Perhaps the most important buying indicator for a developmental pharma is who is buying the stock. We have had the most success with our trades and investments when we "follow the smart money." When push comes to shove, we follow the smart money - period.
Baker Brothers LLC is perhaps the smartest of money in the small cap developmental biotech space. The firm is fast becoming a well-known biotech long side investing institution which is well respected. The company was founded in the year 2000 and is run by brothers Julian C. Baker and Felix Baker, Ph.D.
Last year, the Bakers made a significant bet on ACADIA Pharma (ACAD) when the stock was selling for under $2 per share. On November 27th, 2012, the company reported positive data results for its drug pimavanserin, which is designed to treat Parkinson's disease psychosis (PDP). The news prompted a huge rally in the stock that has mostly continued to this day. Since PDP is a serious unmet need, the speculation continues to swell around ACADIA, and eventual FDA approval which could come in 2015 would further rally the stock, perhaps even 100% or higher from its current level.
The Baker Brothers are up well over 2500% in Acadia since their initial investment.
Perhaps the most interesting of their buys in 2013 could be Halozyme (HALO). Halozyme engages in the research, development and commercialization of human enzymes. Its research focuses on human enzymes that transiently modify tissue under the skin to facilitate the delivery of injected drugs and fluids, or to alter abnormal tissue structures for clinical benefit.
Along with a large increase in Acadia shares, the Bakers have recently more than doubled their initial investment in Halozyme and it has paid off as the stock has more than tripled in 2013.
Halozyme has several catalysts yet to come in the short term, and we feel the stock could be a double gainer in 2014, which will further add to the Baker Brothers' gain they have already enjoyed in 2013.
Another interesting company which the Bakers have a large position in, which also has an important catalyst coming up in Q1 (a tentative advisory panel meeting in March (10th - 11th) to review an sNDA for Relistor expanded usage in OIC (opioid induced constipation - chronic pain) is Progenics (NASDAQ:PGNX). Progenics engages in the research and development of biotechnology product candidates in the areas of oncology and therapeutics.
We have followed the Baker's lead with Progenics as we believe the stock could double or more in 2014. The company has several interesting products in development and good company structure.
Additionally Progenics also is expecting to announce data from its Phase II PSMA ADC trial at the American Society of Clinical Oncology meeting in January 2014. The Bakers like to buy biotechs with near-term catalysts, and they have experienced great success, earning themselves and their client’s huge returns in a short period of time. With a near-term major catalyst coming for Progenics, the company certainly fits the Baker Brother’s bill.
The Bakers own a little over 4M shares of the Progenics, and we believe their position in this one will eventually pay off very well.
While the Bakers are not right on every one of their investments they get an overwhelming majority of them correct. One of their large positions recently suffered a large drop in price when Ariad Pharma (NASDAQ:ARIA) reported a major issue with its drug Iclusig, falling as much as 42% after announcing the discontinuation of a late-stage trial for newly diagnosed chronic myeloid leukemia. The company reported a high number of arterial thromobotic events, otherwise known as "blood clots." Ariad's stock has dropped over 85% from its 52-week high of around $25. This is a rare case for the Bakers, but no one gets every pick right. Still, the Bakers are about the best there is.
The Bakers have been a great lead for us to follow, and we will continue to follow their lead, as they have proven to be very smart money.
We will continue to track the Baker Brothers' investments and report on how they are doing from time to time in 2014 and beyond.
Disclosure: I am long PGNX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: Disclaimer: This article is intended for informational and entertainment use only, and should not be construed as professional investment advice. They are my opinions only. Trading stocks is risky -- always be sure to know and understand your risk tolerance. You can incur substantial financial losses in any trade or investment. Always do your own due diligence before buying and selling any stock, and/or consult with a licensed financial adviser.