Bellevue Biotech (CH)

June was a mixed month for stocks. The S&P index declined 8.3% and the Nasdaq Biotech Index gained 1.1%.

Market moves continued to be dictated by news about inflation, the war in Ukraine and the risk of a recession. Unemployment in the US remains low and wage growth is high, but consumer confidence has turned sharply lower. The second quarter has ended and investor attention will soon be focused on the quarterly earnings announcements. The biotech sector showed signs of strength early in June with Bristol-Myers bidding USD 4.1 bn for Turning Point Therapeutics, a clinical-stage precision oncology company, which represented a markup of 122% from its previous closing price. This was followed by ASCO, the world's largest cancer conference. For the first time in three years, participants were able to attend the conference in Chicago in person. AstraZeneca and its partner Daiichi Sankyo presented transformational data from their groundbreaking trial of Enhertu in breast cancer. This antibody-drug conjugate delivered landmark results in previously hard-to-treat HER2-low patients. The trial data presented during a plenary session and published in the prestigious New England Journal of Medicine evoked a long standing ovation from the deeply impressed audience at the ASCO.

The following companies made the best contribution to the portfolio's performance in June: Argenx and Legend Biotech were again the top performers, like in the previous month. Harmony Biosciences presented new and impressive efficacy data on Wakix (Pitolisant) at a medical conference, which was already approved in the US in late 2020 for the treatment of excessive daytime sleepiness (EDS) in adults with narcolepsy. Shares of the Chinese biotech company Innovent were marked up after the company announced that its anti-PD1 monoclonal antibody had been approved in another indication in China, the fifth indication for this cancer drug, which had already been approved in lung, liver and various types of blood cancer.

Pacira Biosciences, which had published preliminary sales figures for its key products in May, was a performance detractor. Despite steady sales growth, Pacira was unable to fully meet expectations. The Japanese pharmaceutical company Ono Pharmaceuticals was also a weak performer, although its key sales drivers are still showing positive developments.

We closed our position in Orion, reduced shareholdings of companies such as Alnylam and invested the proceeds in Wuxi Biologics, Innocare and other positions.

Our stance towards the biotech sector remains positive in view of its strong fundamentals and very attractive valuations (average 2023 P/E of 13x and PEG of 0.9 for large caps). These are still very attractive multiples compared to the biotech sector's historical valuations and the current ratios for the pharma sector (P/E 17x, PEG 2.1) and the S&P Index (P/E 16x, PEG 1.4).

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 2022. The regulatory environment favors the innovation coming out of biotech labs and the coronavirus crisis has improved the image of drug developers. In addition to the growing piles of cash that the larger biopharmaceutical companies are accumulating, we also believe low valuations and the attractive pipeline candidates of biotech companies in the small and mid cap space could trigger M&A activity going forward.