Passage of US healthcare reform brings clarity for investors

The passage of the healthcare reform bill in the US gave the biotech sector a strong boost towards the end of the quarter but European biotech stocks were unable to benefit from greater investor demand, resulting in a sub-par performance, also for BB BIOTECH AG. Its share price ended the first quarter of 2010 4.1% lower (in CHF, including dividends) despite the positive underlying sentiment and the positive newsflow from many of the companies in its investment portfolio. The Net Asset Value (NAV) of BB BIOTECH shares increased by 3.2% (in CHF, incl. dividends). Celgene and Novo Nordisk performed well but Actelion and Vertex Pharmaceuticals, two core holdings, were unable to keep pace with the broader biotech index.

Celgene delivered a positive performance of 11.3% (in USD), driven by increased expectations regarding Revlimid’s growth potential in the coming years. The company’s anticipated above-average revenue and earnings growth is based on the assumption that more patients will be prescribed Revlimid as its label is broadened.

Gilead (+5.1%, in USD) presented positive clinical Phase II data on its quad pill, a novel once daily pill for the treatment of AIDS that combines four of the company’s own drugs. Investor concern regarding the expiry of the Viread patent in 2017 could not be completely dispelled, however, and Gilead’s share price therefore made an only slight gain in the first quarter of 2010.

Actelion retreated after negative clinical study results for Tracleer in the treatment of idiopathic pulmonary fibrosis (IPF) were published. In view of the large commercial potential associated with Tracleer in the treatment of IPF, this news resulted in a significant reduction in Actelion’s short-term growth prospects. Although the company’s valuation was already quite low before this news was announced, the stock was marked down another 13.1%. BB BIOTECH had reduced its large holding in Actelion shares before the said announcement and built up its position at significantly lower prices afterwards.

Vertex (–4.6%, in USD) will present multiple key clinical data this year. The current standard of therapy for most patients infected with the hepatitis C virus (HCV) is expected to soon include Telaprevir, the HCV protease inhibitor developed by Vertex. After its scheduled launch in 2011, Telaprevir is expected to become the gold standard of HCV therapy.

Novo Nordisk (+28.8%, in DKK) has achieved a major milestone with the approval of Victoza in both the US and Japan. Initial market uptake has been very promising and the product is expected to achieve blockbuster status. The company’s diabetes pipeline is expected to produce convincing data in 2010 on both its novel long acting insulin as well as on a new mixed (long and short acting) insulin formulation.

The top performers among BB BIOTECH’s mid-sized and smaller participations included Incyte (+52.9%, in USD) and Micromet (21.3%, in USD). Incyte, which is expected to present Phase III data for its lead product candidate, a JAK-1/2 inhibitor for the treatment of myelofibrosis (MF), in the months ahead, has gained substantially in value and now represents 3% of BB BIOTECH’s NAV. BB BIOTECH participated in the capital increases of Micromet and Zymogenetics.

Three new portfolio investments
- Bavarian Nordic is a Danish biotechnology company with a biodefense second-generation smallpox vaccine program as well as an interesting therapeutic prostate cancer vaccine. - Intercell is an Austrian vaccine manufacturer that recently received approval to begin commercial production of its Japanese Encephalitis Vaccine (JEV). The company has also acquired an interesting patch delivery technology now key to many promising preventive vaccines in clinical development. - Immunogen presented promising data for refractory breast cancer patients in a study conducted jointly with Roche. Immunogen’s technology of linking toxins to known targeted therapies should improve both efficacy and the side effect profile of these therapies.

Proposed dividend approved by AGM
On March 29, 2010, the shareholders of BB BIOTECH approved the proposed dividend of CHF 3.70. This corresponds to a 5.1% yield on the closing share price of March 29, 2010, the date of the annual general meeting. The sixth share buyback program is currently underway and 3.9% of outstanding shares had been repurchased by the end of the first quarter of 2010. Up to 10% of outstanding share capital may be repurchased under the current share buyback program.

Effects of US healthcare reform
The recently approved healthcare reform in the US will give more than 32 million uninsured Americans gain access to the healthcare system; there will be no direct government-dictated price controls and biotech drugs were given a 12-year period of data exclusivity. These are clearly positive points for drug makers. In return the industry is obligated to pay approximately USD 80 bn over a 10-year period to help fund the reform and to offer greater Medicare discounts. According to industry estimates, the net effect of the reform on sales generated in the US will range from –2% to +1%. The initial quarterly reports just published by biotech companies confirm this forecast.

The complete Quarterly Report as at March 31, 2010, is available on www.bbbiotech.com

For further informationen:
Bellevue Asset Management AG Seestrasse 16 8700 Küsnacht, Schweiz Thomas Egger Tel. +41 44 267 67 09 teg@bellevue.ch

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