Review and Outlook

as of 12/31/23

The big headline in the Health Care sector in 2023 was investor excitement surrounding a new category of weight loss drugs. On the upside, shares of the companies that manufacture these drugs surged. On the other hand, some medical device companies lost ground due to concerns that the weight loss drugs will cut into their business. Elsewhere in the sector, multiple headwinds continued to weigh on performance. Managed care companies grappled with heightened political and regulatory scrutiny of the Medicare Advantage program and the pharmacy benefit management industry, less favorable Medicare Advantage rates for 2024, and an uptick in medical cost trends. The challenging funding environment for biotechnology continued. Life sciences tools stocks were impacted by a pullback in spending by pharmaceutical customers, less biotechnology funding, a slowdown in China, and inventory destocking. From a sector perspective, Health Care was simply out of favor with investors who eschewed sectors that are viewed as defensive to focus on mega-cap growth stocks, especially the large tech companies seen as potential beneficiaries of generative AI.

Baron Health Care Fund increased in the quarter. Holdings within the health care equipment, biotechnology, and pharmaceuticals sub-industries contributed the most. Positive returns within health care equipment were led by third largest contributor Intuitive Surgical, Inc. Top contributor Rocket Pharmaceuticals, Inc. led gains within biotechnology, and second largest contributor Eli Lilly and Company led appreciation within pharmaceuticals. Investments within health care technology detracted due to weakness in the share price of life sciences cloud platform provider Veeva Systems Inc.

Looking ahead, we believe Health Care stocks will benefit from relatively low valuations combined with powerful long-term innovations and trends that have just started to play out. Capital markets appear to be opening up again. More biotechnology funding should flow through to companies that sell products and services used in life sciences research. Innovation in life sciences is accelerating. Scientists have a better understanding of the genetic drivers of diseases, and clinicians have more tools to treat diseases. The FDA approved 55 novel drugs in 2023, up from 37 in 2022 and the most since 2018, and in December the FDA approved the first CRISPR-based gene editing treatment in the U.S. Large pharmaceutical companies facing upcoming patent expiries have stepped up their M&A activity, leading to a record number of transactions in 2023, despite increasing scrutiny from the FTC. Secular drivers like the aging population and rising health care spending continue unabated. Given this backdrop, we are optimistic heading into 2024.

Top Contributors/Detractors to Performance

as of 12/31/23


  • Rocket Pharmaceuticals, Inc. specializes in the development of gene therapies for rare genetic diseases outside of oncology. Currently these include Danon disease, Fancomi's anemia, LAL-D, and Pyruvate kinase disorder. The first three drug treatments should all be commercially launched by 2025, generating substantial potential revenue for the company. Shares increased on the announcement of a pivotal trial design for Danon disease that had been delayed by two to three months, causing much stock market angst. In addition, the first-ever approval of a gene editing therapy for sickle cell disease was a positive for the genetic medicine space. Near term, the focus is on next steps in the clinical trials as well as execution on initial commercial launches for Fancomi's anemia and LAL-D. Given the life-saving nature of Rocket's therapies and the high unmet need for each of these diseases, we retain conviction in our investment.
  • Eli Lilly and Company is a global pharmaceutical company primarily focused on therapeutics. Stock performance has been strong for much of the year due to consistent financial growth and the constant drumbeat surrounding the obesity and diabetes franchises that potentially could reach $100 billion a year in revenue. Narrative growth has most recently been fueled by the positive Phase 3 SELECT trial results from competitor Novo Nordisk that showed patients on a GLP-1 medication (i.e., semaglutide) had a 20% relative risk reduction in major adverse cardiovascular events. Current limitations on growth have been the manufacturer's capacity to produce enough of the drug to meet demand and insurance coverage questions. We retain conviction given opportunities in treatments for Alzheimer's and obesity and continued strong operational execution.
  • Intuitive Surgical, Inc. sells the da Vinci surgical robotic system for minimally invasive surgical procedures. The stock rose on investor speculation that the company could launch a new robotic system in 2024. We believe Intuitive Surgical will continue to innovate and launch new products that enhance surgical outcomes, and we think the company has a long runway for growth.


  • Argenx SE is a biotechnology company focused on autoimmune disorders. Shares fell in the quarter on the back of failed clinical trials in immune thrombocytopenic purpura and pemphigus vulgaris that called into question the applicability of the FcRn treatment landscape. While the exact nature of these data sets is nuanced and not entirely thesis-breaking, in our view, there are now real questions for the FcRn space that have not existed in the narrative for years. On the positive side, the strong launch of Vyvgart, with early sales tripling consensus expectations and global approvals coming earlier than guided, should continue to grow revenue and justifies a defensible valuation based on cash flow analysis. We expect 2024 to be another year of solid performance, with many catalysts including readouts in myositis, Sjogren's syndrome, multifocal motor neuropathy, and argenx's subcutaneous formulation launch.
  • Structure Therapeutics Inc. is a biotechnology company dedicated to making small molecule medicines to target the obesity and diabetes market. Recent share weakness has been due to two large pharmaceutical acquisitions in the space: Roche's purchase of Carmot and AstraZeneca's in-licensing of Eccogene's GLP-1 asset. These developments were followed by updates from Structure that implied it had a promising asset, but it might be inferior to Eli Lilly's first-in-class product. Shares fell as analysts reduced the probability of success surrounding potential peak sales. We think it is too early to reach a final conclusion on this asset class, as these data sets are limited in total sample size, and there are compelling arguments for both sides. Given how quickly this space changes and our smaller position sizing due to the aforementioned dynamics, we are monitoring our position and making decisions based on our evolving analysis.
  • Legend Biotech Corporation is dedicated to researching, manufacturing, and distributing cellular therapies for cancers. Its lead product, Carvykti, is in the midst of a commercial launch for the treatment of multiple myeloma patients who have second line or more advanced disease. Demand wildly outstrips supply in this 60,000 patient opportunity, as Carvykti has shown best-in-class clinical response rates and offers patients a potential curative-like "one and done" treatment approach to the cancer. Partner Johnson & Johnson has already invested $1 billion in this cellular therapy, and we expect additional investments as the therapy is scaled in what will likely be a $10 billion to $20 billion revenue opportunity. As a niche market with limited competition, we expect continued strong financial growth. Recent share weakness is due to Arcellx's data disclosures at the American Society of Hematology conference and FDA updates on safety investigations, neither of which we deem overly concerning.

Investors should consider the investment objectives, risks, and charges and expenses of the investment carefully before investing. The prospectus and summary prospectuses contain this and other information about the Funds. You may obtain them from the Funds’ distributor, Baron Capital, Inc., by calling 1-800-99BARON or visiting Please read them carefully before investing.

The performance data quoted represents past performance. Past performance is no guarantee of future results. The investment return and principal value of an investment will fluctuate; an investor's shares, when redeemed, may be worth more or less than their original cost. The Fund’s transfer agency expenses may be reduced by expense offsets from an unaffiliated transfer agent, without which performance would have been lower. Current performance may be lower or higher than the performance data quoted.

Risks:All investments are subject to risk and may lose value.

The discussion of market trends is not intended as advice to any person regarding the advisability of investing in any particular security. The views expressed on this page reflect those of the respective writer. Some of our comments are based on management expectations and are considered “forward-looking statements.” Actual future results, however, may prove to be different from our expectations. Our views are a reflection of our best judgment at the time and are subject to change at any time based on market and other conditions and Baron has no obligation to update them

Portfolio holdings are subject to change. Current and future portfolio holdings are subject to risk.

The index performance is not fund performance; one cannot invest directly into an index.