Biotech M&A picks up

The Nasdaq biotechnology index consolidated in the third quarter (-0.8%) following a very strong second quarter. BB Biotech displayed a similar pattern. After surging 31.1% in CHF in the second quarter, its stock corrected in the third quarter, closing 3.4% lower in CHF and 4.3% lower in EUR. Net Asset Value (NAV) declined by 10.9% in CHF, 12.1% in EUR and 8.3% in USD in the third quarter. The resulting quarterly net loss was CHF 395 mn, compared to a net loss of CHF 382 mn for the same period in 2019. From a short-term perspective, the long-term realignment towards small- and mid-cap portfolio companies had a negative effect on its most recent quarterly performance. Biotech companies have captured the attention of the general public and the broader investment community since the outbreak of the pandemic. The entire healthcare industry has been working all-out to address the pandemic with projects under way across the technology spectrum, from diagnostics and devices to therapeutics and vaccines. While the Investment Management Team welcomes the speed and innovation the sector has displayed in its quest for solutions and the expectations of the development of effective SARS-CoV2 vaccines, news flow in other areas of interest, for example in oncology, is expected in the coming months.

Performance

Performance  

01.07.2020-30.09.2020USDCHFEUR
BB Biotech NAV-8.3%-10.9%-12.1%
BB Biotech share -3.4%-3.3%
    
01.01.2020-30.09.2020USDCHFEUR
BB Biotech NAV8.3%3.0%3.7%
BB Biotech share 7.6%

Portfolio

BB Biotech’s investment team maintained its long-term investment strategy and focused on companies that are developing innovative medicines for severe and/or chronic diseases. It sold the remaining Akcea Therapeutics shares in the portfolio during the period under review and opened a position in Relay Therapeutics in the course of Relay’s IPO, after which it immediately purchased more of the company’s shares on the open market. Relay is a biopharmaceutical company aiming to bring protein motion to the center of drug discovery in order to create transformative medicines. Ongoing market fluctuations were used to realize profits in several mid cap stocks. BB Biotech generally does not invest in big pharma or pharmaceutical companies with major vaccine operations. Its reservations about investing in companies applying routine technologies at massive scale are based on the uncertainty about the long-term profitability of such investments. While they are likely to be successful, such companies do not represent breakthrough investment opportunities.

Outlook

The shift in infrastructure and diagnostic improvements will not only impact the healthcare system today but will do so in the future. Clinical trial timelines will likely become shorter and clinical trial costs will probably decline. Fundraising activity will continue to be important factor. Launching products will require new models less dependent on large sales forces while applying novel strategies to drive awareness at patient and physician level. Investments in diagnostic testing could ultimately lead to broader adaption even at genetic level, driving adoption in targeted medicines from rare genetic disorders to patient-tailored oncology drugs.

The Investment Management Team is actively monitoring the pandemic, the resulting healthcare and economic policy responses, and the many clinical trials currently under way. Based on its observations and findings to date, the team is confident that vaccine development programs and other action being taken to contain and overcome this challenging pathogen will ultimately be successful. Until that point is reached, it expects more effective therapeutics for active infections that ease the disease burden and reduce mortality rates will be developed.