Strategic reallocation of portfolio assets progressing

A key event during the period under review was the US Federal Reserve’s decision in September to lower interest rates by 50 bps, marking its first rate cut in four years. This shift signals a potential further easing of monetary policy heading into 2025, with markets anticipating rates to gradually decrease to around 3.5% by the end of 2025. Historically, lower interest rates have correlated with increased capital flows into sectors such as biotech, as investors seek growth opportunities. This dynamic positions the biotech industry for potential capital inflows as market conditions improve.

In the third quarter, portfolio adjustments focused on capitalizing on gains from larger, long-term holdings in line with BB Biotech’s S-curve investment strategy. This allowed it to reallocate capital into selectively identified companies with strong growth trajectories, further advancing its continuous process of portfolio rejuvenation. By rotating investments strategically, BB Biotech aims to enhance exposure to promising novel assets while staying aligned with its long-term objectives.

As the third quarter concluded, the investment level decreased slightly but remained near the upper limit of the target range at 112.3%. This sustained high level of investment reflects the investment management team’s continued confidence, with an increasing proportion of holdings featuring de-risked business models and attractive valuations.

Several portfolio companies achieved key milestones in the third quarter, as highlighted below.

• Ionis Pharmaceuticals: Positive results from a Phase I/II study of ION582 (Angelman syndrome)
• Vertex Pharmaceuticals: FDA acceptance of its suzetrigine NDA (acute pain)
• Alnylam Pharmaceuticals: Successful Phase III trial of vutrisiran (ATTR cardiomyopathy)
• Neurocrine Biosciences: Phase II data on NBI-568 (schizophrenia) fell short of expectations
• Celldex Therapeutics: Positive Phase II results for barzolvolimab (chronic inducible urticaria)
• Biohaven: Unexpected positive results for troriluzole (spinocerebellar ataxia)
• Relay Therapeutics: Positive interim data for RLY-2608 (breast cancer)
• Exelixis: Mixed survival benefits from a study of Cabometyx (cancer)
• Rivus Pharmaceuticals: Successful Phase IIa data for HU6 (obesity-related heart failure)
• Edgewise Therapeutics: Positive data for EDG-7500 (cardiomyopathy)
• Wave Life Sciences: Promising results for WVE-N531 (Duchenne muscular dystrophy)

In the third quarter, several biotech companies raised capital following positive pipeline developments, including Ionis, Relay Therapeutics, and Wave Life Sciences. We typically directly support our portfolio companies in such transactions with capital injections. We participated in Relay Therapeutics’s offerings due to key data that aligned with its investment thesis. However, Ionis Pharmaceuticals’s capital increase was perceived as unexpected, as the company was already well capitalized. While Wave Life Sciences's DMD program showed promise, BB Biotech remains focused on its AIMers RNA editing platform and A1ATD program, with ongoing updates expected. M&A activity has significantly slowed in 2024 compared to 2023 but may rebound after the US presidential election in November.

In September, the US Federal Reserve implemented its first interest rate cut, signaling a shift that could benefit the biotech sector by easing funding conditions. This change, coupled with potential policy shifts, will be important to monitor throughout the remainder of 2024. The US presidential election and possible shifts in the control of Congress may influence healthcare policy and drug pricing. While healthcare has not been central to campaign discussions, medical costs – particularly drug pricing – remain a key concern for voters. The Inflation Reduction Act (IRA) negotiations have had limited impact on cost savings thus far. Key challenges remain, including eligibility timelines for small molecules and biologics and the orphan drug exemptions. Additionally, as of 2025, Medicare Part D’s USD 2 000 out-of-pocket cap could improve drug adherence and compliance, benefiting the broader healthcare system. Many of the companies in BB Biotech’s portfolio have strengthened their financial position and are well-positioned to benefit from positive clinical news, regulatory approvals, and new product launches in the months ahead. This view is reinforced by the brighter mood across financial markets and a gradually reawakening IPO market, signaling renewed investor interest. Small and mid-cap names in BB Biotech’s portfolio and across the industry have achieved impressive clinical milestones, leading to notable share price inflections.

BB Biotech AG’s interim report as at September 30, 2024, is available under report.bbbiotech.ch/Q324 or www.bbbiotech.com.

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