Shareholder letter

Dear Shareholders

The Dow Jones (–6.9% in USD), the Dax (–12.4% in EUR), and the SPI (–16.5% in CHF) indices each declined in 2022, while the technology-heavy Nasdaq Composite (–32.5% in USD) declined even more. The Nasdaq Biotech Index (NBI) traded in line with the broader markets for the year (–10.1% in USD).

BB Biotech’s total share return of –24.3% in CHF and –19.0% in EUR in 2022 tracked European equity indices, performed worse than biotech indices and deviated from the underlying portfolio performance. Exchange rates fluctuated throughout the year but closed with a small gain for the USD relative to  the CHF and the EUR which created some support for EUR-denominated performance. This meant that the BB Biotech portfolio Net Asset Value (NAV) declined 11.0% in CHF, 6.7% in EUR and 12.1% in USD for 2022. Consolidated full year 2022 data showed a net loss of CHF 358 mn compared to a net loss of CHF 405 mn for 2021.

During the last quarter of the year major global equity indices rebounded and recovered some of 2022’s earlier losses. Most equity and bond markets closed the year in negative territory associated with persistently high inflation and strong labor market data which surprised investors and central banks. Interest rate expectations for the US at the beginning of 2022 stayed below 1%, with the December 2022 rate hike pushing the Federal fund interest rate to 4.25% with more rate hikes to be expected in 2023.

For the fourth quarter of 2022, BB Biotech’s share price increased 4.7% in CHF and 4.4% in EUR. BB Biotech’s Net Asset Value (NAV) decreased 1.2% in CHF, 3.5% in EUR and gained 5.4% in USD, impacted by currency fluctuations and by the underperformance of small and mid cap companies in the portfolio, while the NBI index gained 12.0% in USD for the same period – driving a net loss of CHF 35 mn compared to the net loss of CHF 546 mn for the fourth quarter 2021.

Stability in the Board of Directors of BB Biotech

During 2022, BB Biotech expanded the Board of Directors. Dr. Pearl Huang, CEO of Dunad Therapeutics, and Laura Hamill, former Executive Vice President Worldwide Commercial Operations for Gilead joined the Board. All six current board members will stand for re-election by the shareholders at the Annual General Meeting (AGM) scheduled for March 23, 2023.

A proposed dividend of CHF 2.85 per share

Portfolio adjustments in the fourth quarter 2022

During the fourth quarter, the investment team made no new investments, but added to existing portfolio positions. The additions focused on oncology companies such as Revolution Medicines, Fate Therapeutics, Black Diamond Therapeutics and Essa Pharma – each of which suffered valuation dislocations. Additions in Macrogenics and Mersana followed important pipeline deals strengthening the companies’ balance sheet. Additions in Relay Therapeutics followed positive clinical data reports for the firm’s FGFR2 asset. BB Biotech also added shares of commercial stage Incyte and genetic medicines company Ionis. The investment management team took profits in Neurocrine following a rebound of Ingrezza growth, and from Alnylam and Vertex – each trading close to their all-time high share prices. Taken together, these additional investments increased the BB Biotech investment level by 2.4% compared to the third quarter, closing 2022 at 113.6%.

The additions focused on oncology companies such as Revolution Medicines, Fate Therapeutics, Black Diamond Therapeutics and Essa Pharma – each of which suffered valuation dislocations.

2023: Exciting sector fundamentals and anticipated licensing deals/M&A

During 2022, SARS-CoV-2 variant waves remained a focus for healthcare authorities. Yet the pandemic was said (more than once) to be over. Meanwhile, the US FDA tallied up 37 NDA (New Drug Application) approvals and 7 BLA (Biologics License Application) approvals (vaccines, blood and cell products) for the year.

BB Biotech believes that 2023 will include multiple catalysts for the sector and for its portfolio companies, including product launches, important clinical trial results, licensing deals and M&A activity.

Many clinical trial read-outs are eagerly anticipated from portfolio companies in 2023. The focus for mRNA vaccines shifts away from SARS-CoV-2 to seasonal respiratory viruses. Moderna is expected to report data from mRNA-1010, an influenza vaccine, and mRNA-1345, an RSV vaccine in 2023. Neurocrine will report Phase III data for Crinecerfont in congenital adrenal hyperplasia. Argenx, is expected to reveal Phase III data for chronic inflammatory demyelinating polyneuropathy (CIDP). Ionis plans to report late clinical data for Olezarsen, an ApoCIII antisense oligonucleotide for familial chylomicronemia syndrome. Esperion announced positive results for the CLEAR outcomes trial ofbempedoic acid in late 2022 and is scheduled to disclose details at a late breaker presentation during the annual American College of Cardiology meeting on March 4, 2023. We also look forward to important results from smaller platform companies including Generation Bio, Homology Medicines, Wave Life Sciences and Fate Therapeutics.

Multiple product approvals and important label expansions are expected to drive future revenue and profit opportunities:

• Two antisense oligonucleotide drug candidates from Ionis: Eplontersen for TTR-polyneuropathy and Tofersen for SOD1 amyotrophic lateral sclerosis
• The first gene editing candidates from Crispr Therapeutics and Vertex: CTX001 for sickle cell disease and beta thalassemia
• A subcutaneous formulation of efgartigimod gMG from Argenx
• A second indication for Valbenazine for chorea in Huntington’s disease from Neurocrine
• A Patisiran sNDA for TTR-CM from Alnylam
• Two mRNA vaccines, mRNA1010 for seasonal influenza,  and mRNA1345 for seasonal RSV from Moderna
• Zuranolone for major depressive disorder and postpartum depresseion (PPD) from Sage/Biogen
• A bempedoic acid sNDA including cardiovascular outcomes data from Esperion

The challenging capital markets environment placed even greater investor focus on new product launch metrics including markers of sustainable profitability. Neurocrine Biosciences, Intra-Cellular Therapeutics, Incyte and Argenx will be in focus. The launch of Orgovyx and Myfembree by Myovant is less noteworthy since the firm has been acquired by Sumitomo Pharma.

Companies with earlier clinical programs and technology platforms may be challenged to raise capital. Consequently, some have fallen back on licensing deals with larger companies to avoid dilutive equity funding. Those needing immediate funding  were obliged to raise money at unattractive valuations. BB Biotech sees compelling opportunities under these circumstances and also expects more M&A activity, with large companies constantly seeking pipeline opportunities.

A focus on big data and artificial intelligence

BB Biotech is focusing more and more on large healthcare data sets which provide insights into R&D and commercial opportunities. BB Biotech has expanded the data science team recently – adding experts to the investment management team to strengthen the investment process. The investment management team continues to build and balance a portfolio of established mid capitalization companies and exciting earlier stage companies, as defined and outlined in its investment guidelines. BB Biotech’s structure as an investment company enables and demands a long-term view which will continue to generate leading returns in our sector. In BB Biotech’s view, the growth case for biotechnology and the value which the sector will create are compelling.

We thank you for the trust you have placed in the Company.

The Board of Directors of BB Biotech AG