Two brothers, a big biotech bet and an $8 billion payout

(Illustration: Emil Lendof/WSJ)
(Illustration: Emil Lendof/WSJ)


Investors in a hedge fund from Baker Bros. Advisors recently received one of the largest windfalls ever following Pfizer’s purchase of Seagen.

A two-decade bet on a biotechnology company turned into a roughly $8 billion windfall for investors in a New York hedge fund earlier this year.

Baker Bros. Advisors, a hedge-fund firm run by brothers Felix and Julian Baker, had in 2003 invested in Seagen, a developer of next-generation cancer treatments. Pfizer bought the company for $43 billion last year.

The firm held a nearly 25% stake in Seagen and reaped about $10 billion in proceeds when the acquisition closed in December. It gave back most of that to its investors earlier this year, people familiar with the matter said, in what was one of the industry’s largest ever returns of capital.

Big-ticket takeovers and scientific advances like gene-editing helped make biotech investing a hot hedge-fund strategy last year. A healthcare stock-picking index gained 13.3% in 2023, according to hedge-fund research firm PivotalPath, outpacing the 7.6% rise in a broader industry index. Baker Bros.’s flagship fund gained roughly 19% in 2023, some of the people said.

The Bakers, known for being intensely private, are a throwback to a leaner, freewheeling style of hedge-fund investing. While today’s most sought-after hedge funds divvy money up across battalions of traders, Baker Bros. employed around 18 investment professionals to manage about $22 billion in assets at the end of 2023, regulatory filings show.

Other hedge-fund chiefs minimize risk by avoiding concentrated bets. At Baker Bros., Seagen accounted for about half of the value of its publicly disclosed stockholdings at the end of September.

That approach often comes with volatility, especially in a boom-or-bust sector like biotech. Baker Bros.’s flagship fund was down about 19% in 2022 and down about 25% in 2021, the people said. The share price of Kodiak Sciences, a maker of eye drugs in which the Bakers have a sizable stake, went from $10 at its 2018 IPO to a record high of $164 in 2021. It has recently been trading under $5.

A 20-year bet

Felix and Julian Baker, both in their mid-50s, are the sons of two professors. Early in their careers, Felix briefly attended medical school and earned a Ph.D. in immunology, while Julian made private-equity investments at Credit Suisse. They teamed up in 1994 to make biotech investments for members of the Tisch family and launched Baker Bros. in 2000.

Today, their firm’s Manhattan headquarters abuts the High Line aerial park. Many employees relocate to a satellite office in the Hamptons during the summer.

Each of the Baker brothers are estimated to have net worths of $2.8 billion, according to Forbes. Felix, who is on Stanford’s board of trustees, purchased a $45 million building in Manhattan’s West Village from a children’s nonprofit in 2014 and renovated it into a single-family home.

Seagen, previously known as Seattle Genetics, went public a year after Baker Bros.’s founding. The company pioneered a kind of next-generation chemotherapy called antibody drug conjugates, or ADCs. Chemotherapy patients usually endure brutal side effects because the drug kills both cancer and healthy cells. ADCs promised a more targeted attack.

In 2003, Baker Bros. bought around $16 million of Seagen preferred stock, which helped fund clinical trials. That stock was convertible into 10 times as many common shares at a price of $2.50 apiece. Felix joined the company’s board. The firm loaded up on Seagen stock in the ensuing years, at one point owning almost one-third of the company.

Baker Bros. stuck with Seagen as it worked out the ADC technology kinks. It also stuck around in 2022 when prosecutors investigated Seagen co-founder Clay Siegall for domestic violence, allegations which he denied. (Prosecutors declined to charge him.) Felix assumed the role of board chairman upon Siegall’s resignation.

By then, ADCs were becoming one of the hottest new categories in the cancer-drugs market. The drugs will account for $31 billion of the $375 billion market in 2028, pharmaceutical-market research firm Evaluate has estimated.

Felix was soon leading negotiations to sell Seagen, a person familiar with the matter said. Discussions with Merck about a sale in 2022 broke down. Pfizer Chief Executive Albert Bourla sent Felix a note asking to talk after the J.P. Morgan Healthcare Conference in January 2023. A few months later, the companies unveiled their $43 billion deal.

Investors including Baker Bros. received $229 in cash for each Seagen share. The firm gave most of its haul back to investors because it didn’t see enough opportunities to deploy all that money at once, a person familiar with its thinking said.

It is rare for a hedge fund that isn’t winding down to volunteer to shrink itself so much, said Jon Caplis, PivotalPath’s CEO. Other recent examples come from much larger firms: Citadel distributed about $8.5 billion to investors after a record 2022, and Viking Global Investors gave back $8 billion in 2017.

Baker Bros.’s investors have included college endowments like those of Yale and Princeton and pension funds like the Teacher Retirement System of Texas. At a gathering after the deal closed, Felix joked with Bourla about receiving a call from an Ivy League university president who thanked him for identifying and investing in Seagen, a person familiar with the matter said.

“Glad to be of help," Bourla said.

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