BB BIOTECH AG / Biotech sector maintains upward trend in first quarter / BB Biotech outperforms its benchmark again . Processed and transmitted by Thomson Reuters ONE. The issuer is solely responsible for the content of this announcement.
Interim Report of BB Biotech AG as of March 31, 2013
The biotech sector has extended its upward trend into the current year with the Nasdaq Biotechnology Index advancing another 16.7% (in USD) in the first quarter of 2013. Once again, BB Biotech beat its benchmark as it achieved a quarterly performance of 25.8% in CHF and 25.5% in EUR (including cash distribution). Core portfolio investments performed particularly well during the period under review. The biotech sector's significant gains during the past two years have been accompanied by strong operating profit growth and therefore valuations are still reasonable. The outlook for investors remains attractive, especially considering the projected average compounded earnings growth of 20% p.a. over the next four years.
The biotech sector maintained its strong performance from late 2012 in the first quarter of 2013. Significant product approvals and positive clinical news flow as well as a continued solid business outlook resulted in a further outperformance of the biotech sector versus other broader stock market indices. The Nasdaq Biotech Index (NBI) gained 16.7% (in USD) in the first three months of the year while the MSCI World advanced 7.9% (in USD).
Sector not overvalued
We believe that the strength in the sector is still not fully priced in. Despite the positive last two years, valuations for biotech firms remain attractive with price/earnings ratios ranging from mid-teens to low twenties with average compounded earnings growth 2013-17E above 20%. The key performance drivers are still 1.) late stage clinical trial success, 2.) regulatory approvals of innovative products and 3.) solid current business performance combined with strong growth prospects. We expect these fundamentals to remain intact for the foreseeable future.
BB Biotech shares gained 25.8% in CHF and 25.5% in EUR (including the cash distribution). The basis for the solid share price appreciation is the strong positive performance of BB Biotech's Net Asset Value (NAV). Both the core holdings as well as mid-cap positions of the portfolio contributed to the performance, with the highlight being three important product approvals of the portfolio holdings Celgene (Pomalyst), Isis (Kynamro) and Immunogen (Kadcyla). The solid sector performance combined with BB Biotech's good stock selection led to an increase in the NAV of 29.3% (in CHF), 28.2% (in EUR) and 24.5% (in USD), all values including the cash distribution.
Change in Board of Directors
All of the proposals of the Board of Directors presented to the shareholders at the recent Annual General Meeting (March 18, 2013) were approved by a large majority. A cash distribution of CHF 4.50 per share was approved, 1.15 million shares from the last share repurchase program were cancelled and a new 10% share repurchase program, representing 1.185 million shares, was approved. In addition, Prof. Dr. Dr. Klaus Strein was elected as new board member and Dr. Erich Hunziker, who joined BB Biotech's board in March 2011, became the new Chairman of the board.
Convincing performance by top holdings
Celgene (+47.7%, in USD) was the best performing large cap biotech company in Q1 2013. A combination of solid financial results and impressive five year financial targets combined with a very attractive valuation led to a revaluation of the company in early January. We see the investment case for Celgene clearly supported by the approval of Pomalyst (pomalidomide) for the treatment of relapsed and refractory multiple myeloma, label expansion for Abraxane to new indications such as pancreatic cancer, and further positive clinical results for Apremilast for treating psoriasis patients, all of which will support the solid fundamentals as well as the mid-term financial targets of the company.
Actelion (+18.4%, in CHF) maintains its lead in PAH therapy and is preparing for the potential approval of Opsumit in October 2013. Further evidence of cost control and capital allocation were highlighted with the FY 2012 results and appreciated by investors. In our view, Opsumit is key to sustaining the current PAH franchise after the Tracleer patent loss and maintaining its market leading role, with the company becoming potentially a growth investment case if the next PAH Phase III pipeline candidate Selexipag reads out positively.
Gilead (+33.3%, in USD) continued its significant share price appreciation on solid progress both for its HIV pipeline candidate TAF (tenofovir alafenamide) as well as for Sofosbuvir for the treatment of hepatitis C virus (HCV) infected patients. Gilead has initiated registration studies for TAF as an improved agent over Viread (tenofovir), with Phase II results differentiating TAF from Viread due to its lower dose as well as potentially improved tolerability profile. We believe Sofosbuvir will drive additional share price upside, when the drug is launched in combination with PEG-interferon and/or ribavirin in mid-2014 and as a fixed-dose, all oral tablet with another of its proprietary drugs in 2015.
