Bellevue Obesity Solutions

September was a mixed month for stocks. The S&P gained 2.1%, the MSCI World Healthcare Index retreated 3.0%, and the Bellevue Obesity Solutions (Lux) Fund closed 3.8% lower (USD / I shares).

September began with a sell-off in risk assets, like in early August, followed by a rebound as the month progressed. Despite worries over inflation and a tight labor market, the Federal Reserve announced a bold 50 bp reduction in its benchmark interest rate on September 18. Its decision was based on signs of easing tension in the US labor market and the continued decline in inflation. Going forward, US stocks are now likely to take their cue from economic and inflation data readouts. In the healthcare space, three major clinical research conferences took place in September: EASD (European Association for the Study of Diabetes), ESMO (European Society for Medical Oncology) and WCLC (World Conference on Lung Cancer). At the EASD meeting, Roche presented clinical data for two incretin-based therapies, CT-388 (injectable) and CT-996 (oral), that was disappointing overall, especially with regard to tolerability. Tolerability will be a key factor of differentiation in this hotly contested market, and investors had clearly been expecting better data. Novo Nordisk presented long-awaited data from a Phase II trial of its oral CB1 receptor blocker. Its drug candidate achieved a statistically significant weight loss in obese patients, but there were also reports of mild to moderate neuropsychiatric side effects, primarily anxiety.
 
The following stocks were the best portfolio performers during the month under review: Innovent presented promising early-stage data on its bispecific PD-1/IL-2 antibody at ESMO. However, the main reason its shares traded higher late in the month was the Chinese government's announcement of a fiscal stimulus package. Rhythm Therapeutics also made good gains but with little news flow. Sun Pharma was marked up on the solid volume growth of its core therapeutic areas in India and Encompass Health showed a strong performance as did other healthcare services providers.
 
The following stocks detracted from fund performance: Novo Nordisk came under increasing selling pressure as investors trimmed their expectations for its Q3 results and uncertainty arose about the company’s CB1 receptor blocker’s safety profile and the eagerly awaited Phase III data on CagriSema. Ionis corrected on news of its USD 500 mn public offering of common stock. The biotech company plans to use the net proceeds from the offering to fund its independent commercial launches, late-stage clinical programs, early-phase pipeline programs, and general R&D activities. Regeneron corrected after a court ruled against the company in litigation over Amgen’s launch of a biosimilar to aflibercept (Eylea).

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.