Biotech bucks macro uncertainties – strong quarterly results for BB Biotech

Media release as of October 16, 2014
Interim Report of BB Biotech AG as of September 30, 2014
Biotech bucks macro uncertainties – strong quarterly
results for BB Biotech
BB Biotech advances 18.2% (in CHF) in the third quarter 2014
The biotechnology industry continues to advance despite the unsteady trends on global stock markets
and the volatility witnessed in the second quarter. Large biotech stocks performed especially well during
the third quarter while the mid and small cap companies were not quite as strong. The Nasdaq
Biotechnology Index sustained its solid performance, advancing 6.5% in USD during the third quarter.
BB Biotech’s share price rose 18.2% in CHF and 18.9% in EUR. The positive performance of portfolio
investments translated into a quarterly profit of CHF 482.8 mn for BB Biotech. Two new positions in the
mid cap segment were added to the portfolio. More new products with considerable sales potential are
expected to be launched during the remaining months of the year.
The third quarter 2014 proved to be challenging for equities in most sectors. By virtue of the growth
characteristics of the biotechnology sector, the Nasdaq Biotechnology Index continued to perform well in the third
quarter achieving a total return of 6.5% in USD. Biotech growth is happening against complex macroeconomic
and global equities picture. Escalating regional conflicts and poor economic reports for the Euro zone distracted
investors. By contrast the US economy continued its steady recovery and US equity markets reached new highs
in September 2014 supported in part by continued low interest rates.
The contrast shows in mixed performance of equity indices. For the third quarter, the S&P Index was up 1.1%, the
Euro Stoxx unchanged at +0.3%, the DAX was down 3.7% and the SMI was up 3.4% (all values being total
return, in local currency). Expectations that the US Federal Reserve System will raise interest rates strengthened
the US dollar over most currencies, including the Euro, the Yen, and the Swiss Franc.
For biotech, the sector specific news flow was dominant. Questions surrounding sustainability of the various
biotech business models and associated pricing power for innovative drugs led to increased volatility in April and
May. The recovery of biotechnology confidence in June as well and through the third quarter was based on strong
quarterly earnings reports from large cap biotech companies, important product approvals, positive clinical data
from late stage trials, and continued M&A activity. The third quarter was also positive for large cap stocks. Mid
cap and small cap biotech companies were less favorable. Nevertheless, overall year-to-date, the total return for
the NBI was +20.9% in USD, outperforming the broad equity indices.
BB Biotech’s performance
BB Biotech had strong third quarter results. Its share price increased 18.2% in CHF and 18.9% in EUR.
Continued positive portfolio performance led to a profit of CHF 482.8 mn. NAV increased 12.6% in USD, 21.2% in
CHF, and 22.0% in EUR.
Corresponding returns for BB Biotech’s shareholders for the first nine month of 2014 were +37.9% in CHF and
+39.7% in EUR. The portfolio of BB Biotech drove a company profit of CHF 743.9 mn for the same period,
reflecting a strong NAV total return of 27.4% in USD, 36.3% in CHF, and 38.7% in EUR.
Alongside the strong performance from large cap stocks such as Gilead, Celgene and Novo Nordisk, key
contributors to performance included Puma Biotechnology, Medivation, Isis Pharmaceuticals, Pharmacyclics,
Agios Pharmaceuticals and Radius Health in the third quarter. On the other hand Synageva BioPharma, Incyte
and Swedish Orphan Biovitrum underperformed the markets.
Board compensation for 2014 and 2015
On the background of the Swiss law following the Minder initiative, the Board decided to hire a global consulting
firm to develop a “state of the art” compensation plan. Following a thorough and comprehensive peer group
selection process, this consulting firm not only reviewed the current Board compensation situation in Switzerland,
but also brought in an international perspective. This is essential, since over the last years the BB Biotech
shareholder base has become more international. The outcome of the analyses was a clear advice to go for a fix
Board compensation. This solution is preferred in Switzerland as well as abroad and is considered best corporate
governance by the current “ Swiss code of best practice for corporate governance”. We therefore propose to our
shareholders on the occasion of the next Annual General Meeting in March 2015 a fix compensation for the
members of the board of BB Biotech AG. The fix compensation will be paid in cash. Individual amounts will be
published in the Annual Report 2014.
Portfolio update
BB Biotech’s portfolio remains balanced between large mid and small cap companies. The selection includes
exposure to the performance of promising drugs in launch phase, and attractive pipeline assets. The portfolio is
designed to capture above industry average growth rates.
The core holdings, Celgene, Gilead, Actelion, Isis Pharmaceuticals and Incyte, represent 47% of the portfolio.
They are followed by six positions with a weighting of between 3% and 5% each. 23 smaller holdings make up the
remainder.
During the third quarter further profits were taken in the large cap segment and the position in Agios was
increased significantly to more than 5% of the company by the end of the quarter. Smaller add-on investments
were made in existing portfolio companies – Infinity, Alnylam and Halozyme. With the emerging markets trading
up nicely, profits on holdings of Indian firms were realized. Strides Arcolab divested its attractive injectable
business to Mylan, and after collecting the large one time dividend, BB Biotech sold its remaining position in
Strides Arcolab.
Two new mid cap positions were added. Receptos is developing a potentially best-in-class S1P antagonist (RPC1063), a drug in the same class as Novartis’ Gilenya. However, an improved side effect profile represents a
strong potential clinical advantage for Receptos’ compound. Novavax is developing a novel preventive vaccine for
RSV (respiratory syncytial virus) for newborns, a significant medical need since RSV continues to be the leading
cause of hospitalization in the US within the first twelve months of life.
