2024: navigating challenges and seizing opportunities

Dear Shareholders

2024 marked a transformative year for BB Biotech and the broader biotech sector. Over the past four years, we have navigated NAV underperformance and a shift from our share price trading at a premium to a discount, driven by sector-wide volatility and our strategic focus on high-growth small and mid-cap companies. This emphasis, which became more pronounced following our 2018 pivot away from large-cap holdings, initially aligned well with biotech’s momentum leading up to its 2021 peak. However, as market conditions reversed, our positioning magnified underperformance over the past three years.

While this period was challenging, it has also created a compelling investment opportunity. Many of our holdings now trade at historically low valuations despite delivering fundamental progress. Innovation remains the cornerstone of biotech investing, but disciplined valuation is equally critical for sustainable long-term returns.

Many of our holdings now trade at historically low valuations despite delivering fundamental progress.

At the outset of the pandemic, biotech companies were at the forefront of vaccine and therapeutic development, driving an unprecedented rally in the sector. However, beginning in mid-2021, investor sentiment shifted as macroeconomic pressures – including rising interest rates, inflationary concerns, and capital market constraints – intensified. The Federal Reserve’s tightening cycle drove discount rates sharply higher, disproportionately affecting high-growth, long-duration sectors like biotech. The expectation of prolonged higher rates led to capital flowing into near-term cash-generating industries such as big tech and AI, leaving biotech at a relative disadvantage despite continued scientific progress.

Early in 2024, optimism around stabilizing inflation and potential rate cuts initially boosted risk assets, including biotech. However, by mid-year, prolonged inflationary pressures and rising long-term yields tempered those expectations. In September, a combination of moderating inflation figures and softening labor market data allowed the Fed to cut its key interest rate in three steps from 5.5% to 4.5%. Despite this, with US inflation still well above the Fed’s 2% target, the room for further rate cuts remains limited. At its January 2025 policy meeting, the Fed signaled caution, holding rates steady as it assesses inflation risks, labor market dynamics, and potential policy shifts under the new US administration.

While these macroeconomic shifts shaped investor sentiment in 2024, longer-term demographic forces are also reshaping capital flows into biotech. Declining fertility rates and aging populations are creating structural pressures on healthcare systems, increasing demand for innovative therapies while reshaping capital allocation dynamics. Many retirees and income-focused investors are prioritizing capital return strategies, while generalist investors have shown a growing preference for dividend-paying stocks and fixed-income assets amid a higher-rate environment. Against this backdrop, BB Biotech’s stable dividend policy remains an attractive differentiator in a sector traditionally focused on growth. This balance between long-term innovation and stable returns is further reflected in our dividend policy.

Today, this reset presents a rare opportunity. Many companies in the sector have significantly derisked their pipelines with mid to late-stage clinical data, yet valuations remain at early-stage levels. We are actively deploying capital to capture these opportunities, focusing on differentiated, high-conviction investments.

M&A activity, historically a key driver of biotech alpha, was relatively subdued across the sector in recent years. However, the landscape is evolving. While M&A is not the dominant driver of our investment thesis, our stock selection is adapting to this shift, placing greater emphasis on assets with strong clinical differentiation, clear commercial paths, and strategic relevance to large pharma buyers – factors that naturally improve M&A potential. At the same time, several of our core holdings have now matured, secured product approvals, or built growing revenue lines, making them more attractive strategic targets. As capital constraints ease and valuations stabilize, M&A could regain momentum – especially for companies with strong commercial assets and strategic relevance.

Encouragingly, 2024 marked more than a rebound – it signaled the early stages of a structural recovery in biotech.

Encouragingly, 2024 marked more than a rebound – it signaled the early stages of a structural recovery in biotech. While macroeconomic volatility remains a factor, investor focus is returning to fundamentals, with clinical data readouts, regulatory approvals, and commercial execution driving renewed momentum. For the first time in many quarters, multiple tail-end portfolio stories have begun to validate our investment thesis. In Q4, companies such as Scholar Rock, Wave Life Sciences, and Edgewise Therapeutics saw strong share price appreciation, reflecting renewed investor confidence. These developments, alongside broader sector tailwinds, contributed to significant benchmark outperformance and an absolute NAV gain in the final quarter of the year.

