Investment Manager’s Blog


Welcome to the International Biotechnology Trust monthly blog for June 2020

18 June 2020


May ends with NAV at an all time high

I am pleased to present International Biotechnology Trust’s factsheet for May 2020:

At the end of May, the Trust’s net asset value (NAV) reached an all-time high with approximately £297 million after a 11.8% return over the month. This is a positive achievement and shows that the Trust’s portfolio companies are growing in total value. For the Trust’s current financial year to date, total return (including dividend) of the share price of the Trust is 21.8%. This strong performance is mainly attributed to the unprecedented and robust long-term cycle of innovation and growth that the biotech sector is currently experiencing. Our view is that the sector has been previously ‘out of favour’ for a number of years and interest is picking up again based on the spotlight provided by COVID-19, the visibility of future earnings and the high growth prospects of the sector.


An exciting example of this innovation is from our top holding, Horizon Pharmaceuticals (ticker HZNP US). Horizon is an American pharmaceutical company that focuses on drugs for “rare” or “orphan” diseases.


Rare diseases are those diseases that are not common and affect only a few individuals. In 2000 Governments, worldwide, noticed that pharmaceutical companies were not focusing on developing drugs for these diseases because the development of such drugs were unprofitable. In response to this, the U.S. Food and Drug Administration (FDA) put in place regulatory legislation to incentivise companies to develop drugs for rare diseases ( and In short, a drug falls under this legislation if the disease affects fewer than 200,000 individuals in the U.S. and under 5 in 10,000 individuals in the European Union (EU). This legislation provides a number of benefits to those companies developing treatments for rare diseases, including: research and development funding, tax incentives, regulatory support including cheaper drug filing costs and regulatory market protection. The effect of this legislation increases the potential profitability of treatments for rare diseases and has been very effective in encouraging the development of these treatments, with many new drugs for rare diseases now on the market. This segment of the market is estimated to grow at a higher rate than the other segments of the pharmaceutical market and often provides good returns for investors.


In 2020, Horizon launched a new drug, Tepezza, for the treatment of Thyroid Eye Disease and the drug has had a strong launch in the first quarter, beating market expectations. Tepezza is an IGF-1R inhibitor for the treatment of protruding eyes caused by high levels of thyroid hormone. Before Tepezza, there were limited treatment options, including the use of steroids (a treatment which was not particularly effective) and eye surgery. It is understandable that both doctors and patients prefer the use of an injection-based treatment as opposed to an invasive surgery of the eye. Strong sales in the first quarter had a positive impact on Horizon’s share price which contributed to the Trust’s positive performance in May 2020.


The biotech sector is currently back in favour.  The sector is more productive than it has ever been, with interest rates expected to stay low and the demand for new drugs set to increase. We do not expect any major reforms of the U.S. health care system following the U.S. election in the autumn of 2020 and therefore, do not foresee a radical change to the revenue and earnings prospects for the biotechnology industry.


Thank you for taking the time to read our factsheet.


Be safe.

Welcome to the International Biotechnology Trust monthly blog for May 2020

15 May 2020


Biotech’s long-term outlook remains strong amid COVID-19 volatility

The Net Asset Value (NAV) of the Trust hit an all-time high as at the end of April of 724.21p on Friday 24th April. In May, we have had new all-time highs for both NAV and share price. How can this be possible in the middle of a global pandemic with grand scale economic fallout?


The biotech sector has seen a five-year period of consolidation, the sector may be ripe for a period of outperformance in short to medium term.


Then why now? In part, it may be that the sector has the characteristics of being defensive and a safe haven in times of economic turmoil, because of its strong underlying fundamentals and relatively stable and predictable income and earnings. In addition, the run up to this year’s US Presidential election has evolved in a favourable way, with Biden now the probable candidate to be officially nominated as the presidential candidate for the Democratic party. Biden is believed to be less of a threat to the healthcare industry than the other potential candidates. Moreover, a more positive sentiment towards the healthcare sector has emerged, thanks to the impressive effort by the industry to develop drugs and vaccines to tackle the COVID-19 pandemic.


