Bellevue Biotech (Lux)

Stock markets traded lower across the board in August. The S&P 500 dropped 4.1%, the Nasdaq Biotech Index lost 1.0% and the Bellevue Biotech (Lux) Fund shed 2.4% (USD / B shares).

After initially making gains in August, stocks headed south across a broad front as central bankers signaled their strong determination to bring inflation under control. Positive US labor market data with moderate upward pressure on wages have led to expectations that such a resolute stance would be possible while causing an only mild slowdown in economic activity. In the biotech sector attention focused on drug pricing reforms included in the Inflation Reduction Act and on the latest round of acquisitions. For the first time, the government-run Medicare health insurance program will be able to directly negotiate prices for top-selling drugs. The reforms will be gradually implemented by the end of the current decade. The M&A carousel continued to spin in August. Amgen bought Chemocentryx for USD 3.4 bn, a markup of 124% over the pre-announcement price. Pfizer was active again too and bid USD 5.4 bn for Global Blood Therapeutics, valuing the target with a premium of 89%. Merck’s long-awaited bid for Seagen is still stuck at the negotiating table though.

The following companies made the best contribution to the portfolio's performance in August: Alnylam Therapeutics presented positive Phase III data from its APOLLO-B study of patisiran in patients with transthyretin amyloid cardiomyopathy. This news also benefited Alnylam's rivals Ionis, which is conducting a large clinical trial in amyloidosis, and Intellia. Ionis and Alnylam will present more detailed data at the International Symposium on Amyloidosis in early September. THE APOLLO data show that reducing pathogenic protein is an effective approach for treating patients with ATTR-CM, which has attracted increasing attention as an important cause of heart failure. The latest takeover activity also lifted the share price of Cytokinetics, a potential target. It reiterated its outlook for the second half of the year.

Performance detractors were Seagen after an arbitrator issued a decision in favor of Daiichi Sankyo in their dispute over the use of Seagen's ADC technology; Ono Pharmaceutical was marked down due to the pending drug price reforms in the US; and Harmony Biosciences corrected although its top-selling product Pitolisant received a patent extension to 2030.

Our stance towards the biotech sector remains positive in view of its strong fundamentals and very attractive valuations (average 2023 P/E of 14x 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 2.0) and the S&P Index (P/E 17x, PEG 1.7).

 

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 (Lux) 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.