While the macroeconomic backdrop remains uncertain, biotech remains one of the most structurally attractive long-term investment themes. The combination of scientific breakthroughs, growing unmet medical need, and favorable valuation entry points provides a strong foundation for long-term returns.

At BB Biotech, we continue to balance high-growth innovation with stable capital returns. Since 2013, BB Biotech has consistently paid an annual dividend of 5% based on the average share price in December. For 2024, the Board of Directors will propose a dividend of CHF 1.80 per share at the next Annual General Meeting, ensuring continued alignment with shareholder interests while maintaining flexibility for reinvestment.

The Board of Directors will propose a dividend of CHF 1.80 per share at the next Annual General Meeting.

This positive momentum has carried into 2025, underscored by Johnson & Johnson’s USD 14.6 bn acquisition of one of our core holdings, Intra-Cellular Therapies. The transaction not only delivers a strong absolute and relative return but also enhances our ability to reinvest in new opportunities while sustaining shareholder returns through our dividend.

With these developments, BB Biotech enters 2025 well positioned and ready to seize opportunities in an evolving biotech landscape. As fundamentals reassert their importance and valuation dislocations create compelling entry points, we remain confident in the long-term value creation potential of our investment strategy, process, and evolving portfolio.

Share price performance and financial results

In 2024, BB Biotech shares delivered a total return of -13.5% in CHF and -14.1% in EUR, including the CHF 2.00 dividend paid in March 2024. Our Net Asset Value (NAV) performance showed greater resilience, increasing by 3.0% in CHF and 1.7% in EUR for the year, while declining by 4.6% in USD. For the full year 2024, we recorded a net profit of CHF 76 mn compared to a net loss of CHF 207 mn in 2023.

At the close of 2024, BB Biotech’s share price was trading at a 15.2% discount to NAV in CHF, a notable shift from the 0.9% premium at the beginning of the year. This change reflects the ongoing volatility and subdued sentiment within the biotech sector. The Board remains committed to addressing this by balancing share buybacks and marketing strategies to enhance shareholder value.

Outlook: opportunities amid challenges

As we look ahead to 2025 and beyond, it is important to step back and re-examine the forces shaping the biopharmaceutical industry. While fundamental drivers fuel innovation and growth, governing forces define its trajectory, determining how and when progress translates into real-world impact.

Fundamental drivers continue to propel biopharmaʼs innovation and growth. Unmet medical needs, aging populations, and demographic shifts are increasing demand for novel therapies, particularly for cancer, cardiovascular, and neurodegenerative diseases. However, these must align with value-based pricing and sustainability, as healthcare systems prioritize affordability. Capital markets remain selective, favoring differentiation and clear commercialization strategies.

Meanwhile, regulatory frameworks, reimbursement models, and supply chain constraints shape market access. Policies like the Inflation Reduction Act (IRA) and Medicare drug price negotiations are altering pricing dynamics, while intellectual property protections face scrutiny as governments balance affordability with R&D incentives.

As these forces interact, the defining advantage in biopharma is not simply size or scale, but true innovation. The next wave of breakthrough medicines will not come from incremental improvements, but from differentiated therapies addressing high unmet medical needs in ways that traditional approaches alone cannot. AI-driven drug discovery, gene and cell therapy, targeted protein degradation, RNA therapeutics, synthetic biology, and precision medicine are not just expanding the drug development toolbox – they are redefining treatment paradigms. The intersection of these technologies improves success rates, shortens development timelines, and creates entirely new market opportunities.

BB Biotech remains focused on investing in companies pursuing high-impact, differentiated medicines rather than incremental advancements. While optimizing existing therapies can provide commercial success, the greatest long-term value in biotech lies in platforms and approaches that redefine standards of care. The companies that successfully harness these technologies will be the leaders of the next decade, and this is where we aim to be positioned.

