BB Biotech’s (SWX:BION) large position in US covid vaccine producer Moderna drove a strong performance against a volatile US biotech market in the first half of this year. Moderna was the second best performer within BB Biotech’s portfolio during the period, with a rise of 105%, beaten only by Essa Pharmaceuticals, whose stock was up by 140%. However, as the position in Moderna is much larger – it ranked in second position at the start of the year (at 6.7% of NAV) – this was the main driver of BB Biotech’s NAV growth.
Moderna’s strong run has extended into the third quarter with its shares up by a further 38% since 30 June. The company is now up by 207% year to date, easily beating Essa’s 111%. With a market cap of $123bn, Moderna now is the second largest biotech company after Amgen, and it is now considerably larger than GlaxoSmithKline ($96bn) and just short of Sanofi ($128bn), both pharma industry stalwarts. Moderna has delivered its pre-IPO investors (which included BB Biotech) an 18-fold return in the two and a half years since its IPO.
BB Biotech’s half year results and portfolio update out this morning show Moderna is now the company’s largest individual holding, accounting for 12.2% of portfolio value as of 30 June, up from 7.8% at the end of the first quarter. BB Biotech took profits on Moderna’s rising share price in both quarters this year.
Among other important portfolio updates, BB Biotech sold out of its holding in Alexion (ahead of the closing of that company’s acquisition by AstraZeneca, which is due imminently) and has sold two-thirds of its holding in Halozyme (Nasdaq: HALO). Halozyme’s share price performance has been flat year to date and it has not suffered any particular setbacks, suggesting the decision reflects a view that the share price is simply fully up to date with events.
BB Biotech realised a substantial gain on its Biogen holding after correctly predicting the FDA would approve the Alzheimer’s drug Aduhelm and has since taken profits on its holding. However, Biogen’s share price has been volatile since the controversial approval and has fallen by 20% since reaching a peak on 10 June.
BB Biotech used the funds released to build up newer portfolio positions and, in some cases, add to its core holdings, often after large falls on adverse clinical updates. One such stock is Ionis, which until being overtaken by Moderna was BB Biotech’s largest holding. Ionis stock price fell heavily in the first half on two clinical setbacks, but the number of shares owned by BB Biotech has increased by 10%. Reflecting the balance of these considerations, Ionis has fallen into second place in the portfolio (7.7% of portfolio value).
BB Biotech added to its positions after share price falls in Vertex, Sage, Macrogenics and Black Diamond Therapeutics. This latter firm saw the largest share price fall within the portfolio, but BB Biotech saw this as an opportunity to increase the number of shares owned from 1.4m to 3.4m.
No new positions were opened in the second quarter and the portfolio has thus been reduced to 33 holdings.
Overall, BB Biotech achieved a respectable performance in second quarter and first half of 2021, both periods that have proved quite turbulent for biotech stocks. For the first half of 2021, the total share price return was 22.2% in CHF including the dividend. This was ahead of the NAV appreciation of 8.9% in CHF. The share price increased by 5.8% in the second quarter and NAV grew by 3.3%.
[QD comment: The update highlights two unusual facets of BB Biotech’s strategy that were both prominent in the second quarter: one is the strategy of increasing the size of high conviction positions after, in some cases, substantial setbacks and share price falls; the other is the asymmetric performance when one of the high conviction stocks perform well, as with the case of Moderna. Both of these tend to distinguish BB Biotech from other biotech closed end vehicles, which tend to have a greater focus on mitigating potential index underperformance. As ever, we highlight the stock price volatility inherent in biotech and urge individual investors who are looking for exposure to this sector, to take a portfolio approach, which can probably be best achieved by a collective investment vehicle.]