Isis (+62.3%, in USD) established a market cap above USD 1 bn upon receiving the US market approval for Kynamro (mipomersen) for the treatment of homozygous familial hypercholesterolemia (HOF), a rare and severe lipid disorder. In contrast, the EMEA has maintained its negative opinion on the filing. The vast pipeline of Isis has progressed with investors appreciating early data from a Phase I study treating spinal muscular atrophy (SMA) patients, where Isis announced interesting and promising results. Together with its licensing partner Biogen Idec, Isis plans to move the SMA program aggressively forward, with Phase II/III studies to be initiated in the next twelve months. With the proof of concept through the Kynamro approval, we expect additional valuation upside if the pipeline continues to mature.
The share price of Incyte (+40.9%, in USD) recovered in Q1 due to a solid launch update for Jakafi for the treatment of myelofibrosis patients. With USD 136 mn in 2012 US sales and guidance of USD 210-225 mn and Novartis starting to ramp up the international launch, we see Jakafi being on a solid trajectory. The revenue potential of Jakafi could increase if the outcome of the company's polycythemia vera Phase III study is positive. Baracitinib, a JAK1 and JAK2 inhibitor, is in registration studies by Eli Lilly, and data on Incyte's INCB39110, a JAK1 selective inhibitor, is due this year.
Vertex (+31.2%, in USD) is making progress with its cystic fibrosis (CF) pipeline and has initiated its pivotal program of VX-809 in combination with Kalydeco (ivacaftor) for the treatment of cystic fibrosis patients who have two copies of the F508del mutation, representing around half of all CF patients. Investors are highly focused on the CF pipeline given that Incivek reached its revenue peak within one year of launch as HCV patients are waiting for the next generation entrants. Kalydeco for the treatment of CF patients with the G551D mutation (around 5% of CF population) also reached its US revenue peak within less than a year.
Novo Nordisk's (+3.1%, in DKK) financial performance continued to impress investors. The company's premium over other pharmaceutical companies was reduced upon receiving a complete response in the US for Tresiba (insulin degludec) and Ryzodeg (insulin degludec / insulin aspart) in mid-February, requesting an additional cardiovascular outcomes trial before further reviewing data. In March, Novo Nordisk announced positive headline data for its high dose liraglutide weight loss program with type 2 diabetes patients. Even with the multi-year delay for a potential US Tresiba approval, the current diabetes franchise as well as the Tresiba and Ryzodeg launch both in Japan and Europe will allow the company to maintain an attractive growth rate.
Highlights from smaller participations
Immunogen (+26.0%, in USD) achieved a key milestone with the approval of Kadcyla (T-DM1) for the treatment of HER2-positive metastatic breast cancer patients who have received prior treatment with Herceptin and a taxane chemotherapy. Roche as the licensing, development and marketing partner is testing T-DM1 in earlier treatment lines of breast cancer therapy, potentially enlarging the addressable patient population significantly. With Kadcyla approved, we expect investors to value the proprietary pipeline even further.
The Medicines Company (+39.4%, in USD) announced early January positive results in a Phase III trial of cangrelor in the treatment of patients undergoing percutaneous coronary intervention (PCI). We believe this heralds an enlargement of The Medicines Company's sales platform and will strengthen its position in acute and intensive care hospital medicine.
Endocyte (+38.6%, in USD) is progressing with its vintafolide (EC145) program, both advancing the Phase III program with its development partner Merck as well as getting closer to a potential accelerated approval in Europe later in 2013. Investors assigned value to Endocyte's platform of linking toxins to small molecule targeting ligands. We still see significant upside potential thanks to additional indications for vintafolide as well as the company's pipeline progress.
Bavarian Nordic's share price (+37.6%, in DKK) recovered with the announcement of solid financial 2012 results as well as strong 2013 guidance for Imvamune. Expectations for additional contracts to deliver more doses as well as potential contracts for next generation formulations of Imvamune to the US government under the US biodefense program are increasing.
