A pickup in M&A activity has strengthened biotech's performance, says Dr Daniel Koller, head of investment management team at BB Biotech.
He added that biotech valuations experienced a modest upward trend despite improving fundamentals and that this disconnect stimulated the M&A market in the third quarter.
‘Large pharmaceutical companies took advantage of the disconnect to acquire small- and mid-cap companies – eschewing mega-mergers and generating cash from their own restructuring-related divestment activity – which included the sale of entire pharmaceutical divisions in some cases.’
Koller said investors were paying close attention to Pfizer’s acquisition of Medivation and Allergan’s bid for Tobira. After selling those positions BB Biotech reduced its leverage.
‘The fund’s investment grade of 112.3% at the end of June 2016 was reduced to 107.6% by the end of the third quarter of 2016.’
Clinical trial progress
Koller said many biotech firms reported good progress in their clinical trials, including names such as Ionis, Agios, Kite, Sage, Radius and Alder.
He added that Ionis and its partner Biogen announced the early completion of the ENDEAR Phase III study (SMA 1 patients), and showed impressive improvements in motor milestone achievements compared with untreated babies.
‘Biogen has already completed the filing process and the product is expected to be launched in 2017 in the US and Europe.’
Based on BB Biotech’s experience in spine muscular atrophy, Koller added US-based company Avexis to the portfolio.
‘This was done based on early but highly promising improvements seen in babies with SMA type 1 after a single administration of Avexis’ gene therapy.’
Positioning for the US election
Koller said, as the US presidential elections are loom ever closer, the possibility of more government price controls is the centre of investors’ attention.
‘However, BB Biotech believes that any changes enacted by the next administration and Congress will be incremental rather than dramatic,’ he said.
The firm made adjustments to its portfolio during the third quarter to capture opportunities presented by the ongoing market volatility and possible overreactions to news flow.
‘Positions in Novo Nordisk and Regeneron were increased, for example, and profits were taken in Celgene, Actelion, Tesaro, Swedish Orphan Biovitrum and Puma Biotechnology.’