If you are looking for some high-octane growth stocks to add to your portfolio, you might want to follow in the footsteps of some of the most successful investors in the biotech sector. Baker Bros. Advisors, a hedge fund founded by billionaire brothers Julian and Felix Baker, has a stellar track record of picking winners in the healthcare space. The fund has over $23 billion in assets under management and focuses on companies that are developing innovative therapies for unmet medical needs.
Two of the fund’s top holdings are Acadia Pharmaceuticals (ACAD -2.55%) and Roivant Sciences (ROIV 1.35%), both of which have delivered impressive returns in the past year. Acadia is a leader in the field of neuropsychiatric disorders, with two Food and Drug Administration (FDA)-approved products on the market for Parkinson’s disease psychosis (Nuplazid) and Rett syndrome (Daybue).
Roivant is a diversified biopharma company that operates multiple subsidiaries, each focused on a different therapeutic area or technology platform. Roivant’s portfolio includes the FDA-approved Vtama cream, which is a novel treatment for psoriasis, along with scores of promising candidates in the fields of immunology and inflammation. The company also sports an important business and research partnership with Pfizer for the experimental inflammatory bowel disease (IBD) drug RVT-3101.
Let’s take a closer look at why Baker Bros. Advisors keeps buying these two supercharged growth stocks, and why it might be a good idea to take a page from its playbook.
Acadia Pharmaceuticals: A play on underserved neurological conditions
Over the past decade, Acadia has slowly built a top-shelf neurology franchise. Sales of its flagship drug, Nuplazid, have steadily grown since its launch in 2016. And the biotech’s latest achievement, the FDA approval and subsequent commercial launch of Daybue for Rett syndrome, a rare genetic disorder that causes severe intellectual and physical impairments in children, should push the company into positive-free-cash-flow territory as soon as next year. Underscoring this point, some analysts expect Daybue to eventually become a blockbuster drug.
Acadia’s impressive performance has kept Baker Bros. buying shares. The fund increased its stake by nearly 1 million shares in the second quarter of 2023, signaling its confidence in Acadia’s long-term growth potential. Following this latest round of buying, the hedge fund owns over a quarter of Acadia’s outstanding shares, making it the drugmaker’s biggest stakeholder by a wide margin.
Why is Acadia’s stock still a buy? Even though acquisition rumors have faded, Acadia remains an attractive investment opportunity based on its own merits. The company has a dominant position in the underserved market of neurological disorders, with a proven track record of innovation and commercialization.
Acadia also has a robust pipeline of early- to late-stage candidates for several high-value indications, such as Prader-Willi syndrome, Alzheimer’s disease psychosis, and negative symptoms of schizophrenia, among others. These programs could add significant value to Acadia’s portfolio and drive further revenue growth. Acadia is well positioned to achieve profitability and positive cash flow in the near future, thanks to its strong sales momentum and efficient cost structure. Acadia is a rare gem in the biotech sector, offering both growth and value to investors.
Roivant Sciences: A top immunology play
Baker Bros. Advisors boosted its stake in Roivant Sciences yet again in the second quarter of 2023. The fund acquired 4.65 million more shares of Roivant Sciences in Q2, according to its latest 13F filings, raising its total ownership to about 9.42 million shares, or 1.22% of the company. This marks the third consecutive quarter the fund has increased its exposure to the biotech, indicating its strong belief in the company’s future prospects and innovative drug portfolio.
What is driving this optimism? Roivant Sciences has been making remarkable strides in developing its clinical candidates across various disease areas. However, the main attraction for investors right now is the status of its Pfizer-collaborated IBD drug RVT-3101. There have been reports recently about other major pharmaceutical companies eyeing a takeover of the drug, but no official offer has been made yet.
Meanwhile, RVT-3101 has shown clear blockbuster sales potential, based on its outstanding mid-stage results, along with the unmet medical need represented by IBD. Roivant Sciences, therefore, could be poised for a sustained growth trajectory, driven in large part by its high-quality immunology franchise.
However, there is also a very real possibility that a bidder will indeed emerge from the sidelines. Immunology, after all, has been a hot area for mergers and acquisitions in recent years. Having said that, it isn’t entirely clear whether Pfizer will stand in the way of a sale.