At Insider Monkey, we track over 700 hedge funds and investment companies, which allows us to understand the market sentiment towards any given stock. Baker Bros. Advisors is a healthcare-focused hedge fund with 99% of its equity holdings dedicated to the healthcare sector. Julian Baker and Felix Baker founded the investment firm in 2000 with financial support from university endowments and foundations. In its recent 13F filed with the SEC, the fund reported a public equity portfolio containing $11.40 billion in holdings, with its top ten positions accounting for 79.44% of that value. Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN), aTyr Pharma Inc (NASDAQ:LIFE), and Galapagos NV (ADR) (NASDAQ:GLPG) are among the top new stock picks of Baker Bros, and given the fund’s sizzling performance this year, they should not be ignored. Baker Bros. stock picks were the second-best performing in the first half of the year out of all the firms we track, delivering weighted average returns of 108.3%, based on its reported ownership positions in companies with a market cap of at least $1 billion.
Why are we interested in the 13F filings of a select group of hedge funds? We use these filings to determine the top 15 small-cap stocks held by these elite funds based on 16 years of research that showed their top small-cap picks are much more profitable than both their large-cap stocks and the broader market as a whole. These small-cap stocks beat the S&P 500 Total Return Index by an average of nearly one percentage point per month in our backtests, which were conducted over the period of 1999 to 2012. Moreover, since the beginning of forward testing from August 2012, the strategy worked just as our research predicted, outperforming the market every year and returning 118% over the last 35 months, which is more than 60 percentage points higher than the returns of the S&P 500 ETF (SPY) (see more details).
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Baker Bros. initiated a large position in Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN) during the second quarter, of 6.54 million shares valued at $1.18 billion at the end of it. Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN) completed the acquisition of Synageva Biopharma Corp (NASDAQ:GEVA) during the second quarter, for $8.4 billion. David Hallal, CEO of Alexion Pharmaceuticals, said, “Synageva is an ideal strategic and operational fit for Alexion that aligns with what we know well and do well — providing life-transforming therapies to an increasing number of patients with devastating and rare diseases.” The acquisition helped Baker Bros.’ stock picks achieve a monster second quarter, as it held a large position in Synageva, which appreciated by more than 140% during the second quarter. Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN) reported weaker earnings of $1.13 per share for the second quarter than what the market expected, at $1.31, although its revenue of $636.2 million was above analysts’ estimates of $629 million. Its revenue grew by 24% on a year-over-year basis and Alexion Pharmaceuticals issued higher revenue guidance for the full 2015 fiscal year, of $2.6 billion to $2.62 billion against previous guidance of $2.55 billion to $2.6 billion. However, shares of Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN) are down by 6.13% after the quarterly earnings release on July 30, as it released a starkly lower guidance for its annual earnings per share, of between $4.70 and $4.80 against earlier EPS guidance of $5.60 to $5.80. Samuel Isaly of Orbimed Advisors is another major shareholder of the company, owning with 2.04 million shares valued at $369.57 million.
aTyr Pharma Inc (NASDAQ:LIFE) is another new addition to the healthcare portfolio of Baker Bros., which holds 2.34 million shares worth $43.25 million as of June 30. aTyr Pharma is a clinical-stage biotherapeutics company, which uses a set of physiological modulators for the treatment of severe and rare diseases. The shares of aTyr Pharma Inc (NASDAQ:LIFE) have declined by 4.15% since its debut on the stock market on May 8. The medical company reported its second quarter financial results last week, revealing a net loss of $11.10 million or a per share loss of $0.74. Being a clinical-stage company, aTyr Pharma Inc (NASDAQ:LIFE) didn’t report any revenue for the quarter. At the end of the second quarter, the company had total assets worth $153.08 million including cash, cash equivalents, and investment securities worth $147.70 million. aTyr Pharma Inc (NASDAQ:LIFE) shed some light on its current underdevelopment drugs including Resolaris. Its press release added, “Resolaris™, a first-in-class protein therapeutic in adult patients with facioscapulohumeral muscular dystrophy (FSHD), is currently in an ongoing Phase 1b/2 clinical trial, with initial results expected in late 2015 or early 2016. The Company is on track to initiate a Phase 1b/2 clinical trial in early onset FSHD patients in the third quarter of 2015.” Deerfield Management, led by James Flynn, is another healthcare-focused firm with an equity position in aTyr Pharma Inc (NASDAQ:LIFE), of 461,530 shares valued at $8.55 million.
Baker Bros. reported a new equity position in Galapagos NV (ADR) (NASDAQ:GLPG) of 369,276 shares with a market value of $19.02 million. The company has its base in Belgium and it offers target-to-drug discovery technology to different biotechnology companies. Galapagos NV (ADR) (NASDAQ:GLPG) closed its NASDAQ IPO in May with an offering of 7.53 million shares,pulling in approximately $316.7 million from the offering. The biotechnology company has a market cap of $2.37 billion. Filgotinib is one of the primary pipeline products of Galapagos NV (ADR) (NASDAQ:GLPG) and it is working with AbbVie Inc (NYSE:ABBV) on the production and commercialization of the drug. Filgotinib is likely to be used for the treatment of rheumatoid arthritis and similar inflammatory diseases. Deerfield Management also holds a large position in Galapagos, holding 642,608 shares valued at $33.09 million, according to its recent 13F filing.
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