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BB BIOTECH AG: Biotech sector recovers from market correction - new products and M&A the main drivers

July 17, 2014 - London

BB BIOTECH AG /BB BIOTECH AG: Biotech sector recovers from market correction - new products and M&A the main drivers . Processed and transmitted by NASDAQ OMX Corporate Solutions.The issuer is solely responsible for the content of this announcement.

Interim Report of BB Biotech AG as of June 30, 2014

BB Biotech delivers another double-digit performance in the first half of 2014

After correcting temporarily, the Nasdaq Biotech Index (NBI) ended the first half of 2014 with a gain of 13.5% (in USD). The European stocks and several of the US holdings in BB Biotech AG's portfolio delivered convincing results during the period. Half year share performance figures for the investment company are 16.6% in CHF and 17.5% in EUR. Assets under management rose to CHF 2.3 bn. The excellent performance trend is underpinned by strong fundamentals and impressive major product launches as well as the publication of positive clinical trial results in the biotech sector. In view of the sector's good research newsflow, strong operating performance, and sustained high sales and profit growth, BB Biotech's well-performing investment portfolio is attractively valued.

The biotech sector showed volatility during the first six months of 2014, but ended the period in positive territory. A market correction from March through mid-April was followed by a strong recovery in May and June. The regained strength of the sector in the second quarter can be attributed to continued strong performance of the leading biotechnology companies and attractive valuations. There was positive newsflow on clinical development candidates and further M&A activity leading to share gains in the second quarter of 2014.

The index outperformed the broad equity markets once again. For the first six months of 2014, the NBI gained 13.5% in USD compared to the S&P (+7.1% in USD), the SMI (+6.5% in CHF) and the DAX (+2.9% in EUR).

BB Biotech continues its strong performance
Since the start of 2014, BB Biotech's Net Asset Value (NAV) has increased 13.2% in USD, 12.5% in CHF and 13.7% in EUR. The BB Biotech share price gained 16.6% in CHF, and 17.5% in EUR - all of these parameters take into account the completed cash distribution of CHF 7.00 per share. The resulting net profit for the first half year amounts to CHF 261.1 mn - compared to a net profit of CHF 492.7 mn for the same period of the previous year.

BB Biotech experienced a significant inversion from the first to the second quarter of 2014 when comparing its share price performance with its underlying NAV evolution. A small gain in the NAV in Q1 combined with a double-digit share price performance led to a significant reduction of the discount. The picture was the opposite in the second quarter, with a positive NAV performance of more than 9% while the share price appreciated only slightly by 1.4% in the same period. This discount volatility resulted in a performance buffer during the March and April downturn, and the situation reversed in May and June due to the improved underlying portfolio performance. A large holder divested shares continuously over the first six months of 2014. Most of these shares were absorbed by a new and broader shareholder base. BB Biotech's activities with treasury shares and the share repurchase program were minimal.

Assets under management grew to CHF 2.3 bn. Due to the cash distribution of CHF 7.00 per share cash outflows amounting to apporoximately CHF 80 mn. The share repurchase program used CHF 14 mn as we acquired 91 925 shares of BB Biotech. The company currently holds 517 956 shares, consisting of 11 031 treasury shares (<0.1% of outstanding shares) and 506 925 shares (4.3% of outstanding shares) bought under the currently active share repurchase program.

Small portfolio adjustments to balance future opportunities
In the second quarter, the overall performance of BB Biotech's portfolio was driven by the European holdings Actelion, Swedish Orphan and Bavarian Nordic and some selected US mid cap companies. Both Celgene and Gilead recovered all of their Q1 2014 share price reduction and added to the portfolio's positive performance in Q2 2014. The portfolio investments focused on hepatitis C virus (HCV) drug development experienced substantial price appreciations after Idenix received an acquisition offer from Merck which in turn triggered appreciation in Achillion's share price and a renewed interest in earlier stage HCV drug developers.

The active changes in the portfolio throughout the second quarter included a modest reduction of the Actelion position ahead of the Selexipag results. On the other hand, more shares were added in the mid cap oncology portfolio companies, Pharmacyclics and Puma Biotechnology. The cautious revenue guidance for Imbruvica led to a significant share price correction for Pharmacyclics compared to the year-end price, which BB Biotech used to further build its position. Following the ASCO conference in early June, Puma Biotechnology lost significant value due to competitive data being extrapolated for Neratinib's success in various breast cancer indications. Given our continued positive expectations for Neratinib in these breast cancer indications, BB Biotech continued to accumulate Puma Biotechnology shares at attractive prices.

Throughout the second quarter, BB Biotech adjusted its smaller capitalized holdings. The Idenix position was sold into the Merck acquisition offer valuing Idenix at USD 24.5 per share or USD 3.85 bn for the entire company. This was a significant premium over the pre-announced market price of approximately USD 7 per share. In addition, BB Biotech sold its remaining position in Ariad.

