In this article, we discuss billionaire Seth Klarman’s biotech stock picks. To skip the detailed analysis of the biotech industry, Seth Klarman’s investment philosophy, and Baupost Group’s performance and Q3 bets, go directly to Billionaire Seth Klarman’s Top 4 Biotech Stock Picks.
Biotechnology is the technology segment that utilizes cellular and biomolecular processes for the betterment of human lives. Humans have been using biotechnology for a long time. However, the sector picked up its pace in the aftermath of COVID-19. According to our previous report, venture capitalist (VC) firms invested $52 billion in biotech companies between 2019 and 2021. Additionally, biotech firms raised $34 billion in 2021, compared to $16 billion in 2020.
The biotechnology sector’s market size was estimated to be around $1.22 trillion at the end of 2022 and is expected to grow at a CAGR of 12.8% to $3.21 trillion by 2030. In 2022, biopharmaceuticals represented 40% of all the global drug sales at $421 billion. Nevertheless, biotech is a high-risk investment due to factors like the success or failure of clinical trials and FDA approval. On the other hand, the growing trend in the sector has allowed some of the companies’ stocks to grow massively. The best-performing biotech stocks such as Soleno Therapeutics, Inc. (NASDAQ:SLNO), MoonLake Immunotherapeutics (NASDAQ:MLTX), and Ambrx Biopharma Inc. (NASDAQ:AMAM) have gained 1,175.34%, 416.51%, and 372.46% year-to-date on November 21, respectively. Moreover, analysts are still keeping Strong Buy ratings on these three stocks, according to TipRanks. For Soleno Therapeutics, Inc. (NASDAQ:SLNO), Guggenheim has a Buy rating with a $40 price target, which shows a 43.21% upside to the company’s current stock price at the time of writing. Here is what Chief Executive Officer of Soleno Therapeutics, Inc. (NASDAQ:SLNO), Anish Bhatnagar, M.D., said on November 7:
“The recent announcement of positive results from the randomized withdrawal phase of Study C602 was a significant milestone for us … We are continuing our ongoing work preparing a New Drug Application (NDA) submission to the U.S. Food and Drug Administration (FDA), currently planned for mid-2024. Importantly, following our successfully completed public offering and concurrent private placement, we have initiated commercial readiness activities and are well-capitalized to execute on our planned corporate strategy leading up to and beyond potential approval of DCCR for PWS.”
Several hedge funds have been bullish on biotech stocks in recent quarters. One such firm is value investor Seth Klarman’s Baupost Group.
Seth Klarman’s Investment Philosophy and Career
Seth Klarman is a legendary value investor. On many occasions, he has been compared to the Oracle of Omaha, Warren Buffett. Both value investing legends follow the philosophy of Benjamin Graham, also known as the Father of Value Investing. Similar to Buffett’s title, Klarman is known as the Oracle of Boston. Seth Klarman also looks for underappreciated and undervalued stocks with the potential to rise significantly. Klarman once said:
“In my opinion, the market tells you when to buy things. And when things are really cheap, on a Graham and Dodd valuation basis, you should like them more. And when they’re really expensive, you should like them less.”
Moreover, Seth Klarman suggests that loss avoidance should be the cornerstone of an investor’s investment philosophy and shares this philosophy with Warren Buffett. He said:
“Warren Buffett likes to say that the first rule of investing is “Don’t lose money,” and the second rule is, “Never forget the first rule.” I too believe that avoiding loss should be the primary goal of every investor. This does not mean that investors should never incur the risk of any loss at all. Rather “don’t lose money” means that over several years an investment portfolio should not be exposed to appreciable loss of principal.”
Seth Klarman received his Bachelor of Arts in Economics from Cornell University in 1979 and completed his MBA at Harvard Business School in 1982. He worked with the late value investor Michael Price as a summer intern in 1978 and later from 1979 to 1980 as well. Seth Klarman considers Price as his mentor.
In an interview, Seth Klarman revealed that he was business-oriented from a young age.
“When I was maybe three or four years old, we were still living in New York City actually at the time, and I redecorated my room and set it up like it was a retail store and put price tags on all my stuff. In Baltimore, I had… which we moved to maybe when I was six… I had a whole variety of businesses. I had a paper route, and then a second one, which I did with friends and at one point with my brother. I had a snow cone stand in the driveway. One summer, we rented a machine, and we mixed the snow cone flavors and actually made the ice out of my mother’s fridge, and she was not happy because the entire freezer was storing ice cubes.”
He further added that he mowed lawns, shoveled snow, and also had stamp coin collections. At the age of 10, he bought his first share of Johnson & Johnson (NYSE:JNJ) with his birthday money. The stock was split 3 for 1 the next day. His mother also found him a stock broker, whom he would call to get stock quotes between the ages of 10 and 12. In fifth grade, he made an oral presentation to his class on how to buy stocks.