However, the most important driver of the sector is that it is currently in an increased innovation cycle. This unmatched progress in scientific knowledge and understanding drives the development of new products and consequently the top line sales and valuation of the sector. At the end of the day it is revenue and income that count as well as the visibility of such future earnings. Consequently, in our opinion, the current positive sentiment around the healthcare sector will not go away any time soon.


Figure 1: Nasdaq Biotechnology Index (USD)

Source: Bloomberg

Figure 2: Price/earnings multiple for the World Health Care Index (MXWO0HC Index) at an historical average

Source: Bloomberg

Our conclusion is that the long-term outlook remains strong, underpinned by the increased innovation cycle. In the short term, there is a risk that the sector, like many other sectors, could suffer a shock related to market sentiment around the pandemic, but if this were to happen, we would expect it to rebound in time, and possibly faster than other sectors as has been the case in the first quarter of 2020.

Ultimately, the pandemic will end one day, especially if our sector discovers a successful vaccine and distributes it globally, which we hope will happen sooner rather than later.
Thank you for taking the time to read our factsheet.

Be safe.

Welcome to the International Biotechnology Trust monthly blog for March 2020

21 April 2020


Biopharma outperforms as it exhibits its defensive characteristics and plan of action against COVID-19


We are pleased to present International Biotechnology Trust’s factsheet for March 2020:


During March there was extreme volatility across all asset classes: stocks, bonds, gold, and oil. International Biotechnology Trust, too, experienced exceptional volatility. However, April has seen the markets begin to recover and performance of the Trust, along with the fluctuations in its share price, have now stabilised.


The biotech and the healthcare sectors performed better than the wider world equity indices during the initial phase of the COVID-19 pandemic. The relative stability/visibility of sales and earnings of the biotech and healthcare sectors, coupled with the intact long-term outlook contribute to this relative outperformance, both over the short and longer term. We are optimistic that the sector will continue to perform relatively well against the broader equity market despite the economic impact that the pandemic has had on the economy.


The figure below shows that both the MSCI World Healthcare Index and the NASDAQ Biotech Index have outperformed the global MSCI World Equity Index over a ten-year period.


Source: Bloomberg

How did the Trust react to the pandemic?

As explained in our recent Quarterly Video, we anticipated the impact that the pandemic would have on global markets and liquidated some of the Trust’s investments, raising cash from a previously geared position. Towards the middle of March, the markets experienced a strong retraction and we deployed some of this cash to take advantage of the lower valuations, moving the Trust back into a geared position at the beginning of April.

We have been in contact with a selection of the companies in our portfolio to assess how they have been affected by the crisis. A general theme has emerged – many companies have sufficient API (raw material) resources, expected to last up to two years. Consequently, we think there will be limited impact to the production and sale of pharmaceutical drugs. With regards to clinical trials – those which are already taking place are expected to continue, albeit with a reduced rate of recruitment leading to potential delays. However, the starting date for new trials has been postponed in many cases.

How will COVID-19 change behaviours and the economy in the long-term?

Historically, humanity has always found a way to adapt to a crisis. After 9/11, we wondered whether air travel would ever return to normal. With the introduction of additional security measures, air travel has been on an upward trajectory ever since. Similarly, we expect air travel and other economic activity to return to normal in the long-term, with some additional “security measures”, as other parts of society begin to adapt to the new normal.

Thank you for taking the time to read our March factsheet. We wish all our readers well and hope you stay safe.


Welcome to the International Biotechnology Trust monthly blog for March 2020

27 March 2020


How International Biotechnology Trust has responded to COVID-19


We are pleased to invite you to watch our latest quarterly video, which is available on the homepage of the Trust’s website at


In this interview, we cover how the Trust has reacted to COVID-19 in its day-to day business operations, investment strategy and performance as well as the Board’s discount management approach during this period of market volatility. Additionally, we discuss our views on the possibility of treatments and vaccines for COVID-19 as well as the companies who are developing them. 

