Bellevue Biotech (CH)

Most markets traded lower in October. The S&P index bust shed 2.1% of its value and the Nasdaq Biotech Index gave up 6.6%.

In short, October was a challenging month for investors with prices declining for equities and bonds alike. Although the US economy has so far been remarkably robust, worries about a future economic slump pressured financial markets. Geopolitical troubles weighed on market sentiment too. The prospect of tight monetary policy over a prolonged period contributed to the sell-off, and the armed conflict between Israel and Hamas also reduced hunger for risk. In the biotech space, three major clinical conferences made headlines. At the European Society of Medical Oncology (ESMO) in Madrid, data from novel therapeutic approaches such as antibody-drug conjugates (ADCs) and bispecific antibodies attracted attention and there was also some exciting news about small-molecule targeted cancer therapies. At the World Sleep Congress, there was interesting data on orexin receptor agonists, a new class of drugs for the treatment of narcolepsy, and at an Alzheimer's research conference, collaboration partners Eisai and Biogen published eagerly awaited new data on the subcutaneous formulation of their anti-amyloid antibody Leqembi.

The following stocks made the biggest positive contributions to the portfolio's performance in October: Structure Therapeutics shares rose in the wake of growing attention for oral GLP-1 agonists and their application in the field of obesity and diabetes. Apellis Pharmaceuticals published preliminary sales for its eye injection treatment Syfovre for geographic atrophy that beat investor expectations. Cytokinetics presented the baseline characteristics of patients enrolled in its pivotal Phase III clinical trial of aficamten in patients with symptomatic obstructive hypertrophic cardiomyopathy (HCM). The clinical trial patients represent a subset of the HCM population with significant unmet treatment needs. This readout boosted confidence in the company’s ongoing Phase III study.

The following stocks detracted from portfolio performance: Akero was marked sharply lower after its lead product candidate efruxifermin failed to meet high expectations regarding liver fibrosis improvement in a Phase IIb study. Revolution Medicines headed south after it published data on its oral treatment for various solid tumors at the ESMO. Early Phase I data showed good tolerability, but the drug's efficacy fell slightly short of investor expectations.

The fund's exposure to Moderna, Akero and other companies was reduced and the proceeds were invested in Zealand and Exelixis, among other companies.

Our stance towards the biotech sector remains positive in view of its strong fundamentals and enticing valuations (average 2024 P/E of 13x and PEG of 1.1 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 18x, PEG 2.0) and the S&P Index (P/E 18x, PEG 2.3).

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 2023. 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 biopharma 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.