Armistice Capital’s AUM Expansion: Betting Big on Rare Disease Research

In the ever-evolving landscape of healthcare investments, one trend has emerged as particularly noteworthy: the growing interest in rare disease research. Despite a general decline in biotech funding deals, reaching the lowest level since 2018, earlier this year, the focus on treatments for rare diseases is upward. At the forefront of this movement is Armistice Capital. This global value-oriented and event-driven hedge fund has shown significant support for companies dedicated to tackling these challenging medical conditions.

The Orphan Drug Act defines rare diseases as conditions affecting no more than 200,000 individuals in the United States. With over 7,000 such diseases identified, many of which are life-threatening, the need for effective treatments is both urgent and vast. The FDA reports that while treatments aren’t available for most of these conditions, rare disease-related drugs have quadrupled over the past four decades.

This progress hasn’t gone unnoticed by institutional investors. Armistice Capital, in particular, has demonstrated a keen interest in this space. The fund has strategically invested in companies like Cyclo Therapeutics, Inc., a clinical-stage biotechnology company working on treatments for Niemann-Pick Disease Type C1 and Alzheimer’s disease. In February 2023, Armistice Capital significantly increased its stake in Cyclo Therapeutics, owning approximately 11% of the company – a striking 378% increase in shares since 2020.

But Armistice Capital’s investments in rare disease research continue beyond there. The fund has also backed Protara, a clinical-stage company developing cancer and rare disease therapies. Protara’s work includes TARA-002, an investigational cell therapy for non-muscle invasive bladder cancer and lymphatic malformations, which has received a rare pediatric disease designation from the FDA.

The support for rare disease research extends beyond individual company investments. Armistice Capital has also participated in private placements, such as the one by CervoMed Inc., a clinical-stage company developing treatments for age-related neurologic disorders. This placement, which included other institutional investors like RA Capital Management and Soleus Capital, raised approximately $50 million for research into central nervous system disorders.

These investments align with broader industry trends. According to Grand View Research, the value of rare disease clinical trials is projected to rise at a compound annual growth rate of 9.7% through 2030. This growth is attributed to advancements in personalized medicine, enhanced cell and gene therapies, and increased financial support from pharmaceutical and biotech companies and non-profit organizations.

Armistice Capital’s strategy isn’t limited to rare diseases, however. The fund has shown interest in various healthcare subsectors, including neuromuscular disorders. It has invested in Cytokinetics Incorporated, a late-stage biopharmaceutical organization investigating treatments for impaired muscle function-related cardiovascular and neuromuscular diseases. Cytokinetics has conducted some of the most extensive clinical trials relating to amyotrophic lateral sclerosis (ALS), demonstrating the breadth of Armistice Capital’s healthcare investments.

The fund’s approach to healthcare investing is part of a larger, diversified strategy. While maintaining a solid focus on biotech and pharmaceuticals, Armistice Capital has also invested in other sectors. For instance, it has acquired shares in companies like Wyndham Hotels & Resorts, Inc. and maintains positions in entertainment entities such as Roku and Paramount Global.

This diversification strategy extends to Armistice Capital’s approach to risk management. The fund maintains position and portfolio-level hedges, as evidenced by its decision to sell most of its shares in Lululemon Athletica Inc. in the fourth quarter of 2022, reducing its holdings by more than 88%.

As the healthcare sector continues to evolve, with particular growth in rare disease research, personalized medicine, and neuromuscular disorders, Armistice Capital seems well-positioned to capitalize on these trends. Its strategic investments in innovative healthcare companies and a diversified portfolio across other sectors showcase a balanced approach to growth and risk management. This strategy contributes to the fund’s assets under management (AUM) growth and plays a crucial role in advancing much-needed research and development in underserved areas of medicine.