligan Partners is one of the most prominent specialty hedge funds. David Johnson is the head of the New York-based hedge fund that specializes in long-term activist equity investment strategies. It sometimes invests in distressed debt and assets with high absolute return profiles.
Caligan Partners focuses on investment opportunities in the healthcare sector, primarily in the United States. Currently, the industry dominates its holdings and accounts for 100% of the total value of its investments. The firm also invests in long and short positions, targeting investment opportunities in publicly traded companies in the healthcare sector.
The majority of the fund’s investments are in small-cap companies. These are stocks with a market capitalization of over $100 million, which represent 8% of the total value of investments. Investments in large-cap stocks, on the other hand, are minimal, representing only about 0.1% of the total value. The average market capitalization of the companies in the fund’s portfolio is around $1.07 billion.
The current portfolio value is $378 million, with a turnover rate of 18 percent. Yet one of Caligan Partners’ 10 largest holdings accounts for more than 40 percent of the hedge fund’s portfolio. The performance of the stocks purchased by Caligan Partners within three months exceeds the return of the S&P 500 over the same period in four out of 14 transactions.
In addition, Caligan Partners also participates in activist investing by driving strategic changes that have the potential to increase shareholder value. Management changes are part of the changes the hedge fund advocates in the companies it invests in, as it often pushes for board seats to influence management decisions and the direction of the companies.
Caligan Partners is one of the hedge funds that contributed to the strong performance of activist investing in 2023. As activist investors pushed companies to change leadership and streamline their operations to increase value for shareholders, they delivered an average return of 20.2%.
Caligan Partners and other activist investors have gained more power to secure board positions. Investors secured 134 board positions in 2023, a 30% increase from the previous year and the highest number since 2018.
Activist investors also secured 36 seats in the final round of 2023 AGMs, a 125% increase from the previous year and a record high. They also secured positions in 80% of election campaigns, up from 33% in 2022. In addition, the hedge fund is urging companies to consider strategic alternatives such as divesting some assets or selling stakes in companies that have underperformed.
It’s not surprising that Caligan Partners’ top 10 holdings are in the healthcare sector. Healthcare is often viewed as a defensive sector that tends to perform better in choppy markets like last year’s due to high interest rates. But that wasn’t the case, as the overall sector underperformed the S&P 500, which was up 24% by year’s end.
The S&P 500 Healthcare Index lost about 0.4% in 2023. Shares of healthcare companies fell sharply as the benefits of the pandemic and vaccine rollout faded. While companies that make medical devices may have faced a tougher outlook, those developing weight-loss drugs fared significantly better. The Federal Reserve’s strategy of raising interest rates and keeping them high for a long time is putting pressure on the healthcare industry.
The outlook for the sector also does not appear favorable, with healthcare stocks under pressure in election years as presidential candidates promise reforms in drug pricing and health insurance. Still, there is a chance that Caligan Partners is one of the hedge funds that investors benefit from as they take note of the low valuations in the healthcare sector. Sentiment among investors and healthcare experts is unexpectedly optimistic. Although many expect modest expansion and certain areas are stronger than the rest, the general feeling is that the industry is on the road to recovery.
methodology
Caligan Partners is one of the leading specialty hedge funds that specializes in healthcare stocks, which are often viewed as defensive investments during times of economic uncertainty. In this article, we discuss Caligan Partners’ top 10 holdings and explain why they stand out for their exposure to healthcare stocks. To determine the hedge fund’s stake in each stock, we referenced Caligan Partners’ original 13F filing on the SEC’s website. Stocks are ranked based on the hedge fund’s equity value.
At Insider Monkey, we’re obsessed with the stocks hedge funds invest in. The reason is simple: Our research shows we can beat the market by mimicking the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks each quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (read more details here).
A patient in a clinic takes a dose of medication from a nebulizer to treat a respiratory illness.
Verona Pharma plc (NASDAQ:VRNA)
Caligan Partners’ investment: $20.86 million
Number of hedge fund owners: 22
Verona Pharma plc (NASDAQ:VRNA) is a clinical-stage biopharmaceutical company focused on developing and commercializing therapies to treat respiratory diseases. The stock is up more than 15% year-to-date after receiving approval from the U.S. Food and Drug Administration for its lead pipeline product in chronic obstructive pulmonary disease for the maintenance treatment of COPD in adult patients.
With the approval, it became Verona Pharma plc’s (NASDAQ:VRNA) first product scheduled for launch in the third quarter. This approval also puts the company in a leadership position over Sanofi’s SNY/Regeneron’s REGN best-seller Dupixent, which is currently under review by the FDA for an expanded use indication in COPD. These companies are seeking FDA approval for use of their drug as an adjunct treatment for certain adult patients with COPD whose disease is not under control.
On the other hand, 22 out of 920 hedge funds in Insider Monkey’s database held shares in Verona Pharma plc (NASDAQ:VRNA) at the end of the first quarter of 2024.
Total VRNA 6th place on our list of Caligan Partners’ top holdings. You can visit Top 10 investments of Caligan Partners to see the other stocks that are on hedge funds’ radar. While we recognize VRNA’s potential as an investment, we believe AI stocks promise higher returns and do so in a shorter time frame. If you’re looking for an AI stock that’s more promising than VRNA but trades at less than 5x its earnings, read our report on the cheapest AI stock.
READ MORE: Analyst sees a new $25 billion “opportunity” for NVIDIA And Jim Cramer recommends these 10 stocks in June.
Disclosure: None. This article was originally published on Insider Monkey.
