Bellevue Obesity Solutions

Trading patterns in November showed signs of extreme divergence. The S&P gained 5.9%, the MSCI World Healthcare Index retreated 0.8% and so did the Bellevue Obesity Solutions (Lux) Fund (USD / I shares).

Markets took their cue primarily from the outcome of the elections in the US. Donald Trump's victory in the presidential election and the Republican sweep of both chambers of Congress gave rise to expectations that the new government could inject more strength into the US economy and Wall Street. The dollar strengthened, which also had a significant impact on the market, because of the potentially inflationary impact of Trump’s budget proposals, which in turn could stand in the way of further rate cuts by the Federal Reserve. Within the healthcare sector, the nomination of Robert F. Kennedy Jr. as the next US health secretary created uncertainty among investors. Despite his repeated claims that he is not against vaccines, the man remains a source of controversy due to his past statements about vaccines. His nomination therefore led to some volatility, especially in biopharma stocks. Turning to clinical pipeline news, the month under review began with the Obesity Week conference in San Antonio, which we attended in person. We received valuable information about doctors’ latest findings and experiences regarding weight-loss drugs and about recent data readouts for oral amylin and other oral treatments. Several panel discussions and presentations addressed the practical and long-term use of anti-obesity medications and were both insightful and thought-provoking.
 
The following stocks were the best portfolio performers during the month under review: Rhythm Therapeutics performed well after releasing additional real-world data from a French trial of setmelanotide in patients with hypothalamic obesity (HO). This data, from trials in both pediatric and adult HO patients, bodes well for the Phase III data scheduled for release during the first half of 2025. Scholar Rock advanced on news that its competitor Biohaven failed to reach the primary endpoint of a Phase III trial of an anti-myostatin protein – a statistically significant change from baseline in muscle function. This reduced the likelihood that Scholar Rock will be exposed to competition in its anti-myostatin portfolio, at least in the short term on this front.

The following stocks detracted from fund performance: Viking Therapeutics was weak despite having presented positive data from a Phase I study of its oral GLP-1 drug at Obesity Week in San Antonio. The highest dose level of 100 mg demonstrated class-leading weight loss and was well tolerated with only mild cases of nausea. No patients withdrew from the trial. The company plans to initiate a Phase II trial soon and will also continue to focus on the production scalability of the oral formulation. Portfolio companies Zealand Pharma and Regeneron were also performance detractors.

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.