Portfolio highlights in the third quarter 2014
Gilead continued to dominate the biotech landscape thanks to the strong launch of Sovaldi for hepatitis C virus
infected patients. With USD 3.5 bn of Sovaldi sales reported for the second quarter 2014, expectations have
increased to more than USD 10 bn of Sovaldi revenues for first year sales. This represents the strongest first year
of sales by any product in history – and also puts Sovaldi squarely in the sights of many stakeholders, including
government and private payers. Beyond Sovaldi, Gilead is expected to retain market leadership with its next
generations of oral combination pills, and some believe that these compounds will drive revenues to levels even
higher than Sovaldi. Gilead recently signed manufacturing and distribution agreements with multiple generic
players for 91 emerging market countries. The substantially lower price for Sovaldi in these countries will allow
more HCV patients access to innovative and effective drugs.
Puma Biotechnology announced positive top line results for its adjuvant breast cancer trial for Neratinib, an
investigational kinase inhibitor. Women with early stage HER2-positive breast cancer given Neratinib showed a
37% improvement in disease-free survival compared to the control arm. BB Biotech had increased the Puma
position in the months prior to these data.
Medivation gained on approval of Xtandi to treat metastatic castration-resistant prostate cancer patients who have
not received chemotherapy. This additional indication allows Medivation and its partner Astellas to compete in this
large patient population. The approval is based on the previously reported PREVAIL study results in which Xtandi
achieving both a significantly reduced risk of disease progression and reduced risk of death compared to placebo.
The shareholding in Agios Pharmaceuticals was increased to over 5% of the company’s outstanding stock.
Investors seem to appreciate the continued progress for the lead compound AG-221, an IDH2 inhibitor being
developed in collaboration with Celgene. In addition, there are increasing expectations that the company’s second
molecule in clinical development, AG-120, an IDH1 inhibitor, will report early but positive results in hematological
malignancies.
Radius Health, listed on the Nasdaq since June 2014, has performed well based on early data presented from its
pipeline candidate RAD-1901. The company is expected to report Phase III osteoporosis data in the coming
months. Abaloparatide is being tested in a head-to-head study against Eli Lilly’s Forteo. The company’s earlier
stage compound, RAD-1901, a SERD, is being tested to prevent brain metastasis in women with breast cancer.
The compound has gained additional investor’s interest post Genentech acquiring a similar Phase I SERD
company.
Outlook
The biotech industry and equity markets are being carefully monitored and significant potential product approvals
and product launches are expected in the coming months. For example, Gilead is expected to remain a key focus
for investors in the fourth quarter 2014, with the anticipated launch of the combination of Sovaldi and Ledipasvir
for HCV.
Within BB Biotech’s portfolio, important Phase III results are expected for Radius Health with RAD-1901 in
osteoporosis and for Neurocrine Biosciences with Elagolix for endometriosis. Celgene will also be monitored
closely to follow pipeline progress particularly for GED-301 in Crohn’s disease, with Phase II data presentation
expected in October.
Investors are also focused on drug pricing sustainability for innovator drugs. BB Biotech is confident that drugs
which offer significant benefit for patients with serious diseases, and which do so with an acceptable risk profile,
will continue to be highly valued by society and by payers. They will remain a primary target of BB Biotech’s
investment activity.
The interim report as of September 30, 2014 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
b-public AG, Pfingstweidstrasse 6, 8005 Zürich, Switzerland, tel. +41 79 423 22 28
Thomas Egger, teg@b-public.ch
Bellevue Asset Management AG, Seestrasse 16, 8700 Küsnacht, Switzerland, tel. +41 44 267 67 00
Tanja Chicherio, tch@bellevue.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 more
than CHF 2.8 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 forwardlooking 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 September 30, 2014
(in % of securities, rounded values)
Celgene
Gilead
Actelion
Isis Pharmaceuticals
Incyte
Vertex Pharmaceuticals
Medivation
Alexion Pharmaceuticals
Agios Pharmaceuticals
Puma Biotechnology
Novo Nordisk
Pharmacyclics
Regeneron Pharmaceuticals
Synageva BioPharma
Swedish Orphan Biovitrum
Alnylam Pharmaceuticals
Halozyme Therapeutics
Radius Health
Neurocrine Biosciences
Receptos
Immunogen
Novavax
Infinity Pharmaceuticals
Glenmark Pharmaceuticals
Clovis Oncology
Ipca Laboratories
Lupin
Tesaro
Bavarian Nordic
Achillion Pharmaceuticals
Theravance
Theravance Biopharma
1)
Probiodrug
Endocyte
Radius Health warrants 23.04.2018
Radius Health warrants 19.02.2019
Cubist Pharmaceuticals contingent value rights – ex Optimer
Cubist Pharmaceuticals contingent value rights – ex Trius
12.2%
9.9%
9.3%
8.5%
7.0%
5.0%
4.7%
4.0%
3.8%
3.8%
3.4%
2.8%
2.8%
2.5%
2.3%
2.0%
1.9%
1.9%
1.6%
1.3%
1.1%
1.0%
1.0%
0.9%
0.8%
0.8%
0.7%
0.6%
0.5%
0.4%
0.4%
0.4%
0.2%
0.1%
<0.1%
<0.1%
<0.1%
0.0%
Total securities
CHF 2 880.9 mn
Other assets
Other payables
CHF 50.7 mn
CHF (159.4) mn
Total shareholder’s equity
2
Treasury shares (in % of company)
CHF 2 772.1 mn
4.5%
1) Unlisted company
2) Correspond to the total of all own shares held including the second trading line