Biotech sector still attractively valued despite its rally
BB BIOTECH AG /
Biotech sector still attractively valued despite its rally
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Portfolio of BB Biotech AG as of December 31, 2012
BB Biotech achieved significant outperformance in 2012
BB Biotech's portfolio holdings performed very well in 2012 and the investment
company looks back on an extremely successful fiscal year. Thanks to active
stock picking and clearly defined investment priorities, BB Biotech outperformed
the broader market indices. Its shares gained 42.7% in CHF and 42.3% in EUR
during the course of the year. A rebalancing of portfolio investments with a
greater focus on mid-cap biotech companies made a tangible contribution to this
good performance. BB Biotech continues to have a positive outlook for the non-
cyclical biotech sector. Clinical newsflow and operating results from the
companies within the portfolio should continue to be positive fundamental value
drivers in 2013. After 10 years on the Board of Directors of BB Biotech AG, 9 of
which as Chairman, Prof. Dr. Thomas Szucs will not be standing for re-election
at the next Annual General Meeting. Dr. Erich Hunziker is proposed as the
designated Chairman of the Board of Directors. The Board of Directors will
propose Prof. Dr. Dr. Klaus Strein as a new director.
2012 sector review
The biotechnology sector has shown impressive growth this past year. The
industry experienced successes on many levels including major new product
approvals and promising clinical news. The final quarter alone saw five new drug
approvals by the United States Food and Drug Administration (FDA). This brings
the total number of new approvals for drugs developed by biotech companies to
14 in 2012, making it an excellent year for the industry. The continuing flow of
approvals is also the basis for the industry's sustained double-digit growth.
Fourth-quarter approvals included a new drug in BB Biotech's portfolio:
ponatinib, Ariad's leukemia drug with high sales potential. The latest addition
brings the number of newly approved drugs in the portfolio to a total of seven
in 2012.
M&A activity in the biotech sector moderated somewhat in the fourth quarter: the
number of takeovers was slightly below the high levels seen during the previous
three quarters of 2012. That, in addition to profit-taking and uncertainty
around the outcome of the US presidential elections, caused a mild correction
and the sector was unable to regain its year-to-date highs from the previous
quarter.
Performance overview for the year
Stock markets performed surprisingly well despite a number of worries such as
the smoldering debt crisis in the euro zone, the fiscal cliff in the US, and the
lackluster pace of world economic growth. The MSCI World Equity Index advanced
15.8% in USD in 2012. European indices also made good gains with the DAX, for
example, up 29.1% for the year (in EUR) and the SMI up 14.9% (in CHF).
The biotech sector as measured by the Nasdaq Biotech Index performed better than
other segments of the stock market. It rose by 31.9% over the course of the
year. BB Biotech shareholders benefited even more thanks to astute stock
selection, Net Asset Value (NAV) accretion, and a high degree of investment. BB
Biotech's NAV increased 46.5% in USD, 43.7% in EUR and 42.8% in CHF. BB Biotech
shares reached a high for the year of CHF 96.80 and EUR 80.24 at the beginning
of October and ended the year at CHF 88.50 and EUR 72.55, which corresponded to
a gain of 42.7% in CHF and 42.3% in EUR for the year.
Profit for the year amounted to CHF 368 mn and was largely attributable to the
good performance of the portfolio companies. These gains were augmented by
dividend income from Novo Nordisk, Actelion and the Indian investments and
interest income on a loan issued to Intercell.
Performance and portfolio changes in the fourth quarter of 2012
In the fourth quarter the portfolio companies made further progress but this was
no longer acknowledged by investors. BB Biotech's NAV corrected by 7.0% in USD,
9.5% in CHF and 9.5% in EUR. The stock price corrected by 6.6% in CHF and 7.8%
in EUR during the final quarter of the year. As a result, a loss of CHF 134 mn
was incurred in the fourth quarter, which led to a reduction in NAV per share of
CHF 11.45 compared to the third-quarter figure.
The realignment of the investment portfolio with core investments being scaled
back in favor of greater exposure to promising, mid-cap biotech stocks was
initiated in 2010 and actively pursued until the summer of 2011. The changes
made in 2012 were therefore consistent with a normalized, long-term level of
portfolio turnover. There were five additions to the portfolio in 2012:
Medivation, Onyx, The Medicines Company, Intercell and IPCA, a fast growing
Indian company. These new portfolio holdings had an aggregate weighting of
11.1% at the end of 2012.