While optimizing existing therapies can provide commercial success, the greatest long-term value in biotech lies in platforms and approaches that redefine standards of care.

As biopharma continues to evolve, industry consolidation remains a natural response to innovation gaps and market pressures. The 20 largest biopharma companies collectively hold over USD 1 tr in deal-making capacity, with at least USD 200 bn in revenues at risk from patent expirations over the next five years, rising to at least USD 400 bn over the next decade as blockbusters like Keytruda, Darzalex, and Eliquis approach the end of their exclusivity. M&A is not simply a financial decision – it is a necessity for companies facing declining revenue streams and internal R&D limitations.

While 2024 saw a slowdown in biotech M&A, 2025 is shaping up to be a stronger year for deals. Some speculate that a more lenient FTC may ease restrictions, but valuation – not regulation – has been the primary constraint. As bid-ask spreads normalize and sellers adjust expectations, acquisitions should accelerate. Most acquisitions will likely be sub-USD 20 bn, where BB Biotech’s core holdings are strong strategic fits. A recent example is Johnson & Johnson’s USD 14.6 bn acquisition of Intra-Cellular Therapies, reinforcing the ongoing need for innovation in neuropsychiatry and validating our investment approach. Beyond strong returns, liquidity from such transactions provides the flexibility to reinvest in new opportunities across both public and crossover markets.

Against this backdrop, the current biotech investment landscape presents a rare opportunity. Many biotech companies with clinical differentiation are trading well below their intrinsic value, despite delivering pipeline progress, regulatory approvals, and commercial execution. After a prolonged period of underperformance relative to broader markets, biotech valuations have corrected sharply, particularly when compared to the continued expansion in technology stocks. This disconnect between scientific advancement and market valuation allows us to increase exposure to high-quality, mid to late-stage biotech at compelling prices, while selectively allocating capital to earlier-stage opportunities with asymmetric upside.

As the patent cliff looms and industry pressures mount, M&A will remain a key industry mechanism for growth, efficiency, and sustained innovation across biopharma. However, true value creation will come from companies developing novel, differentiated therapies that address significant unmet needs. This evolving landscape reinforces the need for a disciplined, high-conviction investment strategy that prioritizes scalable innovation, sustainable business models, and long-term value creation.

Strategy and process evolution: building for long-term success

BB Biotech’s structure as an investment company remains ideally suited to the unique dynamics of the biotech sector. We continue to emphasize a high-conviction portfolio, a long-term investment horizon of three or more years, and a focus on identifying transformational companies at the forefront of innovation. However, the challenges of recent years have underscored the importance of evolving our processes to enhance returns while mitigating risk.

We have implemented key adjustments in our valuation framework, making it more dynamic and responsive to market conditions. By emphasizing valuation scenarios, the impact of catalysts on these scenarios, and risk-adjusted returns, we are better equipped to allocate capital effectively, balancing upside potential with downside protection in an increasingly volatile environment.

We have implemented key adjustments in our valuation framework, making it more dynamic and responsive to market conditions.

Our approach to portfolio management is also evolving. We have refined our entry and exit strategies, exercising greater caution in the pace of capital deployment when investing in earlier-stage companies at the lower end of our S-curve. With investors increasingly prioritizing clinical validation and strong commercial positioning over early-stage plays, we further refined our focus toward high-conviction, differentiated assets. The tempering of the crossover boom and the higher cost of capital reinforce our selective approach to private investments, ensuring capital is deployed into late-stage companies with near-term public market prospects. This shift reflects both assumptions around long-term interest rates and cost of capital, as well as empirically higher volatility and uncertainty in risk-reward dynamics at the lower end of the S-curve.

BB Biotech's S-curve model

At the same time, we have enhanced discipline in divesting from both successful and underperforming investments. In the fourth quarter of 2024, we exited five positions:

• Crispr Therapeutics and Exelixis delivered positive returns, but we lacked conviction in their long-term pipeline strength.
• Molecular Templates, Essa Pharma, and Generation Bio were exited following disappointing clinical outcomes or significant platform and business uncertainties.

