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Los Angeles-based Hedge Fund DAFNA Capital Management, LLC, as of the most recent SEC 13-F filing for the September 2011 quarter, had $51 million in equity assets, all invested in the healthcare sector. DAFNA, founded in January, 1999, uses fundamental and event-driven analysis to employ long and short investment strategies in investing in publicly traded biotechnology and medical device companies. Their investment strategies capitalize on their core expertise in the discovery, development and clinical use of drugs and devices, exploiting market inefficiencies resulting from the complexity of these companies’ technologies and the clinical marketplace. The event-driven analysis is based on a fundamental analysis of the future outcomes of key events which in the case of biotech and medical device companies includes clinical trial results, regulatory decisions, unexpected side effects, additional indications for a drug or device, market adoption, and strategic partnerships or joint ventures.

DAFNA’s top picks are mostly small-cap biotech companies as shown in the following Table. The following are the stocks they are most bullish about based on their Q3 buying or their overall holdings:

Ariad Pharmaceuticals Inc. (NASDAQ:ARIA): ARIA is engaged in the development of drugs that treat aggressive and advanced-stage cancer by regulating cell signaling with small molecules. It is also developing small-molecule drugs that block signal transduction pathways in cells responsible for osteoporosis, and immune and inflammatory diseases. DAFNA added a new $2.6 million position in ARIA, their largest buy in Q3.

Medivation Inc. (NASDAQ:MDVN): MDVN develops novel small molecule drugs for the treatment of prostate cancer, Alzheimer’s disease and Huntington’s disease. Their lead product MDV3100 is in Phase 3 development for the treatment of castration-resistant prostate cancer. DAFNA added a new $2.2 million position in MDVN, their second largest buy in Q3. Besides MDVN, DAFNA also holds a small position in another prostate cancer play, Dendreon Corp. (NASDAQ:DNDN) in its portfolio.

Inhibitex Inc. (NASDAQ:INHX): INHX develops differentiated anti-infective products to prevent and treat serious viral and bacterial infections, including primarily shingles and chronic infections caused by hepatitis C virus (HCV). DAFNA added a new $1.7 million position in INHX, their third largest buy in Q3.

Dynavax Technologies (NASDAQ:DVAX): DVAX is a developer of drugs to treat and prevent allergies, infectious diseases, and chronic inflammatory diseases using versatile, proprietary approaches that alter immune system responses in highly specific ways. DVAX's clinical development programs are based on immunostimulatory sequences, which are short DNA sequences that enhance the ability of the immune system to fight disease and control chronic inflammation. DVAX is DAFNA’s third largest position in its portfolio, and they added a minor $0.03 million in Q3 to their $3.02 million prior quarter position.

The following are the stocks that DAFNA is bearish about based on their Q3 selling activity:

Pharmacyclics Inc. (NASDAQ:PCYC): PCYC develops small molecule drugs to treat cancer by disrupting the biochemical pathways in cancer cells. It has products in phase 2 development for leukemia and pancreatic cancer. DAFNA sold $3.5 million of its $6.7 million prior quarter position in PCYC, its biggest sell in Q3.

Hansen Medical Inc. (NASDAQ:HNSN): HNSN is a developer of medical robotics for accurate positioning, manipulating and control of catheter and catheter-based technologies. It focuses on electrophysiology procedures for the diagnosis and treatment of patients, who suffer from abnormal heart rhythms, or arrhythmias, such as atrial fibrillation. The Sensei system is compatible with fluoroscopy, ultrasound, 3D surface map & patient electrocardiogram data & was cleared by the U.S. Food & Drug Administration in May 2007 for manipulation & control of certain mapping catheters in electrophysiology procedures. DAFNA sold out of its entire $1.4 million position in HNSN in Q3, its second largest sale during the quarter.

Table


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Credit: Historical fundamentals including operating metrics and stock ownership information were derived using SEC filings data, I-Metrix® by Edgar Online®, Zacks Investment Research, Thomson Reuters and Briefing.com. The information and data is believed to be accurate, but no guarantees or representations are made.

Disclaimer: Material presented here is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion. Further, these are our ‘opinions’ and we may be wrong. We may have positions in securities mentioned in this article. You should take this into consideration before acting on any advice given in this article. If this makes you uncomfortable, then do not listen to our thoughts and opinions. The contents of this article do not take into consideration your individual investment objectives so consult with your own financial adviser before making an investment decision. Investing includes certain risks including loss of principal.

Source: Top Q3 Picks Of Biotech-Focused Hedge Fund DAFNA Capital