We were quick to anticipate the likely impact of COVID-19 on the market and adapted the Trust’s investment strategy by significantly reducing its gearing at the end of January. This, and the stability provided by the Trust’s unquoted portfolio, has resulted in the Trust keeping in step with the NBI and outperforming the FTSE 100 over the period since January – as indicated by the graph below. Unfortunately, market sentiment has affected the Trust’s discount, but the Trust’s Board and Broker have been working on supporting the share price through a series of buybacks. 

Figure 1. Total return – IBT (NAV and Share price) vs NASDAQ Biotech Index (NBI) and FTSE 100

Source: Bloomberg


We would like to reiterate to our readers that we are well equipped to work remotely during the COVID-19 quarantine period, allowing us to operate business as usual here at the Trust. We continue to actively monitor the market, and we are now on the lookout for well financed, cash generating, attractively valued investment opportunities.


We encourage all our readers to practice social distancing, as per the guidance set out by their respective governments, and we hope you all stay safe and well during this time.


March Factsheet (click link to open)


Welcome to the International Biotechnology Trust monthly blog for February 2020

13 March 2020


The world wakes up to the reality of a pandemic


We are pleased to present International Biotechnology Trust’s factsheet for February 2020:


The ongoing COVID-19 pandemic has reduced the growth and earnings potential of the global economy. Sectors related to travel and energy have been amongst those most severely affected. In contrast, we expect that the healthcare sector might be less affected since demand remains unchanged, supply constraints are expected to be limited, and while some clinical trials and FDA AdComs could be delayed this may impact individual companies rather than the sector as a whole. Both antiviral drugs and vaccines are currently being developed, but timescales are too long to have any significant short-term impact on the pandemic. Instead, society must rely upon historically proven methods to combat the pandemic, namely preventative measures such as quarantining. In China where the coronavirus pandemic hit first and where a quarantine was first applied, early signs indicate that the pandemic has been significantly reduced. This is a positive sign and gives comfort to other countries, such as Italy, who are implementing similar measures in an attempt to prevent the virus from spreading further. Our thinking is that the pandemic is going to be short lived but during its course it will have a very large effect on most parts of the global economy. In response to COVID-19, the Company has taken a conservative approach during the early stages of the pandemic and is currently not geared.


The ongoing Democrat Party primaries have given Joe Biden a lead over Bernie Sanders. Biden is considered a more moderate candidate and is less likely to introduce any fundamental changes to the U.S. healthcare system. We continue to expect that the biotech sector will trade sideways until the market has gained more certainty regarding the outcome of the U.S. election in November 2020. In the medium-to-long term, we expect that the COVID-19 pandemic will be resolved, and the U.S. election will not bring about any significant changes to the healthcare sector. Consequently, we are looking for the right time to increase our holdings in companies with compelling valuations in the current volatile market.


One of our largest holdings is in Gilead. We saw value in this company, with its solid HIV franchise and low valuation, and included this company within our portfolio before the COVID-19 pandemic hit. HIV is a chronic infection which, at this stage, requires a lifelong treatment. Coincidently, Gilead has a potential drug (remdesivir) in development for COVID-19 and, consequently, the stock has performed well since the start of the pandemic. It is still too early to say if it remdesivir works or not, but we look favourably upon Gilead with its strong fundamentals and forwards PE multiple of approximately 11.5x for 2020.


Regardless of the impact of COVID-19, we continue business as usual, working to find the best value-driving investments for the Company and its shareholders.


Thank you for taking the time to read our February factsheet and some important highlights for the year thus far. 



February Factsheet (click link to open)


Welcome to the International Biotechnology Trust monthly blog for January 2020

24 February 2020


Fears rise that COVID-19 infection may escalate into a pandemic


We are pleased to present International Biotechnology Trust’s factsheet for January 2020:


Our outlook for 2020 remains unchanged. We expect the biotech sector will trade sideways until the market has gained more certainty regarding the potential outcome of the US election in November 2020. One determining factor will be the nomination of the Democratic Presidential Candidate in July. Healthcare reform has been a popular agenda item in the ongoing primaries and a candidate with a moderate healthcare reform agenda is viewed as positive for the healthcare sector. 


