2016 was a challenging year for biotechnology investors but the sector will continue to demonstrate its strength as a source of innovation, says Daniel Koller, Head of the Investment Team at BB Biotech
Market volatility and evolving political pressure in the US made 2016 a testing year for the biotech sector. In the week following the election of President Donald Trump in November, the Nasdaq Biotech Index jumped 10%. However, a little over a month later the year closed with large-cap biotechnology companies trading close to an all-time price-to-earnings multiple low.
Alongside the pullbacks and rallies of market sentiment, 2016 also saw a slowdown in large-scale M&A activity. Despite all this sector fundamentals are remaining strong and we have seen positive results across the biotechnology industries.
This is why we see a likelihood for accelerated M&A consolidation this year. The recently announced acquisition of Ariad Pharma by Takeda and the Actelion takeover by Johnson & Johnson mark just the beginning of this trend.
With this confidence in mind, we have maintained a 5% dividend yield on the trust as we feel positive about the sector's prospects in 2017.
BB Biotech's performance
With a total return of 0.3% in CHF terms and 1.9% in euro terms, BB Biotech has already weathered the storm of a challenging 2016 for biotechnology investors, with the trust's share price performance substantially influenced by the discount resolution.
In the fourth quarter of 2016, we increased our positions in companies including Alexion and Novo Nordisk as well as in smaller-cap companies such as Intra-Cellular, Macrogenics, Juno and Agios. Performance in this quarter was buffeted by initial positive moves following the US presidential election before the focus turned back to the topic of healthcare costs and drug price inflation.
The portfolio closed the year at -19.1% in CHF, at -17.6% in euro terms and -20.6% in US dollar terms, slightly ahead of the Nasdaq Biotech Index.
Exciting 2017 as storms subside
2017 will bring an acceleration of important product approvals for the industry. The launch of Spinraza for SMA patients, Niraparib for ovarian cancer patients, and targeted cell-based cancer therapies are key examples in BB Biotech's portfolio.
With biotechnology valuations at very attractive levels, more acquisitions by large players, including pharmaceutical firms, are expected. The actions of the incoming presidential administration in the US may accelerate this likely trend - and we expect investors to follow suit. The repeal and reworking of the Affordable Care Act (ACA) will be front and centre throughout the year, and there may be choppy reactions to possible drug price controls or moderation in the US.
Despite these transitional events, which we will monitor closely, we remain strongly convinced that the future of the biotechnology industry is bright. The sector will further demonstrate its strength as a source of innovation - and notwithstanding short-term uncertainties from political changes, we believe these sources will be converted into substantial value for patients, care providers, the healthcare system at large and, of course, investors which includes BB Biotech shareholders.
We look forward to an exciting 2017 and remain dedicated to finding, analysing and investing in leading-edge biotechnology firms with exciting news flow and robust growth prospects. We will propose a regular dividend of CHF 2.75 per share at the general assembly on 16 March 2017 which is consistent with the 5% dividend yield applied to the average share price in December 2016.
Dr. Daniel Koller joined the Swiss investment trust BB Biotech AG in 2004 as senior portfolio manager specialised in biotechnology. Since 2010 he has been head of the investment team. Before joining the company he spent four years in the financial sector, initially as an equity analyst at UBS Warburg and then as a private equity investor at equity4life. Dr. Koller studied biochemistry at the Swiss Federal Institute of Technology and earned a doctorate in biotechnology while working at Cytos Biotechnology
For more information, please contact:
[email protected], +44 203 770 67 85 , www.bbbiotech.com
All forward-looking statements included in this release are made only as of the date of this release and BB Biotech and its directors and officers assume no obligation to update any forward-looking statements as a result of new information, future events or other factors.