Bellevue Biotech (CH)

Stock markets generally performed well in November. The S&P index closed 5.73% higher and the Nasdaq 100 5.23% higher, while the Nasdaq Biotech Index was down 0.11% (all figures in USD).

Market activity in November was driven by the surprising Republican sweep in the US elections. Donald Trump came out well ahead of Kamala Harris. Republicans won a majority of seats in both the House of Representatives and the Senate. Trump's health agency nominations have sparked the most discussion so far: Vaccine skeptic Robert F. Kennedy has been tapped as the new US health secretary, celebrity physician Mehmet Oz as the next CMS administrator overseeing Medicare and Medicaid, and Martin Makary has been chosen to lead the FDA. What they have in common is that they all opposed many of the measures taken by the government to bring the COVID-19 pandemic under control.

The latest data on the US economy was robust, but data from Europe, Japan, and China less so, shifting investor focus away from inflation readings and toward indications of sluggish growth. News flow in the healthcare sector was dominated by clinical conferences. At The Liver Meeting (AASLD), Novo (semaglutide) and Viking (VK2809) both achieved an improvement in liver fibrosis with no worsening of inflammatory markers in patients with metabolic fatty liver disease (MASH). At The Obesity Week, the primary focus was on amylin drugs and oral therapeutics. Announcements of job cuts at many biotech companies and generally low valuation multiples have led to an increase in acquisition activity: Roche is acquiring Poseida for USD 1.5 bn and Novartis is acquiring Kate Therapeutics for USD 1.1 bn to expand their presence in the cell therapy space while Halozyme offered USD 2 bn for Evotec but was rebuffed.

The following stocks made the best contributions to portfolio performance in the month under review: Scholar Rock tacked on more gains after its direct competitor Biohaven failed to achieve a significant improvement in treating spinal muscular atrophy (SMA); Arcutis benefited from strong prescription volume growth for its topical medication (roflumilast) for psoriasis; and Rhythm Pharma advanced after it presented positive data from case studies examining setmelanotide in genetic forms of hypothalamic obesity (HO).
 
The following stocks detracted from fund performance: Viking was marked down despite having presented good data from its trial of oral VK2735 (GLP1/GIP) in treating obesity; Kura headed south after reaching an agreement with Kyowa under which it will share US profits from its menin inhibitor ziftomenib for acute myeloid leukemia (AML); and vaccine developer Vaxcyte sold off after Robert F. Kennedy was nominated as the next US health secretary.
 
Shareholdings of Arcellx, Ionis and other companies were reduced and the proceeds reinvested in Axosome and Regeneron, among other companies.

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.