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178. Bull, Bear & Beyond – BB Biotech: executive interview
6 Plays19 days ago
In this video, we speak with Dr Christian Koch, head of BB Biotech at Bellevue Asset Management. Dr Koch discusses the increasingly positive sentiment towards the biotech sector, following the recent JP Morgan healthcare conference. He also covers some of the transactions that have benefited BB Biotech’s portfolio in recent periods, provides a summary of how the company uses agentic AI to support its investment process and outlines what to expect for BB Biotech in the year ahead.
BB Biotech is a Swiss-listed investment company managed by Bellevue Asset Management, a specialist in biotech investments. The company provides investors with targeted access to the global biotechnology sector, focusing on innovative companies developing transformative therapies. BB Biotech aims to deliver long-term capital growth through active, fundamental stock selection.
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About ‘Bull, Bear & Beyond’
Bull, Bear & Beyond': features candid conversations with senior executives and from our own team of experts from across industries, exploring strategy, innovation, and the opportunities shaping their markets and 60-second pieces are a compressed summary of content designed to convey our message in a single, easily shareable hit.
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Edison is a content-led IR business. We believe quality investment content should inform all investors, not just brokers. Our mission: engage and build bigger, better-informed investor audiences for our clients.
Edison covers 50+ investment trusts, read about them here: https://www.edisongroup.com/equities/investment-companies/
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Transcript
Introduction to Iros Kvapst and Dr. Christian Koch
00:00:07
Speaker
Hello and welcome to Edison TV. I'm Iros Kvapst, Director of Investment Trust Content at Edison. And today I'm joined by Dr. Christian Koch, who is Head at BB Biotech. Thank you very much for joining us today.
00:00:19
Speaker
Thanks for having me.
JPMorgan Healthcare Conference Insights
00:00:20
Speaker
but Perhaps we can start by discussing the JPMorgan Healthcare Conference, which is one of the key highlights in the industry every year. Can you maybe outline your key takeaways from the conference, which took place earlier this month?
00:00:34
Speaker
Yeah, I think overall, ah sentiment has been constructive, positive, most most positive in a couple of years, I would say. But it's also become evident that I think for financial markets, that conference has become less important.
00:00:49
Speaker
On the flip side, it's become even more important for industry um because there's all kinds of players in the ecosystem mixinging mixing and mingling with each other. um Why has it become a little bit less for our financial markets? It is because there's a lot of pre-releasing going on the week before um and there's less surprises. um There were some big rumors, M&A rumors before the conference.
00:01:16
Speaker
They have manifested yet. um But we and I think many other players believe that structurally they will happen over the next couple of months. It could be that JP Morgan here is more the accelerator of those talks. um it is ah I guess it is also difficult to time those deals for materiality reasons that they exactly fall onto um the start of the conference. um So it's changing a little bit, that dynamic there. We have several larger broker conferences now throughout the year.
00:01:45
Speaker
And the pattern of when you look when acquisitions happen, they're more, i would say, tail end loaded into Q3 versus Q1 and Q2. So overall positive. There were very high expectations into the conference on M&A.
00:02:01
Speaker
And despite them not being fulfilled, I would say um they were at least halfway stable financial markets um in prior years. I think the
Positive Industry Sentiment and Political Factors
00:02:11
Speaker
lack of that could have led to a pretty strong correction, but the overall sentiment in industry is good and positive.
00:02:20
Speaker
Seems to be some political tailwinds. Interest rates curve seem shaky, but um they still will likely lower in the US throughout 26.
00:02:33
Speaker
So I think the overall feeling in the whole ecosystem is still very constructive. And on the fundamental side, I think there has been a lot of developments. um The breadth of the industry is impressive in terms of fundamental progress across clinical pipelines, but also commercially, even smaller companies driving good launches.
00:02:52
Speaker
So that's the overall sentiment there as a kickoff. I think this conference
M&A as a Key Driver in Pharma
00:02:56
Speaker
was a good start. Thank you. That's very insightful. So you we've highlighted the increasingly positive sentiments and you've mentioned outlook for lower interest rates and and and the fundamentals of the industry. So maybe you can delve deeper into into those drivers and tell us more about that.
