Healthcare-focused Baker Bros. Advisors’ Top Picks: Incyte, Alexion, ACADIA & More

Baker Bros. Advisors is a New York City-based fund launched in 2000 by Julian and Felix Baker. The firm focuses on life science and biotechnology companies, and recently has disclosed an equity portfolio valued at more than $12.07 billion as of December 31.  During the fourth quarter, the fund’s 35 long positions in companies with market caps above $1.0 billion delivered weighted average returns of 9.4%, according to our calculations. For the full 2015, these long holdings posted a weighted average return of 6.7%. In this article, we’ll take a look at Baker Bros.’ top picks heading into 2016.

Out of thousands of stocks that are trading on the market every day, it can be difficult sometimes to pick the right investment that can deliver market-beating returns. By analyzing the equity portfolios of 700+ top investors, we can see what stocks they are collectively bullish on and use this data to compile a portfolio that can outperform the market. We have determined through this process that the best strategy is to follow the 15 most popular small-cap picks among hedge funds (see more details).

#5. ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD)

– Shares Owned by Baker Bros. as of December 31: 20.48 Million

– Value of Holding as of December 31: $730.16 Million

ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD) kept the fifth spot in Baker Bros.’ list as the stake  remained unchanged over the October-to-December period, but the value rose considerably, as the stock gained 7.8% over the quarter. On January 8, however, the fund declared it had increased its exposure to 23.11 million shares. This stake makes it the largest institutional investor of record in the company; also bullish on ACADIA seems to be Ken Griffin’s Citadel Investment Group, which last disclosed ownership of 1.12 million shares.

Shares of ACADIA have lost more than 47 percent year-to-date, amid the announcement of an underwritten public offering of $300,000,000 of shares of its common stock, the appointment of a new Board Director, and a decline in the wider biotech segment. The company is scheduled to announce its fourth quarter and full year 2015 financial results before the market opens next Monday and analysts expect a loss of $0.38 per share on revenue worth $60,000.

#4. AbbVie Inc (NYSE:ABBV)

– Shares Owned by Baker Bros. as of December 31: 14.37 Million

– Value of Holding as of December 31: $851.58 Million

The value of Baker Bros’ position in AbbVie Inc (NYSE:ABBV) rose, as the stock gained 8.88% during the fourth quarter. Nonetheless, the company witnessed the hedge fund support decrease over the period, with the number of funds in our database long the stock having dropped to 70. AbbVie’s shares have tumbled since the beginning of the year, but the losses were not as large and the stock is down by about 6.5% year-to-date. On Tuesday, Citi’s Andrew Baum upgraded his rating on AbbVie to ‘Buy’ from ‘Neutral’, but boosted the price target to $65 from $56, arguing that the market is underestimating the potential of the company’s Humira drug.

On the next page we will take a look at Baker Bros.’ top three picks held as of the end of the fourth quarter of 2015.

#3. Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN)

– Shares Owned by Baker Bros. as of December 31: 6.54 Million

– Value of Holding as of December 31: $1.24 Billion

Baker Brothers also remained bullish on Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN) in the fourth quarter, as the stock gained almost 22%. However, this year it gave up the gains, tumbling almost 27% year-to-date. On Thursday, Citi initiated coverage of the stock with a ‘Neutral’ rating. Samuel Isaly’s Orbimed Advisors is another shareholder of Alexion, holding 2.27 million shares as of December 31.

#2. Seattle Genetics, Inc. (NASDAQ:SGEN)

– Shares Owned by Baker Bros. as of December 31: 37.29 Million

– Value of Holding as of December 31: $1.67 Billion

Baker Bros.’ stake in Seattle Genetics, Inc. (NASDAQ:SGEN) saw the largest increase among its top 10 picks. After having boosted its exposure by 4%, the fund declared holding 37.29 million shares of the mid-cap biotech company. This year, the fund continued to raise its exposure to the company and reported holding 39.81 million shares earlier this week. D E Shaw  boosted its stake by 82% over the quarter to 242,005 shares reported in its latest 13F. Shares of Seattle Genetics have lost more than 33% year-to-date, even though the company posted earnings and revenue figures for the last quarter that managed to beat the estimates.

#1. Incyte Corporation (NASDAQ:INCY)

– Shares Owned by Baker Bros. as of December 31: 19.47 Million

– Value of Holding as of December 31: $ 2.11 Billion

Finally, there’s Incyte Corporation (NASDAQ:INCY), which represents Baker Bros.’ largest position. The fund declared holding 19.47 million shares of the company and convertible bonds valued at $1.15 billion. Once again, the firm was trailed by OrbiMed Advisors, which disclosed ownership of 2.83 million shares as of December 31. Similar to most biotech stocks, Incyte’s shares have tumbled by 32% since the beginning of the year. After the company had posted earnings and revenue above estimates, analysts at Barclays reiterated their ‘Overweight’ rating and an $85 price target, while analysts at Brean Capital reiterated their ‘Buy’ rating and set a $92 price target. Shares are currently trading below $74.

Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.