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2015-04-17

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

BB BIOTECH AG / Biotech sector continues to outperform - strengthened balance
sheets willsustain 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 resul...

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