Biotech sector continues to outperform - strengthened balance sheets will sustain the industry's solid growth

Friday, 17. April 2015 07:00

BB BIOTECH AG / Biotech sector continues to outperform - strengthened balance sheets will sustain the industry's solid growth . Processed and transmitted by NASDAQ OMX Corporate Solutions. The issuer is solely responsible for the content of this announcement.

Interim report of BB Biotech AG as of March 31, 2015

Positive clinical trial data, takeovers and a reduction in BB Biotech's discount lead to another strong performance by the investment company in the opening quarter of 2015

The biotechnology industry sustained its upward trend in the first quarter with the Nasdaq Biotech Index (NBI) beating the broader stock market's performance by more than 12 percentage points. For BB Biotech the first quarter was likewise very pleasing. Its shares advanced by 31.0% in CHF, 49.1% in EUR and 33.9% in USD. Growing investor interest for its shares narrowed the discount to Net Asset Value (NAV), which rose by 10.6% in CHF, 27.5% in EUR and 13.0% in USD over the period. Net profit for the first quarter amounted to CHF 379.4 mn. Performance was mainly driven by clinical trial results, pipeline progress and M&A activity involving portfolio companies. Regulatory approvals and important clinical trial results will remain important market-moving factors for the biotech sector for the rest of the year. BB Biotech is pleased that many smaller and mid-sized biotech firms are raising capital by taking advantage of the current positive sentiment to go public or issue more shares through secondary placements. By strengthening their balance sheets, these companies have more money to invest in their pipeline projects and can retain full rights to their drug candidates and avoid having to outlicense their pipeline assets too early in the development process.

Sustained outperformance by the biotech sector

The upward trend of the biotech sector continued in the first quarter of 2015 as the Nasdaq Biotech Index (NBI) gained 13.3%, clearly outperforming the S&P 500 Index, which ended the period with a gain of 1.0%. The continued sector outperformance brought volatility in March as the NBI climbed to new all-time highs mid-month before falling back 7% towards the end of the month. Capital flows into the biotechnology industry continue to be positive, a combination of equity fund flows, asset allocation, and very importantly significant capital inflows provided by acquisitions within the sector.

Central bank actions were once again a major influence on global equity and currency markets. The US and Japan have pumped substantial liquidity into markets in recent years, and now the European Central Bank has started its own quantitative easing program. European equities profited from a weaker EUR/USD exchange rate, as local economies are expected to improve and because companies' lower currency cost base should have a positive impact on revenue and profit growth.

In contrast, US equities have underperformed consequent to the strengthened US dollar. With the Swiss National Bank unwinding the currency peg of the Swiss Franc against the Euro on January 15, a massive appreciation of the Swiss Franc led to a steep share price correction of the Swiss equity market in the second half of January. Since BB Biotech is quoted in Swiss Francs, its shares were also affected. With the US dollar strengthening to almost pre-January 15 levels and the continued strong performance of the portfolio, BB Biotech shares recovered and delivered a double-digit total return for the January-March period. 

BB Biotech's performance for the first quarter 2015

BB Biotech's strong share performance in the wake of greater investor interest helped to narrow the discount from over 20% to about 10% during the first three months of 2015. This reduction in discount combined with the double-digit gain in Net Asset Value (NAV) generated a positive total return for BB Biotech shareholders but volatility also increased in recent weeks. Overall, the total returns for BB Biotech shareholders were 31.0% in CHF, 49.1% in EUR and 33.9% in USD.

The portfolio showed an overall gain of 10.6% in CHF, 27.5% in EUR and 13.0% in USD. Thanks to the continued positive portfolio performance, BB Biotech earned a net profit of CHF 379.4 mn for the first quarter 2015. BB Biotech's performance was mostly driven by its midcap holdings, with the biggest contribution coming from the holdings in Pharmacyclics, Incyte and Neurocrine. With the exception of Novo Nordisk, the larger cap holdings did not keep up with benchmark performance in the first three months of 2015.

All total return calculations include the capital distribution of CHF 11.60 per share according to BB Biotech's proposed dividend policy and as approved by the shareholders at this year's AGM on March 18, 2015. The distribution is a substantial increase of 65.7% compared to the dividend of last year, driven by the strong share price performance of 2014.  

Clinical data boosts portfolio performance 

Key drivers impacting BB Biotech's first quarter 2015 performance included clinical trial results, pipeline progress and M&A activity. In contrast, quarterly results and financial guidance influenced share prices less.