00:03:13
Speaker
Well, M&A is one of the big structural, strong drivers. um Depends on how you look at it There's somewhere between 200 billion on Peyton Cliff over the next five years, up to 400 billion over next 10 years.
00:03:26
Speaker
Pharma is known that they cannot cover that with organic R&D and return on R&D. So they're definitely dependent on external and innovation. We're seeing that in deal behavior and multiple bidders on deals. So that's a big and strong structural driver.
00:03:42
Speaker
They do have the cash reserves and debt, possible debt that they can use um to conduct those acquisitions somewhere north of 500 billion in aggregate.
00:03:54
Speaker
um Aside from that, um the interest rate level lowering is for these high capital intensive endeavors is definitely positive, especially for the small and mid cap end.
00:04:08
Speaker
And then beyond that, I think what helped a lot throughout the last couple of months is some clarity on especially the US and market on pharmaceuticals. um We've seen now, I think, 16 of the 17 players that were addressed in a letter by the administration have done a deal.
00:04:26
Speaker
think it's just Regeneron who's left there. um which creates some stability, at least for the next two, three years of how we think the US end market will behave across the different channels.
00:04:39
Speaker
and There's some possible scenarios that there might be some profits that could be generated in the future outside of the US, but that remains to be seen. um So with that, that took out some uncertainty out of um the the Liberation Day um tariffs situation, most favorite nations pricing.
00:05:00
Speaker
There's still have a lot of
Attractive Industry Valuations and Media Interest
00:05:01
Speaker
residual things that can happen there, but um overall, I think the table is set there. And despite that um pretty good year that the industry had in 25 on the financial markets, we still think valuations and broadly are attractive. um Every once in a while there's some exacerbations, of course.
00:05:21
Speaker
have to watch that we stay clear of, but um I think that's a good combination, right? M&A with fairly good um or attractive valuations with the political climate definitely becoming stronger. We see more journalists starting to be interested um because of the momentum the industry has coming from multi-year lows.
00:05:41
Speaker
So that mix of things makes it, I think, a very interesting ah sector. Thank you. Now, you've mentioned
BB Biotech's Strategic Transactions
00:05:48
Speaker
M&A driven by, of course, the looming patent cliff and and the high cash position of of of Big Pharma. And it seems that BB Biotech has benefited from several recent transactions. okay Can you maybe summarize those?
00:06:03
Speaker
Yeah, sure. I mean, the pattern is clear. Pharma is looking at the moment at late stage clinical and early commercial um out of the four acquisitions we had in the portfolio last year. um One was a long term holding, intracellular acquired by J&J for their asset in psychiatric diseases.
00:06:24
Speaker
The other three were newer investments on our side that we deliberateed deliberately conducted in that late stage clinical early commercial frame that was Blueprint Medicines and the Curo Therapeutics, for example.
00:06:36
Speaker
And then lastly, Avidity, that was later clinical you could say two plus blockbusters there. So it is exactly that what can serve pharma to help dampen or mitigate part of their patent cliffs.
00:06:49
Speaker
So those need to be fairly large products and they need to be launched, already launched or to be launched in the next coming years. If you want to help dampen at least that five year cliff, that's a pattern we've seen.
00:07:03
Speaker
There we had another acquisition um based on the company that we invested in Q4, but we'll disclose that in our annual you report. I think overall, I can say in the ah in the portfolio, we see out of the rumored names on the M&A lists, I think we have a decent amount of those companies.
00:07:24
Speaker
Can't really pinpoint them, but would say there are several, um up to a dozen of them in the portfolio. Maybe M&A candidates will not hit all of those dozens. I think
AI Integration in BB Biotech's Investment Process
00:07:34
Speaker
one or two or three acquisitions per year are a good capital recycle for us to rethink where we want to deploy those cash reserves that we currently have.
00:07:43
Speaker
Excellent. Thank you. And I also want to touch upon agentic AI, which seems a relevant part of for BBBioTech. So maybe you can tell us more about how you use agentic AI in your investment process and where does it add the most value?