A new holding was established in Agios, an early stage company which is likely to succeed in its efforts to become a first mover in the use of cellular metabolism as a platform for developing potentially transformative cancer therapies. The company's novel approach, centered around elucidating the dysregulation of cellular metabolism, represents a significant change to the currently targeted treatment paradigm in cancer. Older targets and approaches are reaching their limits and, consequently, there is significant momentum building behind new approaches, including metabolism-based and immune-based therapies. Agios has a significant collaborative licensing deal with Celgene.

Both Radius and Theravance achieved major corporate milestones in the second quarter of 2014. Radius went public with a listing on the Nasdaq stock exchange, in which BB Biotech purchased newly issued shares. Theravance split the company into Theravance and Theravance Biopharma. Theravance is collecting royalty payments from the GlaxoSmithKline (GSK) collaboration and Theravance Biopharma will retain earlier stage clinical candidates. Given the very different business characteristics, the split is anticipated to increase aggregate value. In addition to the split, BB Biotech AG benefited from the product launch of Anoro Ellipta (umeclidinium and vilanterol inhalation powder), the first once-daily dual bronchodilator COPD drug approved in the US, as well as the EMEA granting market authorization for Anoro in May 2014.

Significant progress at portfolio companies
The first six months of 2014 demonstrated the substantial product launches emanating from the industry. By far the most crucial and intensively followed launch has been Gilead's Sovaldi. This new HCV drug launched in December of 2013 reported Q1 revenues of USD 2.35 bn. The current prescription number and trends indicate a revenue run rate well above USD 10 bn per annum for the US market alone. The market size driven by the large numbers of HCV infected patients currently seeking treatment has created discussions around price sustainability for Sovaldi and the HCV market. However, it is encouraging to note that Sovaldi potentially offers tangible and significant pharmaco-economic benefits. Almost all patients treated with Sovaldi achieve the elimination of the HCV virus, and therefore they are cured. This will substantially reduce the amounts of costly liver transplants required due to HCV infections in the future.

Other new product launches which are attracting investor attention include Actelion's Opsumit, bolstering confidence that Actelion will not only be able to replace Tracleer sales upon its loss of patent protection, but can also grow its endothelin receptor antagonist revenues in the future to higher levels. Xtandi, a novel therapy to treat metastatic prostate cancer, continues to be monitored closely for its revenue trajectory and market share trends against Zytiga (Johnson & Johnson).

Approval of new products
Roche, the licensing partner of Halozyme's PH20 technology, launched a subcutaneous (sc) delivery form of Rituximab in Europe. Together with sc Herceptin (Roche) and sc delivery of Immune globulin (Baxter), sc Rituximab represents the third product to become available in a more convenient delivery form in Europe, exclusively based on Halozyme's Enhanze technology.

During the second quarter, another important product in the portfolio received regulatory authorization. Eloctate, a Factor VIII-Fc fusion molecule, was approved and represents the first long-acting hemophilia A product requiring less frequent injections than the currently approved recombinant Factor VIII products. Biogen Idec, which has licensed both Factor VIII and Factor IX-Fc fusion molecules from Swedish Orphan Biovitrum (SOBI), will be distributing both therapies in the US. SOBI, even with a late stage candidate failure reported, performed very well given the product launch and increasing expectations for future significant market share gains for both of their long-acting hemophilia products.

Two significant Phase III datasets were released by BB Biotech portfolio companies, representing potentially significant product approvals in 2015. Actelion reported positive top line results from its long-term outcomes study for Selexipag, a novel orally available prostacyclin receptor agonist. The positive top line results indicate a significant morbidity-mortality risk reduction for pulmonary arterial hypertension (PAH) patients on currently approved PAH medications, such as PDE-5 inhibitors and endothelin receptor antagonists. Selexipag together with the recently approved Opsumit, a next generation endothelin receptor antagonist, should allow Actelion to further expand its leading position in the attractive and growing international PAH market. Although the company has reached an impressive valuation already, further upside is anticipated.

Vertex reported two positive combination studies for cystic fibrosis patients who have the 508 deletion mutation. By combining Kalydeco (Ivacaftor) with Lumacaftor, significant improvements in lung function (FEV1) were reported after six months of combination therapy. Regulatory submissions are planned in the fourth quarter of 2014. The combination of Ivacaftor with Lumacaftor would be the first regimen addressing the underlying cause of cystic fibrosis in this patient population. With the 508 deletion mutation present in more than half of all cystic fibrosis patients, this drug regimen is expected to generate significant revenues upon reaching commercial status. Even though Vertex experienced a sharp share price gain upon these combination results, continued upside is seen at these levels.

