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Expensive Fellow Companions:
The Summers Worth Fund LP (“the Fund”) returned 20.4% web 1 in Q3 2025, beating the Russell 2000 Index ETF (IWM), which returned 12.4%, and the Russell 2000 Worth Index ETF (IWN), which returned 12.5%. Yr-to-date, the Fund is up 4.9% web 1 , underperforming the IWM (10.3%), and the IWN (8.9%). Since inception, the Fund has delivered a 12.2% annualized web 1 return in comparison with 6.8% for IWM and 6.1% for IWN.
Healthcare Investing: A Advanced Sector Providing a Compelling Funding Alternative
The healthcare sector has skilled a 12 months of challenges resulting in underperformance versus the broader indexes. New management on the Meals and Drug Administration (FDA) has launched regulatory uncertainty throughout the sector. Funds stress at federal companies together with the Nationwide Institutes of Well being (NIH) and Facilities for Illness Management and Prevention (CDC) has weighed on healthcare spending. Potential changes to Medicaid eligibility have stoked fears of lowered reimbursement on healthcare services. Lastly, the administration has proposed to curb drug pricing utilizing a most favored nation method. The USA has sponsored international pharmaceutical and biotechnology analysis and growth for many years by greater costs. Worth controls may negatively influence margins sooner or later, which has unnerved traders.
These crosscurrents have made the healthcare sector one of the vital complicated corners of the inventory market to navigate, souring sentiment and main many generalist traders to tug again. Based on fund stream knowledge, traders withdrew roughly $13 billion from healthcare funds in 2025, on tempo for a document annual outflow. U.S. small-cap equities have skilled $35 billion in withdrawals, additionally on tempo for a document annual outflow. In distinction, large-cap shares have skilled $224 billion in inflows this 12 months. Whereas the headlines have triggered promoting stress for small-cap healthcare shares, the underlying fundamentals level to a defensive and rising sector poised to reward disciplined, research-driven traders.
Unsure markets usually reveal alternatives ignored by broader traders. As small-cap healthcare specialists, our understanding of healthcare coverage and trade construction will help us determine companies supported by enduring traits comparable to product innovation and elevated utilization tied to demographic traits. We’re discovering a rising checklist of compelling funding alternatives in corporations which are poised to generate growing earnings and money stream over time. For instance, we’ve elevated our portfolio publicity to biopharma shares this 12 months. Following a few years of underperformance, we imagine biopharma shares are poised for outperformance going ahead. We’re optimistic in regards to the innovation cycle and acknowledge that large-cap corporations pays sizeable premiums to accumulate enticing pipelines with massive gross sales alternatives.
Fund Commentary
Prime contributors in Q3 have been Zimvie (ZIMV), Liquidia (LQDA), and Consensus Cloud Options (CCSI). Zimvie (ZIMV) rose after saying its acquisition by a non-public fairness agency at a 124% premium. Liquidia (LQDA) benefited from robust gross sales of its respiratory drug, Yutrepia, in its first quarter following launch. In the meantime, Consensus Cloud Options (CCSI) returned to optimistic income progress for the primary time in eight quarters, supporting the inventory’s restoration. We proceed to view CCSI as meaningfully undervalued at 6x earnings and have a $50 value goal.
Key detractors included ADMA Biologics (ADMA), Encourage Medical (INSP), and UFP Applied sciences (UFPT). ADMA declined after reporting weaker-than-expected second quarter outcomes. Encourage Medical (INSP) underperformed resulting from a slower-than-expected transition to its Encourage V machine. We lowered the place forward of the second quarter report primarily based on suggestions from the sector and have since exited totally. UFP Applied sciences (UFPT) traded decrease amid considerations that its largest buyer, Intuitive Surgical (ISRG), may deliver extra surgical drape manufacturing in-house.
The Fund held twelve lengthy positions and no shorts at quarter-end. We initiated a place in uniQure (QURE) following encouraging Part 3 outcomes for its gene remedy drug in Huntington’s Illness, which confirmed a 75% discount in illness development – a game-changing consequence in a area that has been devoid of scientific progress. Given the early stage of growth, we’ve sized the place appropriately. We additionally closed our quick place in ARS Pharma (SPRY) after it achieved our value goal. The inventory had mirrored overly optimistic gross sales expectations for its allergy remedy, Neffy, once we entered the quick place.
At quarter-end, our high 5 holdings have been Electromed (ELMD), Consensus Cloud Options, Liquidia, Spok Holdings (SPOK), and Ligand Prescription drugs (LGND). At nearly 40% of the portfolio, our allocation to pharmaceutical and biotechnology shares has elevated considerably because the starting of the 12 months.
The Fund obtained $73,400 in dividend revenue throughout Q3, primarily from Spok Holdings (SPOK), which yields 7.9%. Our total dividend yield stands at 0.8%, reflecting our concentrate on long-term capital progress slightly than revenue technology.
Place Updates
Journey Medical (DERM) – $175 million market cap
Journey Medical (DERM) develops and markets dermatology merchandise. The corporate lately launched Emrosi for the remedy of rosacea. The rollout continues to be on observe, with annualized gross sales approaching $30 million within the first six months following its launch. We imagine Emrosi may exceed $100 million in peak gross sales primarily based on optimistic doctor and affected person suggestions. The corporate is positioned for profitability in 2026, supported by a scalable enterprise mannequin. Given ongoing consolidation within the dermatology trade, Journey can also be considered as a lovely acquisition candidate. Our value goal stays $20 per share.
Ligand Prescription drugs (LGND) – $3.7 billion market cap
Ligand operates a singular enterprise mannequin throughout the pharmaceutical trade as a royalty aggregator, requiring little or no capital to develop as a result of its companions fund product growth and commercialization bills. We beforehand owned BioSpecifics and Emisphere, additionally pharmaceutical royalty corporations. They have been each acquired throughout our possession producing enticing returns for our traders.
Our funding thesis on Ligand centered on the launch of Ohtuvaryre for power obstructive pulmonary illness (COPD) and Filspari for nephropathy. We believed each medicine have been positioned to drive stronger-than-anticipated outcomes for Ligand over the long term. They’ve carried out exceptionally effectively to date, with Ohtuvaryre among the many strongest pharmaceutical launches lately. We anticipate every drug to achieve blockbuster standing ($1 billion-dollar plus) over time.
In December, Ligand will host an analyst day. We anticipate administration will elevate its long-term monetary targets primarily based on the success of Ohtuvaryre and Filspari and keep our $250 value goal.
In Closing
Thanks to our companions in your continued belief and help. We’re grateful for individuals who added to their accounts this 12 months. We worth long-term relationships and the arrogance you’ve gotten positioned in us.
Our technique continues to have ample capability, and we welcome new traders who recognize our distinctive method. If you already know somebody who could also be all in favour of studying extra, please attain out to Alison Tomlinson at atomlinson@summersvalue.com .
Sincerely,
Andrew Summers, CFAManaging Associate
Editor’s Be aware: The abstract bullets for this text have been chosen by Searching for Alpha editors.
