|Shares Out. (in M):||16||P/E||0.0x||0.0x|
|Market Cap (in M):||963||P/FCF||0.0x||0.0x|
|Net Debt (in M):||0||EBIT||0||0|
BB Biotech is a closed-end fund listed in Switzerland (also trades in Germany and Italy). It currently trades at a ~27% discount to NAV (60 CHF versus 82.5 CHF NAV). You can find all of its financial reports, etc. here:
The fund is actively managed, but is fairly low turnover and is concentrated. Its top 4 positions represent ~70% of NAV. The top four positions are Actelion, Celgene, Gilead, (~18% of NAV each) and Vertex Pharmaceuticals (~15% of NAV). The rest of the portfolio is spread across about 20 other biotech investments (most are NASDAQ listed). All the details are availble on the website above in the quarterly report.
The management fee is 0.4%, plus there is an incentive fee above a high water mark that is currently 113 CHF which is pretty much irrelevant given the current NAV. Fees don't explain the large discount.
The fund is not levered now. It has been at times in the past.
In the past 5 years the discount has averaged 14% with a peak of 33% (during the '08 financial panic) and a low discount of around 10%.
Going further back, this company has been publicly traded since 1993 and at times as even traded at a premium to NAV (though rarely).
If you look at the portfolio about 70% of it is in what I would call "real businesses" with earnings and cash flow. Some of these businesses seem like they may be undervalued (see Actelion and Gilead both at around 10x earnings with growth potential due to their pipelines) while others (e.g. Celgene at 20x) are probably expensive or at least have high expectations. On balance, the owned companies with real businesses are probably fairly valued to slightly cheap. The rest of the investments are in early stage biotech companies. Essentially, I view this closed-end fund as a way to get exposure to the call option that is these early stage biotechs while only paying for the portfolio that represents established businesses.
Why do I believe the discount will eventually close? First, the company has a history of buying back its own shares. I contacted them recently and they are waiting for some of the market volatility to settle down before purchasing, but they acknowledged they have historically bought back shares when the discount was between 10 and 20%. I believe they have authorization to buy back up to 10% of shares outstanding.
Second, I think a lot of the reason for the discount is due to retail investors selling. Most of these companies are US-based companies (or they derive much of their revenue in the US) so there is very little reason to believe that the debt crisis in Europe should actually impact them (aside from general market multiple compression or a currency benefit if they are a European exporter). I believe retail investors are just pulling money out of the market as they worry about the crisis.
Finally, I do believe that some degree of discount should always remain due to management fees and a liquidity discount. I just think it will likely be closer to 10% instead of nearly 30%.