Additionally, the COVID-19 epidemic, which started in China in late 2019, now seems to be spreading to the neighbouring nations. The biggest area of concern is that a direct antiviral medicine has not yet been discovered and there is no vaccine to prevent the disease. However, the majority of people infected will recover and develop an immunity that will prevent re-infection. Therefore, it is our view that while the epidemic will have serious short-term consequences, global economies will return to a normal state of operation and life will return to normal – hopefully by the end of this year. We have reacted to the emergence of the COVID-19 epidemic by reducing the gearing of the Company.


In last month’s blog, we mentioned PTC Therapeutics (“PTC”), a US company that develops drugs for rare genetic diseases. On 6 February 2020, PTC reported positive results from the pivotal SUNFISH clinical trial for Risdiplam, a drug intended to treat spinal muscular atrophy (“SMA”). In November 2019, the FDA accepted the NDA filing of Risdiplam and the FDA’s approval is expected by 24 May 2020, at the latest. This recent trial data has further strengthened the market potential of the drug candidate. Risdiplam is a collaboration between PTC, the SMA Foundation and Roche. We view this as a positive development and will continue holding PTC in our portfolio, which is our third largest holding at the end of January 2020.


BioMarin Pharmaceuticals (“BioMarin”), a US company that develops new therapies for rare diseases has moved into our “Top 10” in January 2020. Historically, the company has had several approved drugs that act as enzyme replacements. More recently the company is developing Valrox, a potential gene therapy for Haemophilia A. In early January 2020, the company published 3 years of follow-up data supporting a long-lasting effect of the drug. This positive outlook has caused us to increase our holding in BioMarin. On 21 February 2020, the company announced that the FDA had accepted its NDA filing for Valrox, with a potential approval expected by 21 August 2020.


Thank you for taking the time to read our January factsheet and some important highlights for the year thus far. 


January Factsheet (click link to open)


Welcome to the International Biotechnology Trust monthly blog for December 2019

25 January 2020


2020 kicks off with the 38th Annual J.P. Morgan Healthcare Conference in San Francisco


I am pleased to present International Biotechnology Trust’s factsheet for December 2019:

2020 kicked off to an exciting start with the annual JP Morgan Healthcare Conference in San Francisco on 13 January. This event is more than a conference. With a number of parallel events hosted by other investment banks, biopharma companies and PR firms, it is arguably the most important event in the global healthcare calendar. We were there and had the opportunity to participate in 44 one-to-one meetings with management teams from both companies we invest in as well as future investment prospects. It is evident that there is no lack of investment opportunities for 2020!

I would like to take this opportunity to mention a few companies in the 1-10 bn USD market cap range that we feel positively about and currently include within our portfolio: PTC Therapeutics, Acadia Pharmaceuticals and ChemoCentryx.

  • PTC Therapeutics develops drugs for rare genetic diseases, such as Duchenne muscular dystrophy and has global commercial operations with two drugs approved by the FDA.
  • Acadia Pharmaceuticals commercialises Nuplazid for Parkinson’s Disease psychosis. They plan to submit an “sNDA” application to FDA for the drug in a second indication for dementia-related psychosis.
  • ChemoCentryx is in the late stage development of its treatment for the disease ANCA Vasculitis and presented excellent results showing improvements in kidney function in a phase 3 clinical trial in November.

2019 ended on a positive note with a strong performance for the biotechnology sector. The Nasdaq Biotech Index was up 25.1% in USD and 20.2% in GBP. There have been references to the sector being overvalued – but I do not believe this to be true. At the end of 2018, the equity markets experienced a large V-shaped correction in response to the Federal Reserve Bank increasing the interest rates. Throughout 2019, the Reserve Bank has moderated its monetary policy and it is my view that the current low interest rate will continue for the short and medium term. Additionally, as evidenced by the graph below, the Nasdaq biotech index is currently in a growth phase and is certainly not overpriced.

Figure 1: 10-year performance of the NASDAQ Biotechnology Index to 12 December 2019 (Bloomberg)

What can we expect in 2020? With it being an election year in the US, we expect high drug prices on new drugs to be a popular topic of conversation. Consequently, our view is that the biopharma sector will trade sideways into the election. The outcome of an election is always uncertain, but it is my opinion that the US healthcare system will remain largely unchanged after the election with minimal impact to the overall pricing structure of pharmaceuticals in the US.

