Bellevue Biotech (CH)

Global equities continued to recover in July 2025, with the MSCI World Index ending the month up 1.3%. The equity markets have shown a remarkable recovery since the April lows, shrugging off any bad news along the way. The same cannot be said for the healthcare sector, which remained a laggard in July (MSCI World Healthcare; -3.0%), partly driven by weak fundamentals from healthcare services (subsector down 15% for the month). More positively, the biotech subsector performed well in the month (NBI Index; +5.5%). The Bellevue Global Biotech Fund (AA shares: +6.1%; in US dollars) clearly outperformed its biotech benchmark.

Several trade deals were announced toward the end of the month, most notably the agreement between the EU and the US, which was broadly welcomed by global equity markets. The US Bureau of Labor Statistics (BLS) reported on Friday, August 1, that nonfarm payrolls (NFPs) rose by only 73,000 in July, missing the market expectation of 110,000. Additionally, the BSL announced a significant negative revision for May and June. This weakness in the labor market increased market expectations of a 25 bps Fed rate cut in September.

Within biotech, concern regarding US President Trump’s most-favored-nation (MFN) drug pricing policy grew during the month, with a letter from the president sent to 17 biopharma CEOs published on July 31. While drug tariffs appear excluded from recent deals (for example with the EU), we are waiting for the consequences of the 232 investigation, which could have a negative impact on any bilateral deals. So far, these recent developments have not proven to be the «clearing events» the sector needs (more details on the implications going forward in the Outlook section).

Beyond US politics, dealmaking in biotech has been a focus in recent months. There has been a surge in licensing deals in which Chinese biopharma companies out-license the ex-China rights for innovative drugs. Western biopharma companies are tapping China’s strengths in antibodies, new modalities, and early clinical trial conduction. Recent deals suggest that Chinese biopharma companies are no longer just fast followers in drug development; in fact, they are ahead in innovation in some areas.

The Bellevue Global Biotech (CH) Fund outperformed its biotech index benchmark, benefiting from security selection and positive clinical trial readouts. Among the portfolio holdings, the strongest relative performance contribution came from Rhythm Pharmaceuticals (+37.5%; in Swiss francs) based on successful phase 2 results in hypothalamic obesity and from Akeso (+71.4%; in Swiss francs) in the context of the broader performance strength of Chinese biotechs.

In his July 31 letters, President Trump cited a lack of progress on his MFN Executive Order, highlighting that 1) MFN should be extended to pricing in Medicaid, 2) MFN should be guaranteed for new drugs, 3) revenues should be returned to US patients/taxpayers, and 4) biopharma should provide direct purchasing at MFN pricing. While we see the focus on Medicaid (rather than Medicare) as a best-case scenario for biopharma, overall, this was not enough of a clearing event for investors.

Alongside this MFN policy, there remains the 232 investigation on drugs related to national security. In terms of tariffs, our base case assumption is that most drugs will be exempt from tariffs (or be subject to the country-level tariff at most), with some targeted tariffs where there are national security risks. Confirmation of this in coming weeks would be supportive.

We expect the outcome of MFN and tariffs to be less damaging to future company earnings than feared. In addition, given the level of uncertainty and low relative valuations, we expect any type of certainty on MFN and drug tariffs to be supportive of a rerating. At present, the exact timing of this clearing event and rerating is not clear. Nevertheless, as we move through this economic cycle and period of healthcare policy adjustments, we expect the certainty of earnings in large biotech to become higher than that of more discretionary/cyclical sectors.

Once we have a clearer US drug pricing environment, we expect M&A to return to the sector and drive biotech valuations. Along with a biotech rerating from low levels, we see potential rate cuts as supportive of higher-growth SMID-cap biotech names and therefore supportive of active management in the sector. Nevertheless, we remain focused on high-conviction names from a bottom-up perspective and see a broad exposure to biotech as appropriate from a risk perspective.