Optimer Pharmaceuticals (+31.5%, in USD) announced in late February that the Board had commenced a process to explore a full range of strategic alternatives, with investors expecting a sale of the company in the next few months. At the same time, Optimer announced a management change with the CEO being replaced by the current board chairman.
Idenix (-27.0%, in USD) lost the first phase of the USPTO patent interference proceedings against Gilead concerning certain nucleoside inhibitor patents. The second phase of the proceedings is set to begin in Q2 2013 with a decision from the USPTO expected in Q1 2014.
Strides Arcolab (-20.5%, in INR) shares sold off on the news that the company is selling its Agila Specialties division to Mylan for USD 1.6 bn in cash and potential consideration of up to USD 250 mn. The significant cost and tax implications as well as the failure to attract a bid for the entire company were perceived negatively.
Outlook and positioning for 2013
The remainder of 2013 will likely see important newsflow and R&D milestones which can continue to strengthen the fundamentals of the sector. Strategic decisions and partnerships may also drive biotech stock valuations.
Key regulatory decisions are expected for Opsumit (Actelion) for the treatment of PAH, Abraxane (Celgene) for the treatment of pancreatic cancer, and for Sofosbuvir (Gilead) for the treatment of HCV patients.
Several companies will report data from major clinical trials, including:
- Sofosbuvir (Gilead), ION-1/2, LONESTAR
- Revlimid (Celgene) in untreated multiple myeloma patients (MM-020 trial)
- Xtandi (Medivation) in pre-chemo prostate cancer patients (PREVAIL trial)
- Liraglutide (Novo Nordisk) in obese patients
We remain convinced of the biotech investment story given the solid fundamentals and the substantial progress seen from our portfolio companies. With key regulatory bodies open for approval of real innovative drugs, with the FDA even opening a new avenue through the breakthrough designation path, we remain convinced that the biotechnology industry will contribute significantly to society, patients, caregivers as well as investors.
The complete interim report as of March 31, 2013 and a webcast with Dr. Daniel Koller can be viewed at www.bbbiotech.com.
For further information:
Bellevue Asset Management AG, Seestrasse 16, 8700 Küsnacht, Switzerland
Thomas Egger, Tel. +41 44 267 67 09, teg@bellevue.ch (mailto:teg@bellevue.ch)
www.bbbiotech.com (http://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 1.4 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.
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, 2013
(in % of securities, rounded values)
| Celgene | 15.3% | |
| Actelion | 12.0% | |
| Gilead | 11.2% | |
| Isis Pharmaceuticals | 7.6% | |
| Incyte | 7.2% | |
| Vertex Pharmaceuticals | 5.4% | |
| Novo Nordisk | 4.5% | |
| Alexion Pharmaceuticals | 3.8% | |
| Medivation | 3.4% | |
| Immunogen | 3.2% | |
| Ariad Pharmaceuticals | 3.0% | |
| Onyx Pharmaceuticals | 2.8% | |
| Swedish Orphan Biovitrum | 2.5% | |
| The Medicines Company | 1.9% | |
| Halozyme Therapeutics | 1.9% | |
| Glenmark Pharmaceuticals | 1.7% | |
| Endocyte | 1.7% | |
| BioMarin Pharmaceutical | 1.5% | |
| Theravance | 1.2% | |
| Lupin | 1.2% | |
| Bavarian Nordic | 1.2% | |
| Ipca Laboratories | 1.1% | |
| Optimer Pharmaceuticals | 1.0% | |
| Achillion Pharmaceuticals | 0.9% | |
| Probiodrug 1) | 0.8% | |
| Radius Health 1) | 0.6% | |
| Strides Arcolab | 0.5% | |
| Dendreon | 0.3% | |
| Intercell | 0.3% | |
| Idenix Pharmaceuticals | 0.3% | |
| Total securities | CHF 1 633.1 mn | |
| Other assets | CHF 46.8 mn | |
| Other payables | CHF (140.8) mn | |
| Total shareholder's equity | CHF 1 539.1 mn | |
| Treasury shares (in % of company) 2 | 12.8% | |
1) Unlisted company
2) Correspond to the total of all own shares held including the second trading line
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(i) the releases contained herein are protected by copyright and other applicable laws; and
(ii) they are solely responsible for the content, accuracy and originality of the
information contained therein.
Source: BB BIOTECH AG via Thomson Reuters ONE
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