Thank you for taking the time to read my thoughts and outlook for the new year. I look forward to a successful 2020 and wish you all a prosperous year.



Thank you for taking the time to read our factsheet.



December Factsheet (click link to open)


Welcome to the International Biotechnology Trust monthly blog for November 2019

20 December 2019


Drug approvals and M&A drive strong month for biotech


I am pleased to present International Biotechnology Trust’s factsheet for November 2019:


Regular readers will remember that in early November I discussed how the biotechnology sector had consolidated over the last four years.  I said that an undervaluation of our sector versus the wider market may have represented a favourable entry point.  Subsequently, the sector experienced a 12% rally and P/E multiples have expanded similarly.  Despite this impressive rally, much of what I said a month ago still stands.  The biotech sector is within the consolidation of the last four years, not surpassing the 2015 high, and multiples are still attractive versus the broader market.  So, from both technical and valuation points, I think the sector still has room to run.


Figure 1: 10-year performance of the NASDAQ Biotechnology Index to 12 December 2019 (Bloomberg)


However, I’m also cognisant of the 2020 presidential election.  As a team, we adhere to the consensus view that equity markets will be volatile until the election and more consistent growth will return afterwards.  There are three possible scenarios:

  1. A left-wing Democratic candidate is selected and then goes on to win the election.  Whilst it is the worst-case scenario for our sector, opinion polls and bookmakers show it is unlikely such a hard-left candidate will be selected and less likely that he or she will win, just as we witnessed in the UK last week.  Once ruled out, markets will react positively.
  2. The Democratic Party is represented by a centrist candidate.  Even if such a candidate were to be elected to The White House, it is unlikely they would implement any seismic changes so markets should react positively.
  3. The current US President is re-elected. Whilst Donald Trump may have been impeached it remains unlikely that he will be removed from power as a two-thirds majority, in what is a Republican controlled senate, is required to convict.  Moreover, should he survive the trial, in the 35 US presidential elections in which the incumbent president has run for re-election, that candidate has been successful on 21 occasions. Leaving political and personal preferences to one side, Trump’s re-election would see an immediate positive impact on global equity markets.


It is easy to understand why our sector would react so positively.  Under the current political and regulatory framework, the US Food and Drug Administration are approving drugs at a better rate than ever before.  Eleven new drugs were approved in the last five weeks, taking us to 42 new drug approvals in 2019 as at 12 December 2019.

Figure 2: US FDA Approvals 1998 to 12 December 2019


It has also been a busy month for biotechnology mergers and acquisitions.  Firstly, the Bristol Myers Squibb-Celgene mega-merger finally closed.  Secondly, there were several new transactions announced.  Novartis entered into a definitive agreement to acquire The Medicines Company for $9.7bn, primarily to secure a late stage drug candidate for high blood cholesterol.  Roche entered into a $1.4bn agreement to acquire Promedior, a private company with a drug candidate to treat IPF (idiopathic pulmonary fibrosis). And in early December, Merck announced the $2.4bn acquisition of Arqule, a company with drugs in development for the treatment of blood malignancies, whilst Sanofi bolstered its immuno-oncology pipeline with the $2.5bn acquisition of Synthorx.


International Biotechnology Trust held positions in each of Celgene, The Medicines Company and Arqule.


These transactions illustrate the extent to which large biopharmaceutical companies, more than ever before, need to replenish their pipelines with innovative treatments in order to underpin their future earnings growth.  The depressed sector valuations help to catalyse such deals and I expect to see more M&A transactions in 2020.  Combined with the launches of all the recently approved drugs and the prospect of even more approvals in the new year, 2020 should be one to look forward to regardless of what happens at The White House.


Finally, thank you for taking the time to read my thoughts throughout 2019.  I enjoyed seeing many of you at our 2019 AGM last week and I am pleased that shareholders voted to allow the Trust to continue for a further two years.


I wish you the happiest of holiday seasons and I look forward to sharing my first thoughts of 2020 early in January.



