The Biotech Growth Trust (LON:BIOG) could be well positioned to benefit from a recovery in biotechnology stocks, according to the latest research note from Kepler Partners, published on 3 November 2026.
Following a strong rally that began in April 2025, the biotechnology sector has experienced a sharp sell-off, driven partly by concerns over US interest rates, persistent inflation and a slowdown in mergers and acquisitions (M&A).
However, Kepler Partners research analyst Thomas McMahon believes the pullback could create opportunities for investors willing to accept short-term volatility in pursuit of long-term growth.
Strong Performance Demonstrates the Trust’s Potential
The Biotech Growth Trust, managed by Geoff Hsu and Josh Golumb of OrbiMed, delivered impressive returns during the biotechnology sector’s recovery.
For the financial year ending 31 March 2026, the trust achieved a net asset value (NAV) total return of 74%, considerably ahead of the 35% return recorded by the Nasdaq Biotechnology Index.
The performance reflected the managers’ focus on smaller and medium-sized biotechnology companies, alongside successful acquisitions of portfolio holdings and the positive contribution from gearing.
Key Performance and Portfolio Highlights
- 74% NAV total return for the financial year ending 31 March 2026, compared with 35% for the Nasdaq Biotechnology Index.
- 47% share price return in 2026 by 27 August, alongside a 40% NAV increase over the same period.
- 12.7% share price return and 8.9% NAV total return for 2026 at the time of Kepler’s November research note, following the sector sell-off.
- 0% net gearing, following the managers’ decision to reduce borrowing exposure in response to market conditions.
- 3.7% portfolio exposure to China and 1.7% to Taiwan as at the end of September 2026.
- Greater emphasis on mid-cap companies, reflecting a more cautious approach following weakness among smaller biotechnology businesses.
Although the recent decline has reduced the trust’s gains for the year, the earlier rally demonstrated its ability to outperform during favourable market conditions.
Importantly, the investment approach also carries additional risks during market downturns.
Why Kepler Partners Sees Opportunity in Biotechnology
One of the central themes in Kepler Partners’ research is the growing need for major pharmaceutical companies to acquire new medicines as patents on existing treatments approach expiry.
Industry estimates cited in the note suggest approximately $450 billion of pharmaceutical revenues could lose patent protection by 2028.
This creates a potential opportunity for smaller biotechnology companies developing innovative treatments, particularly those with promising clinical results.
Large pharmaceutical businesses may increasingly turn to acquisitions and licensing agreements to replenish their product pipelines and protect future revenues.
McMahon highlights the importance of these industry fundamentals, stating:
“We think the recent pullback could be a good opportunity to add to the biotech industry.”
While uncertainty surrounding US interest rates could continue to affect investor confidence, the longer-term demand for innovative medicines remains an important driver of the sector’s outlook.
The research also highlights Merck’s renewed acquisition activity in October as an example of the pressure facing pharmaceutical groups seeking to replace revenues associated with products approaching patent expiry.
Portfolio Changes Reflect a More Cautious Approach
Following the recent market weakness, The Biotech Growth Trust’s managers have adjusted their portfolio positioning.
Although smaller biotechnology companies remain an important part of the investment strategy, the managers have increased their emphasis on mid-cap businesses and reduced net gearing to zero.
These changes aim to moderate some of the trust’s exposure to market volatility while retaining opportunities for capital growth.
The portfolio continues to favour companies with attractive commercial and clinical prospects, including businesses that could become acquisition targets.
Crucially, Geoff Hsu and Josh Golumb do not rely solely on takeover speculation when selecting investments. According to Kepler’s research, they seek companies that offer investment potential independently of any acquisition.
This approach provides more than one possible route to generating returns, although the outcome remains dependent on individual company performance and broader market conditions.
China’s Growing Biotechnology Industry Adds Another Opportunity
Another interesting element of Kepler’s research is the increasing importance of China within the global biotechnology industry.
China accounted for 32% of clinical trial starts in 2025, compared with 18% in 2019 and just 6% in 2014.
The country’s growing contribution to medical innovation is also reflected in international licensing activity, with Chinese biotechnology companies signing a record $60 billion of cross-border licensing agreements during the first quarter of 2026.
Although The Biotech Growth Trust held a relatively modest 3.7% allocation to China at the end of September, the managers have the flexibility to increase exposure when valuations and investment opportunities justify doing so.
OrbiMed’s two Hong Kong-based analysts also provide specialist knowledge of the region’s expanding biotechnology industry.
This local presence could help the trust identify promising businesses and assess emerging competition, while retaining its primary focus on the US biotechnology market.
What Could Drive a Recovery in Biotechnology Shares?
Kepler identifies several factors that could support a recovery in the biotechnology sector.
Greater clarity around US interest rates and Treasury yields could help restore confidence following recent volatility.
Meanwhile, renewed acquisition activity among major pharmaceutical companies could provide support for valuations, particularly among smaller and medium-sized biotechnology businesses.
Continued medical innovation and successful clinical development programmes may also generate opportunities for actively managed portfolios.
However, a recovery is not guaranteed. Further interest rate increases, disappointing clinical trial results and renewed market weakness could weigh on returns.
The trust’s five-year performance also illustrates the importance of the investment cycle. Kepler reports a 15.2% NAV total return over the period, compared with 49.6% for the biotechnology ETF used in its comparison.
Final Thoughts
The latest research note from Kepler Partners presents a cautiously positive outlook for The Biotech Growth Trust, despite the biotechnology sector’s recent difficulties.
The trust’s strong performance during the recovery that began in April 2025 demonstrates the potential benefits of its active investment approach, while recent portfolio adjustments show that the managers are responding to changing market conditions.
Thomas McMahon summarises the trust’s long-term growth characteristics:
“It is unashamedly a return-seeking proposition, which we think should appeal to long-term growth investors looking to maximise returns and take advantage of some short-term weakness in the market.”
For investors comfortable with the risks associated with biotechnology shares, The Biotech Growth Trust offers exposure to medical innovation, potential acquisition activity and an expanding international biotechnology industry.
Nevertheless, its small and mid-cap exposure and active investment approach mean it can experience substantial volatility, particularly during weaker markets.
