Bellevue Biotech (CH)

Stock markets showed positive returns in August. The S&P index gained 2.3%, the Nasdaq rose 1.1% and the Nasdaq Biotech Index advanced 0.8%.

Markets ended the month in the green but there was volatility along the way. Mixed data on the US economy and large swings in the Japanese yen led to high market volatility. Meanwhile falling inflation expectations combined with solid quarterly earnings reports fueled hopes that the US central bank would soon lower its interest rates, a hope that was later confirmed by Fed Chair Powell. Most markets were able to recover their lost ground already by the middle of the month. In the healthcare sector, blue-chip growth names such as Eli Lilly and Regeneron were strong performers. Most of the profit-making biopharmaceutical companies beat expectations. The fastest growth rates were reported in the obesity treatment space. Novo reported 27% sales growth for the second quarter and Lilly an even higher year-on-year increase of 36%, plus it raised its sales guidance for the full year by USD 3 bn. The clinical conference season began in late August with the annual congress of the European Society of Cardiology (ESC), where Alnylam presented good data for vutrisiran in ATTR-CM, a rare disease that eventually leads to heart failure.

The following stocks made the best contributions to portfolio performance in the month under review: Adma Biologics surprised the market when it reported 78% yoy sales growth and upped its guidance for 2024 and 2025, thanks in part to a potential 20% increase in its immunoglobulin production yield. Verona Pharma traded higher on increasingly positive views regarding the market uptake of Ohtuvayre, a PDE3/4 inhaled treatment for the lung disease COPD that was launched in early August. Protagonist advanced after giving an update on its clinical development pipeline in hematology and immunology.
 
The following stocks detracted from fund performance: Charles River corrected after management gave a weak outlook for its pharmaceutical contract manufacturing business, despite the overall positive trend in its manufacturing solutions segment. Rocket Pharma was weak for no apparent reason and Neurocrine Biosciences declined after presenting Phase II data for its schizophrenia drug NBI-1117568, an M4 selective orthosteric receptor agonist that demonstrated a statistically significant improvement but not as good as expected, and there were also questions about the doses tested.
 
We reduced shareholdings in Charles River, Alnylam and other stocks and invested the proceeds in Appelis and other companies.

Our stance towards the biotech sector remains positive in view of its strong fundamentals and enticing valuations (average 2024 P/E of 14x and PEG of 1.4 for large caps). These are very attractive multiples compared to historical valuations, and especially when compared to the current valuations for the pharma sector (P/E 20x, PEG 2.3) or the S&P Index (P/E 21x, PEG 2.4).

The companies in our portfolio are working on technologies or products for novel treatment solutions. We are also invested in selected specialty pharma companies that offer high growth rates and moderate valuations. The Bellevue Biotech (CH) Fund is well-positioned to profit from the milestones that are expected to be reached in 2024. The regulatory environment favors the innovation coming out of biotech labs and the coronavirus crisis burnished the image of drug developers. Looming patent expiries coupled with large piles of cash suggest large pharma companies will continue to hunt biotech companies over the next 18 months. Inexpensive small and mid caps with attractive pipeline candidates are obvious takeover targets.