68 | FORBES ASIA APRIL 2018look at it as positions I like or don’t like. I think in terms of proba-
bilities and express it in position sizes,” Edelman says.
About 80 % of his positions are in biotech; the rest are primarily
in medical devices or specialty pharmaceuticals. A common theme
is that there must be some science involved. He avoids insurers and
has very few Merck-like big pharmas or big hospital chains. To beat
the market, Edelman goes “all in” on his good bets and folds when
necessary, carefully sizing each position to make them count in a
way that makes sense to him.
“We have a very strong team that knows how to igure out what
drugs are going to work, but what is unique is what Joe brings
to the table,” says Adam Stone, Perceptive’s chief investment oi-
cer. “here are a lot of brilliant scientists running portfolios nowa-
days, but not experienced money managers who know how to size
a portfolio like Joe.”
In 2017 Edelman made a big bet on Alnylam Pharmaceuticals,
whose stock climbed 229 % last year ater a late-stage trial revealed
one of its drugs inhibited the activity of a gene connected to a rare
nerve disorder. he trial showed that the drug, patisiran, could
stop transthyretin production in the liver and alleviate symptoms
in patients.
Edelman and his team had worked for months on patisiran,
and they were ready to spring into action late in 2016 when health
concerns arose over a diferent Alnylam drug, causing its stock to
plunge. Edelman believed patisiran had a good chance of working
safely and made Alnylam his biggest new position in anticipation
of the clinical results in September.
No doubt, much of Edelman’s track record can be attributed to
the excellent performance of health care and biotech stocks over
the past two decades. But Edelman has proved his mettle in down
markets as well. In 2016 biotech stocks plunged 21 %, but six prof-
itable short positions and two long home runs helped his fund re-
turn 3 .8% net of fees. Last year Edelman doubled the performance
of the stocks in the Nasdaq Biotechnology Index, which returned
21 %. Edelman has had only two down years— 2008 and 2002.
For all his stock-picking wins, however, Acerta Pharma of Red-wood City, California, was a game changer. When Perceptive start-
ed taking a $20 million stake in the private company in 2013 ,
Acerta was developing a so-called BTK inhibitor for blood can-
cers like mantle cell lymphoma. In 2016 AstraZeneca swooped in
and bought a majority stake for $4 billion, turning Perceptive’s in-
vestment into $400 million. But Edelman didn’t sell “high.” If Astra-
Zeneca exercises its option to buy the rest of the shares for $ 3 bil-
lion, Perceptive will score again.
Edelman oten inds success investing in orphan drugs used to
treat rare conditions. Part of the reason he sailed through the 2016
biotech crash was his big position in Sarepta herapeutics. he
company had been developing a drug for Duchenne muscular dys-
trophy, a form of the muscle-wasting disease that devastates young
boys. Sarepta was seeking accelerated FDA approval for a remedy,
eteplirsen, which costs roughly $ 3 00,000 a year.
Even though eteplirsen had shown promise in a small trial, the
FDA’s medical staf was skeptical. Edelman was surprised that the
market had discounted the clinical results, and he became con-
vinced that top FDA oicial Janet Woodcock’s public comments
indicated she would back accelerated approval. “Parents were un-
derstandably going crazy, the drug was safe and there was a good
chance there was a beneit from it,” Edelman says. “Woodcock was
talking to the parents, and if you read her speeches she was more
liberal than the FDA’s neurological division.” In September 2016
eteplirsen recieved accelerated FDA approval, and Sarepta’s stock
soared.
Currently, Edelman’s highest risk-reward position is Global
Blood herapeutics. he California company is developing a drug
for sickle-cell anemia. he potential reward is huge because the
standard of care in sickle-cell disease, which oten includes blood
transfusions, doesn’t work well and has numerous adverse side ef-
fects. Edelman thinks it’s potentially a $5 billion global market.
Downside: It’s unclear whether Global Blood’s approach will actu-
ally work.
“I don’t want to be a hedge fund manager who doesn’t take
much risk,” Edelman says. “ Otherwise, why I am doing this?”With some 200 positions, long and short, Perceptive Advisors is as big as some index funds. Yet Edelman’s top five holdings below
make up about a third of his portfolio.
NEUROCRINE BIOSCIENCES (NBIX), SAN DIEGO, CALIFORNIA Edelman says Ingrezza, the first drug approved for the treatment of
involuntary jerky movements associated with the use of antipsychotic medications, could also treat Tourette syndrome.
AMICUS THERAPEUTICS (FOLD), CRANBURY, NEW JERSEY Edelman has high hopes for the company’s treatment for Pompe disease, a
rare muscle-wasting aiction that kills infants, which combines an engineered enzyme replacement with a molecular chaperone.
GLOBAL BLOOD THERAPEUTICS (GBT), SOUTH SAN FRANCISCO, CALIFORNIA Edelman is bullish on Voxelotor for treating sickle-cell
anemia, a $5 billion global market. GBT is Perceptive’s biggest potential home run.
ALNYLAM PHARMACEUTICALS (ALNY), CAMBRIDGE, MASSACHUSETTS The company’s RNA-interference program includes a remedy
called patisiran, which aims to inhibit the activity of a gene connected to a rare disorder that attacks organs and the nervous system.
ZOGENIX (ZGNX), EMERYVILLE, CALIFORNIA The company is advancing the science of antiepileptic remedies by showing that target-
ing serotonin can be a game changer in maladies like Dravet syndrome epilepsy in children. Edelman expects its new drug, ZX008,
will work in other rare seizure disorders.ALL IN WITH A HEDGE FUND MASTER
Investing HEDGE FUNDS
F