BB Biotech (SWX:BION) ended the first half with its shares up 22.2% and at CHF87 at the close yesterday, just 5% below their all-time high of CHF90 that was reached in February. The Swiss investment company’s net asset value grew by 8.9% in the first half to CHF73.1 per share, which seems to be a creditable performance for the portfolio considering how volatile the period has been for US biotech stocks.
As is evident, BB Biotech’s stock remains at a solid premium to NAV, which has grown from a high single digit level at the end of last year to 19% yesterday, underlining if anything the high regard in which the manager Bellevue Asset Management is held. Unlike UK-listed biotech investment trusts, BB Biotech does not issue shares when its shares move to a premium, so such this seemingly unusual situation can and does persist.
BB Biotech’s gain in NAV in the first half of 2021 was broadly consistent with the 8.8% rise in the Nasdaq biotechnology index, despite its highly focused portfolio. However, it also hides quite large individual movements within the portfolio both up and down. Standout stock performances from within the portfolio include Essa Pharmaceuticals (Nasdaq: EPIX), up 139%, and Moderna (MRNA), up 125%; with other notable gains including Biogen (BIIB), +58%, and Beam Therapeutics (BEAM), +41%.
Essa was a new investment for BB Biotech in the first quarter, and it has certainly proven to be a good one so far, but Revolution Medicines (RVMD), the other first quarter addition, has seen its stock fall by 22%. Moderna was BB Biotech’s second largest holding (at 7.8% of NAV as of 31 March), so its meteoric rise this year on the back of sustained positive news about its COVID vaccine, has had a strong effect. Its stock was up by 79% in the second quarter alone, making this now, almost certainly, the company’s largest holding (BB Biotech may of course have made changes in the quarter and will report its 30 June portfolio on 23 July).
Much of the rise in Beam Therapeutics’ stock has taken place this week, after one of its peers in the gene editing space published stunning early clinical results at the weekend. BB Biotech also holds another gene editing stock, CRISPR Therapeutics (CRSP), whose stock has also gained in the past few days, although its performance was more modest , +6%, in the half year (although up by 100% on a one-year basis).
There were, however, some substantial falls within the portfolio: Black Diamond Therapeutics (BDTX), saw its stock decline by 62%, Mersana (MRSN), -49%, and Scholar Rock (SRRK), -43%, all as a result of clinical updates on their development products falling short of often high expectations.
Gains and losses in the portfolio broadly matched numerically with 17 of each. Seven stocks within the portfolio gained 25% or more and six that lost more than 25% of their value over the period, highlighting – if it ever needed reminding- the considerable volatility in biotech.
On the negative side, one of the largest detractors was the poor performance of BB Biotech’s top holding, Ionis Pharmaceuticals (IONS), whose stock fell by 29%, principally as a result of a clinical setback. Ionis was down 12% in the second quarter and will almost certainly have fallen behind Moderna.
As reported on QuotedData last month, 13F filings show BB Biotech increased its stakes in three existing holdings: MacroGenics (MGNX), Molecular Templates (MTEM) and Esperion Therapeutics (ESPR) in the second quarter. Macrogenics is up by 18% in the half, but Molecular Templates and Esperion were both down, by around 18% respectively. All three names are among BB Biotech’s highest conviction stock ideas – those where its investment represents more than a 10% stake in the investee company (which would normally be a very high figure for an investment fund). Only one other holding crosses this 10% threshold, Radius Health (RDUS), although two others – Kezar Life Sciences (KZR) and Scholar Rock Holding (SRRK)- are a shade below this level.
One of the highlights of the period was undoubtedly BB Biotech’s successful bet on the US regulatory approval of Biogen’s Alzheimer’s disease therapy aducanumab, believed by many to be one of the largest biotech binary events of all time. The approval prompted a large rise in Biogen’s stock, although this has since to some extent pulled back – partly on criticism of the FDA’s decision and partly on realisation that the FDA would have to offer similarly favourable treatment of competing Alzheimer’s drugs.
BB Biotech had a less successful period with other binary events within the portfolio, after its very strong record on this in 2020. Key clinical updates from Sage Therapeutics (SAGE), Vertex (VRTX) and Exelixis (EXEL), the last just on Monday, all failed to meet – usually high – market expectations.
[QuotedData comment: While analysis of individual share price movements from within BB Biotech’s portfolio always seems to highlight the stock price volatility in biotech, it is a hallmark of this investment company that it can deliver seemingly consistent gains to investors. We again highlight that if individual investors are looking for exposure to this sector, they would be well advised to take a portfolio approach that mitigates risk, something that can probably be best achieved by a collective investment vehicle.]