Baupost Group was founded by Seth Klarman, William Poorvu, Howard Stevenson, Jordan Baruch, and Isaac Auerbach in 1982. Klarman is currently the President of the firm, and the fund has managed to maintain average annual returns of 20% since inception. As of June 2023, Baupost Group is the 8th most profitable hedge fund in the world, with net gains of $33.2 billion since inception. According to Forbes, the firm has $30 billion under management. Seth Klarman is one of the highest-earning hedge fund managers and has a net worth of $1.3 billion as of November 21.
Baupost Group Q3 Bets and Biotech Stock Picks
As of the third quarter of 2023, Baupost Group’s 13F portfolio is worth $5.2 billion, down from $5.6 billion in the previous quarter. The firm added 6 new stocks to its portfolio, including the biotech firm Clarivate Plc (NYSE:CLVT). The firm increased holdings in 3 stocks, reduced investments in 11 stocks, and closed out 3 stocks.
The top three picks of Baupost Group include Liberty Global plc (NASDAQ:LBTY), Veritiv Corporation (NYSE:VRTV), and Alphabet Inc. (NASDAQ:GOOG). Klarman’s top biotech picks include Clarivate Plc (NYSE:CLVT), Tower Semiconductor Ltd. (NASDAQ:TSEM), and Jazz Pharmaceuticals plc (NASDAQ:JAZZ).
Seth Klarman of Baupost Group
Our Methodology
For this article, we scoured through Baupost Group’s third-quarter 2023 13F portfolio and listed all the biotechnology companies in Seth Klarman’s stock portfolio, including the companies that provide services to biotech firms. We listed the stocks in ascending order of their stake value in Baupost Group’s 13F portfolio.
Billionaire Seth Klarman’s Biotech Stock Picks
7. Finch Therapeutics Group, Inc. (NASDAQ:FNCH)
Seth Klarman’s Stake Value: $349,000
Finch Therapeutics Group, Inc. (NASDAQ:FNCH) is an American biotechnology company that develops a novel class of orally administered biological drugs. The company’s microbiome product candidates are designed for gastrointestinal and behavioral symptoms of autism spectrum disorder and inflammatory bowel disease.
Finch Therapeutics Group, Inc. (NASDAQ:FNCH) posted its third-quarter earnings on November 8. The company reported a basic loss per share from continuing operations of $1.51, compared to $25.38 in the same quarter of 2022. Finch Therapeutics Group, Inc. (NASDAQ:FNCH)’s net loss was $2.42 million, compared to $40.37 million in Q3 2022.
In Q3, Baupost Group owned 67,296 shares of Finch Therapeutics Group, Inc. (NASDAQ:FNCH) worth $349,000.
6. Atara Biotherapeutics, Inc. (NASDAQ:ATRA)
Seth Klarman’s Stake Value: $14.465 million
Atara Biotherapeutics, Inc. (NASDAQ:ATRA) is a California-based biopharmaceutical firm that uses its signature allogeneic Epstein-Barr virus (EBV) T-cell platform to prepare therapies for various diseases.
On November 9, Canaccord lowered the price target on Atara Biotherapeutics, Inc. (NASDAQ:ATRA)’s stock to $13 from $19 and reaffirmed a Buy rating.
On November 1, Atara Biotherapeutics, Inc. (NASDAQ:ATRA) announced an extension to its partnership with Pierre Fabre Laboratories for tabelecleucel tab-cel treatment worth up to $640 million. Under the agreement, Pierre Fabre Laboratories will buy the company’s present and future tab-cel inventory and reimburse all upcoming tab-cel global development costs.
On November 1, Atara Biotherapeutics, Inc. (NASDAQ:ATRA) announced its Q3 earnings result with a loss per share of $0.66. The total revenue of the quarter was nearly $2.14 million. As of September 2023, the company’s cash, cash equivalents, and short-term investments were $102.4 million.
5. Theravance Biopharma, Inc. (NASDAQ:TBPH)
Seth Klarman’s Stake Value: 64.028 million
Theravance Biopharma, Inc. (NASDAQ:TBPH) is headquartered in the Cayman Islands and is engaged in the discovery, manufacturing, and selling of selective organ-targeting medication.
On November 13, Theravance Biopharma, Inc. (NASDAQ:TBPH) announced positive results from its Phase III placebo-controlled clinical trial for YUPELRI (revefenacin) with Viatris Inc. (NASDAQ:VTRS). The trial was conducted in China and was to check the safety and efficacy of YUPELRI for the maintenance treatment of patients with chronic obstructive pulmonary disease (COPD). The positive results are expected to be beneficial for regulatory filing in China, which is expected to happen in mid-2024.
On November 7, Theravance Biopharma, Inc. (NASDAQ:TBPH) posted its Q3 GAAP loss per share of $0.17, while the revenue reported in the quarter was $15.7 million.
In the third quarter, Baupost Group owned 7.419 million shares of Theravance Biopharma, Inc. (NASDAQ:TBPH) worth $64.028 million. In the quarter, the most prominent investor of the company was Andrew Weiss’ Weiss Asset Management, with 7.457 million shares worth $64.354 million.
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Disclosure. None. Billionaire Seth Klarman’s Biotech Stock Picks is originally published on Insider Monkey.