Bellevue Biotech (CH)

October was a mixed month for stocks. The S&P index and the Nasdaq 100 closed -0.99% and -0.85% lower while the Nasdaq Biotech Index retreated -2.47% (all figures in USD).

October was distinguished by growing uncertainty about the outcome of the US presidential election, mixed economic data, and third-quarter earnings reports. The latest readings on the US economy were much more robust than expected, whereas in Europe the central bank lowered its benchmark interest rate and in China officials unveiled a massive economic stimulus plan. Most biotech companies reported very pleasing quarterly results, many of which were better than expected. At an Alzheimer's conference (CTAD), there was disappointing news about tau-targeting therapies. Lilly's modified titration schedule for its anti-amyloid beta (Aβ) antibody significantly reduced cerebral edema and effusion (ARIA-E) and Roche's new trontinemab antibody showed a rapid amyloid plaque depletion at low doses in Phase Ib/IIa testing. However, one patient enrolled in the study passed away, which caused some uncertainty. At the ASN’s Kidney Week 2024, impressive data was presented on iptacopan from Novartis and pegcetacoplan from Apellis in a rare kidney disease (C3G) resulting from overactivation of the alternative complement pathway for which currently no treatment is available. Last but not least, the latest data from Novo Nordisk on its GLP-1 agonist semaglutide showed an improvement in liver fibrosis in patients with fatty liver inflammation and progressive liver scarring (MASH F2/3).

The following stocks made the best contributions to portfolio performance in the month under review: Scholar Rock reported impressive data for apitegromab (anti-myostatin) in spinal muscular atrophy (SMA). Treatment with Scholar Rock's antibody in patients with SMA, a hereditary disease, led to a clinically meaningful improvement in motor function. Travere presented solid data from a study of sparsentan in IgAN (Berger's disease), a rare kidney disease, at the ASN’s Kidney Week 2024. It showed that kidney function in 60% of the patients in the newly diagnosed IgAN subgroup had normalized during the treatment period. Verona traded higher after presenting good data for ensifentrine, an inhaled treatment for COPD, at the CHEST 2024 conference. Intracellular advanced after reporting strong sales of lumateperone in the indications of schizophrenia or bipolar depression.
 
The following stocks detracted from fund performance: Innovent was marked down on the news that two of its directors had bought a 20.4% stake in Fortvita, a company subsidiary, at a price that investors deemed was too low. Adma Biologics corrected in the wake of the sudden resignation of its outside auditor CohnReznick and Terns Pharma headed south for no apparent reason.
 
We reduced shareholdings of companies such as Innovent, Apellis and Rocket and reinvested the proceeds in Oculis, Incyte, New Amsterdam and other stocks.
 
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 1.4 for large caps). These are very attractive multiples compared to historical valuations, and especially when compared to the current valuations for the pharma sector (P/E 20x, PEG 2.3) or the S&P Index (P/E 21x, 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 2024. 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 pharma 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.