00:08:03
Speaker
Yes, I'll take a step back a little bit My background is actually have a PhD in machine learning for drug discovery. It's always very digital. i was fascinated how little finance um was entangled with these more advanced analytics. So we started hiring somebody five years ago already as a first data scientist. um Three years ago, we expanded that to two people. Nothing of that was a genetic AI. That's mainly digitalization.
00:08:26
Speaker
And um a year ago, we decided that we want to expand that team um because we were seeing these large language models, what they could deliver, but especially if we would paramize them and design them in a way that they would be autonomous and that falls or autonomous agents. That's why that falls under the Semella, Agentec AI.
00:08:46
Speaker
What we've done is digitalize our entire investment process um from tip to toe. That happened more or less in the last two quarters of last year. um That's only possible to do that so quickly because of um using authentic AI for coding.
00:09:01
Speaker
um And we quickly realized to really go for the more difficult tasks. So trying to um build agents for so various um subtasks of our diligence.
00:09:13
Speaker
um We needed more capacity on the design side, so we're expanding that team to then five people with different roles. Some are AI, ML engineers, some are architects, software architects, really.
00:09:25
Speaker
That gives us five people who are really embedded with the investment team together. um That's a significant investment, right? We have six investment analysts and five AI and data scientists.
00:09:36
Speaker
And it will take some time for that to contribute more and more. And it starts on the shallow low end of productivity and then can lead up all the way of generating insights, finding new things, ah handling real world evidence.
00:09:49
Speaker
Overall, that this utility um of scaling things manually um If you can realize that efficiency alone, just through them doing more analysis can deliver insights and patterns um that we may not be aware of yet. So it's a we're early on the journey there, but we're taking it serious.
00:10:09
Speaker
The most difficult parts will be the most value creating parts that will take some time to deliver. um Good thing is with the full digitalization of our process, we can track um and measure everything that humans do on our part as well as what machines may contribute it in the future.
00:10:26
Speaker
Thank
Future Investment Plans for BB Biotech
00:10:27
Speaker
you. this This sounds very, very promising. And now looking ahead through 2026, of course, you've given us some some some some background in terms of the market outlook, but maybe you can tell us also what can we expect from VB Biotech in 2026.
00:10:43
Speaker
Yeah, we have a um fairly good bolster of cash-like investments at the moment where we're waiting for the acquisition because we receive something like in the case of Avidity, we received the spin-off shares.
00:10:56
Speaker
um So we have some resources we can deploy between cash acquired positions and potentially even leverage. um And the team, we've regrown it, um reassembled it in the US, is looking for new investment ideas. I think there's multiple ideas that we have taken out of JP Morgan, be on the public side or on an IPO.
00:11:18
Speaker
Companies considering an IPO or even on the private side. um So we're looking to deploy that capital and increase the number of positions in the portfolio throughout the year.
00:11:30
Speaker
um Where we are invested, i think we see several mock clinical milestones, more so than the last year, that can be evaluated. I think last year was a year of launches for us. This year, it's um starting to tilt a little bit more towards late stage clinical also.
00:11:48
Speaker
That's, I think, a very promising outlook because the launchers are still ongoing in the companies that we're in. um And then depending on where e valuations move, we'll be very disciplined on the individual investments in terms of sizing and our risk positioning there on every individual position.
00:12:06
Speaker
But there's a whole catalog basically of milestones um that will unravel through from Q1 all the way to Q4. We're actually using an ai agent also to adjudicate those and to generate some time and efficiency on there. There needs to be a very high sensitivity actually on on validating those, right? that That agent provides a very high sensitivity and accuracy on delivering that can be some time savings for the analyst if that happens in a dynamic dynamic fashion.
00:12:36
Speaker
In our investor presentation, we'll lay out what those milestones look like on the regulatory side, on the late-stage clinical and the early-stage clinical side. Dr. Christian Koch, Head of BVVIT, thank you for this fascinating conversation.
00:12:51
Speaker
Thank you. Thank you.