BB Biotech AG continues to maintain a deliberate investment strategy

Thursday, 20. October 2011 07:30
BB Biotech AG continues to maintain a deliberate investment strategy
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Interim report of BB Biotech AG as at September 30, 2011

In the generally difficult market environment that characterized the third
quarter of 2011, BB Biotech AG's share price declined 15.8% in CHF and 16.7% in
EUR. This decline is largely attributable to the core portfolio investments in
Actelion and Vertex, which did not meet expectations. The Net Asset Value (NAV)
of BB Biotech AG declined 11% (in CHF) compared to the preceding quarter. In a
comparison of year-to-date performance, however, biotech investments have held
up well and performed better than global equity indices. BB Biotech AG's
performance since the beginning of the year stands at -8.1% in CHF (- 7.0% in
EUR). The investment focus of BB Biotech AG will remain on innovative drugs that
offer strong value propositions for its portfolio companies and will also
continue to reallocate portfolio assets from large-cap to mid-cap companies.

Investors were faced with major challenges during the third quarter of 2011.
Markets became extremely nervous and volatile as the sovereign debt crisis in
peripheral European countries escalated and worries about the world economy
began to grow. CHF-based investors had to additionally contend with the negative
effects of the soaring appreciation of the franc versus the euro and the dollar.
The situation on the currency front did not ease until the Swiss National Bank
took decisive action in early September.

In this uncertain environment the year to date performance of the non-cyclical
biotech industry has held up well despite experiencing a significant correction
in the third quarter. Specifically, the Nasdaq Biotechnology Index (NBI) was
able to outperform global equity indices while facing a 12.5% correction during
the third quarter. Its year-to-date performance of -0.1% is still far better
than the corresponding performance of the SMI (-14.1%, in CHF) and the DAX (-
20.4%, in EUR). Dendreon disappointed biotech investors when it retracted its
2011 Provenge sales guidance. This announcement negatively impacted the share
prices of many other biotech companies that had just recently launched, or were
about to launch, new products. Skepticism is likely to prevail for the
foreseeable future until investors have a better picture of post-launch sales
trends. Looking on the positive side, the markdowns in share prices have created
some attractive buying opportunities.

The Net Asset Value (NAV) of BB Biotech AG ended the third quarter 11% lower (in
CHF) compared to the second quarter. BB Biotech's share price declined by 15.8%
in CHF and 16.7% in EUR during the same period. Although the share price staged
a strong recovery towards the end of the reporting period, the quarterly
performance did not meet our expectations. This was mainly because of the core
investments, Actelion in particular, which lagged the overall sector, and
because of a widening of the discount. At the end of the quarter, the discount
had risen to 20.0%. The occasional fluctuations in the discount seen during the
course of the third quarter were caused by general market turmoil. BB Biotech AG
remains committed to its goal of achieving a sustained reduction in the discount
from the current level, and will work to bring the discount down to a range of
10 to 15% over the next 12 months. A total of 628 669 shares were repurchased
via the second line of trading during the third quarter with this goal in mind.
The strategy of earnings accretion will continue to be pursued after the current
share buyback program is completed.

Several adjustments were made to the portfolio in the third quarter. Core
investments in Actelion, Vertex, Celgene, and Gilead were further reduced while
investments in small and mid-cap companies were increased. Previously, the core
investments had a portfolio weighting of more than 80%. At the beginning of the
year this had been reduced to 70%, and it now stands at approximately 55%. There
are still many promising opportunities in the small and mid-cap segment and they
will be reflected in the future portfolio structure.

Two new positions were established in Pharmasset and Endocyte. The latter
position was executed through a capital increase. In offsetting transactions,
the positions in Affymetrix and Cosmo were closed, while profits were taken in
Optimer and Idenix. Investments in emerging market companies were increased by
buying more shares of Glenmark Pharmaceuticals, Lupin, and Strides Arcolab.

Portfolio performance and valuation in the third quarter of 2011
Celgene (+2.6%, in USD) was able to eliminate most of the uncertainty regarding
Revlimid's side-effect profile, as we had expected. After its review of
Revlimid, the European Medicines Agency (EMA) issued a positive opinion of the
drug's safety and efficacy in multiple myeloma (blood cancer). In the coming
months investor focus will shift from Revlimid's sales numbers to news about its
approval for use in newly diagnosed multiple myeloma patients. This label
extension would mark a major milestone in the company's efforts to secure the
long-term sales potential of its key product. Celgene remains, in our opinion,
one of the best-positioned companies in the biotechnology sector.

Actelion (-26.8%, in CHF) continued to correct during the reporting period.
Skepticism regarding the company's mid- to long-term outlook increased once
again after speculation of a takeover subsided. Results of a major multiyear
study with Macitentan, Tracleer's potential successor, will be announced in the
first half of 2012. Actelion needs to report positive data to defend its market
leadership, and extend its patent protection through the mid 2020s. We believe
its shares are significantly undervalued at the current prices.

Vertex (-14.5%, in USD) consolidated in the third quarter after its good first-
half performance, despite having staged a highly successful product launch.
Incivek, approved for the treatment of hepatitis C patients, is currently the
preferred product as it is being prescribed roughly four times more frequently
than Merck's competing product. The sales generated during the first few months
after its successful launch suggest that annual sales volumes will easily
surpass the one billion dollar mark. We will continue to monitor the progress of
other drugs being developed by competitors as these will have a decisive impact
on Incivek's future market potential.

