Selected explanatory notes to the consolidated interim financial statements

1. The Company and its principal activity

BB Biotech AG (the Company) is listed on the SIX Swiss Exchange, in the «Prime Standard Segment» of the German Exchange as well as in the «Star Segment» of the Italian Exchange and has its registered office in Schaffhausen, Schwertstrasse 6. Its principal activity is to invest in companies active in the biotechnology industry for the purpose of capital appreciation. The investments are held through its wholly owned subsidiaries.

2. Accounting policies

The condensed consolidated interim financial statements of the Company and its subsidiary companies (the Group) have been prepared in accordance with International Accounting Standards (IAS) 34 «Interim Financial Reporting,» as well as the provisions of the rules of the SIX Swiss Exchange for Investment Companies and should be read in conjunction with the consolidated annual financial statements for the year ended December 31, 2020. The preparation of the condensed consolidated interim financial statements requires management to make assumptions and estimates that have an impact on the balance sheet values and items of the statement of comprehensive income in the current financial period. In certain circumstances, the actual values may diverge from these estimates.

The condensed consolidated interim financial statements have been prepared in accordance with the accounting policies set out in the consolidated annual financial statements. No new standards, interpretations and amendments to published standards, which are applicable to the Group and valid since January 1, 2021, have been applied in these condensed consolidated interim financial statements.

The following amended standards were approved, but will only be applicable for the Group prospectively and were not early adopted in these condensed consolidated interim financial statements:

• IAS 1 (amended, effective January 1, 2022) – Classification of Liabilities as Current or Non-current
• IFRS 3 (amended, effective January 1, 2022) – Reference to the Conceptual Framework
• IAS 37 (amended, effective January 1, 2022) – Onerous Contracts – Cost of fulfilling a Contract
• Annual Improvements to IFRS Standards 2018-2020 (effective January 1, 2022) – IFRS 9, IFRS 16

The Group assessed the potential impact of the above-mentioned amended standards. Based on the analysis, the Group concludes that these amended standards have no material impact on the Group’s accounting policies and overall results and financial position.

3. Financial risk management

Currency risk

The Group holds assets denominated in currencies other than the Swiss franc, the functional currency. It is therefore exposed to currency risk, as the value of the securities denominated in other currencies will fluctuate due to changes in exchange rates. Depending on the market situation the Group could use foreign currency options and/or forward contracts to reduce the currency risk.

The following exchange rates have been used for the preparation of these condensed consolidated interim financial statements:

Fair values

The following table presents the Group’s assets that are measured at fair value (in CHF 1 000):

The table below summarizes the transactions in level 3 instruments (in CHF 1 000):

The level 3 instrument was allocated as part of a corporate action in 2019. There were no transfers between level 1, 2 and 3 during the reporting period.

For assets and liabilities carried at amortised cost, their carrying values are a reasonable approximation of fair value.

4. Financial assets

Securities

Securities comprise the following:

The changes in value of securities at fair value through profit or loss by investment category are as follows (in CHF 1 000):

5. Short-term borrowings from banks

At September 30, 2021, a CHF 248 mn short-term loan is outstanding with interest payable at 0.40% p.a. (December 31, 2020: CHF 63 mn at 0.40% p.a.).

6. Shareholders’ equity

The share capital of the Company consists of 55.4 mn fully paid registered shares (December 31, 2020: 55.4 mn) with a par value of CHF 0.20 each (December 31, 2020: CHF 0.20).

Treasury shares

The Company can buy and sell treasury shares in accordance with the Company’s articles of association and Swiss company law and in compliance with the listing rules of the SIX Swiss Exchange. During the period from January 1, 2021, to September 30, 2021, the Company has purchased 63 360 treasury shares at an average price of CHF 88.73 to the amount of TCHF 5 622 and 117 572 treasury shares at an average price of CHF 82.10 to the amount of TCHF 9 653 were sold (01.01.–30.09.2020: no transactions). As at September 30, 2021, the Company holds 60 450 treasury shares (December 31, 2020: 114 662 shares). The treasury shares as at September 30, 2021, were treated as a deduction from the consolidated shareholders’ equity using cost values of TCHF 5 368 (December 31, 2020: TCHF 8 240).

Share buyback 2nd line (bought for cancellation)

The Board of Directors has approved the repurchase of a maximum of 5 540 000 own registered shares with a nominal value of CHF 0.20 each. The share buy-back program will run from April 12, 2019, until April 11, 2022, at the latest. Until September 30, 2021, no shares had been repurchased under this share buy-back program. A repurchase would take place via second trading line for the purpose of a subsequent capital reduction.

7. Administrative expenses

(in CHF 1 000)

Administrative expenses comprise the following:

The remuneration model of BB Biotech AG is determined by the Board of Directors.

Since 2014 the remuneration paid to the investment manager is based upon a 1.1% p.a. all-in fee on the average market capitalization without any additional fixed or performance-based elements of compensation. The compensation of the Board of Directors consists since 2014 of a fixed compensation.

8. Segment reporting

(in CHF 1 000)

The sole operating segment of the Group reflects the internal management structure and is evaluated on an overall basis. Revenue is derived by investing in a portfolio of companies active in the biotechnology industry for the purpose of capital appreciation. The following results correspond to the sole operating segment of investing in companies active in the biotechnology industry.

The geographical analysis of the profit/(loss) before tax is as follows – all income from financial assets are attributed to a country based on the domiciliation of the issuer of the instrument.

9. Assets pledged

At September 30, 2021, securities in the amount of CHF 4 093.1 mn (December 31, 2020: CHF 3 954.7 mn) are collateral for a credit line of CHF 700 mn (December 31, 2020: CHF 700 mn). At September 30, 2021, CHF 248 mn short-term loan is outstanding (December 31, 2020: CHF 63 mn).

10. Related party transactions

Detailed information regarding the remuneration model for the Board of Directors and the investment manager are mentioned under note 7, «Administrative expenses».

11. Commitments, contingencies and other off-balance sheet transactions

The Group had no commitments or other off-balance sheet transactions open at September 30, 2021 and December 31, 2020.

The operations of the Group are affected by legislative, fiscal and regulatory developments for which provisions are made where deemed necessary. The Board of Directors concludes that as at September 30, 2021, no proceedings existed which could have any material effect on the financial position of the Group (December 31, 2020: none).

12. Significant shareholders

The Board of Directors is not aware of any major shareholder with a holding exceeding 3% of all votes as at September 30, 2021 and December 31, 2020.

13. Subsequent events

There have been no events subsequent to September 30, 2021, which would affect the condensed consolidated interim financial statements.