Baker Bros. Relentlessly Adding Shares Of One Biotech, Going Activist On Another

Page 1 of 2

Julian Baker and Felix Baker’s Baker Bros. Advisors continues to relentlessly add shares to its position in Seattle Genetics, Inc. (NASDAQ:SGEN). In a new filing with the SEC, the hedge fund reported ownership of just under 36.28 million shares, 26% of the outstanding shares of the issuer. The new position represents an increase of 5.41 million shares from the firm’s holding on June 30. Meanwhile, in a separate filing, the healthcare-focused fund reported a change to its position in DBV Technologies SA – ADR (NASDAQ:DBVT). While the size of the position remained unchanged at just over 3.6 million shares, a 14.9% stake in the company, the nature of the position has been changed to activist from passive.

Felix Baker - Baker Bros.

Baker Bros. Advisors has been one of the top performing funds in our database all year. Founded by the Baker brothers, Julian and Felix (pictured) in 2000, the New York City-based healthcare fund’s picks have returned 108.3% through June 30 based on our weighted average returns formula of the fund’s long positions in companies with market caps of at least $1 billion. Its strong second quarter showing helped it top all other funds during that period, and it’s rattled off multiple major success stories this year, including the meteoric rises of Anacor Pharmaceuticals Inc (NASDAQ:ANAC), Synageva Biopharma Corp (NASDAQ:GEVA), and Pharmacyclics Inc (NASDAQ:PCYC).

Follow Julian Baker And Felix Baker's Baker Bros. Advisors

Whether elite hedge funds collectively like a stock or not is an important metric to consider, as these large investors show a great level of skill and expertise when it comes to picking stocks. Over the last few years equity hedge funds have trailed the market by a large margin, but that’s mostly due to their hedging and short positions, which perform poorly in a bull market. Their long positions performed far better, especially their small-cap picks, which have the potential to beat the market by 95 basis points per month on average, as our backtests showed. Our small-cap strategy involves imitating a portfolio of the 15 most popular small-cap picks among hedge funds and it has returned 118% since August 2012, beating the S&P 500 ETF (SPY) by over 60 percentage points (read more details here).

Let’s start with Seattle Genetics, Inc. (NASDAQ:SGEN), Baker Bros. second-largest position heading into the third quarter. The fund has been adding to its stake continuously throughout the past seven quarters, with the holding nearly doubling in size during that time. While its shares are up by just under 50% this year, it is up by less than 10% during that seven-quarter stretch, owing to a rough 2014.

Nonetheless, the company appears to be back on track, and its stock has been particularly strong in September, gaining about 20% so far this month, much of it in the past few days following its announcement of an 11.71 million-share offering of common stock on September 10. Seattle Genetics, Inc. (NASDAQ:SGEN) disclosed that it would use the approximately $480 million in proceeds to fund the commercialization of ADCETRIS in the United States and Canada, and to develop its other product candidates.

Baker Bros. held by far the largest position in Seattle Genetics, even before the latest addition. Jerome Pfund and Michael Sjostrom’s Sectoral Asset Management came next as of June 30, with just 1.26 million shares.

Page 1 of 2