Most of the capital to open these new positions stemmed from the sale of all
shareholdings in Pharmasset, Micromet, Human Genome Sciences and Amylin. These
four companies were taken over at attractive valuations and premiums during the
course of 2012. Pharmasset was bought by Gilead in March 2012 after a public
takeover bid was issued in November 2011. In March 2012 Amgen acquired Micromet,
a developer of antibiotics. In June a consortium of companies consisting of
AstraZeneca and Bristol-Myers Squibb acquired Amylin at a premium of more than
100% and this deal was followed by GSK's bid for Human Genome Sciences. BB
Biotech recorded a total cash inflow of CHF 183.6 mn from these four
transactions.
Other events in 2012
In the first half of 2012 the Board of Directors undertook, with the assistance
of independent financial and legal advisors, a detailed review of all strategic
options available to BB Biotech. This strategic review also included an in-depth
analysis of the transaction proposed by the Vontobel Group of converting BB
Biotech from an investment company into a Luxemburg-based fund. In the course of
this strategic review, the Board of Directors concluded that BB Biotech's
corporate strategy - which includes being a listed investment company - is in
the best interests of the company and its shareholders. In mid-November, the
Vontobel Group withdrew its proposal made in July. This reconfirms BB Biotech's
own conclusion. Temporary uncertainty caused by the company's exclusion, and
subsequent reinclusion, in the TecDax Index along with the convertible bond
issue that matured in May, led to a briefly wider range of fluctuation between
the share price and Net Asset Value.
The lawsuit filed by Orbimed against BB Biotech in June was settled out of court
in mid-October 2012. Orbimed has withdrawn its claim for damages.
Legal and consulting expenses increased in 2012 due to the strategic corporate
review, and the Vontobel and Orbimed cases.
First cash distribution from paid-in capital reserves to shareholders planned
After a thorough review of the overall strategy, the Board of Directors
announced in July 2012 that it was revising the company's capital allocation
strategy and would return capital to shareholders in a tax-efficient manner so
as to ensure an annual return of 5%. At the general meeting of shareholders on
March 18, 2013, the Board will propose a cash distribution of CHF 4.50 per
share. Moreover, the equivalent of up to 5% of equity capital will be expended
annually on share buyback programs.
Quarterly update on top portfolio holdings
Celgene (+2.7%, in USD) closed the year at a price just slightly lower than its
high for year after the company reported positive clinical data on Abraxane.
Promising Phase III clinical trial outcomes have been announced both for
metastatic skin cancer and pancreatic cancer. Abraxane in combination with
gemcitabine displayed a survival benefit versus the current standard of care -
gemcitabine - in subjects with advanced pancreatic cancer. These two indications
could significantly expand the sales and growth potential of Abraxane from its
currently approved indications.
Actelion (-7.5%, in CHF) presented Macitentan clinical data to PAH experts at
this year's CHEST. The company also announced positive Phase II results for
ponesimod in psoriasis and cadazolid in the treatment of clostridium difficile
infections. Actelion plans to start regulatory studies for both drug candidates
this coming year.
Gilead (+10.7%, in USD) confirmed promising results for its hepatitis C virus
drug, sofosbuvir (GS-7977), which has placed the company in a dominant position
in the HCV development race. The recently approved HIV drugs Stribild and
Complera have been successfully launched. In October, Gilead announced promising
data for GS-7340 in treating HIV. GS-7340 succeeds Viread and achieves similarly
effective control of virus load with fewer side effects at a much lower dose.
Novo Nordisk (+0.0%, in DKK) continued to impress investors with very solid
business execution and robust sales and profit figures. An advisory panel voted
in favor of potential US approval for Tresiba (insulin degludec) for managing
type 1 and type 2 diabetes. Following a delay of several months, the FDA's
decision is expected during in the first half of 2013.
