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Business Report Portfolio Update Q4 2023

Portfolio Update Q4 2023

The fourth quarter of 2023 marked significant progress for our portfolio companies, characterized by key clinical results, regulatory approvals, and licensing agreements. Despite not capitalizing on the heightened merger and acquisition activity in late 2023, our performance was largely influenced by successes in mid-stage clinical trials and proof-of-concept studies. On the other hand, outcomes of late-stage trials were varied. Notably, US and EU regulators granted approvals for several products, including the groundbreaking gene editing therapy, Casgevy, in December 2023. In response to tighter capital markets and rising capital costs, our portfolio companies strengthened their financial positions through additional capital raises and licensing deals.

Key clinical data milestones in proof-of-concept studies as well as late-stage trials Neurocrine Biosciences' Phase III study of crinecerfont, aimed at treating congenital adrenal hyperplasia (CAH) in children and adolescents, marked a significant achievement. The drug demonstrated efficacy by lowering serum androstenedione levels and enabling reduced glucocorticoid dosage while effectively controlling androgen. This significant breakthrough led to the US FDA awarding crinecerfont a breakthrough therapy designation, acknowledging the urgent need for new treatments in CAH. Neurocrine Biosciences is preparing to file a new drug application in 2024.

This significant breakthrough led to the US FDA awarding Neurocrine Biosciences' crinecerfont a breakthrough therapy designation, acknowledging the urgent need for new treatments in CAH.

Argenx, after a period of consistent success, faced setbacks in late 2023 with the failure of two Phase III studies. The subcutaneous formulation of Efgartigimod, branded as Vyvgart Hytrulo, was tested in primary immune thrombocytopenia (ITP) patients but failed to meet the primary endpoint of sustained platelet count response and secondary endpoints. Additionally, the same formulation in pemphigus patients also did not achieve the clinical endpoints. Despite the demonstrated pharmacodynamic effect of Efgartigimod in reducing total immunoglobulin G (IgG) and autoantibodies, the control arm with low-dose steroids showed a comparable impact on reducing disease-causing autoantibodies. Argenx plans to conduct further analysis of the ITP study results to determine future steps, while discontinuing the development of Efgartigimod for pemphigus treatment. These consecutive clinical trial failures were unexpected, leading to a significant decline in Argenx’s valuation in Q4 2023.

The Phase II results of Vertex's VX-548 for treating painful diabetic peripheral neuropathy led to a rally in its stock. Patients with chronic pain showed improvement over twelve weeks at varying doses of VX-548, an investigational oral NaV1.8 inhibitor. This positive outcome bolstered investor confidence in the VX-548 program, currently undergoing registrational studies for the expansive chronic pain management market. It also enhanced the anticipated success of multiple acute pain trials slated for the first half of 2024.

Arvinas, in collaboration with Pfizer, revealed results for vepdegestrant combined with palbociclib in breast cancer patients. The treatment showed a 42% overall response rate and a median progression-free survival of 11.1 months in heavily pre-treated patients, alongside an acceptable tolerability profile. Following these results, the companies have decided to broaden the development profile of vepdegestrant. Additionally, Arvinas has bolstered its financial position with a USD 350 mn private placement, which included participation from BB Biotech.

Moderna, alongside its development partner Merck, provided an update on their ongoing personalized cancer vaccine program, mRNA-4157, in combination with Keytruda. This update covers patients with complete resections who have been followed for three years. The combination therapy has shown a 49% reduction in the risk of recurrence or death and a 62% decrease in the risk of distant metastasis or death. Both companies are significantly investing in the development of mRNA-4157 through extensive, randomized Phase III trials. They are also considering seeking accelerated approval for stage III/IV melanoma patients, contingent on the establishment of adequate manufacturing and logistics to meet potential patient and market demands. Additionally, Moderna is making notable advancements in its prophylactic vaccine business for respiratory viruses. The company announced promising early results for mRNA-1083, their combination vaccine against influenza and COVID-19, and initiated a Phase III program in Q4 2023.

