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BB Biotech shares rise as sector sees signs of recovery

BB Biotech shares closed yesterday at CHF 57 per share, down 26.5% in the year-to-date period, but crucially up by 12% since mid-June when the shares hit a recent nadir of CHF51 per share. NAV, at CHF49.95 per share, is down by 9.95% year-to-date (YTD), but has gained 22% from its recent nadir of CHF40.9 per share, similarly reached around a month ago. The Swiss investment company has seen both its shares and NAV come under pressure in line with the severe bear market for biotech in the past year – the sector has broadly fallen by around 30% YTD and year to date and by 50% or more over the past year – but it has also enjoyed a partial rebound in the past month, which appears to have been catalysed by several M&A events, with the expectation of more to come.

By comparison to key benchmarks over the past month, the XBI, the SPDR S&P Biotech ETF (which invests in the small to mid-cap biotech space), gained 28% (although it has still fallen by 29% YTD). Meanwhile, the IBB (the iShares Biotechnology ETF, another closely watched benchmark for biotech stocks that is biased towards larger capitalised companies) gained 14% (although is down 20% YTD). The XBI has down by 52% from a peak that was reached in February 2021, some 18 months ago, while the IBB its 30% off its peak, reached in September last year (the larger cap stocks have been more resilient and started their decline later in the recent downturn).

In the past month, BB Biotech has seen gains in all but one of its 31-strong portfolio of stocks, the large majority of which were in double digit percentages with the median was 33%.  The largest gain in the portfolio in the past month was achieved by Kezar Life Sciences (Nasdaq:KZR), at 122%, while the only company to show a decline was Essa Pharmaceuticals (Nasdaq: EPIX), at 37.9%.  Kezar’s share price jumped on positive, albeit early results, from a clinical trial of its experimental therapy zetomipzomib for lupus nephritis, although this represented only a partial recovery having fallen heavily after the same drug failed a mid-stage trial in a different indication, myositis, in May.

One portfolio company, Radius Health accepted a take-private takeover offer that was mounted jointly by two specialist life science investors with debt funding provided by a third. The deal, which includes a so-called contingent value right (a payment linked to a future event) provide up to US$547m in cash to shareholders with a total transaction valued at US$890m (including debt). The company will be acquired by Gurnet Point Capital and Patient Square Capital, with debt funding provided by OrbiMed. This deal appears to have coincided with the turning point in the market and may have been the cause of it as the emergence of financial buyers (rather than strategic ones, such as pharmaceuticals companies) in M&A deals, strongly suggests the market may have bottomed out.

One month and YTD share price for the BB Biotech’s portfolio are shown in the table below. As can be seen, despite the almost across the board gains in the past month, most stocks are still well below 2021 year end prices. Nevertheless, there are some notable exceptions, including wave Life Sciences, Esperion, Incyte and Ionis Pharmaceuticals.

One of BB Biotech’s holdings, Alnylam (NASDAQ:ALNY), is approaching one of the  largest biotech catalysts this year. The company is expected to report the outcome – it has guided this will occur in the “mid year” – to its Apollo-B trial of Onpattro in the cardiomyopathy subtype of ATTR amyloidosis. One analyst has predicted this trial could spur an up to 80% rise in the shares if positive, but a 50% loss if negative – the expected outturn being asymmetric, but unusually skewed to the upside.

The table below shows stock price changes for the leading biotech closed-end and open-ended vehicles over the past month and in the YTD period. Note the share price change may differ from NAV performance because of changes in the discount/premium, and in this instance, the numbers are measured in local currency (the US dollar has strengthened against the Swiss franc and pound sterling in this period).

BB Biotech is due to report its half year portfolio update on 22 July.

[QD comment: The bear market in biotech in 2021 and early 2022 has been severe and probably the worst for more than 20 years. While most observers predict a recovery for biotech stocks, probably driven by buyers seeking to take advantage of low valuations, there is now some evidence emerging that this may be taking place. This may encourage investors to come back into the space. However, the stock price movements over the short to medium term highlight the volatility inherent in biotech and are a reminder that, for most investors, biotech should probably only consider the space as part of a portfolio and with a long-term view. BB Biotech’s long-term investment horizon has delivered excellent returns on 10-year basis and we consider the stock offers investors an attractive vehicle to gain exposure to a focussed group of biotech drug developers.]

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