Vertex (-25.0%, in USD) fell short of its all-time high because of uncertainty
regarding its combination study in cystic fibrosis for patients carrying the
F508del mutation. In addition, the market was taken by surprise by the
announcement in October that Kalydeco had already reached peak US sales within
just a few short months in the currently accessible patient population carrying
the G551D mutation. Incivek, one of the two first-generation protease inhibitors
for treating HCV, is coming under increasing pressure because more and more
patients are waiting for the next generations of HCV product candidates.
Incyte (-8.0%, in USD) consolidated after its significant correction during the
third quarter. However, steadily rising sales figures coupled with a slight
increase in the company's guidance for 2012 sales gave the stock price some
support. Another positive factor was Eli Lilly's launch of regulatory studies to
test baricitinib in rheumatoid arthritis.
BB Biotech believes Isis' share price (-25.8%, in USD) was punished too severely
in the fourth quarter after the Mipomersen advisory panel voted 9-6 in favor of
an approval recommendation while the European Medicines Agency recommended not
to approve the drug. During the final quarter, Isis successfully expanded its
neuroscience collaboration with Biogen Idec and formed an alliance with
AstraZeneca to discover and develop antisense therapeutics for cancer targets.
Quarterly update on mid-cap portfolio holdings
Swedish Orphan Biovitrum, SOBI (-0.5%, in SEK) and its partner Biogen Idec
announced positive data on the company's long-acting factor VIII for hemophilia
A. A Phase III study demonstrated the product's efficacy and safety in
controlling and preventing bleeding, for prophylaxis and perioperative planning.
The associated smaller number of injections versus existing factor VIII products
is a definite advantage for the factor VIII product developed by SOBI.
Despite accelerated approval of Iclusig (ponatinib) for treating CML and ALL
patients unable to tolerate, or no longer respond to, existing TKI therapies,
Ariad (-20.8%, in USD) was not rewarded by investors. The label warning about
arterial thrombosis and hepatotoxicity came as an unpleasant surprise to the
market.
The Medicines Company (-7.1%, in USD) achieved all endpoints with its single-
dose, long-acting antibiotic oritavancin. In a Phase III study, oritavancin
achieved results similar to those of vancomycin, the current standard of care,
in the treatment of severe bacterial skin infections. Results of the second
Phase III study are expected to come out in mid-2013.
The share prices of Indian companies once again showed very satisfactory final-
quarter growth, with Glenmark (+25.1%, in INR) turning in good quarterly
results. Strides (+24.1%, in INR) was increasingly viewed as a takeover
candidate. Lupin (+2.9%, in INR) and newcomer IPCA (+7.1%, in INR) likewise saw
their market value rise and closed 2012 on a successful note.
Positioning and outlook
BB Biotech's portfolio continues to present an attractive mix of profitable
large, fast growing biotech companies with a careful selection of mid-cap
stocks. Exposure to biotech stocks from emerging markets continues to be pursued
in a mindful manner. Additionally, the increasing interest in platform
technology companies that we witnessed during 2012 is expected to be even more
pronounced in the portfolio in 2013.
A host of share price-driving milestones lie ahead in 2013, including:
* FDA approval for Novo Nordisk's Tresiba (insulin degludec) for treating type
1 and type 2 diabetes
* Revlimid data on multiple myeloma treatment and new therapeutic indications
for Abraxane
* Marketing authorization for Actelion's macitentan and possible interim data
on selexipag in the treatment of PAH
* Potential FDA approval for Isis' Kynamro (mipomersen) to treat homozygous
hypercholesterolemia
* Medivation's successful launch of Xtandi for treating advanced prostate
cancer and clinical data for pre-chemotherapy prostate cancer patients
* Further clinical data on oral Sofosbuvir-containing combination regimens for
treating people with HCV
This is an attractive setting and valuation levels are still reasonable. BB
Biotech remains confident in its selection of portfolio investments which should
allow to meet the long-term goal of achieving a sustained increase in value for
BB Biotech shareholders over the coming years.
Changes in the Board of Directors at the upcoming Annual General Meeting in
March 2013
After 10 years on the Board of Directors of BB Biotech AG, 9 of which as
Chairman, Prof. Dr. Thomas Szucs will not be standing for re-election at the
next Annual General Meeting on March 18, 2013. Thomas Szucs had a profound
impact on the strategy and the success of the investment company during the past
10 years and helped to steer it through challenging times. The Board of
Directors is deeply grateful to Thomas Szucs for his tireless efforts and many
accomplishments on behalf of BB Biotech. Thomas Szucs will actively contribute
to the festive celebration of BB Biotech's 20-year anniversary in November
2013, where he will be a featured speaker.
