Healthcare Value Partners

L.P.

Fund Investment Objectives

The Healthcare Value Funds invest in U.S. and European equities (ADRs) across all market capitalizations and sub-sectors of healthcare. As value buyers in healthcare we focus on firms with high free cash flow and low enterprise value to EBITDA multiples. We calculate intrinsic value based on tangible assets and use probability risk-adjusted returns to select stocks and optimize portfolio positions. We assign little or no value to difficult to forecast intangible assets (new products, science, technologies, future earnings). The Funds buy and sell companies based on corporate change, unrecognized hidden assets within broken companies or broken stocks, excessive Wall Street optimism/pessimism and out of favor industry leaders. On the short side the Funds look for companies trading above their intrinsic value, where optimism is high, premiums are being paid for new products, science, future earnings, and/or where business models are considered unsustainable and where managements are unlikely to enhance value. Our first priority is capital preservation - we are medium to long term value investors that believe buying companies with high intrinsic value while avoiding high premiums associated with new products, technologies and science offers the highest risk-adjusted returns. We believe that the optimal healthcare investment approach involves a value style with a long bias and concentrated positions, low leverage and high liquidity. We seek to exploit the inefficiency created by the healthcare markets' over-focus on growth, momentum and binary event investing and under-focus on value investing. Investment process Our investable universe consists of 500+ companies across 10-15 sub-sectors of healthcare. Using a fundamental model-driven bottoms-up continuous research approach, idea generation arises from daily valuation screens, continuous management meetings/interaction and importantly, our unique long standing and extensive network of industry, company, legal, and regulatory executives and contacts. The stock selection dynamic includes a cooperative PM/analyst interaction with a valuation focus on EV, EBITDA and FCF yield as well as intrinsic value (tangible assets). Key qualitative factors include management diligence, position liquidity and overall conviction enhanced by our Alpha Theory portfolio tool which aids in multi-scenario probability weighted risk adjusted return analysis. We employ a strategy of concentrated diversification using core and trading positions with sub-sector weightings a residual of the stock selection process. Portfolio and position sizing is optimized continuously with our Alpha Theory application. Risk management The Funds maintain a disciplined focus on company and portfolio risk-adjusted return actively evaluating and managing risk at individual stock, sector, portfolio and market levels. Derivative strategies (primarily short) are used to enhance returns, hedge and offset long costs. The Funds employ the Alpha Theory portfolio optimization tool to evaluate risk-adjusted return and to manage position size, portfolio exposure and liquidity constraints. Risk statistics are generated and monitored through PerTrac quantitative analytics.