Among BB Biotech's smaller participations, the following news deserves special

* Optimer (+16.4%, in USD) reached a major milestone after receiving US
regulatory approval for Dificid, an antibacterial diarrhea treatment, and
introducing its drug to the market. A positive opinion was also issued by
the European regulatory authorities so Optimer should start to collect
substantial milestone payments from Astellas in the coming months under the
terms of their distribution agreement for Dificid.
* Biomarin (+17.1%, in USD) improved its operating performance and attracted
greater investor interest in its orphan drug pipeline.
* Immunogen (-10.1%, in USD) published impressive results for T-DM1 as a
first-line treatment for metastatic breast cancer. In a comparison with
Herceptin and Docetaxel (chemotherapy) T-DM1 achieved superior results and
had a better side effect profile. In 2012 its development partner Roche will
release the initial results of an ongoing Phase III trial.
* Dendreon (-77.2%, in USD) withdrew its 2011 sales forecast for Provenge in
August. This disappointing announcement had a negative impact not only on
Dendreon but also on many other biotech companies that have just recently
launched, or are about to launch, new products.

Two new companies were added to the portfolio during the course of the third

* Pharmasset (+46.8%, in USD) develops nucleotide analogs for the treatment of
HCV patients. The very promising clinical data seen thus far indicate that
Pharmasset's PSI-7977 molecule could be one of the core components of future
combination therapy for the treatment of Hepatitis C patients.
* Endocyte (-26.0%, in USD) is a company focused on personalized medicine
developing targeted therapies, and corresponding biomarkers, for the
treatment of cancer and inflammatory diseases. The company has a technology
platform that attaches potent chemotherapeutic drugs to targeting ligands
which are then delivered directly to tumor cells. It has released promising
Phase II clinical data on EC145 in the treatment of ovarian cancer.

Outlook and positioning
The reallocation of portfolio assets from large-cap companies to small and mid-
sized companies will continue. In view of the general market uncertainty this
will be a gradual process. Liquidity and sound finances are currently important
criteria for investors in today's nervous environment. We therefore expect that
there will be attractive opportunities to build portfolio positions in mid-cap
companies through capital increases in the coming months.

As for pipeline developments, key newsflow is expected to be released by Vertex,
Pharmasset, Halozyme, Isis, and Incyte. The chances are good that 2011 will be a
major product launch year considering the number of approvals already

BB Biotech AG's investment focus will continue to be on innovative drugs with
strong value propositions for its portfolio investments, the targeted patient
populations, and for payers (i.e. health insurance companies) in this price
sensitive environment. Innovative drugs increase efficiency in the healthcare
system by allowing patients to resume their normal daily activities more quickly
and they also reduce the cost of follow-up treatment. The innovative strength of
the biotechnology industry has been demonstrated by the evident success of
numerous major product approvals. These products, which are set to become first-
line therapies, will generate high sales and profits during the coming years. BB
Biotech AG's positive view of the biotech market's prospects rests on this fact
and is also reflected in its consistent investment strategy and investment level
of more than 100%.

The complete interim report as at September 30, 2011 and a webcast with Dr.
Daniel Koller can be viewed at

For further information:

Bellevue Asset Management AG, Seestrasse 16, 8700 Küsnacht, Switzerland
Thomas Egger, telephone +41 44 267 67 09,

Company profile

BB Biotech invests in companies in the fast growing market of biotechnology and
is one of the world's largest investors in this sector with around CHF 1.2 bn in
assets under management. BB Biotech is listed in Switzerland, Germany and Italy.
Its investments are focused on listed companies that are developing and
commercializing novel medical treatments and cures. BB Biotech's investment
selection process is guided by the fundamental research and analysis of
physicians and molecular biologists. Its Board of Directors has many years of
experience in industry and science.

Composition of BB Biotech's portfolio as of September 30, 2011
(in % of securities, rounded values)


Celgene   16.9%

Actelion   12.5%

Vertex Pharmaceuticals   10.7%

Gilead   8.9%

Novo Nordisk   6.1%


Incyte   5.7%

Immunogen   3.9%

Isis Pharmaceuticals   3.3%

Pharmasset   2.9%

Micromet   2.8%

Biomarin Pharmaceutical   2.7%

Halozyme Therapeutics   2.7%

Alexion Pharmaceuticals   2.5%

Amylin Pharmaceuticals   1.9%

Optimer Pharmaceuticals   1.8%

Human Genome Sciences   1.8%

Theravance   1.5%

Amgen   1.4%

Swedish Orphan Biovitrum   1.4%

Dendreon   1.2%

Bavarian Nordic   1.1%

Idenix Pharmaceuticals   1.1%

Glenmark Pharmaceuticals   1.0%

Lupin   1.0%

Achillion Pharmaceuticals   0.8%

Strides Arcolab   0.4%

Endocyte   0.3%

Probiodrug (1))   1.4%

Radius Health (1))   0.3%

SWAP agreement on treasury shares   <0.1%

Novo Nordisk call option (short)   <(0.1)%

Novo Nordisk put option (short)   <(0.1)%

Celgene call option (short)   <(0.1)%

Actelion put option (short)   <(0.1)%

Total securities   CHF 1 029.3 mn

Other assets   CHF 22.4 mn

Other payables   CHF (125.3) mn

Total shareholder's equity   CHF 926.4 mn

Treasury shares (in % of company) (2))   16.2%

1) Unlisted company

2) Correspond to the total of all own shares held in Switzerland, Germany and
Italy including the second trading line

--- End of Message ---

Vordergasse 3 Schaffhausen Switzerland

WKN: AONFN3;ISIN: CH0038389992;

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