BB Biotech should be able to report a significant increase in NAV tomorrow as a result of a positive trial outcome – with a corresponding c.25%increase in share price – by one of its largest holdings, the US-listed, Belgian company Argenx. The news represents an important fillip for the Swiss investment company, which has seen its own share price and NAV halve over the past two years as a result of the unprecedented bear market for biotech stocks in the post-COVID period.
Given the decline in BB Biotech’s share price over two years and the reduction in its traditionally large premium to NAV in recent months – this has fallen from c.30% to c4% this year – the news may represent a catalyst for long term investors to reassess BB Biotech more positively.
Argenx this morning reported a successful outcome in its pivotal (registration directed) Phase 2 study evaluating Vyvgart Hytrulo (efgartigimod) in adults with chronic inflammatory demyelinating polyneuropathy (CIDP), a neurological condition with some mechanistic similarities to multiple sclerosis. The study met its primary endpoint, demonstrating a lower risk of relapse with Vyvgart compared to placebo, and did so to a high level of statistical significance (p=0.000039). The study, dubbed ADHERE, enrolled 322 adults with CIDP who were treatment naïve or being treated with immunoglobulin therapy or corticosteroids.
Vyvgart/Vyvgart Hytrulo (the names for the IV and sc versions of the same drug) are already both approved for generalized myasthenia gravis (gMG) and also in late-stage registration studies for immune thrombocytopenia (ITP) and pemphigus vulgaris (PV), the latter being expected to read out in the fourth quarter. The drug is well on its way to achieving blockbuster status with consensus sales currently ~$3B for the gMG indication alone.
The CIDN study success appears to validate the bull thesis for Argnex, built around what is sometimes dubbed “a pipeline within a drug”. This is the rare situation where a single pharmaceutical product has multiple uses, each of which contributes materially to the overall sales. Only a handful of such products exist in reality and these tend naturally to be the industry’s largest sellers. The CIDN trial results therefore could mark Argenx out as potential takeover target.
Argenx stock is up by around 25% in the US pre-market this morning, and as a result it has overtaken Genmab to become Europe’s largest biotech by market capitalisation (now c$25bn). Based on the indicated opening price today, the stock has risen by c400% over the past five years, making it the best performer in BB Biotech’s portfolio over that period.
BB Biotech acquired its initial holding in Argenx in Q4 2017 at c$60/share; the shares are currently trading at $474, an all time high. The magnitude of the gain illustrates the long-term, “buy and hold” element in BB Biotech’s investment strategy.
BB Biotech’s own stock was up by 3% on the news today at CHF43.8/share; its NAV reported for Friday was CHF39.55/share. As of Friday, BB Biotech’s stock had declined by 20.8% and its NAV by 13.5% (hence the reduction in the premium-to-NAV). This change principally reflected falls for two of BB Biotech’s largest holdings: Neurocrine Biosciences (-21%) and Moderna (-32%), albeit with declines seem in much of the 30 or so strong portfolio. Two of the top five largest investments are, however, showing gains in the year to date: Ionis Pharmaceuticals (+13%), Vertex (+23%).
Over the same year to date period, the XBI (the S&P Biotech ETF, which tracks small to mid-cap US biotech), was up slightly (+1.7%).
Argenx accounted for 11.5% of BB Biotech’s NAV at the last balance sheet date (March 31), a little behind Ionis Pharmaceuticals (at 11.9%). BB Biotech is due to report its half year results and June 30 portfolio later this week.
[QD comment: BB Biotech is a large and high-quality investment vehicle focussed on the US and US-listed biotech companies offering exposure to the highly innovative small to mid-cap range. It is managed by the well-regarded team at Bellevue Asset Management. Its portfolio mixes established and revenue-generating companies with smaller, earlier (albeit usually clinical) stage companies often with products based around novel modalities. Investors should be aware that it has a particularly long-term investment horizon and, in contrast to some of its peer collective vehicles in the sector, as a strategy does not try to mitigate downside risk from binary events at the expense of capturing upside. Its approach should suit longer term investment, as it tends to outperform its peers over the longer term (5-10 years or more).]