Bellevue Biotech (CH)

July was a positive month for most stocks. The S&P index gained 3.2% and the Nasdaq Biotech Index rose 1.3%.

Market sentiment remained positive in July, supported by reports of easing inflationary pressure in developed countries and robust economic data. A key factor for the market’s moves was the June inflation data for the US that was published in mid-July. It revealed a bigger-than-expected drop in headline inflation to 3% year-on-year (from 4% in the previous month), while core inflation was almost unchanged at 4.8% year-on-year. Confidence in the biotech sector was buoyed by long-awaited news from two Phase III studies. The Dutch company Argenx was able to reach an important milestone with its Vyvgart drug administered by subcutaneous injection. The drug demonstrated impressive efficacy in patients with chronic inflammatory demyelinating polyneuropathy (CIDP), a rare autoimmune disease of the peripheral nervous system for which there had previously been no truly satisfactory treatment options. Good Phase III data was also published by BridgeBio. Expectations regarding the ongoing study of acoramidis in patients with rare heart disease had been rather low, so it was all the more pleasing to see that more than four out of five patients treated with the drug were still alive after 30 months, along with a significant relative risk reduction of 50% in the frequency of cardiovascular-related hospitalizations.

The following companies made the best contribution to the portfolio's performance in July: BridgeBio published positive Phase III data from its ongoing study of acoramidis, an investigational new drug for the treatment of patients with transthyretin amyloid cardiomyopathy. The study results were highly statistically significant and showed an improvement in overall mortality and cardiovascular-related hospitalizations among the trial patients compared to the placebo group. Argenx also gained after the company reported positive data from a Phase III study of Vyvgart in patients with a rare neuromuscular disease. Reata's shares jumped on news that Biogen had offered a premium of 60% to take over the company.

The following stocks detracted from portfolio performance: Apellis Pharmaceuticals plunged on news that its approved drug Syfovre for the treatment of an advanced form of eye disease (geographic atrophy) had been associated with rare but severe side effects. Sage Therapeutics came under selling pressure due to waning confidence that the FDA would give its antidepressant Zuranolone a broad label. The agency is expected to announce its decision on August 5.

We reduced our exposure to Viking Therapeutics, Illumina and other companies and invested the proceeds in Reata and Dynavax, 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 1.1 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 18x, PEG 2.3) and the S&P Index (P/E 19x, PEG 2.5).

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 (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.