International Biotechnology Trust: Low FDA activity may drive further M&A

Hardman & Co

International Biotechnology Trust plc (LON:IBT) was established in 1994 to provide institutional and retail investors with the opportunity to participate in global biotechnology and life science companies, from venture-stage early drug discovery via venture capital funds (SV Health Investors) through to global, multinational biotechnology companies. The trust’s main aim is to generate capital growth, while minimising risk, through a diversified portfolio and an experienced investment team. Over the last five years, IBT’s NAV per share has increased 25%, while the share price has increased 32% over the same period – the superior returns generally reflected by a reduction in the share price discount.

  • Strategy: International Biotechnology Trust’s investment objective is to achieve long-term capital growth by investing in biotechnology companies that address unmet medical needs. The trust offers a diversified portfolio of listed and private companies on a global basis, although the vast majority (88%) of investments are currently in the US.
  • NAV updates: With ca.90% of the investment portfolio in listed companies, the NAV changes on a daily basis, which is updated on the LSE website. IBT also produces monthly factsheets, which highlight portfolio changes and update the NAV (https://ibtplc.com/investor#factsheets). The managers also publish an informative topical blog each month (https://ibtplc.com/investor#investment-blog).
  • Portfolio management: The managers are bottom-up stock-pickers with a top- down asset allocation overlay to respond to anticipated market movements. Over the past year, biotech valuations have been correcting; so holdings of safer mega-cap companies were increased, while exposure to smaller companies was reduced. These positions have been reversed now that valuations are more reasonable, as smaller companies offer superior growth and increased potential for M&A.
  • Risks: Risk is minimised through portfolio diversification, geographical spread and active specialist investment management. Also, many valuation inflection points in the drug industry are around the time of binary outcomes (e.g. clinical trial results) – so the trust aims to reduce exposure to such events that it considers binary. IBT’s volatility is lower than that of its benchmark index and its peers.
  • Investment summary: International Biotechnology Trust provides investors with the opportunity to participate in the drug industry, from early-stage drug discovery through to full commercialisation of regulatory approved drugs. The focus is on companies that address unmet medical needs. The five-year CAGR in NAV has been 4.6%, reflected in the share price CAGR of 5.7% over the same period, and the trust pays an annual dividend of 4% of NAV at the preceding financial year-end.

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