Switzerland’s BB Biotech (SIX:BION) recorded a solid investment performance in 2020 despite the volatile markets, according to its preliminary report. The trust saw a 16.4% rise in NAV (with a 12 % rise in share price) over the year, with a 20.6% gain in portfolio value (25.5% in US dollars) and the share price up by 10.9% in the final quarter. The board proposes a 5.8% rise in its dividend to CHF 3.60/share (CHF3.4/share), payable after the AGM in March, in line with its target of 5% of NAV. Detailed results will be published on 19 February.

For the full year, total share return was 19.3%, slightly behind the portfolio performance of 24.3% (35.9% in US dollars). The Nasdaq Biotech Index (NBI) showed a total return of 26.4% in 2020 and significantly outperformed the broader markets.

In the first three weeks of this year, BB Biotech’s NAV has grown by a further 10.4% (to CHF77.6/share), with the share price up by 9.4% (to CHF82), representing a premium to NAV of around 5%.

Q4 portfolio adjustments

BB Biotech reported that it had exited four holdings in the fourth quarter: Myokardia (4% of NAV at the end of Q3), which was acquired by Bristol-Myers Squibb, while G1 Therapeutics (0.2%), Intercept (0.8%) and Sangamo (1.0%) were all sold because the investment case was deemed to have changed. Myokardia was formerly a top 10 position, generated a profit of more than $205m over the investment cycle.

Profits were taken on a number of investments in the final quarter, including Halozyme, Moderna, Myovant, Crispr Therapeutics and Scholar Rock. The cash realised from these was reinvested in new targets and some existing holdings were increased – in Molecular Templates, Arvinas, Generation Bio and Relay Therapeutics – were market conditions permitted.

Three new investments were made in Q4:  in Mersana, Biogen and Beam Therapeutics. Mersana focuses on antibody drug conjugates and its lead programme, XMT-1536, is in clinical trials for ovarian cancer, while Beam Therapeutics utilizes base editing – a technology that allows for a specific corrective nucleotide change without cutting the genome – and the investment rationale is increase portfolio exposure to the genetic medicine field. Beam’s lead programmes are for hemoglobinopathies such as sickle cell disease and beta thalassaemia and liver diseases such as alpha-1 antitrypsin deficiency.

The Biogen investment is purely tactical (and as a large cap, falls outside BB Biotech’s normal small-to mid cap focus). It bets on a positive FDA regulatory review of aducanumab for Alzheimer’s disease, which is due on or before 7 March. The market currently is highly sceptical that this may result in an approval, based on the highly negative review of the data by the FDA advisory panel, but the unmet need in this condition may mean that effectively some special treatment is applied.

BB Biotech believes that 2021 will continue to see exciting fundamental s for the sector, with the further roll-out of SARS-CoV-2 vaccines and the new US administration. Asset allocation will continue to focus on established areas – such as orphan diseases, oncology and neurological indications – and on rapidly emerging technologies. Some areas within the biotech sector, such as genetic medicines, are attracting significant investor attention and BB Biotech continues to see attractive valuations for select smaller and mid cap biotech firms.

BB Biotech also sees a continuation of the M&A activity in the sector. The proposed takeover of Alexion and the acquisition of the oncology business of Agios by Servier, both announced in December and both top 10 holdings, are examples of this.

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