Celldex revealed encouraging topline results for barzolvolimab, a c-kit targeting antibody, in chronic spontaneous urticaria (CSU) patients. The treatment led to significant reductions in urticaria disease activity, evidenced by lower disease scores (UAS) and up to half of the patients achieving complete control, as indicated by a UAS7 score of zero. In response to these updates and the positive reception from investors, Celldex strengthened its financial position through a public offering, raising approximately USD 200 mn. This funding will support the initiation of registrational trials for barzolvolimab, anticipated to begin in 2024.

Investor attention is keenly directed towards Alnylam's HELIOS-B study of vutrisiran, with its data readout anticipated in the first half of 2024. Meanwhile, Alnylam has reported significant advancements in other major indications, such as hypertension treatment. Their subcutaneous RNAi therapeutic, Zilbesiran, targeting angiotensinogen (AGT), has demonstrated effective and sustained blood pressure reduction in treatment-naive hypertension patients, administered either once every three or six months. Alnylam has entered into a partnership with Roche, sharing the development costs and co-commercializing Zilbesiran in the US. Additionally, Roche has acquired exclusive rights for commercializing Zilbesiran outside the US.  

Revolution Medicines provided a notable update on RMC-6236, their RAS-multi (ON) inhibitor, within a landscape of intriguing early clinical programs in the industry and our portfolio. This drug was evaluated in non-small cell lung cancer (NSCLC) and pancreatic ductal adenocarcinoma (PDAC) patients with various KRAS-mutant genotypes (G12D, V, and R). In NSCLC, RMC-6236 demonstrated a 38% objective response rate (ORR) and an 85% disease control rate, while PDAC patients experienced a 20% ORR and a 87% disease control rate. Subsequently, Revolution Medicines completed a merger with EQRx, adding approximately USD 1.1 bn to its balance sheet, a move that positions the company for substantial investment in the registrational program for RMC-6236.

Numerous regulatory decisions milestones

Regulatory decisions in Q4 2023 significantly impacted BB Biotech's portfolio holdings, including:

Participation in licensing deals and partnerships, none in an escalating M&A environment

During 2023, a year marked by escalating M&A activity with several deals emerging late in the year, BB Biotech did not directly benefit from these takeover events. The M&A focus in both the entire year and particularly the fourth quarter was on oncology, specifically targeting developers in radiotherapies and antibody drug conjugation (ADC), alongside major indications in autoimmune diseases and psychiatry, such as inflammatory bowel disease, schizophrenia, and depression. While our holdings saw indirect benefits through increased valuations in similar disease areas and technologies, our lack of participation in high-premium transactions was a notable factor in our performance relative to the benchmark NBI. Despite the benchmark including most announced takeovers, the NBI's consolidation in 2023 suggests increasing performance pressures for its constituents.

Non-dilutive capital contributions continue to be an appealing funding source for companies, along with securing commercial partners for international markets. Ionis, aspiring to be a commercial entity and initially focusing on the US market, struck a European licensing deal with Otsuka for donidalorsen in hereditary angioedema. Ionis stands to receive an upfront payment of USD 65 mn and is eligible for milestone payments and tiered royalties of 20% to 30%.

A significant move in our midcap portfolio was Revolution Medicine's merger with EQRx. Despite EQRx's setbacks in pipeline development, their substantial cash reserve of over USD 1.1 bn was merged into Revolution Medicines, enhancing their financial strength for the advanced development of RAS(ON) inhibiting drugs.

Given our portfolio strategy's focus on innovation and pipeline, intellectual property litigation and settlements hold lesser importance. However, our more established midcap and large-cap companies must navigate mature business franchises and impending patent expirations. Neurocrine resolved all patent litigations related to Ingrezza, allowing four companies to sell its generic versions in the US starting March 1, 2038, under certain conditions. This resolution enhances Neurocrine’s long-term financial outlook, supporting further investments in its pipeline. Exelixis, facing similar litigation with Teva over Cabometyx, reached a settlement for a generic US version available from January 1, 2031. However, its litigation with MSN Laboratories was unexpectedly extended into the first half of 2024.

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