These decisions reflect our commitment to maintaining a high-conviction portfolio while actively managing risk. Consequently, our portfolio ended 2024 with 26 positions, reflecting deliberate and disciplined resource allocation. Following the acquisition of Intra-Cellular Therapies, this number will further decline. However, we remain actively engaged in new investment opportunities, closely tracking the renewed IPO market and follow-on offerings. Given the shifting financing landscape, we are placing greater emphasis on differentiated assets with strong clinical data, rather than early-stage platform plays. New investment cases are actively being evaluated, and capital deployment is already underway. These investments will be reflected in our Q1 2025 results.

Over time, we aim to expand toward the upper limit of our investment guidelines, targeting 35 holdings. This expansion will focus on identifying transformative companies across the biotech lifecycle, ensuring a robust and adaptable portfolio.

In addition to listed companies, crossover investments remain an area of strategic interest. With a capacity to deploy up to 10% of the portfolio (currently at 2%) in private companies, these investments offer unique advantages, particularly greater information arbitrage potential and relatively lower competition from market participants. However, our approach remains consistent with our public investment strategy – we prioritize new investments in companies that have or are close to key clinical or commercial inflection points, ensuring a comparable risk profile. Moreover, we focus on investments where we can actively support a path to the public markets within 12–18 months, leveraging our expertise and networks to facilitate successful transitions. Given current capital market conditions, we are highly selective in private investments, prioritizing opportunities with clear paths to public listings or partnerships.

Portfolio breakdown as at December 31, 2024

Team evolution: strengthening expertise for the future

Leadership and team evolution have been key themes in 2024. We extend our heartfelt gratitude to Dr. Daniel Koller for his dedication over the past 20 years and his leadership over the last 13 years. His commitment has been instrumental in shaping BB Biotech’s investment strategy and success. With Daniel’s decision to step down, we are pleased with the appointment of one of his deputies, Dr. Christian Koch, as the new Head of the dedicated investment team within Bellevue Asset Management, which manages BB Biotech’s investments. Christian has built deep expertise across therapeutic areas and drug technologies over more than a decade. He has played a pivotal role in leading our private investments, including Moderna and Rivus Pharmaceuticals, while spearheading the data science initiatives. In his new role as Head, Christian ensures both continuity and a clear strategic vision for disciplined growth.

Dr. Maurizio Bernasconi remains a pillar of stability, ensuring continuity as Deputy Head. Over the past decade, he has played a key role in driving many of our successful autoimmune investments and has enriched the team’s capabilities in chemistry, particularly in understanding novel chemical modalities. As part of his Deputy Head function, he serves as the lead within the analyst team in Switzerland, guiding and driving research efforts.

As the leading hub for biotech innovation, commercialization, and financing, the US remains our focal point. We are committed to strengthening and expanding our presence in this critical market.

As the leading hub for biotech innovation, commercialization, and financing, the US remains our focal point. We are committed to strengthening and expanding our presence in this critical market. In this regard, the addition of Dr. Wendy Lam brings fresh perspectives and further strengthens the team with her deep expertise. With over a decade of biotech investment experience, she has a proven track record and an extensive network spanning both private and public markets. Since joining as Deputy Head on December 1, 2024, Wendy will lead the US office in New York, rebuilding our global research efforts and enhancing access to high-quality investment opportunities. Her deep relationships across the biotech ecosystem – including executives, investors, bankers and thought leaders – will be instrumental in shaping our investment pipeline and providing broader strategic insights.

In Switzerland, Dr. Anna Guinot Aguado joined the investment team, bringing valuable expertise in oncology and biotech venture capital to deepen our insights in these areas. The team is actively evaluating opportunities to further expand specialized functions, for example in trading and legal. Recognizing the interconnected nature of biotech innovation, the investment team works across therapeutic areas, leveraging cross-sector insights to identify synergies and new opportunities. This collaborative approach sharpens the ability to invest in companies developing truly differentiated therapies with multi-indication potential, reinforcing BB Biotech’s position at the forefront of biotech innovation.

