3 New Bets by a Biotech Hedge Fund

Founded in 2002, Peter Kolchinsky’s RACapital Management invests in a number of small-cap biotech start ups, priding itself in its “evidence-based” approach to capital allocation. His hedge fund portfolio includes ArthroCare ARTC, Sequenom SQNM, and XOMA XOMA (His entire portfolio is shown here).

According to 13G filings on June 22 and 25, Kolchinsky upped his holdings of Coronado Biosciences CNDO since March 31 to 1.78 million shares from 42,000 shares. In the same time period, he also more than doubled his holdings in Ventrus Biosciences VTUS to 1.25 million shares and purchased 2.4 million shares of Anacor Pharmaceuticals ANAC.

Though a volatile and risky territory for investors, biotech companies offer incredible growth during the turbulent ride of drug trials or patent filings.

Coronado Biosciences

Focusing on immunotherapies, Coronado Biosciences has two major therapy offerings: TSO (a treatment for autoimmune diseases such as multiple sclerosis, Crohn’s disease, and ulcerative colitis) and CNDO-109 (an immune activator that targets cancerous cells in myeloid leukemia). CNDO-109 received a boost last month as the FDA granted it orphan drug status, meaning that it has been recognized as a potential therapy for uncommon diseases.

An insider filing by CEO Bobby Sandage last month indicates that he purchased 10,000 shares at $5 a piece (check out recent insider purchases). The company closed on a public offering in June that yielded about $26 million net of underwriting commissions, and shares shot up 20 percent on July 5. Elliott Management and Driehaus Capital are also bullish about CNDO.

Ventrus Biosciences

Ventrus Biosciences shares are presently trading at their lowest levels, down to about $4 from their 52-week high of $15. Shares took atumble last month as results from the company’s major prospect therapy for hemorrhoids, iferanserin (VEN 309), failed to produce better results than placebo in a well-controlled study.

The other drugs waiting in the wings have significantly smaller markets, such as diltiazem, used for the treatment of anal fissures. In May, the drug yielded positive laboratory results in a phase 3 trial. However, even if the FDA allows diltiazem to go up for approval with only one supporting study, drug development will need to wait until 2014 for any final word.

Luckily, the company has a decent store of cash raised from its two public offerings, the proceeds of which totaled around $67 million, giving management enough resources to execute the required studies for diltiazem.

The company’s book value is $28 million, and Ventrus currently has no short- or long-term debt. Paul Singer’sElliott Management and Elliott International funds have large stakes in Ventrus. Billionaire George Soros also initiated a new position in VTUS during the first quarter (see George Soros’ new picks).

Anacor Pharmaceuticals

Anacor Pharmaceuticals is a biotechnology company specializing in a number of drugs based on specialized boron chemistry, including tavaborole for onychomycosis (a fungal infection); AN2728 and AN2898 (topical anti-inflammatory treatments for psoriasis and atopic dermatitis); GSK ‘052 (an antibiotic for Gram-negative bacterial infections, licensed to GlaxoSmithKline GSK; and AN8194 (a veterinary drug licensed to Eli Lilly LLY).

The prospects for AN2728 are looking positive as it is expected to yield positive phase 2 trial results. With the company’s focus on partnerships in order to investigate possible treatments for neglected diseases, it receives special priority for National Institutes of Health (NIH) grants.

Neglected diseases affect over 1 billion people worldwide, and if treatments are approved for any of these neglected diseases, it might be the only option for those with the disease. QVT Financial, Baker Bros. Advisory, and Diamondback Capital are among the hedge funds with ANAC positions.