Following Smart Money: Baker Brothers Investments In 2013 And Beyond, Part 2

Written by Kyle Dennis and Scott Matusow

In our first article covering The Baker Brothers LLC's investments, we listed a few stocks the investment firm holds significant positions in. The Bakers have really done well over the last couple of years, and we see no reason why their stellar record will not continue into 2014 and beyond.

Synergy Pharmaceuticals (SGYP ) focuses on the development of drugs to treat gastrointestinal (GI) disorders and diseases. Its lead product candidate includes plecanatide, a guanylyl cyclase C receptor agonist that has completed Phase IIa clinical trials to treat chronic idiopathic constipation GI disorders, as well as is in Phase IIb clinical trials for the treatment of constipation-predominant irritable bowel syndrome GI disorders. The company also develops SP-333, which is in Phase I clinical trials to treat GI inflammatory diseases, such as ulcerative colitis.

Additionally, in mid-November 2013 Synergy initiated enrollment in its first formal Phase III trial of plecanatide (SP-304 / guanilib) in chronic idiopathic constipation (CIC). This is a randomized, double blinded, placebo-controlled, parallel-group design. Its aim is to compare a 12-week, dose-ranging regimen of plecanatide (3.0mg and 6.0mg once-daily doses) against placebo in adult patients with CIC. The study will be conducted at roughly 180 sites in the U.S. and Canada and will enroll about 1,350 patients with CIC. Top-line results are expected by mid-year 2014.

Analyst Leerink Swann believes Ironwood's (IRWD) Linzess, an FDA approved drug with a similar mechanism of action to Plecanatide, will see sales of $1.4b by 2018. Consensus opinion of the analysts we have conferred with believe Plecanatide will show less side effects and better efficacy than Linzess if eventually FDA approved, and they believe it will be.

The Baker Brothers own $11.92M worth of Synergy, or about 2.6M shares. Synergy is expecting Phase IIb data of Plecanatide for constipation-predominant irritable bowel syndrome (IBS-C) in 2Q 2014. We believe Synergy's stock price will see double digits before the end of 2014, so we are bullish as the Bakers are.

Xoma Corporation (XOMA ) offers ACEON, an angiotensin converting enzyme inhibitor, as well as several proprietary products. These include gevokizumab, which is in Phase III studies for non-infectious uveitis and Behçets uveitis as well as Phase II studies for inflammatory acne, erosive osteoarthritis of the hand, active non-infectious anterior scleritis and cardiovascular diseases.

In October of 2013, the company reported positive data from two Phase 2 clinical studies that are part of the company's broad gevokizumab proof-of-concept ("POC") program.

The Phase 2 POC study in erosive osteoarthritis of the hand ("EOA") patients with elevated C-reactive protein ("CRP") levels greater than or equal to 2.5 mg/L is a double-blind, placebo-controlled study to determine if gevokizumab can improve the pain, stiffness, and physical function associated with EOA after three and six months of treatment, based upon the Australian/Canadian Osteoarthritis Hand Index ("AUSCAN™") scoring scale. AUSCAN is a validated self-administered questionnaire specifically designed to assess the three dimensions of pain, disability, and joint stiffness of osteoarthritis of the hand using a series of 15 questions. XOMA's study enrolled 85 EOA patients who were randomized 2:1 to receive 60 mg of gevokizumab or placebo, dosed subcutaneously once monthly.

The stock used to be a high flier, with its price reaching triple digits years ago. Since then, the company and its stock has fallen on hard times, reaching as low as $1.04 in December of 2011. Many investors we have spoken with believe the company is now headed back on the right direction as the stock has recently hit a 52 week high of $7.30 on December 26th.

Xoma is one of the Baker Brothers top 10 holdings. They own about 23M shares valued at over $103M. Xoma is expecting to release Phase III data for Gevokizumab in 1Q 2014 .

