Bellevue Obesity Solutions

December was a difficult month for stocks. The S&P 500 shed 2.4% of its value mom, the MSCI World Healthcare Index dropped 6.1%, and the Bellevue Obesity Solutions (Lux) Fund had a negative return of 6.4% (in USD / I shares).

Most stocks closed December in the red, after generally closing higher in the previous month of November. In the US, the Consumer Price Index (CPI) data published prior to the Fed’s FOMC meeting showed no upturn in inflation, and no indication that deflationary forces were firmly entrenched in the economy either. While the rate cut in December had been well flagged in advance by the Fed, the central bank dampened expectations of another rate cut in January and forecast a more moderate pace of rate cuts overall in 2025. Concern about signs of weakness in the US job market has faded and instead several Fed officials have pointed to the risk of higher inflation in 2025 due to potential policy changes under the new administration. Rising 10-year US Treasury yields also had a negative impact on equity markets. In the healthcare sector, large pharmaceutical companies must contend with various challenges in 2025, such as growing China risks, downward pressure on US drug prices and patent expirations. That said, promising new drug approvals offer attractive growth potential. Special attention is drawn to Eli Lilly and Novo Nordisk, which are expected to expand their leadership position in terms of sales and earnings growth. Bringing more production capacity for GLP-1 drugs on stream is critical for both companies and achieving that could enable them to beat the current consensus sales forecasts. On the political front, the US government's drug policies are not expected to change in the short term after Donald Trump is sworn in as president.

The following stocks were the best portfolio performers during the month under review: NewAmsterdam reported positive results from its Phase III BROADWAY clinical trial of obicetrapib in patients with atherosclerotic cardiovascular disease and/or familial hypercholesterolemia. BROADWAY is one of three clinical trials that NewAmsterdam has initiated to support regulatory filings of obicetrapib as a treatment for reducing LDL cholesterol. NewAmsterdam's share price surged after the publication of topline data that showed a 21% reduction in major adverse cardiovascular events (MACE) in patients receiving obicetrapib. Scholar Rock continued its strong performance run from the previous month. The biotech company is about to enter the commercialization phase for a high-potential drug and will launch apitegromab, a medication for patients with spinal muscular atrophy, in the coming months. What’s more, data from a trial evaluating the same drug’s effectiveness as a weight-loss treatment that also preserves lean muscle mass is expected to be published during the second quarter of 2025.

The following stocks detracted from fund performance: Novo Nordisk was unable to fully meet high expectations regarding next-gen weight-loss drugs. The Danish company reported that the combination therapy Cagrisema (GLP-1/amylin) achieved a weight loss of 22.7% in obese patients after 68 weeks of treatment. Although this is less than the targeted 25% or more threshold, it marks one of the most significant weight reductions ever achieved in a Phase III trial evaluating a weight-loss drug. Encompass Health was weak without any major news flow, and the biotech companies Viking and Rhythm Therapeutics also traded lower without any triggers.

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.