  • Cempra announced positive results for its lead oral antibiotic Solithromycin for the treatment of Community Acquired Bacterial Pneumonia (CABP). Solithromycin is a next generation macrolide addressing many resistant bacterial strains and is developed both in an intravenous as well as in an oral formulation. Additional Phase III data are expected in the next several months.

  • Intercept, a position opened in early 2015, updated further clinical data for obeticholic acid in NASH (nonalcoholic steatohepatitis) patients. The concerns about drug related increases in LDL levels could be well controlled if statin therapy was initiated. Additionally, favorable clinical data for the patient subpopulation was a positive indicator of a successful trial outcome because in the FLINT study, a registration study, the same patient population is being tested.

  • Neurocrine updated investors on their expanding pipeline (ENDO presentation). Progress by its CRF1 receptor antagonist called NBI-77860 (verucerfont) in adolescence females with congenital adrenal hyperplasia is likely to make 2015 the most "data rich" year in the company's history.

Product approvals continue to fuel revenue and future profit growth of the portfolio holdings. For the first quarter 2015, Novo Nordisk received FDA approval for Saxenda as an add-on therapy to diet and physical activity for chronic weight management in conjunction with weight related comorbid conditions. In addition, Novo Nordisk shares jumped on the company's announcement that it would be re-submitting its Tresiba and Ryzodeg diabetes drugs for approval by the US FDA.

First quarter portfolio actions

The most significant portfolio action was selling the holding in Pharmacyclics into the AbbVie offer. AbbVie announced an acquisition bid for Pharmacyclics for approximately USD 21 bn. BB Biotech has a cash flow of CHF 166.9 mn on the sale of its entire Pharmacyclics holding in the first quarter. This alone covered BB Biotech's cash requirement for the cash distribution as well as the share repurchase program. The cash requirements for the cash distribution was CHF 130.1 mn and the cash used for the share repurchase program amounted to CHF 10.2 mn in the first quarter 2015. 

One new position was opened in Q1, namely Intercept. This US company focuses on the development of synthetic bile acid analogs for the treatment of chronic liver diseases, namely the orphan disease primary biliary cirrhosis (PBC) and much larger indications, non-alcoholic fatty liver disease (NAFLD) and non-alcoholic steatohepatitis (NASH). The lead product obeticholic acid (OCA), a first in class farnesoid X receptor agonist, is expected to enter a registration study for NASH in the second quarter 2015. 

As for the existing portfolio, BB Biotech traded in the larger holdings, taking advantage of volatility on market worries around drug pricing, currency swings, and valuations. More importantly, BB Biotech participated in ten capital increases in the same time period. These transactions involved the smaller and midsized companies Synageva, Cempra, Alnylam, Radius, Intercept, Achillion, Neurocrine, Tesaro, Tetraphase and Novavax.

Outlook

Judging by the sector fundamentals, BB Biotech expects 2015 will be another pleasing year for biotechnology investors. Key clinical milestones such as Phase III results and product approvals will usher in new and important treatment options. Important regulatory decisions concerning its portfolio companies include:  

  • Lumacaftor (Vertex) for the treatment of cystic fibrosis carriers of the F508 deletion

  • Praluent (Regeneron/Sanofi) for the treatment of hypercholesterolemia

  • Sebelipase alpha (Synageva) for the treatment of lysosomal acid lipase deficiency

  • Uptravi (Actelion): approval for pulmonary arterial hypertension 

  • Tresiba (Novo Nordisk): approval for type 1 and type 2 diabetes patients

A few examples of important clinical trial results expected from portfolio holdings for the coming quarters include:

  • Rociletinib (Clovis) for non-small cell lung cancer patients

  • Translarna (PTC Therapeutics) for Duchenne muscular dystrophy patients

  • Eravacycline (Tetraphase) for treating complicated urinary tract infections

  • Fix dose combination of GS-5816/Sovaldi (Gilead) for hepatitis C virus infected patients

  • Duvelisib (Infinity/AbbVie) for relapse refractory CLL patients

  • NBI-98854 (Neurocrine) for tardive dyskinesia

While the debate continues around the longevity of biotech's strong performance, inflows of capital into the sector is not subsiding, with the IPO window open and significant amounts of cash raised through secondary placements by smaller and midcap companies. BB Biotech welcomes these funding transactions as many companies have been able to bolster their balance sheets substantially.

