TLIS - Tracking Baker Brothers Portfolio - Q2 2022 Update

Summary

• Baker Brothers’ 13F portfolio value increased from $17.40B to $17.63B this quarter.
• Global Blood Therapeutics, Horizon Therapeutics, and Kymera Therapeutics were increased during the quarter.
• The top three positions are Seagen, Incyte Corporation, and BeiGene, and they add up to almost 73% of the portfolio.

This article is part of a series that provides an ongoing analysis of the changes made to Baker Brothers' 13F stock portfolio on a quarterly basis. It is based on Baker Brothers' regulatory 13F Form filed on 8/15/2022. The 13F portfolio value increased from $17.40B to $17.63B. Although there are ~120 positions in the 13F portfolio, the holdings are concentrated among a few large stakes. There are 16 positions that are significantly large (more than 0.5% of the portfolio each) and they are the focus of this article.

The largest five stakes are Seagen, Incyte, BeiGene, BioMarin Pharma, and ACADIA Pharma. They add up to ~80% of the portfolio. Please visit our Tracking Baker Brothers Portfolio series to get an idea of their investment philosophy and our previous update the fund's moves during Q1 2022.

Baker Brothers, a biotech investment firm, was founded by Julian & Felix Baker in 2000. Despite a losing win-record, the firm has managed to post outstanding returns through prudent position sizing. As a percentage of AUM, allocation to the highest conviction picks can be very high at over 30%. Over the years, the firm had a number of home runs as the invested firms got acquired at huge premiums. Recent M&A winners include Pharmacyclics (acquired by AbbVie), Synageva (acquired by Alexion), Salix (acquired by Valeant), Alexion (acquired by AstraZeneca), and Global Blood Therapeutics (being acquired by Pfizer).

Stake Increases:

Incyte Corporation ( INCY ) : INCY was already a 1.67M share stake in their first 13F filing in Q2 2003. The stake had roughly doubled by 2006. The 2007-2008 timeframe saw the position increased from ~3.2M shares to ~11.1M shares at prices in the high single digits. Major activity in the last decade follows. Q3 2015 saw a ~30% stake increase at prices between ~$105 and ~$130. Q1 2016 saw another ~20% stake increase at prices between ~$65 and ~$100. That was followed with a ~45% stake increase in Q1 2017 at prices between ~$100 and ~$150. The stock currently trades at $67.66, and it is a top-three stake at 15.58% of the portfolio. There was a ~13% stake increase over the last two quarters at prices between ~$63 and ~$80. This quarter saw a marginal increase.

Note: Baker Brothers controls ~16.5% of the business.

ACADIA Pharmaceuticals ( ACAD ) : The 3.35% ACAD stake was established in the 2012-2013 timeframe at very low prices. Last major activity was in Q4 2018 when there was a ~40% stake increase at prices between ~$14 and ~$22. The stock currently trades at $16.79. There was a marginal increase this quarter.

Ascendis Pharma A/S ( ASND ) : The bulk of the current 2.56% of the portfolio stake in ASND was built in 2017 at prices between ~$20 and ~$40. Q3 2021 saw a ~28% stake increase at prices between ~$113 and ~$177. The stock currently trades at ~$103. This quarter saw a minor ~7% stake increase.

Note: Baker Brothers controls ~9.1% of the business.

Kodiak Sciences ( KOD ) : KOD is now a small 0.75% of the portfolio position. The original stake goes back to funding rounds prior to its Q4 2018 IPO. Shares started trading at ~$10 and currently goes for $8.04. Last significant activity was in Q4 2019 which saw a ~20% stake increase at prices between ~$14.50 and ~$76. They have a ~30% ownership stake in the business. This quarter saw a ~9% stake increase.

Note: In December 2019, Baker Brothers stuck a deal for a capped 4.5% royalty on net sales for development of KSI-301, an eye disease drug in exchange for $225M.

Horizon Therapeutics ( HZNP ) : HZNP is a small 0.52% of the portfolio stake that saw a ~50% stake increase last quarter at prices between ~$86 and ~$110. That was followed with a ~28% increase this quarter at prices between ~$80 and ~$116. The stock currently trades at $63.84.

Global Blood Therapeutics ( GBT ) and Kymera Therapeutics ( KYMR ): The small 0.68% GBT position saw a ~13% stake increase this quarter at prices between ~$22 and ~$37. The stock is now at $68.11. KYMR is a minutely small 0.32% of the portfolio stake that saw a ~20% stake increase this quarter.

