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Continental Biotech fund reports strong returns in 2015

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BB Biotech, listed in Germany, Switzerland and Italy with CHF4.0 billion under management, has reported total annual returns for its shares over 2015 of +28.2 per cent in CHF, +41.2 per cent in EUR and +27.1 per cent in USD.

 The fund says that careful and effective stock selection by the management team within the sector yielded a portfolio performance of +19.0 per cent in CHF, +31.6 per cent in EUR and +18.0 per cent in USD, well ahead of the US and European equity markets, which closed the year either unchanged or with mid-single digit gains (in USD).
 
In keeping with the payout policy established in 2013, the Board of Directors will propose a dividend distribution of CHF 14.50 per share at the upcoming annual general meeting, representing another substantial increase year-on-year and corresponding to a yield of 5 per cent. In view of the positive long-term outlook for BB Biotech’s portfolio, the Board of Directors will propose a five-for-one stock split.
 
The fund writes that most US and European indices closed the year either unchanged or with mid-single digit gains (in USD). “Strong fundamentals of the biotechnology industry sector and attractive valuations of leading biotechnology companies led to another quarter of outperformance compared to broad equity benchmarks.”
 
During the fourth quarter, the Nasdaq Biotech Index (NBI) gained 11.8 per cent in USD, ahead of the S&P 500 Index, which gained 7.0 per cent. Overall, the four quarters for NBI in 2015 reflected a volatile year including, sequentially: Extension of the 2014 rally into Q1 (+13.3 per cent), stagnation in Q2 (+7.5 per cent), correction in Q3 (–17.9 per cent) and a rebound in Q4 (+11.8 per cent), all values in USD.
 
Consequently during 2015 the NBI gained 11.8 per cent in USD versus the S&P 500 which ended the year at +1.4 per cent in USD. European indices such as the Euro Stoxx 600 or the DAX gained around 10 per cent in EUR associated with significant weakening of the Euro, and the SMI’s total return for 2015 was a slim +1.2 per cent in CHF.
 
Against this backdrop, the share price of BB Biotech gained 12.6 per cent in CHF, 12.5 per cent in EUR, and 9.6 per cent in USD during the fourth quarter. This contributed positively to BB Biotech’s 2015 total return of 28.2 per cent in CHF, 41.2 per cent in EUR, and 27.1 per cent in USD.
 
The Net Asset Value (NAV) of BB Biotech gained 14.7 per cent in CHF, 15.0 per cent in EUR and 11.6 per cent in USD in the fourth quarter. For the full year, the NAV increased by 19.0 per cent in CHF, 31.6 per cent in EUR and 18.0 per cent in USD. This performance was driven by biotech sector performance, careful and effective stock selection by the management team and a high level of M&A activity.
 
Based on preliminary unaudited consolidated results, BB Biotech AG closed the past year with a profit of CHF653 million (versus a profit of CHF1’470 million in the previous year). Following the loss of CHF575 million in the third quarter, BB Biotech AG rebounded with a profit of CHF511 million in the fourth quarter of 2015. Equity market volatility in the second half year of 2015 drove highly variable quarterly results. 
 
The fund writes that a slight increase in fund leverage reflects smaller adjustments to the portfolio in the fourth quarter. At the end of 2015 BB Biotech’s portfolio consists of six core holdings above 5 per cent, namely Celgene, Incyte, Ionis Pharmaceuticals (their name recently changed from Isis), Actelion, Gilead and Radius Health. BB Biotech’s investment portfolio comprises 34 positions in all.
 
Two new portfolio holdings were added in the last quarter of 2015 – Sage Therapeutics and Cidara Therapeutics. Sage is focused on central nervous system (CNS) disorders with its lead pipeline candidate SAGE-547 under development to treat super-refractory status epilepticus. Cidara is developing novel anti-infectives, including their lead product CD101, a novel molecule from the echinocandin class, for the treatment of systemic Candida infections.
 
Looking forward, the fund says many important pipeline read-outs and potential product approvals are expected among BB Biotechs portfolio holdings in 2016.
 
“Merger and acquisition activity made an important contribution to gains in 2015, and the team foresees more of the same ahead. On the other hand BB Biotech believes that the macro environment, including divergent central bank actions and an election year in the US, may add volatility in the next quarters. BB Biotech’s portfolio consists of established, attractively valued and profitable companies as well as innovation-focused smaller/midcap companies. The management team believes this diversity can capture many of the important value-creating sector milestones in 2016.”
 
 

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