Thank you for taking the time to read our factsheet.



November Factsheet (click link to open)


Welcome to the International Biotechnology Trust monthly blog for October 2019

20 November 2019


Biotech sector ready for break-out after four years of consolidation


I am pleased to present International Biotechnology Trust’s factsheet for October 2019:


October was an eventful month.  From a corporate perspective, the Trust released its 2019 Annual Report and our Board of Directors appointed Numis Securities as the Trust’s corporate broker. 


It was also a busy month for biotechnology companies.  Firstly, Biogen announced it would seek regulatory approval for aducanumab, a treatment for Alzheimer’s Disease, months after the early termination of the drug’s clinical trials on futility grounds.  Shortly afterwards, Vertex announced US approval of Trikafta, its latest triple combination drug for cystic fibrosis, which came five months earlier than expected.   Trikafta sales are expected to exceed $6bn by 2025, while the approval means the company’s portfolio of cystic fibrosis treatments will now cover 90% of patients suffering from the disease.  Vertex also generated positive headlines closer to home, when it announced it would make cystic fibrosis treatments available to patients in the UK after the company reached a reimbursement agreement with NHS England.  From the perspective of the Trust’s shareholders, Biogen and Vertex are both top ten holdings and, with share price gains of 28% and 16% respectively, both were significant contributors to outperformance in the month. 


Despite the positive news in October, the NASDAQ Biotechnology Index still hasn’t reached previous highs.  Looking back over the last ten years, the sector performed strongly from 2010 to 2015 but, after peaking in mid-2015, the sector was thrown into the political spotlight ahead of the 2016 presidential election.  High drug prices suddenly became front-page news.  Four years on and the sector still hasn’t surpassed the 2015 peak. 


Figure 1: 10-year performance of the NASDAQ Biotechnology Index (Bloomberg) 


The chart above shows that the biotech sector has clearly consolidated.  It is now trading at a significant discount to the broader market.  The S&P 500 biotech sub sector has a forward 2019 P/E multiple of 11.7x, almost 50% lower than the S&P 500 as a whole. 


But what are the reasons for this?  Both broader market factors – slowing economic growth and trade disputes – and sector specific issues – the ongoing drug pricing debate in the US – have been leading causes in the undervaluation of the sector.  Even though the market may have priced these factors in, they should be examined more closely.  A slowing global economy shouldn’t have a major impact on the sales of medicines, nor should a trade war impact the supply of medicines.  Regardless of both these factors, patients across the globe will demand the most effective treatments.  With respect to sector specifics, tougher US regulation on drug pricing could have a significant impact on the valuation of biotech companies but, in my opinion, the market has already priced this into the sector’s low valuations.  Moreover, regular readers will know that I don’t believe drug pricing regulation is set for radical change.  Rather, agreement on a politically benign route forward for drug pricing could lead to a rerating of the sector and an uplift in valuation.   When coupled with the ever-quickening pace of scientific innovation, it would appear our sector has rather a lot to look forward to in the long-term. 



Thank you for taking the time to read our factsheet.



October Factsheet (click link to open)


Welcome to the International Biotechnology Trust monthly blog for September 2019

29 October 2019


Rising earnings to pave the way for long-term outperformance


I am pleased to present International Biotechnology Trust’s factsheet for September 2019. 


Throughout the month of September, global equities continued to be affected by a multitude of macroeconomic factors.  A mix of Brexit, trade wars, US political uncertainty and escalating tensions throughout the Middle East all weighed down on the market.  On a more positive note, central banks around the world continued their dovish tones with respect to interest rates and the potential increase of quantitative easing.


Looking forwards, it is clear that healthcare will be a central topic in next year’s US Presidential election, particularly with respect to the Democratic Party.  However, just how aggressively the party will campaign on the topic won’t be clear until mid-2020, when the party will announce the winner of its nominee race.  Of the two front-runners, Elizabeth Warren is known for her left-leaning views, one of which is to switch to a single payor system, while Joe Biden’s more centre-ground stance means he is less inclined to overhaul the country’s complicated healthcare structure.


