Baron Funds, an investment management company, released its “Baron Discovery Fund” first quarter 2025 investor letter. A copy of the letter can be downloaded here. In the first quarter, the fund was down 6.17% (Institutional Shares), outperforming the -11.12% return for the Russell 2000 Growth Index. The market began strong in February but faded due to Trump’s serious tariff enactment, which the market perceives as inflationary and slowing economic growth. The decline accelerated after April 2nd, causing fears of a trade war and global recession. In addition, please check the fund’s top five holdings to know its best picks in 2025.
In its first-quarter 2025 investor letter, Baron Discovery Fund highlighted stocks such as Arcellx, Inc. (NASDAQ:ACLX). Headquartered in Redwood City, California, Arcellx, Inc. (NASDAQ:ACLX) engages in the development of various immunotherapies for patients with cancer and other incurable diseases. The one-month return of Arcellx, Inc. (NASDAQ:ACLX) was -7.30%, and its shares gained 9.84% of their value over the last 52 weeks. On May 19, 2025, Arcellx, Inc. (NASDAQ:ACLX) stock closed at $58.51 per share with a market capitalization of $3.22 billion.
Baron Discovery Fund stated the following regarding Arcellx, Inc. (NASDAQ:ACLX) in its Q1 2025 investor letter:
“We initiated a small position in Arcellx, Inc. (NASDAQ:ACLX), a biotechnology company that together with Gilead Sciences, Inc. is developing a next-generation CAR-T cell therapy it calls “Anito-cel” for the treatment of multiple myeloma. While we generally do not invest in emerging biotechnology companies, we took a small position in Arcellx given that the market is large and proven (currently a $3.5 billion opportunity that could expand to $12 billion or more over time), and that we believe Arcellx has a safer CAR-T therapy than the currently approved solution. Moreover, the company has over $600 million of net cash on its balance sheet and a favorable manufacturing agreement with Gilead. We believe that this combination makes the company more than fully funded through profitability.
Multiple myeloma is relatively common blood cancer, and a number of different therapies are used to treat it. CAR-Ts are a one-and-done customized genetically engineered t-cell therapy. With this type of therapy, the hospital collects a patient’s blood, sends it off for the T-cells to be engineered to attack a certain antigen that appears on cancer cells, and then these engineered CAR-T cells are reinfused back into the patient to attack the cancer cells. CAR-Ts have started to transform treatment modalities and appear to be the most efficacious treatment for multiple myeloma. A competitive treatment called Carvykti (developed by a partnership of Legend Biotech Corporation and Johnson & Johnson) has been launching rapidly in the second line (2L+) setting. Carvykti already has $1 billion in sales worldwide in 2024 (up more than 100% year over year). The issue with Carvykti is that although it’s very efficacious, it appears to cause delayed neurotoxicity (neurological damage) in 5% to 10% of patients and in rare cases (2% or potentially higher) Parkinsons-like symptoms, which is devastating and uncurable. The promise of Arcellx’s Anito-cel process is that it appears to have similar efficacy to Carvykti while avoiding these neurotoxicity risks. Beyond the safety differentiation, Arcellx is also partnered with Gilead, which gives them access to state-of-the-art manufacturing with faster turnaround times and more reliable manufacturing success rates, as well as Gilead’s existing sales infrastructure for Yescarta (a CAR-T used to treat a different type of blood cancer).
Arcellx will present final data from its pivotal study in fourth line (4L+) multiple myeloma patients this year and we think this will be sufficient to file for FDA accelerated approval. It is also enrolling its phase 3 study in 2L+ multiple myeloma patients. We think a significant portion of the roughly 75,000 patients diagnosed with multiple myeloma each year in the U.S. and EU should receive a CAR-T over the course of their treatment, and that multiple myeloma CAR-Ts will ultimately be a $10 billion to $15 billion category. Based on our conversations with doctors, we think most doctors will seek out Arcellx’s Anito-cel as the safer option for patients and we think Anito-cel will capture meaningful share of the market for multiple myeloma treatment.”
A scientist in a lab coat examining a microscope, looking at the details of the biotechnology company’s immunotherapies.
Arcellx, Inc. (NASDAQ:ACLX) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 37 hedge fund portfolios held Arcellx, Inc. (NASDAQ:ACLX) at the end of the fourth quarter which was 32 in the previous quarter. While we acknowledge the potential of Arcellx, Inc. (NASDAQ:ACLX) as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as NVIDIA but that trades at less than 5 times its earnings, check out our report about the undervalued AI stock set for massive gains.
In another article, we covered Arcellx, Inc. (NASDAQ:ACLX) and shared Baron Health Care Fund’s views on the company. Baron’s Healthcare Fund has been holding Arcellx, Inc. (NASDAQ:ACLX) since 2023. In addition, please check out our hedge fund investor letters Q1 2025 page for more investor letters from hedge funds and other leading investors.
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Disclosure: None. This article is originally published at Insider Monkey.
