| Seth Klarman, Baupost Group (Bloomberg) |
Famed value investor Seth Klarman’s Baupost Group is exploring a new investing theme, building a portfolio of fledgling pharmaceutical companies. In the past month or two, the Boston-based investment firm has disclosed at least three new positions in smallish pharmaceutical companies. In addition, three of its ten largest equity positions at the end of the third quarter were in small drug companies.
Baupost is hardly a health care specialist or a stock specialist. Its portfolio tends toward the eclectic, often containing assets that are either undervalued, ignored, complex or all of the above. These can include distressed debt, commercial real estate, mortgages and equities.
Until recently, the firm has run a very small equity book. However, in the second quarter its U.S. stock portfolio zoomed to $6.14 billion, by far the firm’s largest equity exposure since it was founded in 1982. In the third quarter Baupost trimmed this portfolio to $5.74 billion.
In any case, on Thursday, Baupost disclosed that it owns 12 percent of Boston-based Paratek Pharmaceuticals. On October 30, the drug company merged with Transcept Pharmaceuticals, which then adopted the Paratek name.
Prior to the merger, Baupost was one among several companies to make an investment in Paratek, a small, struggling company with a $58 million market capitalization.
At the end of 2013, it had just $1.7 million in revenues, down from $19.7 million two years earlier. It is now trying to develop two drugs. At the end of October, Transcept completed a 12-1 reverse stock split. Baupost did not own shares of Paratek or Transcept at the end of the third quarter. Shares of Paratek rose nearly 3 percent on Friday, to $28.80.
Baupost also recently disclosed an 11.72 percent stake in Forward Pharma, which went public in mid-October. The Danish biopharmaceutical company is working on a treatment for multiple sclerosis and other immune disorders such as psoriasis, according to the company.
Baupost also recently disclosed a 12.86 percent stake in Atara Biotherapeutics, another biopharmaceutical development company, which says it focuses on therapies for patients with debilitating diseases. The company, which went public in October, was created by Amgen and venture capital giant Kleiner Perkins Caufield & Byers.
At the end of the third quarter, meanwhile, three of Baupost’s ten largest equity positions were pharmaceutical companies. They include Theravance, its fifth-largest holding. The biopharma company licenses respiratory assets to GlaxoSmithKline. Earlier this year, it spun off its drug discovery and development business, Theravance Biopharma, which has one approved product. Theravence Biopharma is Baupost’s tenth-largest holding.
Baupost’s sixth-largest equity position was in Keryx Biopharmaceuticals, which seeks to develop products to address renal disease. Its lead product was approved by the Food and Drug Administration on September 5. Baupost boosted its stake in the company by nearly 75 percent in the third quarter.
