Top 5 Healthcare Bets of World-Class Baker Bros. Advisors

Baker Bros. Advisors is one of the most famous healthcare-focused equity hedge funds in the world today. It was founded in 2000 by brothers Julian Baker and Felix Baker in New York. Baker Bros. Advisors was the best performing hedge fund for the second quarter of 2015 among the over 700 funds covered by Insider Monkey, using our weighted average returns calculation methodology. The fund recently submitted its 13F with the Securities and Exchange Commission for the reporting period of September 30. The filing revealed that Baker Bros. Advisors’ U.S equity portfolio at the end of September was worth $10.8 billion and that capital was 100% invested in the healthcare sector. The filing also revealed that the top ten equity holdings of Baker Bros. Advisors accounted for almost 80% of the value of its equity portfolio. Since the fund invests most of its assets under management in its top equity picks, let’s closely analyze Baker Bros. Advisors’ top five healthcare stock picks going into the fourth quarter.

We track hedge funds and prominent investors because our research has shown that historically their stock picks delivered superior risk-adjusted returns. This is especially true in the small-cap space. The 50 most popular large-cap stocks among hedge funds had a monthly alpha of about six basis points per month between 1999 and 2012; however the 15 most popular small-cap stocks delivered a monthly alpha of 80 basis points during the same period. This means investors would have generated 10 percentage points of alpha per year simply by imitating hedge funds’ top 15 small-cap ideas. We have been tracking the performance of these stocks since the end of August 2012 in real time and these stocks beat the market by 53 percentage points (102% return vs. the S&P 500’s 48.7% gain) over the last 38 months (see the details here).

#5 ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD)

– Shares Owned by Baker Bros. Advisors (as of September 30): 20.48 Million

– Value of Holding (as of September 30): $677.32 Million

Shares of ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD) have dropped by almost 30% from the highs they made in July. However, they are still trading up by more than 10% year-to-date. During the third quarter, Baker Bros. Advisors didn’t made any changes to its stake in the company. On November 5, ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD) reported its third-quarter results, declaring a loss per share of $0.39 on revenue of $0.04 million versus analyst expectations of a loss of $0.40 on revenue of $0.05 million. Following the earnings release, on November 6, analysts at Cowen and Company reiterated their ‘Buy’ rating and $50 price target on the stock. Jacob Gottlieb‘s Visium Asset Management was one of the hedge funds that initiated a stake in ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD) during the third quarter; it purchased 861,420 shares of the company.

#4 AbbVie Inc (NYSE:ABBV)

– Shares Owned by Baker Bros. Advisors (as of September 30): 14.37 Million

– Value of Holding (as of September 30): $782 Million

AbbVie Inc (NYSE:ABBV) was among the select group of large-cap pharmaceutical stocks that saw their shares slump significantly during the third quarter. Even though shares of the company have recovered a little from the 18.4% decline they suffered during that time, they are still trading down by more than 13% year-to-date. Nevertheless, the popularity of the stock among the hedge funds in our database didn’t see a noteworthy change during the third quarter, and Baker Bros. Advisors didn’t make any changes to its stake in the AbbVie Inc (NYSE:ABBV) either. Recently, another biopharmaceutical major Amgen, Inc. (NASDAQ:AMGN) submitted a biologics license application for a generic version of AbbVie Inc’s bestselling autoimmune disease drug, Humira. Industry experts believe that if Amgen, Inc.’s application is approved, it could lead to billions of dollars in lost revenue for AbbVie Inc. Even after reducing his stake in the company by 10% to 16.17 million shares during the third quarter, Larry Robbins of Glenview Capital remained its largest shareholder at the end of September among the investors that we follow.