Bellevue Biotech (CH)

Stock markets moved higher in April. The S&P Index gained 1.6% and the Nasdaq Biotech Index rose 1.5%.

April brought a handful of positive data readings on the world economy and showed that economic growth was still remarkably stable despite a series of interest rate hikes. PMI prints in the US, the euro area and the UK were all higher than expected, as was Chinese GDP for the first quarter. It appears that the short-term risk of a recession has subsided somewhat, but the failure of another financial institution in the US at the end of April indicated that the full impact of monetary policy tightening has not yet unfolded. The biotech sector was buoyed by M&A activity. Pharmaceutical giant GSK acquired Bellus Health for around USD 2 bn, a company developing a potential treatment for chronic cough. US drug giant Merck splashed out close to USD 9 bn for Prometheus and Astellas beefed up its ophthalmology pipeline with the USD 6 bn takeover of Iveric, a company in the fund's portfolio.

The following stocks were the portfolio's top performers in April: the Chinese biotech firm Legend Biotech published groundbreaking Phase III data on its cell therapy Carvykti in multiple myeloma. Of the 419 patients enrolled in its CARTITUDE-4 study, 208 were treated with Carvykti and 211 received standard of care as a second to fourth line of therapy. Carvykti showed a whopping 74% reduction in risk of disease progression or death compared to standard of care (hazard ratio of 0.26). Apellis Pharmaceuticals, a company focused on rare diseases and ophthalmology, rose sharply early in the month on takeover speculation. According to the business news platform Bloomberg, Apellis was drawing takeover interest from larger drugmakers.

The following stocks detracted from portfolio performance: Sarepta Therapeutics was marked down after STAT News published an article claiming that some FDA staff were skeptical about Sarepta's filing of its investigational gene therapy for Duchenne muscular dystrophy. Relay Therapeutics traded lower after the company presented data from a Phase I trial of a pan-mutant, isoform-selective PI3Kα inhibitor at a clinical conference.

We reduced our exposure to Harmony, BioNTech and other companies and invested the proceeds in Alkermes and Legend, 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 14x and PEG of 1.4 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 2.2) and the S&P Index (P/E 17x, 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.