The strengthened balance sheets will allow those companies to invest into their pipeline assets and to maintain ownership of these drug candidates rather than having to partner these assets early on. Many of the portfolio companies now carry a lower refinancing risk than they did several years ago. In case of pipeline successes, these companies are expected to enjoy much higher valuations by having retained all rights to these molecules. The valuation of the established larger companies such as Celgene and Gilead reflects the different growth trajectories and risks of their businesses and remains at very attractive levels.

BB Biotech expects that the combination of a worldwide low interest rate environment and a healthy acquisition appetite within the healthcare industry will result in further M&A activity for the coming years. Taking the higher capital independence of the smaller and midsized companies into account, further M&A activity appears more probable than licensing transactions as well. 

The discussion on drug pricing will continue with pharmacy benefit managers in the US trying to negotiate for lower drug prices and drug rebates. It is expected that the pressure will be highest on markets that are large and competitive, especially when multiple products with comparable efficacy results are launched within a narrow time frame. This will force companies to strive for product differentiation and is likely to benefit both the dominant players in certain indications as well as those companies that succeed in bringing innovative and clearly differentiated products to the market.    

BB Biotech's portfolio holdings reflect these attributes. Its innovative portfolio companies are driving new important treatment opportunities and offer an attractive equity story.

 

The interim report as of March 31, 2015 is available on www.bbbiotech.com.

 

For further information:

Investor Relations

Bellevue Asset Management AG, Seestrasse 16, 8700 Küsnacht, Switzerland, tel. +41 44 267 67 00
Dr. Silvia Schanz, ssc@bellevue.ch
Maria-Grazia Iten-Alderuccio, mga@bellevue.ch
Claude Mikkelsen, cmi@bellevue.ch

Media Relations

Bellevue Asset Management AG, Seestrasse 16, 8700 Küsnacht, Switzerland, tel. +41 44 267 67 00
Tanja Chicherio, tch@bellevue.ch

b-public AG, Pfingstweidstrasse 6, 8005 Zürich, Switzerland, tel. +41 79 423 22 28
Thomas Egger, teg@b-public.ch

www.bbbiotech.com

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 CHF 3.7 billion 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.

 

Disclaimer
This release contains forward-looking statements and expectations as well as assessments, beliefs and assumptions. Such statements are based on the current expectations of BB Biotech, its directors and officers, and are, therefore, subject to risks and uncertainties that may change over time. As actual developments may significantly differ, BB Biotech and its directors and officers accept no responsibility in that regard. All forward-looking statements included in this release are made only as of the date of this release and BB Biotech and its directors and officers assume no obligation to update any forward-looking statements as a result of new information, future events or other factors.

Composition of BB Biotech's portfolio as of March 31, 2015
(in % of securities, rounded values)

Celgene   10.7%
Isis Pharmaceuticals   9.5%
Incyte   9.1%
Gilead   7.3%
Actelion

 
  7.3%
Agios Pharmaceuticals   4.6%
Medivation   4.3%
Vertex Pharmaceuticals   4.1%
Radius Health   4.0%
Neurocrine Biosciences   3.3%
Puma Biotechnology   3.2%
Alexion Pharmaceuticals   3.0%
Receptos   2.7%
Synageva BioPharma   2.6%
Novo Nordisk   2.5%
Halozyme Therapeutics   2.4%
Regeneron Pharmaceuticals   2.3%
Alnylam Pharmaceuticals   2.3%
PTC Therapeutics   1.9%
Novavax   1.8%
Swedish Orphan Biovitrum   1.8%
Tetraphase Pharmaceuticals   1.4%
Tesaro   1.3%
Clovis Oncology   1.2%
Intercept Pharmaceuticals   1.1%
Cempra   1.1%
Infinity Pharmaceuticals   1.0%
Immunogen   0.7%
Probiodrug   0.6%
Theravance   0.3%
Achillion Pharmaceuticals   0.3%
Theravance Biopharma   0.2%
     
Radius Health warrants 04/23/2018   0.1%
Radius Health warrants 02/19/2019   0.1%
Merck & Co Inc contingent value rights - ex Trius/Cubist   0.0%
     
     
Total securities   CHF 3 728.3 mn
     
Other assets   CHF 19.3 mn
Other payables   CHF (42.2) mn
     
Total shareholder's equity   CHF 3 705.3 mn
Treasury shares (in % of company) 1)   5.8%
     
     
     
     
     

1) Correspond to the total of all own shares held including the second trading line

 




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The issuer of this announcement warrants that they are solely responsible for the content, accuracy and originality of the information contained therein.
Source: BB BIOTECH AG via Globenewswire

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BB BIOTECH AG
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WKN: AONFN3;ISIN: CH0038389992;


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