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.