Bellevue Biotech (Lux)

Stock markets showed a divergent performance in May. The S&P 500 closed the month virtually unchanged, the Nasdaq Biotech Index slipped 1.3% and the Bellevue Biotech (Lux) Fund returned a negative 2.6% (USD / B shares).

US monetary policy tightening, the ongoing war in Ukraine and rigid pandemic restrictions in China are keeping stock markets under pressure. China recently softened its zero-tolerance policy, though, which should help manufacturing to get back to normal. In the US, household consumption remains strong despite a deterioration in consumer sentiment. The EU is imposing more sanctions on Russia and has banned most imports of Russian oil effective at the end of 2022. Higher interest rates are becoming a widespread issue, and European central bankers have come under pressure to tighten monetary policy too. Pressure on the COVID-19 front has eased thanks to the seasonally warmer weather, but the outbreak of monkeypox is another reminder how important effective vaccines and adequate vaccine supplies are. This is also reflected in GSK's USD 3.3 bn bid for the unlisted vaccine manufacturer Affinivax. Pfizer is also back on the M&A trail, having signed an agreement to acquire Biohaven for USD 11.6 bn. Shortly before ASCO, the world's largest cancer conference, opened, Legend Biotech/Janssen were granted conditional marketing authorization for their cell therapy CARVYKTI (cilta-cel) in Europe.

Below is an overview of the portfolio's top performers in May: Biohaven soared on the news of Pfizer's takeover offer of USD 11.6 bn, a premium of 73% to the stock's previous closing price. Argenx benefited from the good market uptake of efgartigimod for the treatment of autoimmune diseases including myasthenia gravis (gMG), and announced positive Phase III data for the treatment of immune thrombocytopenia (ITP). Legend Biotech shares advanced on the news that cilta-cel had been granted marketing authorization for the treatment of adults with relapsed or refractory multiple myeloma (r/rMM) in Europe, because the European Commission granted conditional approval even before comprehensive clinical data is available.

Performance detractors were Genmab, despite having reported good quarterly results and pipeline progress; UCB corrected after the FDA issued a complete response letter regarding bimekizumab for the treatment of adults with psoriasis, citing issues with facility inspections that need to be resolved; and Ultragenyx was weak despite progress in its R&D program and a reiterated positive outlook for the year.

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 (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.