So, for a combination of the reasons outlined above, biotech sector valuations are almost exactly where they were in January 2019.  Thankfully, the earnings growth outlook is more positive. The current P/E 2020E multiple for companies in the NASDAQ Biotechnology Index is 13.2 at the time of writing, despite the US political situation.  Part of the reason for this is because while biopharma sector sales used to be defined by success of a treatment in the US, in recent years the market has become much more global. We now see growth in geographies outside of the US and even Europe, with Asia, Africa and Latin America playing an ever more important role.  What’s more, we believe future earnings erosion will decrease as the sector is increasingly underpinned by complex biological products.  Usually, once the patent for a treatment expires, cheaper generic versions of the treatment are quickly produced, eroding the earnings of the original manufacturer.  However, these complex biologics are more difficult to produce and have prohibitively high launch costs, so we don’t expect biotechnology companies to face the same steepness of generic competition that the pharmaceutical companies of yesteryear faced.  Finally, as I have outlined on a number of occasions in the past two years, the sector benefits from a strong tailwind.  In the next five years, global sales are expected to grow at 5% per year.  Assuming earnings grow at an even faster rate, it is easy to see why we believe in the long-term outperformance of the biotechnology sector.


Thank you for taking the time to read our factsheet.



September Factsheet (click link to open)

Welcome to the International Biotechnology Trust monthly blog for August 2019

20 September 2019


Investors Chronicle includes Trust in top 100 funds


I am pleased to present International Biotechnology Trust’s factsheet for August 2019.


The end of August marks six years since I joined International Biotechnology Trust as Lead Investment Manager. Over this time period, the Trust has returned 168.7% (share price, total return) and 125.4% (net asset value, total return), equal to an annualised return of 17.9% and 14.5% respectively.  I am pleased the investment community continues to recognise our outperformance of both the benchmark and our competitors.  For example, the Trust was recently recognised in the Investors Chronicle’s Top 100 Funds: Investors Chronicle Top 100


So, with good historical performance behind us, what does the future hold?  As I’ve said many times, it is difficult to predict future market direction and I will refrain from doing so.  I will instead cite the investment bank Cowen; whose 2019 September Therapeutic Categories Outlook predicts that the worldwide biotherapeutics industry will deliver mid-single digit annual sales growth to 2024. One would therefore expect this to translate into even higher earnings growth. It seems, then, that the biotechnology sector is still in favourable waters with stable tailwinds.


That said, companies within the sector are certainly not over-valued.  Far from it, in fact.  Let me exemplify with our largest holding, Gilead, a company with a market cap of over $80bn, which currently makes up c. 7% of the Trust.  Gilead’s main business is drugs for HIV.  This business is stable, even though that is an unfortunate fact for many patients around the world.  There is still no cure for HIV and it is not going away any time soon.  As a result, Gilead’s predicted price/earnings ratio for 2020 is approx. 9.5 and EV/revenue in 2020 is 3.6.  This profitability allows Gilead to pay a dividend of 3.8%. These ratios all compare favourably to the S&P 500 Index, whose predicted P/E multiple for 2020 is 16.5 (Source: Bloomberg).



Thank you for taking the time to read our factsheet.


August Factsheet (click link to open)

Welcome to the International Biotechnology Trust monthly blog for July 2019

23 August 2019


In a world of trade wars and Brexit, the demand for healthcare remains intact


I am pleased to present International Biotechnology Trust’s factsheet for July 2019.


From a domestic standpoint, the UK saw the appointment of Boris Johnson as the new leader of the Conservative party and the country’s new prime minister. With this appointment, the likelihood of a no-deal Brexit has undoubtedly increased and the market reacted accordingly as the pound weakened by over 4%. Such volatility will increase as the UK nears the cliff-edge but, as regular readers will be aware, the Trust has minimal exposure to GBP. As per the figure extracted from the Factsheet below, 86% of the companies we hold are US-domiciled companies. Of the 14% EU-domiciled, approximately half of these are held via USD-denominated listings and less than 2% are GBP holdings.


