Resilient biotech sector despite widespread market turmoil

Intro

The first quarter of 2020 was quite a challenge for investors. After stock markets surged to new all-time highs in February, panic selling triggered by the rapid spread of Covid-19 swept almost every asset class, equities included. Stocks in the healthcare sector, especially the large caps, were more resilient than the broad market indices. BB Biotech shares’ total return for the first quarter of 2020 was -15.7% in CHF and
-14.8% in EUR. The Net Asset Value (NAV) corrected 22.0% in CHF, 20.1% in EUR and 21.4% in USD, which reflects the portfolio's mid and small cap bias. The figures above include the dividend payout of CHF 3.40 per share approved at the Annual General Meeting on March 19, 2020. The net loss for the first quarter of 2020 was CHF 758 mn compared to a net profit of CHF 890 mn for the same period in 2019. Prof. Dr. Mads Krogsgaard Thomsen and Dr. Susan Galbraith were elected as new directors at the General Meeting. Despite the Covid-19 crisis and market turbulence, many biotech companies continued to report important clinical trial results and negotiated important licensing agreements. Once the Covid-19 pandemic is overcome, global health risks and healthcare systems worldwide are likely to be viewed in a different light. BB Biotech believes the biotech sector could gain in prominence as a result. Share price appreciation of many portfolio companies in the first weeks of April provide initial evidence and have led to NAV recovery to levels of the beginning of the year.

Performance

Performance Q1 

01.01.2020-31.03.2020 USD CHF EUR
BB Biotech NAV -21.4% -22.0% -20.1%
BB Biotech Share   -15.7% -14.8%

 

Portfolio

The investment management team added two small cap companies to the portfolio in the first quarter of 2020, Fate Therapeutics and Black Diamond Therapeutics. As for existing positions, the team reduced some of the portfolio's top holdings and realized profits in Moderna after the stock made considerable gains driven by updates on its mRNA vaccine development efforts. These proceeds were re-invested in Molecular Templates and in the capital increases conducted by Intra-Cellular, Kezar and Cidara. The funds raised by these three portfolio companies will be used to back the launch of Caplyta and advance the clinical development of Rezafungin and KZR-616. Regardless of the difficult market environment, the companies in BB Biotech’s portfolio continued to make good progress and reported important clinical trial results.

Outlook

Together with the Board of Directors, the investment management team is now evaluating challenges and opportunities resulting from the current global crisis: it is unlikely that societies around the globe will soon return to “business as usual”. In fact, the crisis could lead to totally new behaviors:   

 

  • The progression and eventual end of the Covid-19 pandemic is likely to prompt a careful re-evaluation of global health risks and healthcare systems.
  • The social, health and economic disruptions experienced worldwide may result in a shift of priorities, regulations, technology focus and investment flows.

BB Biotech believes the biotech sector could gain in prominence as a result. Share price appreciation of many portfolio companies in the first weeks of April provide initial evidence and have led to NAV recovery to levels of the beginning of the year.

The investment management team will continue to seek investments in biotechnology firms that deploy novel approaches to create breakthrough clinical improvements and economic value. During this presumably short-to medium-term pandemic, the team will be carefully monitoring the portfolio investments with respect to:

  • Growth of launched commercial products
  • Resilience of drug manufacturing and supply chains
  • Financial strength and access to financial markets to support development of promising pipeline candidates
  • Pace, conduct and quality of clinical trials
  • Regulatory developments
  • Licensing agreements and M&A activities

Despite Covid-19, BB Biotech expects its portfolio companies to make further, albeit perhaps slower, progress towards significant milestones in 2020. The team sees investment opportunities in the large, mid and small cap segments of the biotechnology sector and will remain vigilant and focused during these volatile and challenging times. BB Biotech intends to adapt to the emerging new reality in an optimal manner.