Innovation pipeline: delivering transformative therapies

Our portfolio is positioned to benefit from high-impact advances across diverse therapeutic areas, with many of our holding reaching registrational clinical and regulatory milestones in 2025.

Immunology and inflammation

• Argenx – Expanding Vyvgart with a new pre-filled syringe formulation (Q2), driving broader adoption in chronic inflammatory demyelinating polyneuropathy (CIDP) and earlier use in myasthenia gravis (MG), key to securing its status as a multibillion-dollar blockbuster.
• Incyte – Phase III data for povorcitinib in hidradenitis suppurativa (Q1), offering an oral alternative to biologics. While povorcitinib won’t offset Jakafi’s loss of exclusivity later this decade, it provides a bridge to Incyte’s more ambitious disease-modifying programs targeting CALR and JAKV617F mutations in myeloproliferative neoplasms (e.g., myelofibrosis, polycythemia vera).
• Biohaven – Updates on its MODE degrader platform, advancing next-generation therapies targeting reductions in IgG, IgA, and beyond.
• Annexon – Early data on an oral C1q inhibitor for cold agglutinin disease (CAD).

Oncology

• Incyte – Initial data for disease-modifying therapies targeting mCALR and JAKV617F mutations (Q4), with potential transformative impact on myeloproliferative neoplasms.
• Arvinas – Phase III readout for vepdegestrant, an estrogen receptor degrader in breast cancer. The key question is whether it can differentiate by demonstrating efficacy in the overall population. Partner Pfizer is positioning it for frontline and adjuvant use as an anti-hormonal standard-of-care backbone.
• Black Diamond Therapeutics – First results from its study targeting frontline non-classical EGFR mutations in NSCLC. Given its market cap and cost of capital, success hinges on response quality and depth in first-line treatment.

Rare diseases

• Ionis Pharmaceuticals – Approvals and launches anticipated for its hereditary angioedema (HAE) and familial chylomicronemia syndrome (FCS) programs.
• Neurocrine Biosciences – Launch of Crenessity for congenital adrenal hyperplasia (CAH), an overlooked market with significant price and volume potential.
• Agios Pharmaceuticals – Mitapivat approval for thalassemia (Q3), following Phase III data and prior liver safety signals. Additional registrational data for sickle cell disease expected in Q4.
• Scholar Rock – FDA approval and launch of apitegromab for spinal muscular atrophy (SMA) (Q3).
• Wave Life Sciences – Key updates on its Duchenne muscular dystrophy (DMD) and RNA-editing program for alpha-1 antitrypsin deficiency, with potential for accelerated approval.
• Beam Therapeutics – First-in-human liver gene editing data via its base-editing platform (A1ATD), a key milestone for expansion into other rare diseases.

Cardiometabolic

• Alnylam Pharmaceuticals – Market launch of Amvuttra for ATTR cardiomyopathy (H1), following stellar Helios-B data. This underscores Alnylam’s push into broader diseases beyond rare conditions. The evolution toward (semi-)annual treatments could unlock a multibillion-dollar opportunity.
• Scholar Rock – Following a successful Phase III trial in SMA, tracking approval and launch alongside proof-of-concept data for potential use in obesity. The goal is to mitigate muscle loss seen with incretin therapies when combined (Q2).
• Edgewise Therapeutics – Proof-of-concept data for repeat doses of EDG-7500 in obstructive and non-obstructive hypertrophic cardiomyopathy (HCM).
• Rivus Pharmaceuticals (private) – Large Phase II proof-of-concept study in metabolically-associated steatohepatitis (MASH), focusing on liver fat loss and weight loss over 6 months.

Central nervous system disorders

• Vertex Pharmaceuticals – Launch of Journavx (VX-548) for acute pain (Q1), the first non-opioid pain treatment in 20 years. While initially positioned for acute pain, a potential expansion into chronic pain could transform this into a significant franchise alongside its cystic fibrosis business.

Infectious diseases

• Moderna – Final results for its pivotal cytomegalovirus (CMV) vaccine trial expected in 2025. Following positive interim data, this is a crucial step in restoring confidence in Moderna’s latent virus vaccine platform. Additionally, approval and launch of the COVID+flu combination vaccine could help expand its respiratory franchise.

