Bellevue Biotech (CH)

Stock markets performed well in the opening month of the new year. The S&P index closed 1.65% higher (in USD), the Nasdaq gained 0.71% and the Nasdaq Biotech Index 3.69% mom.

Economic activity in the US remained robust in January so the Federal Reserve saw no need to cut its benchmark lending rate. Meanwhile, the central banks of the euro area and Canada both announced a 0.25% cut in their key lending rates. The biggest event in January was no doubt the inauguration of President Trump. He had been talking about imposing new tariffs on US imports of goods from Mexico, Canada, Europe and China and had vowed to get Russia and the Ukraine as well as Israel and the Palestinians to the negotiating table already before taking office. After his inauguration he issued a slew of executive orders to back up his promises. In the healthcare sector, the confirmation hearing for health secretary nominee Robert F. Kennedy Jr. attracted considerable interest. His views on vaccine safety, abortion and government-run health insurance programs were the subject of intense discussion. At several points during the hearing he voiced his concern about environmental toxins and the increase in chronic disease. J&J announced a USD 14.6 bn takeover bid for Intra-Cellular Therapeutics, valuing the company at a premium of 39% compared to the already strong closing the previous day, just as the high-profile JP Morgen Healthcare Conference got under way. There were also other announcements of M&A activity and partnership agreements. New artificial intelligence-powered applications as well as political developments attracted considerable attention as well. At the end of the month, Vertex received FDA approval for its new painkiller Journavx (suzetrigine) for the treatment of acute pain. Journavx selectively blocks sodium channels on pain-sensing nerve cells, inhibiting the transmission of pain signals to the brain. This new approach represents the first new class of painkillers in more than 20 years and is viewed as an alternative to opioids.

The following stocks made the best contributions to portfolio performance in the month under review: Intra-Cellular Therapeutics’ share price jumped on the news of Johnson & Johnson’s takeover bid; Verona gained on the continued market success of Ohtuvayre (ensifentrine), its recently approved inhaled therapy for the maintenance treatment of chronic obstructive pulmonary disease (COPD); Axsome shares rose after the FDA approved Symbravo (meloxicam and rizatriptan) for the treatment of migraine. The combination of the anti-inflammatory meloxicam (NSAID) and rizatriptan (triptan class of drugs) showed a synergistic effect in the Phase III trial. Oculis was marked up on promising Phase II data for OCS-05 in patients with acute optic neuritis (AON). OCS is an SGK-2 activator that has shown positive effects on the regeneration and survival of retinal nerve cells in animals. Patients in the ongoing Phase II trial showed an improvement in retinal structure and visual function.
 
The following stocks detracted from fund performance: Uniqure was marked down in the wake of its public share offering announced early in January; Scholar Rock submitted a market authorization application (BLA) for apitegromab (myostatin blocker) for spinal muscular atrophy, but its shares corrected due to a leadership transition announcement. NewAmsterdam Pharma retreated without any company-specific news.
 
We reduced positions in companies such as Biogen and Intra-Cellular and invested the proceeds in Oculis, Regeneron, Beigene and other stocks.

Our stance towards the biotech sector remains positive in view of its strong fundamentals and enticing valuations (average 2025 P/E of 13x and PEG of 1.1 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 17x, PEG 2.3) or the S&P Index (P/E 22x, 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 2025. 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. By 2030, products generating USD 183 bn in annual sales will lose their patent protection.