BB Biotech improves results – but is it enough?

Last Updated: 22. Januar 2024By

As you know, it is incredibly important to diversify your portfolio. This point in investment was thought up by none other than the Nobel Prize winner Harry S. Markowitz, who unfortunately passed away last year at the age of 95.

According to his thoughts from 1952, investors should diversify their assets, meaning they should distribute their wealth across multiple investment opportunities. This includes not only stocks, but also bonds, real estate or real estate shares, and even different currencies and regions.

A free lunch As the Nobel Prize winner Milton Friedman also pointed out, this diversification leads to the only free lunch you can get in the capital market.

However, the proposed diversification can also be tedious. Who wants to go through the effort of building a portfolio of 15 securities โ€“ as recommended by leading capital market theorists?

This is probably why there is a company called BB Biotech AG. I would like to introduce its business model to you, as I am sure that not all of you are fully familiar with it.

Business model overview BB Biotech is a Swiss biotech company that specializes in the development and marketing of innovative therapies for chronic and serious diseases. The company’s business model is based on several strategic focus areas:

Firstly, the development and promotion of pipeline candidates in various stages of clinical development or already approved. Then the marketing and distribution of pipeline candidates that are already approved or about to be.

Diversification in the business model However, BB Biotech is not involved in the development itself, but instead invests in companies that are active in biotechnological research. One stock, many investments, in other words. By purchasing a BB Biotech share, the investor receives a diversified portfolio.

And because there are surely many specialists involved who know which companies to invest in and which not, the BB Biotech share should also have a respectable performance. However, if you look at the stock chart, you will see that this has not been the case in recent times. For more than three years, the BB Biotech share has been a clear underperformer on the stock market.

Continuing losses If you now take a look at the 2023 business results that the Swiss company has released today, you will understand why. Based on the unaudited figures, BB Biotech reported a loss of around 207 million Swiss francs for the past fiscal year.

Compared to the previous year, when a loss of 358 million Swiss francs was recorded, this is an improvement, but a loss is still a loss and is inherently a solid reason to avoid a stock.

Especially since the valuation of the stock is extremely high. Based on analysts‘ profit estimates, the price-earnings ratio for 2024 is an average of 69. If profits are even made at all. For me, this does not exactly encourage investment.