Valuations remain attractive
Due to continued strong research results, operational performance and further significant revenue and profit growth, BB Biotech considers the valuations of its profitable portfolio holdings as attractive. With current multiples of the large and established biotech companies close or even lower than their pharmaceutical peers, the continued very strong and highly differentiated growth trajectories should support further share price gains. With the forward valuation methodologies being based on today's share prices and the future earnings power of the companies, the management team continues to monitor price sustainability to ensure that all assumptions are sound and err on the conservative side. Innovative medicines should retain their pricing power provided that they continue to generate substantial clinical and safety benefits over existing therapy and that these benefits are translated into strong pharmaco-economic gains for payers and providers. Our expert team is in a good position to monitor such economic effects.

Continued innovation as the basis for future performance
As proven by Gilead with their impressive Sovaldi product launch targeting a large unmet medical need in HCV, the team foresees further growth in the business. For example, Sovaldi may be combined with Ledipasvir as a fixed dose regimen, to sustain Gilead's strong HCV franchise worldwide.

Medivation is expected to benefit from a first-line treatment claim for Xtandi's product label, allowing the company and its partner Astellas to tap a substantial opportunity in the large prostate cancer market.

Celgene's significant investments in research partnerships are anticipated to gain visibility in the coming quarters. BB Biotech expects that the company's focus on IMiD products will be expanded to include interesting new drug candidates in the inflammatory and cancer arenas. Beyond these notable examples, Celgene's portfolio could produce additional attractive pipeline candidates, promising potential gains as seen with Actelion's PAH and Vertex' cystic fibrosis franchise strategies. New platforms such as the RNA-based medicines from Isis and Alnylam are also expected to gain a significant role in the field of rare and severe orphan diseases.

The interim report as of June 30, 2014 is available on

For further information:

Investor Relations
Bellevue Asset Management AG, Seestrasse 16, 8700 Küsnacht, Switzerland, tel. +41 44 267 67 00
Dr. Silvia Schanz,
Maria-Grazia Iten-Alderuccio,
Claude Mikkelsen,

Media Relations
b-public AG, Pfingstweidstrasse 6, 8005 Zürich, Switzerland, tel. +41 79 423 22 28
Thomas Egger,

Bellevue Asset Management AG, Seestrasse 16, 8700 Küsnacht, Switzerland, tel. +41 44 267 67 00
Tanja Chicherio,

Company profile    
BB Biotech invests in companies in the fast growing market of biotechnology and is one of the world's largest investors in this sector with more than CHF 2.3 billion in assets under management. BB Biotech is listed in Switzerland, Germany and Italy. Its investments are focused on listed companies that are developing and commercializing novel medical treatments and cures. BB Biotech's investment selection process is guided by the fundamental research and analysis of physicians and molecular biologists. Its Board of Directors has many years of experience in industry and science.

This release contains forward-looking statements and expectations as well as assessments, beliefs and assumptions. Such statements are based on the current expectations of BB Biotech, its directors and officers, and are, therefore, subject to risks and uncertainties that may change over time. As actual developments may significantly differ, BB Biotech and its directors and officers accept no responsibility in that regard. 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.

Composition of BB Biotech's portfolio as of June 30, 2014
(in % of securities, rounded values)

Celgene 13.2%
Actelion 11.5%
Gilead 10.5%
Incyte 8.6%
Isis Pharmaceuticals 8.4%
Vertex Pharmaceuticals 4.8%
Medivation 4.2%
Alexion Pharmaceuticals 4.1%
Novo Nordisk 3.8%
Synageva BioPharma 3.4%
Swedish Orphan Biovitrum 3.0%
Regeneron Pharmaceuticals 2.4%
Pharmacyclics 2.4%
Halozyme Therapeutics 2.1%
Neurocrine Biosciences 1.7%
Alnylam Pharmaceuticals 1.4%
Puma Biotechnology 1.4%
Immunogen 1.4%
Radius Health 1.3%
Glenmark Pharmaceuticals 1.3%
Lupin 1.1%
Ipca Laboratories 1.0%
Theravance 1.0%
Agios Pharmaceuticals 0.8%
Clovis Oncology 0.8%
Tesaro 0.8%
Bavarian Nordic 0.8%
Infinity Pharmaceuticals 0.7%
Endocyte 0.6%
Achillion Pharmaceuticals 0.5%
Theravance Biopharma 0.3%
Probiodrug1) 0.3%
Strides Arcolab 0.1%
Radius Health warrants 23.04.2018 <0.1%
Radius Health warrants 19.02.2019 <0.1%
Cubist Pharmaceuticals contingent value rights - ex Optimer <0.1%
Cubist Pharmaceuticals contingent value rights- ex Trius 0.0%
Total securities CHF 2 432.8 mn
Other assets CHF 44.7 mn
Other payables CHF (186.3) mn
Total shareholder's equity CHF 2 291.2 mn
Treasury shares (in % of company) 2 4.4%

1) Unlisted company
2) Correspond to the total of all own shares held including the second trading line

Media Release (PDF)

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The issuer of this announcement warrants that they are solely responsible for the content, accuracy and originality of the information contained therein.
Source: BB BIOTECH AG via Globenewswire



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