Pharmacyclics (PCYC ) focuses on the development and commercialization of small-molecule drugs for the treatment of cancer and immune mediated diseases. Pharmacyclics markets Imbruvica (ibrutinib), which is an FDA approved treatment for patients with mantle cell lymphoma (MCL). Imbruvica is also in clinical trials for chronic lymphocytic leukemia, diffuse large b-cell lymphoma, multiple myeloma, follicular lymphoma and Waldenstrom's Macroglobulinemia. The company is also developing Abexinostat (PCI-24781) for follicular lymphoma and mantle cell lymphoma. PCI-27483 is also in Phase II clinical trials for pancreatic cancer.

Pharmacyclics is the largest Baker Brothers holding at about 22.06% of its portfolio. They hold about 9M shares of Pharmacyclics, totaling over $1.2B. The company is expecting to release Phase III RESONATE trial interim data of Ibrutinib in patients with refractory Chronic Lymphocytic Leukemia and Small Cell Lymphocytic Lymphoma (CLL/SLL) in 1Q 2014. The company is also expecting to release Phase III topline data of Ibrutinib RESONATE-17 for deletion 17p in the 1H 2014.

Vanda Pharmaceuticals (VNDA ) offers development and commercialization of products for the treatment of central nervous system disorders. Vanda currently markets Fanapt, which is used to treat schizophrenia. The company is also looking to receive approval for Hetlioz (tasimelteon) for Non-24-Hour Disorder, which is a circadian rhythm disorder.

Vanda received a positive recommendation at an Adcom meeting on November 14, 2013. Vanda now has a PDUFA date of January 31, 2014, to possibly receive approval for Hetlioz.

Hetlioz is designed to treat Non-24-Hour Disorder (Non-24) in the totally blind. Non-24 is a serious, rare and chronic circadian rhythm disorder characterized by the inability to entrain (synchronize) the master body clock with the 24-hour day-night cycle.

The Baker Brothers own about 4.8M shares of Vanda, valued at about $52M. If Hetlioz is approved in January (as we believe it will be) and marketing goes well, Vanda could see a much higher valuation moving forward.

Zogenix (ZGNX ) engages in the development and commercialization of products for the treatment of central nervous system disorders and pain. Zogenix develops Zohydro ER Extended-Release Capsules (hydrocodone bitartrate) for around-the-clock long-term opiod treatment. The company also develops SUMAVEL DosePro, which is a needle-free delivery system.

The company recently received FDA approval of 4 mg SUAMVEL DosePro (sumatriptan injection) Needle-Free Delivery System in addition to receiving FDA approval for Zohydro Extended-Release Capsules.

SUMAVEL DosePro is designed to be a subcutaneous injection given with a needle-free delivery system to treat adults who have been diagnosed with acute migraine or cluster headaches.

Zohydro is an opioid agonist, extended-release, oral formulation of hydrocodone bitartrate indicated for the management of pain severe enough to require daily, around-the-clock, long-term opioid treatment. The drug is the first hydrocodone which does not contain acetaminophen, which if taken in large doses, can cause serious liver damage. While Zohydro has its restrictions, we believe the drug and subsequent "less addictive" forms of it will be introduced by the company which should lead to a long term higher valuation for the company.

The Baker Brothers hold about 2M shares of Zogenix, and definitely might increase their position. We believe Zogenix has a bright future.

We will be releasing more Baker Brothers picks over 2014 for investors to consider. We always believe it's a good bet to follow the smart money. Once again, the Bakers have proven with their track record that they are among the smartest money in the biotech sector.

Disclosure: Long SGYP. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Source: Following Smart Money: Baker Brothers Investments In 2013 And Beyond, Part 2

Additional disclosure: Disclaimer: This article is intended for informational and entertainment use only, and should not be construed as professional investment advice. They are my opinions only. Trading stocks is risky -- always be sure to know and understand your risk tolerance. You can incur substantial financial losses in any trade or investment. Always do your own due diligence before buying and selling any stock, and/or consult with a licensed financial adviser.

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