BB Biotech has disclosed an increase in its holding in Mersana Therapeutics (Nasdaq:NRSN), the timing of which suggests it again aims to capitalise on a 40% fall in an investee company’s share price that occurred after a clinical trial update earlier in the month. The Swiss investment company disclosed the increased holding in a SEC filing on 16 September. This is its third such disclosure in the quarter, after similar disclosable additions to ESSA Pharmaceuticals (Nasdaq: EPIX) and Sage Therapeutics (Nasdaq: SAGE) in August, that were also – in both cases – after large share price falls.
The latest SEC filing reports a shareholding in Mersana of 4.1m shares, which has increased from 2.9m shares as of 30 June and is now equivalent to a 5.7% stake in the company. Mersana is a relatively recent portfolio addition, as it was a new investment for BB Biotech in the fourth quarter of 2020. However, the shares have fallen by 64% this year, largely on concerns about efficacy and toxicity profile of its lead product, an antibody-drug conjugate called upifitamab rilsodotin (known as “upri”), which is in a trial in patients with advanced ovarian cancer.
Mersana has been reporting results from an ongoing trial of upri at various points over the past year or so, which appear to show a falling objective response rate (ORR, a standardised response measurement) as more patients are enrolled in the study (this is a common phenomenon in cancer drug development). The ORR stood at 35% at an early analysis in June 2020 (based on seven of 20 patients then evaluable) but earlier this month, the ORR figure was reported at 23% (17 of 75). Upri is, however, showing a better ORR of 34% (13 of 38) in patients with high NaPi2b expression (this is the drug’s target, so this would be expected).
BB Biotech disclosed increased stakes in Essa and Sage in August, in both cases also after share price falls. The position in Essa Pharmaceuticals, an oncology developer, was doubled to 4.8m shares. Essa was a new entrant to BB Biotech’s portfolio in the first quarter this year and had been a strong performer for much of this year but saw a steep fall in August. The size of the new holding (equivalent to a 10.8% stake) is notable for being one of only a handful within the portfolio where BB Biotech’s stake is more than 10%. The holding in Sage, a CNS drug developer, was increased by 25% to 2.9m shares, relative to the 2.3m reported for 30 June and equivalent to a 5% stake. The Sage stake is larger than those in Essa and Mersana.
BB Biotech has been able to grow its NAV modestly this year at a time when small/mid cap biotechs have fallen markedly, while its share price reflects its investors’ confidence in its long-term vision. Its NAV yesterday was CHF73.1/share, which compares with CHF71.3 at the start and CHF73.3/share at the mid-point in the year, while the share price closed at CHF87.95, compared with CHF74.15 at the start of the year.
QuotedData comment: BB Biotech’s periodic SEC disclosures show its ability to exploit falls in share prices of investee companies to build larger positions at what it believes are attractive prices. The extent to which it can do this seems to mark it out from other biotech collective vehicles and reflects its longer-term investment horizon. The strategy seems to be borne out in terms of the class-leading returns when measured over longer time periods (eg 5-10 years). As ever, we remind investors of the stock price volatility inherent in biotech and urge those looking for exposure to this sector, to take a portfolio approach, which can probably be best achieved by collective investment vehicle.