Fresh momentum in the biotech sector – good entry points

A structural recovery is under way in the biotech sector. After several years of volatile stock movements and a general aversion towards the biotech sector, the broader investment community is starting to show a renewed interest in fundamental valuation metrics. Three key factors have injected fresh momentum into the biotech sector:

• M&A activity has picked up: Pharmaceutical majors are under pressure to shore up their R&D pipelines. Drug products generating annual sales of more than USD 200 bn will lose patent protection during the next five years and this figure is set to double to USD 400 bn by 2035. This pressure is forcing big pharma companies to turn to strategic acquisitions. Johnson & Johnson's acquisition of Intra-Cellular Therapies for USD 15 bn is the latest evidence of this.
• Fundamental business progress is attracting investor attention again: Valuations in the biotech sector are at historically low levels. Many stocks are trading on multiples that have usually been associated with early phase clinical development companies – despite impressive clinical progress. Investors are starting to take greater note of innovations in company pipelines and biotechnology-driven breakthroughs. Sector news flow in 2025 will be strong: Announcements of new drug approvals and groundbreaking clinical data with market-moving potential are anticipated.
• Regulatory environment brings opportunities and risks: The outcome of the 2024 US presidential election caused significant price movements in the stock market. Trump’s comeback buoyed investor spirits, but his appointment of Robert F. Kennedy Jr. as US health secretary raised some concern because of his anti-vaccine and anti-regulation views. Against this backdrop, large pharmaceutical companies are under even more pressure to zero in on innovation and differentiation. This plays into the hands of companies that are pursuing innovative therapeutic strategies.

BB Biotech: Optimally positioned for the new market phase
As a pure-play biotech investor, BB Biotech is ideally positioned to take advantage of these unfolding developments. “We are focusing specifically on clinical development and commercialization phases where risks are more manageable and takeover activity is more likely,” remarks Dr. Christian Koch, Head of BB Biotech’s Investment Management Team. “There are companies in our portfolio that are developing highly innovative therapeutics that could achieve regulatory approvals or clinical milestones in the coming months.” Argenx, for example, is seeking approval of a new prefilled syringe formulation and a label expansion for its blockbuster drug Vyvgart. Alnylam is poised to launch Amvuttra in ATTR cardiomyopathy, which would address a significant unmet medical need in cardiometabolic diseases. Neurocrine Biosciences is in the midst of launching Crenessity for people with congenital adrenal hyperplasia (CAH), a historically overlooked market with substantial price and volume potential. These expected market launches are good examples of how BB Biotech’s core portfolio investments are translating scientific progress into commercial success.

At the same time, ongoing clinical trials in a wide range of therapeutic areas are expected to produce considerable momentum for the sector. Incyte is advancing disease-modifying therapies for myeloproliferative neoplasms and it could establish povorcitinib, currently in Phase III clinical trials, as an oral alternative to biologics in hidradenitis suppurativa. Arvinas also has a drug candidate with blockbuster potential, vepdegestrant in breast cancer. In a larger therapeutic area, Rivus is conducting an extensive Phase II proof-of-concept study of an investigational drug in metabolically associated steatohepatitis (MASH), evaluating fat-selective weight loss at six months.

Attractive valuations
The valuations of many biotech companies are at historic lows. “Many biotech companies are trading on valuation multiples that have usually been associated with start-ups pursuing early phase clinical trials – although they actually have late-stage pipeline assets and are therefore about to enter the commercialization phase,” Koch says. This presents enticing opportunities for long-term investors.

Stable dividend policy an attractive differentiator
Another plus point: BB Biotech combines high growth with a stable payout policy. While the biotech sector has traditionally been a growth story, BB Biotech is one of the few investors in this space that also offers an attractive dividend yield. Its dividend proposal for fiscal 2024 is CHF 1.80 per share, which corresponds to a dividend yield of 5% based on its average closing price in December. BB Biotech remains committed to offering its investors a reliable source of income.

In summary
The biotech sector is on the verge of a new phase of growth. The recent increase in M&A activity, a greater focus on clinical innovation and regulatory marketing approvals, and today’s attractive valuations all point to an imminent sector upturn. With its highly selective and disciplined investment approach, BB Biotech is well positioned to take advantage of this fresh momentum. BB Biotech shareholders stand to benefit over the long term from both rising prices and an attractive dividend yield.