Bellevue Obesity Solutions

Stock markets were weak in October. The S&P backtracked 0.9%, the MSCI World Healthcare Index shed 4.8%, and the Bellevue Obesity Solutions (Lux) Fund returned a negative 4.7% (in USD / I shares).

October was a volatile month for financial markets. After making good gains during the first nine months of the year, equities headed south in October. Investors continued to worry about economic growth despite signs of resilience, particularly in the US economy. The elections in the US and how they might impact government policy, inflation and interest rates were an additional source of uncertainty. The healthcare sector underperformed the broader market in October for the second month in a row. The latest quarterly reporting season brought some disappointments in the form of negative news from a few favorite plays and because the cases of unblemished success in this segment have become increasingly rare. Eli Lilly's quarterly report was particularly disappointing due to its tirzepatide franchise: Management unexpectedly reduced its guidance for full-year sales in 2024, this after previously upping its sales forecast for two consecutive quarters. This dragged down Eli Lilly's share price and led to talk about various factors such as de-stockpiling by distributors during the third quarter after widespread inventory stockpiling in the second quarter. High end-market demand for GLP-1 agonists remains intact, but it is now being closely monitored by investors. Clinical data soon to be released by Amgen (Phase II MariTide study) and Novo Nordisk (Phase III CagriSema) will likely have a major impact on both the outlook for obesity therapy in general and on a number of market players.
 
The following stocks were the best portfolio performers during the month under review: Scholar Rock reported positive Phase III data for its anti-myostatin antibody for the treatment of a rare muscle disease (non-ambulatory SMA type 2/3 patients). The same antibody is also being investigated as a combination therapy with GLP-1 agonists to preserve lean mass and thus improve weight loss management. Viking Therapeutics was marked up on positive pipeline developments: A subcutaneous GLP-1/GIP agonist is scheduled to enter Phase III testing in Q4 2024/’25, an oral GLP-1/GIP agonist enters Phase II testing in Q4 2024, and an amylin candidate is scheduled to enter the clinical trial phase in 2025. A company presentation at the upcoming ObesityWeek 2024 also raised high expectations. Shares of Thule and New Amsterdam were also strong performers.
 
The following stocks detracted from fund performance: Regeneron continued to correct, pressured by the pending launch of Amgen’s Pavblu biosimilar for Eylea. The FDA had already approved Pavblu in August, but Amgen was unable to market the drug as long as a court decision regarding a temporary injunction was still pending. That injunction barring Amgen from launching Pavblu was just recently lifted. Innovent headed south after a transaction involving Innovent's founder, chairman and CEO was announced that raised some eyebrows in the marketplace. In that transaction, he acquired a stake in a subsidiary that owns one of Innovent’s key pipeline candidates at a price that was significantly lower than the fair value placed on it by the market.

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.