Baker Brothers' Biotech Gamble: Are These 5 Stocks the Next Breakouts?

The biotech sector has been a graveyard for investors this year, but one of Wall Street's most aggressive money managers is betting big on a comeback. Baker Bros. Advisors, the $9.36 billion fund run by Julian and Felix Baker, has loaded up on five overlooked biotech stocks—PCVX, IMVT, RCKT, VRNA, and RGLS—amid a sector-wide selloff. Their contrarian moves, paired with strategic exits from underperformers, signal that this is no accident. Let's dissect why these bets could be the spark to reignite the biotech rally.

The Baker Playbook: Aggressive Bets on Late-Stage Innovators

Baker Brothers isn't playing games. Their Q1 2025 13F filings reveal a 15.69% turnover rate, meaning they're dumping losers and doubling down on winners. The fund slashed positions in BeiGene (ONC) and Summit Therapeutics (SMMT) but went all-in on five biotechs with late-stage clinical assets and catalyst-rich pipelines. This isn't just speculation—it's a calculated bet that these companies are undervalued and primed to deliver breakthroughs.

Let's break down each play:

1. Vaxcyte (PCVX): The Next Big Vaccine Play?

Portfolio Weight: 0.27% ($24M)
What They're Betting On: Vaxcyte's VAX-31, a 31-valent pneumococcal conjugate vaccine, is in Phase 3 trials for adults and infants. With $3 billion in cash, the company is racing to challenge Pfizer's Prevnar franchise.

Why Now? The FDA's fast-tracked review of VAX-31's data (expected late 2025) could trigger a valuation surge. Plus, CEO Scott D. Gottlieb (ex-FDA commissioner) is no stranger to regulatory wins.

Risk/Reward: A 3x upside if VAX-31 gains approval, but a delay could send shares tumbling.

2. Immunovant (IMVT): Autoimmune Disruptor

Portfolio Weight: 1.03% ($93M)
What They're Betting On: Immunovant's eptinezumab targets severe autoimmune diseases like immune thrombocytopenia (ITP). Baker Brothers increased their stake by 219% in Q1, signaling urgency.

Why Now? With $512M in TTM revenue, Immunovant is scaling up commercialization. A positive Phase 3 readout for eptinezumab (expected 2026) could supercharge growth.

Risk/Reward: A 2x return if the drug hits targets, but execution risks remain.

3. Rocket Pharmaceuticals (RCKT): Gene Therapy's Underdog

Portfolio Weight: 0.08% ($7M)
What They're Betting On: Rocket's RP-L200 treats rare metabolic disorders like LC-FAOD. A 1,030% stake surge by Baker Bros. suggests they're banking on FDA approval by 2026.

Why Now? With $318M in cash, Rocket can fund its gene therapy pipeline through 2026. A positive readout for its Danon disease trial (mid-2025) could be a game-changer.

Risk/Reward: A 5x potential if trials succeed, but rare disease markets are small and volatile.

4. Verona Pharma (VRNA): COPD's Quiet Giant

Portfolio Weight: 0.20% ($14M)
What They're Betting On: VRNA's RPL554 is a COPD drug in Phase 3 trials. Baker Brothers took a new $14M position, eyeing its dual bronchodilator/anti-inflammatory mechanism.

Why Now? With $401M in cash, VRNA can push RPL554 through trials. Positive data (expected 2025) could make it a blockbuster.

Risk/Reward: A 2.5x upside if approved, but competition from big pharma is fierce.

5. Regulus Therapeutics (RGLS): The Novartis Deal Catalyst

Portfolio Weight: 0.001% ($5M)
What They're Betting On: Regulus' farabursen for polycystic kidney disease (PKD) has a $1.7B deal with Novartis hinging on Phase 3 data. Baker Brothers' tiny but strategic stake suggests they're in it for the upside.

Why Now? A Phase 3 launch (Q3 2025) could trigger a Novartis buyout. Even a 10% chance of that deal makes this a high-risk, high-reward bet.

Risk/Reward: A 10x return if Novartis pulls the trigger, but PKD's small patient pool limits the ceiling.

The Contrarian Play: Why Now?

The biotech sector is down 30%+ year-to-date, but Baker Bros. sees opportunity where others see fear. Their selective exits from underperformers (e.g., cutting BeiGene by 7%) and bullish stance on late-stage assets suggest they're buying dips in companies with near-term catalysts.

The key takeaway? Late-stage clinical data is the new gold. With these five stocks all having trials or partnerships hitting key inflection points in 2025-2026, Baker's timing couldn't be better.

Investor Action Plan

This is not a buy-and-hold strategy—these are catalyst-driven trades. Here's how to play it:
1. PCVX: Buy the dip below $35, target $80 by late 2025.
2. IMVT: Accumulate below $18, aim for $35 if eptinezumab hits Phase 3 targets.
3. RCKT: Aggressive traders only—$5 is a gamble, but $25+ is possible if trials succeed.
4. VRNA: Buy the pullback below $60, target $150 if RPL554 wins approval.
5. RGLS: A high-risk bet—$2 is a starting point, but $20+ if Novartis buys.

Final Word: Biotech's Comeback is Baked In

Baker Bros. isn't just playing the odds—they're picking the undervalued, catalyst-rich stocks that Wall Street has ignored. With $9 billion in AUM and a track record of betting on clinical winners (see theirBeiGene stake), this fund's moves deserve respect.

If you're ready to take on risk, these five stocks could be the next breakout plays. But remember: biotech is a marathon, not a sprint. Stick to small positions, and let the catalysts do the heavy lifting.

Disclosure: This article is for informational purposes only. Consult your financial advisor before making investment decisions.