Bellevue Biotech (Lux)

October was a mixed month for stocks. The S&P Index closed the month with a gain of 7.0%, the Nasdaq Biotech Index shed 1.9% and the Bellevue Biotech (Lux) Fund inched 0.2% lower (USD / B shares).

The third-quarter reporting season started in October and most of the earnings reports from biotech companies have so far been positive. However, the headline topic of the month was the Phase III data on the oral antiviral drug Molnupiravir, which Merck is developing together with Ridgeback Biotherapeutics for the treatment of COVID-19 in adults. The Molnupiravir pill reduced the risk of hospitalization or death by 48% compared to placebo. The trial was conducted with COVID-19 patients who had mild to moderate symptoms and they were administered the drug within five days of the onset of symptoms. Merck announced its marketing strategy for Molnupiravir at the same time and it has already received a large number of orders for the drug. Data on other oral antiviral drugs from Pfizer and Shionogi is expected shortly. Such medicines are an ideal complement to currently available treatments and vaccines. Up to now there were no anti-covid pills that doctors can prescribe at a very early stage of the disease. This is good news for people who cannot be vaccinated, who do not develop an adequate immune response, or who become infected with COVID-19 despite vaccination.

The following stocks made the best contribution to the portfolio's performance in October: At the beginning of the month, Bicycle Therapeutics published pleasing data from two different Phase I clinical trials. Bicycle is developing novel bicyclical peptides, which are similar to antibody drug conjugates (ADC), and activated through chemotherapy, in patients with difficult-to-treat solid tumors. Intra-Cellular Therapeutics advanced on growing confidence that it would be granted a label expansion for Caplyta, its already approved medicine for treating symptoms of schizophrenia. Inhibrx published Phase I results from a trial of its antibody-like investigational drug for treating patients with alpha-1 antitrypsin deficiency that were encouraging.

Performance detractors were: Kyowa Kirin, a Japanese company, despite reporting positive Phase II data from its study of an anti-OX40 antibody in patients with atopic dermatitis. Bavarian Nordic, a vaccine manufacturer operating in a dynamic COVID-19 environment, remained volatile and China-based Innovent Biologics traded sharply lower for no particular reason.

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 1.2 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 2.3) and the S&P Index (P/E 21x, PEG 2.1).

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 2021. The regulatory environment favors the innovation coming out of biotech labs and the coronavirus crisis has improved the image of drug developers. Large pharma companies have acquired a number of companies in the fund's portfolio – Loxo, Array, Medicines Company, Myokardia and Alexion – and we expect more M&A deals to be announced during the coming months.