Julian Baker and Felix Baker‘s Baker Bros. Advisors’ top pick from the end of 2014 has paid off for the fund in a big way in 2015. AbbVie Inc (NYSE:ABBV) announced last night that they will purchase Pharmacyclics Inc (NASDAQ:PCYC) for about $21 billion, paying $261.25 per share in cash and stock. The sale seemingly brings closure to a dynamic 2015 for the stock, and a windfall for Baker Bros., which entered 2015 with a 12.1% passive ownership stake of 9.13 million shares in Pharmacyclics, making it by far the largest shareholder among funds we track. It was also the fund’s largest position.
Rumors of a potential takeover of Pharmacyclics, which has a number of promising cancer drug treatments in various stages of development, including the BTK-inhibitor Imbruvica, began swirling in February. Analysts at the time were skeptical, given Pharmacyclics’ rapidly ballooning price tag; shares of the company were already up more than 50% on the year at that point, and the takeover rumors sent them up another 17% on February 25. Regardless, Abbvie clearly feels strongly enough about Pharmacyclics’ cancer treatments, which have the potential to become the best-selling treatments for the disease.
While the sale price to Abbvie is notably a 13% premium above Wednesday’s closing price, as mentioned, that’s only the merest of gains for the stock in 2015. In fact the sale price is more than double what Pharmacyclics opened 2015 at, $122.26, with the stock now up 108.47% for the year in morning trading Thursday (and still more than $7 shy of the purchase price). All told, Baker Bros. has earned more than $1.21 billion year-to-date from its stake in Pharmacyclics.
The timing of the windfall for Baker Bros. comes shortly after we recently profiled the fund in our February 2015 Monthly Mini Newsletter, analyzing the fund’s historical 13F filings dating all the way back to 2002. What we found was that the New York-based, biotech-focused fund’s top 5 picks beat the S&P 500 both in the near and long term.
While it may be too late to cash in on the fund’s biggest play of the year, we’ll take a look at its other top picks at the end of 2014. Furthermore, be sure to check out our feature on the biggest takeover targets hedge funds were betting on in last quarter, and how to best play them.
Now then, let’s take a look at the top 3 picks of Baker Bros. after Pharmacyclics, its top pick. Incyte Corporation (NASDAQ:INCY) was the fund’s second most valuable holding at the end of 2014, and has been one of its top holdings for years (as Pharmacyclics has been). Baker Bros. also stands as the top shareholder of this stock among our tracked funds with ownership of 14.85 million shares at the end of 2014, unchanged from the end of the previous quarter.
Incyte is also in the midst of a very strong year, up 28.31% so far in 2015. The bipharmaceutical company is also in the process of developing various small molecule treatments, in this case for unmet medical needs. Institutional ownership of the company is high, at 97%, with Samuel Isaly’s Orbimed Advisors being one of the other large shareholders of this stock.
Next is Synageva BioPharma Corp (NASDAQ:GEVA), another seemingly unheralded company among funds we track, as Baker Bros. was again the largest shareholder by far with ownership of 10.66 million shares at the end of 2014. Synageva has also performed well this year, up 10.79% on the heels of a very strong 2014, when shares rose 42.21%.
The biopharmaceutical company is focused on the treatment of rare diseases, including a treatment for mucopolysaccharidosis IIIB. The company’s SBC-103 treatment for that disease has been granted orphan designation by the U.S Food and Drug Administration (FDA), and is currently in a Phase 1/2 study.
Lastly is Seattle Genetics, Inc. (NASDAQ:SGEN), yet another company that exhibits many of the same traits as the previous ones: large ownership by Baker Bros. of more than 27.86 million shares, far more than any other fund, long-time ownership dating back many years, and oh yeah, a stock that is up nicely in 2015, 12.11%. Needless to say, Baker Bros.’ returns for the quarter should be off the charts.
Seattle Genetics is a biopharmaceutical company that develops cancer treatments using monoclonal antibody-based treatments. Its treatment Adcetris is approved by the FDA for the treament of Hodgkin’s lymphoma as well as systemic anaplastic large cell lymphoma, in certain indications (when other treatment options have proven ineffective), with the drug registering $178.2 million in sales in 2014, which exceeded guidance and expectations.
Disclosure: None
