Armistice AUM Surges as Healthcare Investment Landscape Evolves

The healthcare investment sector is experiencing a significant shift, with fewer but larger deals, a slower investment pace, and more discerning investors. This trend leads to more sustainable, long-term growth, helping investors meet their targets. Despite a slowdown in healthcare private equity deal flow in the latter half of 2022, firms continued to create healthcare-focused funds and raise near-record capital levels.

With ample dry powder and a track record of returns, venture fundraising has rebounded, ensuring a solid year in 2022 for healthcare private equity investing. This trend is expected to continue, attracting healthcare-specific funds. A prime example is Eledon Pharmaceuticals, a clinical-stage biotech developing treatments for organ transplant recipients, which raised over $185 million in April. Notable investors included BVF Partners LP and Armistice Capital, a global long and short-value-oriented hedge fund focusing primarily on healthcare and consumer sectors.

The biotechnology and pharmaceutical sectors remain attractive to investors due to ongoing research and development efforts for new treatments, vaccines, and therapies. The areas of interest include advances in gene editing technologies, immunotherapies, and personalized medicine. The concept of personalized medicine has gained momentum, offering tailored treatments based on a patient’s genetic makeup, lifestyle, and other characteristics.

Telemedicine continues to grow, with the global market valued at $60.8 billion in 2022 and expected to reach $225 billion by 2030, growing at a compound annual growth rate of 17.16%. Artificial intelligence in healthcare is also gaining traction, with investment flowing into companies leveraging AI algorithms to improve diagnostics, drug discovery, personalized medicine, and operational efficiency in healthcare settings.

Armistice Capital, founded by Steven Boyd, has shown significant interest in the healthcare sector, particularly in rare disease research. The fund has invested in companies like Cyclo Therapeutics, Inc., developing treatments for rare genetic disorders like Niemann-Pick Type C1 and Alzheimer’s. Armistice Capital’s stake in Cyclo Therapeutics increased by approximately 378% since 2020, and as of February 2023, it owned about 11% of the company.

The fund has also backed other healthcare companies, including Protara Therapeutics, CervoMed Inc., and Assembly Biosciences, Inc. These investments span various areas of medical research, from rare pediatric diseases to central nervous system disorders and viral infections.

Armistice Capital’s investment strategy extends beyond rare diseases to include companies working on treatments for more common conditions. For instance, the fund has invested in Cytokinetics Incorporated, investigating treatments for cardiovascular and neuromuscular diseases, including amyotrophic lateral sclerosis (ALS).

While maintaining a strong focus on healthcare, Armistice Capital has diversified its portfolio. The fund has made notable investments in other sectors, such as entertainment and hospitality. For example, it acquired shares in Wyndham Hotels & Resorts, Inc., making a $9.65 million investment in the fourth quarter of 2023. The fund also owns shares in streaming provider Roku and media giant Paramount Global.

However, Armistice Capital has also reduced its investments in certain areas. For instance, the fund sold most of its shares in Lululemon Athletica Inc., reducing its holdings by more than 88% in the fourth quarter of 2022. This move aligns with the fund’s strategy of maintaining position and portfolio-level hedges to mitigate risk.

As the healthcare sector continues to evolve, with advancements in personalized medicine, telemedicine, and artificial intelligence, funds like Armistice Capital are well-positioned to capitalize on these trends. Their strategic investments in innovative healthcare companies and a diversified portfolio across other sectors demonstrate a balanced approach to growth and risk management.