Bellevue Biotech (CH)

Stock markets were very weak in April. The S&P index declined 8.7% and the Nasdaq Biotech Index 9.7%.

Tighter US monetary policy, no end in sight to the war in Ukraine, and the ultra strict anti-COVID policy in China weighed on investor sentiment during the past month. The US central bank is now expected to increase its overnight lending rate in 50 bps increments at each of its next three policy meetings in its effort to rein in inflation. Europe meanwhile is grappling with the repercussions of the Ukraine war rippling through its energy markets and working on solutions for ending its dependency on Russian fossil fuels. In positive news, unemployment in the euro area dropped to a record low. The currently attractive valuations in the biotech sector have not yet triggered a wave of acquisitions as anticipated. Since many of the larger biopharma players will be confronted with patent expirations in the near future, it is only a matter of time before the first transaction is announced. Besides clinical trial news, takeover activity is a major market-moving driver for the biotech sector. ASCO, the world's largest oncology conference, will soon take place in Chicago. The latest clinical data on cellular therapies and immunotherapies that will be presented there is keenly awaited, following the recent publication of encouraging data.

Below is an overview of the portfolio's top performers in April: Genmab profited from strong sales of its monoclonal antibody Darzalex, which are initially published by its partner J&J. The drug has proven to be a key treatment for multiple myeloma and it has been successfully administered in subcutaneous form for almost two years now. Cytokinetics rose on news of the approval of Bristol’s mavacamten for treating patients with hypertrophic obstructive cardiomyopathy. Mavacamten was originally developed by Cytokinetics, which is testing its own cardiac myosin inhibitor in Phase III trials. Ono Pharmaceutical was marked up on strong sales of its outlicensed oncology products and the related royalties.

Performance detractors were Bicycle Therapeutics, after it presented further data from a Phase I trial of its novel alternative to antibody drug conjugates for treating different tumors at the AACR conference. Despite initial indications of anti-tumor activity, some questions remained regarding the drug candidate’s safety. Shares of C4 Therapeutics were also weak after it presented data at the AACR.

We sold positions in C4 Therapeutics and Ideaya Biosciences and other stocks and used the proceeds to buy Legend Biotech and Ono Pharmaceuticals shares.

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 1.5 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 16x, PEG 1.9) and the S&P Index (P/E 17x, PEG 1.5).

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.