BB Biotech — A positive start to a promising year

BB Biotech (BION)

Last close As at 21/01/2025

CHF37.65

−0.20 (−0.53%)

Market capitalisation

CHF2,117m

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Research: Investment Companies

BB Biotech — A positive start to a promising year

BB Biotech (BION) is the largest biotech investor among its investment company peers. The company is focused on achieving long-term capital growth by investing in high-quality biotech assets developing and marketing innovative drugs. The new year has started on a very positive note for BION. Pharmaceutical giant Johnson & Johnson (J&J) recently announced plans to acquire one of BION’s core holdings, Intra-Cellular Therapies, at a 40% premium. Intra-Cellular comprised 6.1% of BB Biotech’s portfolio at end-Q324, although its share will be larger now. Since J&J’s announcement, BB Biotech’s net asset value (NAV) has risen by 3.4% in absolute terms, 3.1 percentage points ahead of its benchmark, the Nasdaq Biotech Index. This note considers the broader implications of this transaction for the biotech sector.

Milosz Papst

Written by

Milosz Papst

Director of Content, Investment Trusts

Investment companies

Biotechnology equities

22 January 2025

Price CHF37.65
Market cap CHF2,086m
Total assets CHF2,413m
NAV CHF43.6
Discount to NAV 13.5%
Current yield 5.0%
Shares in issue 55.4m
Code/ISIN BION/CH0038389992
Primary exchange SWX
AIC sector N/A
52-week high/low CHF49.4 CHF35.3
NAV high/low CHF56.0 CHF36.0
Gross gearing 13.3%

Fund objective

BB Biotech, a Swiss-based investment company, targets long-term capital growth from biotech companies developing and marketing innovative drugs. At least 90% of the portfolio is held in listed companies, primarily those with products on the market or promising drug candidates in advanced stages of development. BION is benchmarked against the Nasdaq Biotech Index (in CHF) but is managed on a bottom-up basis, with a focused c 20–35 stock portfolio.

Bull points

  • Bellevue Asset Management, which manages BION, has 30 years’ experience in the sector, with proven expertise in backing innovative companies, such as Moderna (bought pre-IPO).
  • The prospect of lower interest rates bodes very well for the small-cap biotech sector.
  • Unique use of AI and big data to support the investment decision-making process.

Bear points

  • Biotech stocks can be volatile, as the development process for new drugs and therapies is very uncertain and some will fail or otherwise disappoint expectations.
  • Gearing increases exposure to downside risks.
  • BION invests in foreign currencies, which brings a corresponding degree of currency risk versus the reference currency.

Analysts

Milosz Papst
+44 (0)20 3077 5700
Joanne Collins
+44 (0)20 3077 5700

BB Biotech is a research client of Edison Investment Research Limited

Highlights of the deal

Intra-Cellular is a biopharmaceutical company focused on the development and commercialisation of therapeutics for central nervous system (CNS) disorders, including Caplyta (lumateperone), the first and only US FDA-approved treatment for bipolar I and II depression as an adjunctive and monotherapy.

The drug is also approved for the treatment of schizophrenia in adults, and if a further application is approved by the FDA, Caplyta has the potential to become the standard of care for most common depressive disorders.

The total equity value of the J&J acquisition will be approximately $14.6bn, which J&J expects to fund through a combination of cash on hand and debt.

The transaction is expected to be finalised later this year, subject to the applicable regulatory approvals and approval by Intra-Cellular’s shareholders.

Intra-Cellular deal may herald a surge in M&A

The sector was disappointed by the relatively low level of mergers and acquisitions (M&A) activity during 2024, but this deal has generated much excitement as a harbinger and possibly a catalyst of better times, and more capital inflows, ahead. The announcement comes at a time when some of the factors that discouraged M&A deals are lifting. The US Federal Reserve has reduced interest rates several times and further rate cuts are expected during 2025. This is supportive for biotech stock valuations. Furthermore, US economic, political and regulatory uncertainty has eased, as the incoming president is viewed as generally pro-growth and anti-regulation.

Big Pharma looking for investment opportunities

Several drug patents are due to expire over the next few years, which will allow generic versions of these drugs to be sold by competitors at potentially much lower prices. According to EY, a global business advisory firm, by 2028, patent expirations are expected to threaten US$300bn in industry revenues. Large pharmaceutical companies are therefore seeking replacement income from new patented products, including via strategic acquisitions of smaller, attractively priced biotech companies with innovative technologies and promising pipelines. The sector has significant funds at its disposal to finance such deals. Large pharma companies are equipped with US$1.3tn of deal-making firepower, according to EY. Many, if not all, of BION’s portfolio holdings are potential targets for such activity, as the J&J deal aptly illustrates.

Other portfolio news has also been positive for BION

The good news for BION does not stop with this deal. Another of the company’s core positions, Argenx, has announced strategic plans and a significant upgrade to its previous sales expectations for its product Vyvgart. Hytrulo, the subcutaneously administered version of Vyvgart, has been approved by the FDA to treat patients with chronic inflammatory demyelinating polyneuropathy. And Biogen, a US pharmaceutical company that develops and supplies therapies for treating neurological and neurodegenerative diseases, has announced a takeover of Sage, another of BION’s portfolio companies. On a less positive note, Moderna has downgraded its revenue expectations, but BION only has a small position in this company, so this news has not had a significant impact on performance.

Persistent wide discount may be an opportunity for investors

BION’s recent, mostly positive, newsflow lifted its NAV by 3.4% in the first three weeks of 2025, ahead of the benchmark return of 0.3%. However, the company’s share price is trading at a discount to NAV of around 14%. As such, the current discount may represent an attractive entry point for investors who share the view that 2025 is likely to be good year for the biotech sector.

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