Dr. Erich Hunziker is proposed as the designated Chairman of the Board of
Directors. Erich Hunziker has been on the Board of Directors of BB Biotech since
March 2011.
The Board of Directors will propose Prof. Dr. Dr. Klaus Strein as a new
director. Klaus Strein is a Professor at the University of Heidelberg and holds
post-graduate degrees in chemistry and medicine. During his more than 30-year
career, Klaus Strein has held top-level research positions at Boehringer
Mannheim and Roche. He was an executive at Boehringer Mannheim from 1979 to
1998, where he ultimately served as the Head of the Group's Pharma Division.
During this time Klaus Strein was responsible for the company's drug research
and development activities resulting in several approved and successfully
marketed drugs. He then joined Roche in 1998, where he held various positions,
including responsibility for the Roche therapeutic proteins/antibodies research
and Global Head of Pharma Research. Later he was appointed Global Head Research
Therapeutic Modalities (small and large molecule active agents). Klaus Strein
currently sits on the Board of Directors of NovImmune in Geneva and also
provides advisory services to companies active in the healthcare sector. Klaus
Strein will clearly enhance the Board of Directors with his profound scientific
knowledge and operational skills in drug research and development.
The complete annual report as of December 31, 2012 will be published on February
21, 2013.
For further information:
Bellevue Asset Management AG, Seestrasse 16, 8700 Küsnacht, Switzerland
Thomas Egger, Tel. +41 44 267 67 09, teg@bellevue.ch
www.bbbiotech.com
Company profile
BB Biotech invests in companies in the fast growing market of biotechnology and
is one of the world's largest investors in this sector with CHF 1.3 billion in
assets under management. BB Biotech is listed in Switzerland, Germany and Italy.
Its investments are focused on listed companies that are developing and
commercializing novel medical treatments and cures. BB Biotech's investment
selection process is guided by the fundamental research and analysis of
physicians and molecular biologists. Its Board of Directors has many years of
experience in industry and science.
Disclaimer
This release contains forward-looking statements and expectations as well as
assessments, beliefs and assumptions. Such statements are based on the current
expectations of BB Biotech, its directors and officers, and are, therefore,
subject to risks and uncertainties that may change over time. As actual
developments may significantly differ, BB Biotech and its directors and officers
accept no responsibility in that regard. All forward-looking statements included
in this release are made only as of the date of this release and BB Biotech and
its directors and officers assume no obligation to update any forward-looking
statements as a result of new information, future events or other factors.
Composition of BB Biotech's portfolio as of December 31, 2012
(in % of securities, rounded values)
Celgene  14.3%
Actelion  13.1%
Gilead  10.1%
Novo Nordisk  5.9%
Vertex Pharmaceuticals  5.8%
Incyte  5.8%
Isis Pharmaceuticals  5.7%
Ariad Pharmaceuticals  3.4%
Medivation  3.3%
Immunogen  3.1%
Alexion Pharmaceuticals  2.9%
Onyx Pharmaceuticals  2.8%
The Medicines Company  2.6%
Swedish Orphan Biovitrum  2.6%
Halozyme Therapeutics  2.5%
BioMarin Pharmaceutical  2.5%
Glenmark Pharmaceuticals  2.3%
Theravance  1.3%
Endocyte  1.3%
Lupin  1.2%
Ipca Laboratories  1.1%
Bavarian Nordic  1.0%
Probiodrug (1)) Â 0.9%
Achillion Pharmaceuticals  0.9%
Optimer Pharmaceuticals  0.9%
Strides Arcolab  0.8%
Radius Health (1) ) Â 0.7%
Dendreon  0.6%
Idenix Pharmaceuticals  0.4%
Intercell  0.4%
Total securities  CHF 1 343.7 mn
Other assets  CHF 30.2 mn
Other payables  CHF (139.9) mn
Total shareholder's equity  CHF 1 234.0 mn
Treasury shares (in % of company) (2) Â 12.6%
1) Unlisted company
2) Correspond to the total of all own shares held including the second trading
line
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