Bellevue Biotech (Lux)

December was a somewhat mixed month for stocks. The S&P Index closed the month with a gain of 4.5%, the Nasdaq Biotech Index retreated 1.2% and the Bellevue Biotech (Lux) Fund inched 0.3% higher (USD / B shares).

The pandemic continued to move the stock market as the year came to an end. Rising case numbers and the rapid spread of the Omicron variant filled the headlines. While a booster shot appears to be critical to prevent or stop an infection with Omicron, initial data indicates traditional vaccines are less effective against the Omicron variant, but they still provide a good level of protection against severe COVID-19 disease. A double dose of Biontech’s Comirnaty vaccine afforded 33% protection against a COVID-19 infection with Omicron (initially 80% protection) and 70% protection against severe cases. A booster shot lifted the protection against symptomatic infection back up to a good level of 70%. In addition, Pfizer's antiviral Paxlovid was granted emergency use authorization as an oral treatment of mild to moderate COVID-19. The pill perfectly complements the instruments currently in use to battle the virus. Looking beyond the pandemic-related news, the spotlight in the biotech sector was clearly on oncology at the beginning of the month. Three major scientific conferences took place: the San Antonio Breast Cancer Symposium, the ESMO Immuno-Oncology Congress and the ASH Annual Meeting (hematology). Most of clinical trial updates presented at these meetings were positive: In breast cancer, oral SERDs (selective estrogen receptor degraders) and antibody-drug conjugate, and especially the data on bispecific antibodies and cell therapies for the treatment of hematological and solid tumors. The encouraging progress heralds convincing improvements in patient treatment that should become more tangible in 2022 with the next scheduled data updates.

The following stocks made the best contribution to the portfolio's performance in December: Shares of the biotech company Biohaven Pharmaceutical, which specializes in neurological diseases, moved sharply higher again in mid-December thanks to the improved outlook for its migraine drug Nurtec (rimegepant) and its R&D pipeline. Harmony Biosciences was also a strong performer, but without any major triggers. The FDA expanded its approval of Intra-Cellular Therapies’ Caplyta to include treatment of depressive episodes associated with bipolar disorder. Caplyta was approved to treat depressive disorders associated with bipolar I or bipolar II as both monotherapy and adjunctive therapy.

Oncology specialist Innovent was a weak portfolio performer. Its shares sold off because of negative sentiment regarding the prospects of its Tyvyt checkpoint inhibitor receiving FDA approval given a growing chorus of criticism of “China only“ trials. Bavarian Nordic, a vaccine manufacturer, was also weak in a volatile environment.

Our stance towards the biotech sector remains positive in view of its strong fundamentals and very attractive valuations (average 2022 P/E of 13x and PEG of 1.3 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 1.8) and the S&P Index (P/E 21x, PEG 2.0).
 

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.