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BB Biotech resilient in challenging period for portfolio

BB Biotech (SWX: BION) seems to be resilient in the current challenging period for biotech investing and most especially in the last week, which ranks as one of the most important trading periods in the biotech calendar. The Swiss investment company saw a 0.8% fall in its NAV in the five days from January 10-14th – which covers the JP Morgan Healthcare conference – beating its key benchmark index, the XBI (SPDR S&P Biotech ETF, which invests in US small-mid cap biotech stocks), which took a 2.4% hit.

BB Biotech’s share price closed the week at CHF70.15, down by a larger margin of 5%. In the only slightly longer year-to-date (YTD) period, BB Biotech’s share price has traded down by 9.1%, while its NAV has fallen by 10.2%, the latter in line with the fall in the XBI. Meanwhile, the IBB (iShares Nasdaq Biotechnology ETF, which is broader but consequently dominated by performance of larger caps), is down by 9% YTD.

The JP Morgan conference, held annually in early January and now in its 40th year, has been, for many years, one of the two most important trading periods for biotech stocks (the other being ASCO, a scientific conference on oncology that takes place in June). Despite much positive news emerging at or ahead of this year’s conference, the sector remains in a protracted bear market and the absence of M&A deals (which are often announced to coincide with JP Morgan) meant there was little to catalyse the much hoped-for recovery in share prices.

Biotech stocks have been in a bear market since early last year and the XBI is down by 44% from its February 2021 peak. The XBI fell by 20% over last year, while the broader market – as measured by the S&500 – saw a 27% rise. It has been noted widely that the 47 percent point difference between these two indices is by far the largest delta seen in any of the last 15 years.

The current bear market has also been among the longest ever on record. At 235 trading days and counting, it is longer than any of the ten earlier periods of sustained XBI drawdown since 2015, which have lasted between 17 and 144 trading days (with a median of 29).

Analysing biotech stock price moves last week, we find risers and fallers split equally in number in BB Biotech’s 32 strong portfolio, but the magnitude of the fallers (and their individual contribution to NAV) is obviously greater. The key risers were Revolution Medicines, Myovant and Ionis Pharmaceuticals, while the largest fallers were Essa Pharmaceuticals and Black Diamond Therapeutics.

Moderna, which is by a significant margin the largest of BB Biotech’s holdings, lost 4.3% over the five day period, despite seeing a rise on the day of its presentation as it upgraded forecasts for Covid vaccine deliveries in 2022 from $17bn to $18.5bn. Moderna’s shares at $205 are now 42% of their all-time high of $484, reached only in August last year.

One portfolio company Beam Therapeutics was among the JP Morgan newsmakers. It reported a licensing deal with Pfizer, which came with a $300m up-front payment, providing the pharma giant with access to its base-editing technology. Beam’s shares, however, have fallen by 3.6% over the JP Morgan period.

Share price performance of BB Biotech portfolio stocks last week and in the year-to-date (YTD) are shown in the table below (ranked by the percentage share price change between January 10th and 14th 2022).

BB Biotech is expected to report its Q4 portfolio on 21st January.

[QD comment: Investment in biotech can be extremely challenging at times when the sector is falling out of favour with generalist investors, as has been the case since February last year. However, biotech companies tend to be well funded and highly innovative. Most commentators believe stock prices will recover this year, especially if there is an upsurge in M&A (which seems quite likely as valuations now make this attractive). BB Biotech remains, in our view, a well-managed collective investment vehicle that has delivered out-performance over the long-term timescales, even if currently its premium to NAV puts it at something of an anomaly situation versus peers.]

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