Regulatory environment: navigating policy shifts

The 2024 US presidential election introduced significant market volatility, reflecting the biotech sector’s sensitivity to political shifts. Markets initially reacted positively to Donald Trump’s return, expecting pro-business policies, deregulation, and tax incentives. However, optimism was tempered by the controversial nomination of Robert F. Kennedy Jr. as Secretary of Health and Human Services (HHS), whose skepticism toward vaccines and regulatory policies has raised concerns. His leadership could disrupt key agencies –including the FDA, CDC, and CMS – impacting drug approvals, reimbursement structures, biomedical research funding, and public health initiatives.

Regulatory uncertainty remains a valuation overhang, particularly in vaccines, where shifting FDA, CDC, and CMS policies create approval and reimbursement risks. While macroeconomic factors are priced into biotech valuations, policy-driven risks – especially around vaccine innovation and pandemic preparedness – remain underpriced, creating both risks and opportunities. This is particularly relevant for Moderna, which is expanding its respiratory vaccine franchise and exploring latent virus vaccines. Changes in public health funding, pandemic preparedness, and reimbursement could materially impact pipeline prioritization and commercial execution for vaccine leaders.

The appointment of Dr. Martin Makary as FDA Commissioner has provided stability. Known for his pragmatic, data-driven approach, he is expected to maintain rigorous standards while streamlining regulatory pathways. The FDA remains the global benchmark for drug approvals, with 50 novel drugs approved in 2024, slightly below 55 in 2023 but above 37 in 2022 – averaging 47 approvals per year over the past decade.

Broader regulatory shifts present both challenges and opportunities. The Inflation Reduction Act (IRA) continues to reshape pricing dynamics, with Medicare’s drug price negotiations introducing pressures but also favoring companies with strong value propositions. The industry needs to remain engaged with policymakers to ensure that pricing reforms encourage innovation without stifling access to life-saving therapies.

Leadership changes at HHS and the FDA will shape regulatory timelines and industry priorities in the years ahead. The newly formed government efficiency institution remains a wild card, with an unclear impact on agency operations and industry oversight. This evolving policy landscape reinforces the need for strategic adaptability. BB Biotech is well-positioned to navigate these shifts, leveraging our disciplined investment approach to align with regulatory developments and support our portfolio companies in achieving key milestones.

Commitment to shareholders

At BB Biotech, we place great emphasis on alignment with shareholder interests. Since introducing our dividend policy in 2013, we have consistently prioritized delivering tangible returns while maintaining a long-term focus on portfolio growth. In 2024, the dividend once again proved to be a key component of shareholder value, offering an attractive yield amid heightened market uncertainty.

Beyond capital returns, shareholder engagement remains a cornerstone of our approach. Over the past year, we have conducted hundreds of meetings with investors, incorporating their valuable insights into our decision-making processes. Additionally, we recognize the growing importance of environmental, social, and governance (ESG) factors. In 2024, BB Biotech received an A rating from MSCI, underscoring our commitment to sustainable investing and responsible portfolio management.

As we look ahead, BB Biotech remains anchored by its core principles – long-term investing, disciplined capital allocation, and an unwavering commitment to shareholder value. The challenges of recent years have tested our resolve, but they have also reinforced the importance of adaptability and innovation in navigating the evolving biotech landscape.

We are optimistic about the opportunities ahead, driven by transformative advances in science, a revitalized M&A landscape, and renewed growth potential across our portfolio. Our team is committed to executing a strategy that balances stability with bold action, ensuring BB Biotech delivers sustainable value for years to come.

We appreciate your continued support and look forward to discussing our vision and strategy at the Annual General Meeting on March 19, 2025, at the Pavillon im Park, Steigstrasse 26, 8200 Schaffhausen, Switzerland. Proxy voting forms will be available for those unable to attend.

Together, we will chart a path toward a bright future for BB Biotech and the broader biotech industry to support the development of breakthrough medicines for patients.

Sincerely,

The Board of Directors of BB Biotech AG