Tracking Baker Brothers Portfolio - Q2 2023 Update

Summary

• Baker Brothers' 13F portfolio value decreased from $18.38B to $17.28B.
• The largest five stakes in the portfolio are Seagen, Incyte, BeiGene, ACADIA Pharmaceuticals, and Madrigal Pharmaceuticals, making up around 83% of the portfolio.
• Baker Brothers has made stake increases in Incyte Corporation, ACADIA Pharmaceuticals, AbCellera Biologics, Kymera Therapeutics, and Roivant Sciences.

iQoncept

This article is part of a series that provides an ongoing analysis of the changes made to Baker Brothers' 13F stock portfolio on a quarterly basis. It is based on Baker Brothers' regulatory 13F Form filed on 8/14/2023. The 13F portfolio value decreased from $18.38B to $17.28B. Although there are ~120 positions in the 13F portfolio, the holdings are concentrated among a few large stakes. There are 16 positions that are significantly large (more than 0.5% of the portfolio each) and they are the focus of this article. The largest five stakes are Seagen, Incyte, BeiGene, ACADIA Pharmaceuticals, and Madrigal Pharmaceuticals. They add up to ~83% of the portfolio. Please visit our Tracking Baker Brothers Portfolio series to get an idea of their investment philosophy and our previous Tracking Baker Brothers Portfolio - Q1 2023 Update for the fund's moves during Q1 2023.

Baker Brothers, a biotech investment firm, was founded by Julian & Felix Baker in 2000. Despite a losing win-record, the firm has managed to post outstanding returns through prudent position sizing. As a percentage of AUM, allocation to the highest conviction picks can be very high at over 30%. Over the years, the firm had a number of home runs as the invested firms got acquired at huge premiums. Recent M&A winners include Pharmacyclics (acquired by AbbVie), Synageva (acquired by Alexion), Salix (acquired by Valeant), Alexion (acquired by AstraZeneca), Global Blood Therapeutics (acquired by Pfizer), and ChemoCentryx (acquired by Amgen).

Stake Increases:

Incyte Corporation (INCY): INCY already had a 1.67M share stake in their first 13F filing in Q2 2003. The stake had roughly doubled by 2006. The 2007-2008 timeframe saw the position increase from ~3.2M shares to ~11.1M shares at prices in the high single digits. Major activity in the last decade follows. Q3 2015 saw a ~30% stake increase at prices between ~$105 and ~$130. Q1 2016 saw another ~20% stake increase at prices between ~$65 and ~$100. That was followed by a ~45% stake increase in Q1 2017 at prices between ~$100 and ~$150. There was a ~13% stake increase over the two quarters through Q1 2022 at prices between ~$63 and ~$80. The stock currently trades at $65.25, and it is a top-three stake at ~13% of the portfolio. There was a marginal increase in the last two quarters.

Note: Baker Brothers controls ~16.3% of the business.

ACADIA Pharmaceuticals (ACAD): The ~6% ACAD stake was established in the 2012-2013 timeframe at very low prices. The last major activity was in Q4 2018 when there was a ~40% stake increase at prices between ~$14 and ~$22. The stock currently trades at ~$27. There was a marginal increase in the last two quarters.

Note: They have a ~26% ownership stake in the business.

AbCellera Biologics (ABCL): ABCL had an IPO in December 2020. Shares started trading at ~$49 and currently go for $5.80. Baker Brothers' stake goes back to funding rounds prior to the IPO. There was a ~60% stake increase this quarter at prices between $5.66 and $7.60.

Kymera Therapeutics (KYMR) and Roivant Sciences (ROIV): These two very small stakes saw substantial increases this quarter. The 0.58% KYMR stake was increased by ~50% at prices between ~$22.50 and ~$35. It is now below that range at $19.59. ROIV is a 0.55% position that was doubled this quarter at prices between ~$7 and ~$10. It now trades above that range at $11.58.

Stake Decreases:

Seagen Inc. (SGEN): SGEN is currently the largest position by far at ~50% of the entire portfolio. It is a very long-term stake that has been in the portfolio for over fifteen years. The position was built to ~20.5M shares in the 2004-2011 timeframe at prices between low-single-digits and low-20s. Q1 2014 to Q1 2016 saw another stake doubling at prices between ~$30 and ~$55. There was a ~5% trimming this quarter. The stock currently trades at ~$207.

Note: They have ~25% ownership stake in the business. In March, Pfizer (PFE) agreed to acquire Seagen in a $229 per share all-cash deal.

Kept Steady:

BeiGene, Ltd. (BGNE): The large (top three) ~12% BGNE stake has been in the portfolio since their US listing in Q1 2016. Shares started trading at ~$24 and currently go for ~$211. Q4 2016 saw a stake doubling at prices between ~$28 and ~$36. H1 2018 saw the stake built from ~3.8M shares to ~12M shares at prices between ~$100 and ~$215. Since then, the activity has been minor.

