OREANDA-NEWS. Interim report of BB Biotech AG as of March 31, 2015.

Positive clinical trial data, takeovers and a reduction in BB Biotech's discount lead to another strong performance by the investment company in the opening quarter of 2015.

The biotechnology industry sustained its upward trend in the first quarter with the Nasdaq Biotech Index (NBI) beating the broader stock market's performance by more than 12 percentage points. For BB Biotech the first quarter was likewise very pleasing. Its shares advanced by 31.0% in CHF, 49.1% in EUR and 33.9% in USD. Growing investor interest for its shares narrowed the discount to Net Asset Value (NAV), which rose by 10.6% in CHF, 27.5% in EUR and 13.0% in USD over the period. Net profit for the first quarter amounted to CHF 379.4 mn. Performance was mainly driven by clinical trial results, pipeline progress and M&A activity involving portfolio companies. Regulatory approvals and important clinical trial results will remain important market-moving factors for the biotech sector for the rest of the year. BB Biotech is pleased that many smaller and mid-sized biotech firms are raising capital by taking advantage of the current positive sentiment to go public or issue more shares through secondary placements. By strengthening their balance sheets, these companies have more money to invest in their pipeline projects and can retain full rights to their drug candidates and avoid having to outlicense their pipeline assets too early in the development process.

Sustained outperformance by the biotech sector

The upward trend of the biotech sector continued in the first quarter of 2015 as the Nasdaq Biotech Index (NBI) gained 13.3%, clearly outperforming the S&P 500 Index, which ended the period with a gain of 1.0%. The continued sector outperformance brought volatility in March as the NBI climbed to new all-time highs mid-month before falling back 7% towards the end of the month. Capital flows into the biotechnology industry continue to be positive, a combination of equity fund flows, asset allocation, and very importantly significant capital inflows provided by acquisitions within the sector.

Central bank actions were once again a major influence on global equity and currency markets. The US and Japan have pumped substantial liquidity into markets in recent years, and now the European Central Bank has started its own quantitative easing program. European equities profited from a weaker EUR/USD exchange rate, as local economies are expected to improve and because companies' lower currency cost base should have a positive impact on revenue and profit growth.

In contrast, US equities have underperformed consequent to the strengthened US dollar. With the Swiss National Bank unwinding the currency peg of the Swiss Franc against the Euro on January 15, a massive appreciation of the Swiss Franc led to a steep share price correction of the Swiss equity market in the second half of January. Since BB Biotech is quoted in Swiss Francs, its shares were also affected. With the US dollar strengthening to almost pre-January 15 levels and the continued strong performance of the portfolio, BB Biotech shares recovered and delivered a double-digit total return for the January-March period. 

BB Biotech's performance for the first quarter 2015

BB Biotech's strong share performance in the wake of greater investor interest helped to narrow the discount from over 20% to about 10% during the first three months of 2015. This reduction in discount combined with the double-digit gain in Net Asset Value (NAV) generated a positive total return for BB Biotech shareholders but volatility also increased in recent weeks. Overall, the total returns for BB Biotech shareholders were 31.0% in CHF, 49.1% in EUR and 33.9% in USD.

The portfolio showed an overall gain of 10.6% in CHF, 27.5% in EUR and 13.0% in USD. Thanks to the continued positive portfolio performance, BB Biotech earned a net profit of CHF 379.4 mn for the first quarter 2015. BB Biotech's performance was mostly driven by its midcap holdings, with the biggest contribution coming from the holdings in Pharmacyclics, Incyte and Neurocrine. With the exception of Novo Nordisk, the larger cap holdings did not keep up with benchmark performance in the first three months of 2015.

All total return calculations include the capital distribution of CHF 11.60 per share according to BB Biotech's proposed dividend policy and as approved by the shareholders at this year's AGM on March 18, 2015. The distribution is a substantial increase of 65.7% compared to the dividend of last year, driven by the strong share price performance of 2014.