Bellevue Obesity Solutions

Stock markets made good gains in August. The S&P advanced 2.4%, the MSCI World Healthcare Index 5.5%, and the Bellevue Obesity Solutions (Lux) Fund 5.2% (USD / I shares).

The month ended in the green but it was a bumpy ride getting there. Mixed data on the US economy and large swings in the Japanese yen led to high market volatility. Meanwhile falling inflation expectations combined with solid quarterly earnings reports fueled hopes that the US central bank would soon lower its interest rates, a hope that was later confirmed by Fed Chair Powell. Most markets were able to recover their lost ground already by the middle of the month. In the healthcare sector, investors snapped up blue-chip growth names such as Eli Lilly, Regeneron, Boston Scientific and Intuitive Surgical, leading to solid gains for these stocks. Overall, the sector's performance also mirrored earnings revisions, with the exception of certain areas where valuations had risen despite declining earnings, which was the case in the life science tools subsector, for instance. The second half will be an important phase of the year given the numerous clinical conferences that are scheduled during this period along with the anticipated readouts from various clinical studies at several major bio/pharmaceutical stocks (Novo Nordisk, Roche, Amgen, Viking Therapeutics and Vertex).
 
The following stocks were the best portfolio performers in July: Regeneron reported a solid set of quarterly results and increasing commercial success with its Eylea franchise and with Dupixent. Investor attention has been shifting to the company’s pipeline, where it is making progress with several long-term growth triggers, such as an obesity treatment candidate that could improve the quality of weight loss in patients by preserving lean muscle mass. Initial Phase II data from this trial is scheduled to be released in 2025. The Chinese company Innovent reported solid product revenue growth led by its oncology medicine Tyvyt. Reimbursement eligibility has now been expanded to seven indications in China, so the company’s outlook for the second half of the year should remain stable. After granting approval for fulzerasib (KRAS G12C), a regulatory decision on taletrectinib (ROS1), another drug candidate from Innovent, should soon be made. China's recent approval of the weight loss drugs Wegovy and Zepbound suggests that Innovent’s Mazdutide has a good chance of receiving regulatory approval in the first half of 2025.
 
The following stocks detracted from fund performance: Rovi's results for the first half of 2024 beat expectations and management confirmed its guidance for the full year, although that did not include the impact of its plans to expand production capacity in its fill/finish business or the recent FDA approval of Risvan. Due to the uncertain situation regarding COVID-19 vaccination campaigns in 2024, Rovi’s management remained cautious and it also did not give an update on its strategic review of the company’s CDMO unit, which is what many investors are focused on. McKesson’s quarterly results fell short of high consensus expectations, leading to a sell-off in the company’s shares. Earnings from its MedSurg and RxTS segments were mixed – unchanged at RxTS and 15% lower yoy at MedSurg. Sales guidance for its US pharmaceutical segment was lowered but not its profitability and the key growth themes are still intact.

The companies in the fund's portfolio are working on technologies or products for novel treatment solutions and holistic treatment approaches. Selected healthcare companies with relevant exposure to the obesity care market can also be found in the portfolio, and up to 20% of the fund's assets can be invested in fitness and nutrition companies that have a strong growth profile and a modest valuation. The Bellevue Obesity Solutions (Lux) Fund is well-positioned to profit from the milestones likely to be reached in 2024. Policy frameworks are supportive of solutions that will help to alleviate the obesity crisis. Besides trial readouts and attractive valuation metrics, M&A activity, especially in the drug discovery and development space, will be a relevant factor going forward.

We expect positive catalysts for our investment strategy during the current year. Supportive factors include anticipated interest rate cuts in the US, which would favor growth stocks in particular, attractive stock valuations with price-to-sales multiples approaching historical lows (especially in the biotech sector), forecasts of continued high M&A activity, and growing interest in the high-quality investment opportunities that the healthcare sector offers. 2024 promises to be an exciting year in obesity therapeutics with several significant trial readouts on the agenda. Early in the year, we are expecting initial data readouts from Phase I trials of amylin analogs from both Zealand Pharma and Novo Nordisk. Viking and Structure Therapeutics will publish new data from their trials of oral GLP-1 drugs around the same time. Updates on experimental treatments that preserve muscle mass are also anticipated, for instance from Roche, Regeneron or Scholar Rock to name a few. In view of current demand, which far exceeds available supply, an increase in production is crucial for the GLP-1 market, which is currently dominated by Eli Lilly and Novo Nordisk. We are also closely monitoring whether this class of therapeutics could be approved for the treatment of other diseases such as cardiovascular disorders, obstructive sleep apnea and/or chronic kidney disease.