Note: Baker Brothers controls ~13% of the business.

Madrigal Pharmaceuticals (MDGL): The last major activity in MDGL was a ~30% stake increase in Q1 2020 at prices between ~$65 and ~$90. The stock is now at ~$178. There was a minor ~3% stake increase during Q4 2022.

Note: Baker Brothers controls ~9% of Madrigal Sciences.

BioMarin Pharmaceutical (BMRN): A small stake in BMRN was first purchased in 2006 but was eliminated the following year at higher prices. The position was rebuilt between Q3 2014 and Q1 2015 at prices between ~$55 and ~$125. 2017 saw a ~60% stake increase at prices between ~$80 and ~$95. The last quarter saw the position reduced by ~50% at prices between ~$88 and ~$117. The stock is now at ~$94, and the stake is at 1.91% of the portfolio.

Immunocore Holdings plc (IMCR): IMCR is a very small 0.87% of the portfolio position that was kept steady this quarter. They have a ~10% ownership stake in the business.

Kodiak Sciences (KOD): KOD is now a small 0.69% of the portfolio position. The original stake goes back to funding rounds prior to its Q4 2018 IPO. Shares started trading at ~$10 and currently go for $2.25. The last significant activity was in Q4 2019 which saw a ~20% stake increase at prices between ~$14.50 and ~$76. They have a ~30% ownership stake in the business. Q2 2022 saw a ~9% stake increase.

Note: In December 2019, Baker Brothers struck a deal for a capped 4.5% royalty on net sales for the development of KSI-301, an eye disease drug in exchange for $225M.

Akero Therapeutics (AKRO): AKRO is a 0.64% of the portfolio stake built during Q3 2022 at prices between ~$10 and ~$34. The stock currently trades well above that range at $49.71.

Note: They have a ~5% ownership stake in the business.

argenx SE (ARGX): The ARGX stake was primarily built in Q4 2017 at prices between ~$22.50 and ~$63. There was a ~10% stake increase in Q1 2021 at prices between ~$268 and ~$380. Q3 2022 saw a ~75% reduction in prices between ~$343 and ~$396. The stock currently trades at ~$503 and the stake is at 0.63% of the portfolio.

Rhythm Pharmaceuticals (RYTM): The small 0.62% of the portfolio stake in RYTM saw a ~47% stake increase during Q2 2022 at prices between $4.30 and $30.85 and the stock is now at ~$26. The last two quarters saw minor increases.

Note: They have a ~11.5% ownership stake in Rhythm.

Replimune Group (REPL): The very small 0.62% REPL stake saw a ~18% increase during Q4 2022 at prices between ~$17 and ~$28. The stock is now at ~$21.

Note: They have a ~10% ownership stake in the business.

BioCryst Pharmaceuticals (BCRX): BCRX is a very long-term stake that has been in the portfolio since 2004. It is still a small position at 0.52% of the portfolio. The last major activity was in 2019 when Q2 to Q4 saw a one-third selling at prices between ~$1.60 and ~$8.70. The stock currently trades at $6.94.

Note: Baker Brothers controls ~10% of BioCryst Pharmaceuticals.

Note: Baker Brothers has significant ownership stakes in the following businesses - 2seventy bio (TSVT), Achilles Therapeutics (ACHL), Aeglea BioTherapeutics (AGLE), Aerovate (AVTE), Aravive Inc. (ARAV), Biomea Fusion (BMEA), Cabaletta Bio (CABA), Cerus (CERS), HOOKIPA Pharma (HOOK), Immatics (IMTX), KALA BIO (KALA), Neoleukin Therapeutics (NLTX), Nurix Therapeutics (NRIX), Opthea Ltd. (OPT), Talis Biomedical (TLIS), and TScan Therapeutics (TCRX).

The spreadsheet below highlights changes to Baker Brothers' 13F holdings in Q2 2023:

Baker Brothers Portfolio - Q2 2023 13F Report Q/Q Comparison (John Vincent (author))

Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of INCY, BMRN either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Comments

[SuperPac]

These guys know a thing or two about concentration risk.

[katmandu100]

Mostly Pharmaceuticals looks risky.

Excellent data and commentary.

[pgallop]

@katmandu100 BINGO!

Felix Baker is the cofounder of Baker Brothers Advisors, a New York hedge fund firm that specializes in biotechnology stocks. Baker started his hedge fund firm with his brother, Julian Baker, in 2000. The firm now manages $36 billion.

[pgallop]

@John Vincent Interesting, thanks, I find it strange and illuminating that they hang on to positions forever, even when prospects are very dim, and it apparantly sometimes pays off handsomly.

p.s. What's a 13F report?

[John Vincent]

@pgallop , Thank you for your question. 13F reports are regulatory filings required of institutional investment managers with AUM over $100M. You can search for reports at www.sec.gov/... .

All the best,
John.