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magazineInternational Biotechnology Trust set to benefit from population growth
We think International Biotechnology Trust (IBT) offers an attractive entry into a biotechnology sector which has several value opportunities at present due to pricing concerns in the US.
The trust’s benchmark is the NASDAQ Biotech Index, which has consistently outperformed global equity and healthcare indices over the last 20 years.
International Biotechnology Trust invests in biotech and life science firms in the US, Canada and Europe, some of which focus on rare and orphan diseases. These treatments target a small patient population and thereby enjoy better pricing power.
The trust’s largest holding is in neurologic and endocrine-related disorders specialist Neurocrine at 5%, while Vertex which has a pipeline of cystic fibrosis treatments accounts for 4.4%
of the fund. Oncology is also an area of focus with participants in this space Celgene, Array, Genmab and Morphosys among the fund’s top holdings.
PRIVATE COMPANY ACCESS
International Biotechnology Trust aims to pay a 4% dividend. Investment manager Carl Harald Janson looks for businesses with growth prospects, experienced management and good potential upside through the development and commercialisation of products or technology.
There are 75 companies in the portfolio, 50 of which are listed. Not limited solely to larger companies, the trust invests in small and mid-cap businesses that can help generate strong capital growth and benefit from M&A activity.
WHAT ARE THE CATALYSTS?
Population growth is one of several catalysts for International Biotechnology Trust as the proportion of people over 65 is set to double by 2040, prompting higher demand for medicines.
Rising demand is not only expected in the West as developing countries are benefiting from more money to spend on healthcare
according to Janson.
Among the main drivers of growth is innovation, with US Food and Drug Administration Commissioner Scott Gottlieb encouraging more drugs to be approved at a faster rate.
There have been a surge of drugs in development with the number of treatments in Phase I alone nearly tripling to approximately 1,800 between 2012 and 2016.
SIDESTEPPING CLINICAL TRIAL RISKS
One of the biggest risks for anyone considering the biotech sector is clinical trials, which can make or break companies depending on whether their treatments actually work.
IBT sidesteps this issue by taking advantage of the share price rally in the run up to the clinical results before selling off beforehand to avoid a sharp downturn if the results are bad.
An example of this is when the trust sold its entire holding in Dermira ahead of Phase III results for an acne treatment, effectively avoiding a 70% share price crash on disappointing results. (LMJ)
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