Note: In August, Pfizer ( PFE ) agreed to acquire GBT in a $68.50 per share all-cash deal.

Kept Steady:

Seagen Inc. ( SGEN ) : SGEN is currently the largest position by far at ~47% of the entire portfolio. It is a very long-term stake that has been in the portfolio for over fifteen years. The position was built to ~20.5M shares in the 2004-2011 timeframe at prices between low-single-digits and low-20s. Q1 2014 to Q1 2016 saw another stake doubling at prices between ~$30 and ~$55. Since then, the activity has been minor. The stock currently trades at ~$138.

Note: They have ~25% ownership stake in the business.

BeiGene Limited ( BGNE ) : The large (top three) ~11% BGNE stake has been in the portfolio since their US listing in Q1 2016. Shares started trading at ~$24 and currently goes for ~$142. Q4 2016 saw a stake doubling at prices between ~$28 and ~$36. H1 2018 saw the stake built from ~3.8M shares to ~12M shares at prices between ~$100 and ~$215. Since then, the activity has been minor.

Note: Baker Brothers controls ~13% of the business.

BioMarin Pharmaceutical ( BMRN ) : A small stake in BMRN was first purchased in 2006 but was eliminated the following year at higher prices. The position was rebuilt between Q3 2014 and Q1 2015 at prices between ~$55 and ~$125. Last major activity was a ~60% stake increase in 2017 at prices between ~$80 and ~$95. The stock is now at $85.84, and the stake is at 3.58% of the portfolio.

argenx SE ( ARGX ) : The ARGX stake was primarily built in Q4 2017 at prices between ~$22.50 and ~$63. There was a ~10% stake increase in Q1 2021 at prices between ~$268 and ~$380. The stock currently trades at ~$358 and the stake is at 2.41% of the portfolio.

BioCryst Pharmaceuticals ( BCRX ) : BCRX is a very long-term stake that has been in the portfolio since 2004. It is still a small position at 0.76% of the portfolio. Last major activity was in 2019 when Q2 to Q4 saw a roughly one-third selling at prices between ~$1.60 and ~$8.70. The stock currently trades at $12.91.

Note: Baker Brothers controls ~10% of BioCryst Pharmaceuticals.

AbCellera Biologics ( ABCL ) : ABCL had an IPO in December 2020. Shares started trading at ~$49 and currently goes for ~$10. Baker Brothers' stake goes back to funding rounds prior to the IPO.

Madrigal Pharmaceuticals ( MDGL ) and Mirati Therapeutics ( MRTX ) : These two small (less than ~1% of the portfolio each) stakes were kept steady this quarter. Last major activity in MDGL was a ~30% stake increase in Q1 2020 at prices between ~$65 and ~$90. The stock is now at $68.65. Last major activity in MRTX was a ~50% selling in Q3 2019 at prices between ~$76 and ~$106. The stock currently trades at $70.51.

Note: Baker Brothers controls ~10% of Madrigal Sciences.

Immunocore Holdings plc ( IMCR ): IMCR is a very small 0.53% of the portfolio position that was kept steady this quarter.

Note 1: Regulatory filings since the quarter ended show them owning 4.69M shares (9.93% of business) of IMCR. This is compared to 2.52M shares in the 13F report.

Note 2: Baker Brothers has significant ownership stakes in the following businesses - Aeglea BioTherapeutics ( AGLE ), Achilles Therapeutics (ACHL), Aligos Therapeutics ( ALGS ), Altimmune ( ALT ), Amarin (AMRN), Aerovate ( AVTE ), DBV Technologies ( DBVT ), Entrada Therapeutics ( TRDA ), Heron Therapeutics ( HRTX ), IGM Biosciences ( IGMS ), Immatics ( IMTX ), InVitae Corporation ( NVTA ), Kiniksa Pharma ( KNSA ), Krystal Biotech ( KRYS ), Neoleukin Therapeutics ( NLTX ), Nurix Therapeutics ( NRIX ), Opthea Ltd. ( OPT ), Otonomy ( OTIC ), Pacific Biosciences ( PACB ),Prelude Therapeutics ( PRLD ), Rhythm Pharma ( RYTM ), Surrozen ( SRZN ), Talis Biomedical ( TLIS ), TScan Therapeutics ( TCRX ), Verastem ( VSTM ), and Zymeworks ( ZYME ).

The spreadsheet below highlights changes to Baker Brothers' 13F holdings in Q2 2022:

For further details see: