Baker Bros. Advisors is a ~5 BB small & micro-cap focused biotechnology fund run by Julian Baker and Felix Baker. The fund has generated exceptional returns this year – largely due to a huge long position they started in ACADIA Pharmaceuticals (NASDAQ: ACAD) (YTD = +481%). While the fund is quite secretive, it is required file SEC Form 13F which allows the public to see which particular biotech stocks are being accumulated.
This allows investors the opportunity to invest alongside the fund in some of its high-risk / high-reward bets. Here are four stocks that have seen recent buying:
Prothena Corp. (PRTA)
Baker Bros. Advisors holds 369,630 shares of PRTA - equivalent to a $7.5 MM stake at time of writing. The company has been adding to PRTA, with the most recent transaction being in Q2 2013 with a net purchase of 177,954 shares.
Prothena is a company that specializes in the development of monoclonal antibodies for the treatment of diseases that cause protein misfolding or cell adhesion. Their flagship development program is for an antibody known as NEOD001, which is used in a particular type of amyloidosis known as Amyloid Light-chain amyloidosis. This particular indication would allow NEOD001 to target 2,000 to 3,000 US patients per year after potential FDA approval at orphan drug pricing.
Preclinical trials performed with NEOD001 demonstrate strong activity in mice, as well as interaction between the antibody and multiple classes of amyloids (AL, AA). This suggests that the indication can be expanded later on.
NEOD001 is currently in a Phase I trial that is expected to end in 2016. The trial will also establish the dosing levels that will be used in future trials, and will also provide the first evidence of NEOD001 efficacy in humans. Specifically, the company will look for interaction between the monoclonal antibody and light-chain amyloids. The "lasting power" of the monoclonal antibodies in the body will also be examined, since this is crucial for determining the optimal dose.
Prothena's NEOD001 is less developed than GSK's TTR Rx and ALN-TTR02/ALN-TTRsc, although investors should note that the valuation is significantly lower (at $357 MM). Also important to realize is that NEOD001 targets a different indication with a different mechanism, while TTR Rx and ALN-TTR02/ALN-TTRsc both target production of Transthyretin at the genetic level.
La Jolla Pharmaceutical Company (LJPC)
Baker Bros. participated in a recent $10 MM financial restructuring and private placement for La Jolla, and accumulated 14.9 MM shares of common stock and 2,426 shares of Series F preferred stock. This is equivalent to a newly established $3.5 MM overall investment in La Jolla Pharmaceutical Company.
La Jolla is another company that focuses on rare disease indications. The recent financing provides necessary funds for the continued development of the company's two lead products – GCS-100 and LJPC-501.
GCS-100 is a Phase II compound, and is the only galectin-3 inhibitor currently in clinical development. Ongoing research suggests that Galectin-3's role in various other diseases may be significant, as Galectin-3 overexpression has been shown to lead to fibrosis and scarring of tissue which leads to additional complications found in other indications, but La Jolla is limiting itself to the diseases/indications that have the strongest links to Galectin-3 overexpression. These include Chronic Kidney Disease (CKD), Chronic Liver Disease (cirrhosis), and cancer immunotherapy.
GCS-100 completed a Phase 1 trial earlier in the year, which attempted to find the maximum tolerated dose (MTD) of the compound while measuring safety in patients with CKD. The MTD was not reached, but no patients saw any serious adverse events up to this point. A Phase II clinical trial for GCS-100 was then initiated in June to study the effects of this first-in-class galectin-3 inhibitor on patients with stage 3b or stage 4 CKD. Enrollment into the trial is still proceeding, and estimated completion of the trial is March 2014.
The other main compound in the company's pipeline is LJPC-501, which is a peptide agonist of the renin-angiotensin system. LJPC-501 is being studied for use in hepatorenal syndrome – a serious disease where patients see kidney failure as a result of cirrhosis of the liver. The FDA approved the IND application for this drug, and a Phase 1 trial is scheduled for the fourth quarter of 2013.
Idera Pharmaceuticals (IDRA)
Baker Bros. Advisors also started a new position in IDRA of 4.5 MM shares – equivalent to a $7.9 MM investment in the company.
Idera's flagship development program is for a Toll-like receptor (TLR) 7, 8, and 9 antagonist IMO-8400, which is being developed as a treatment for plaque psoriasis. The company released Phase 1 data for this therapeutic earlier in the year, which showed that the drug was well tolerated by patients at all doses.
TLR receptors target a number of cell-signaling molecules (cytokines) that activate the immune system. The company believes that there is clear potential for indication expansion given that IMO-8400 sees efficacy against psoriasis, since many autoimmune diseases are similar and have overlap with one another in terms of treatment options. Lupus is one of many other serious autoimmune diseases that may be targeted by IMO-8400.
Phase II trial data should be available as early as Q1 2014.
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