Biotech Growth Trust is focusing on small and mid-cap biotechnology companies as its manager identifies valuation opportunities across a sector supported by clinical innovation, regulatory approvals and pharmaceutical M&A activity.
Jeff Hsu, general partner at OrbiMed and portfolio manager of Biotech Growth Trust since 2005, said the trust is focused on providing UK investors with access to biotechnology opportunities globally.
Hsu said the sector is currently supported by several factors, including what he described as compelling valuations, a favourable regulatory environment and increased acquisition activity from large pharmaceutical companies. Major pharmaceutical businesses are facing patent expirations and loss of exclusivity on established blockbuster medicines, creating a need to replenish their pipelines through acquisitions.
The trust looks for companies with a strong scientific rationale behind their drug candidates and identifiable catalysts over the following 12 to 18 months. These catalysts can include clinical trial results or regulatory decisions from the US Food and Drug Administration.
Valuation is also a consideration, alongside the quality of management teams and their ability to execute development plans. For companies that have already demonstrated proof of concept or generated commercial sales, the potential for an acquisition is also considered as part of the investment process.
The portfolio is currently weighted towards small and mid-cap biotechnology companies. Hsu said this reflects the concentration of innovation in these parts of the market, with around two-thirds of innovation in the biopharmaceutical industry taking place among small and mid-cap companies, according to his assessment.
The focus also reflects valuations, with Hsu saying the trust is finding some of its most compelling opportunities among smaller companies.
M&A has become an increasingly relevant part of the sector. Hsu said the trust has held several companies that were subsequently acquired, allowing shareholders to benefit from transactions involving portfolio holdings. He expects pharmaceutical M&A activity to remain strong through the rest of the year, with patent expirations continuing to create pressure on large drug companies to find replacement sources of revenue.
Biotech Growth Trust plc (LON:BIOG) seeks capital appreciation through investment in the worldwide biotechnology industry. The Company and the Company’s Portfolio Manager believe that there is a high congruence between companies that seek to act responsibly and those that succeed in building long-term shareholder value.