Figure 1: Geographic exposure of the Trust as at 31 July 2019



Moving away from domestic matters, concerns continue to mount over the growth of the global economy. The healthcare sector is perceived to be non-cyclical and is often better protected from downturns caused by the end of an economic cycle, just as it was in 2008. That said, the biotech sector is higher beta than the broader healthcare sector, so near-term volatility is to be expected during these uncertain times. We continue to monitor the situation and have a conservative approach to gearing, but we leave others to speculate. Instead, we continue to do what we do best: build a portfolio of the best stocks within a thriving biotech sector to provide our investors with long-term returns.


Thank you for taking the time to read our factsheet.


July Factsheet (click link to open)

Welcome to the International Biotechnology Trust monthly blog for June 2019

25 July 2019


Trust continues to benefit from biotech deal-making


I am pleased to present the International Biotechnology Trust factsheet for June.


June Factsheet (click link to open)


June was a positive month for both the global equity markets and the biotechnology sector. The Nasdaq Biotechnology Index increased by 8.7% (GBP), boosted by increased expectations of an interest rate cut in the US and a potential restart in trade discussion between the US and China. Despite an apparent thawing of tensions, this trade conflict continues to heavily dominate the news and influence the equity markets, something we expect to persist until investors are provided with greater certainty. Regardless of this wider economic noise, we believe the biotechnology sector’s long-term growth drivers are very much intact and we think sector valuations remain very attractive when compared to the wider equity market.


In mid-June, Pfizer announced its acquisition of oncology company Array Pharmaceuticals for a 62% premium, meaning Array was the top contributor to the Trust’s performance for the month. Pfizer’s M&A approach is typical of the sector, with this being the third time International Biotechnology Trust shareholders have benefitted from Pfizer acquisitions in recent years. After a spate of oncology-focussed transactions in the last eight months, we expect to see increased activity in this area, both with respect to the development of new drugs and M&A transactions. With a host of clinical trial readouts due within the next year, we remain hopeful that the Trust’s 31% oncology weighting will be rewarded.


The big announcements continued into July. Gilead and Galapagos, both holdings of the Trust, entered into a $5.1bn research and development collaboration that demonstrates the importance of small- and mid-cap companies in the growth of larger companies. Just like Array with Pfizer, Galapagos will help replenish Gilead with a pipeline of new and innovative products to drive future sales growth. With a 41% weighting to mid-caps and a 19% weighting to small-caps, we remain confident that the Trust is well positioned to benefit from future transactions of a similar nature.


Finally, the Trust recently celebrated its 25th anniversary and I’d like to thank all shareholders for your continued support of the Trust. With the increased speed of innovation, demographic changes and increased global wealth, I’m confident the biotechnology sector will continue to reward its long-term investors.



Thank you for taking the time to read our factsheet.


Welcome to the International Biotechnology Trust monthly blog for May 2019

26 June 2019


Trust outperforms thanks to next generation of large caps


I am pleased to present the International Biotechnology Trust factsheet for May.


May Factsheet (click link to open)


Despite a small market retraction driven by escalating trade tensions, May was another strong month for the Trust.  We outperformed the NASDAQ Biotechnology Index by 2.6% and therefore maintained our outperformance of the benchmark over one, three and five years.


Fig 1: Performance table from May factsheet


As regular readers of this email will already know, our detailed and diligent investment process is the crucial cornerstone for this strong performance.  Our recent quarterly video, available on our homepage, discusses the investment process in more detail:


Similarly, in my recent interview with Investors’ Chronicle, I outlined the investment process when discussing a range of topics on both the Trust and the sector:


The outperformance in May was driven by three companies, Neurocrine, PTC and Array, all of which sit in the $1-10bn range.  With their convincing product launches and strong revenue growth, these successful mid-caps are exactly the types of companies that will become the next generation of large-caps.  By investing in the right companies at the right stage of their development, we hope the Trust and its shareholders can share in these growth stories.  Equally, their compelling investment cases can also mean these companies are prime M&A candidates.


In the case of Array, one of the Trust’s top 20 holdings, the company was the subject of a successful $11bn acquisition bid from Pfizer on 17th June.  Pfizer’s offer amounted to a 62% premium compared with the previous day’s closing share price.  For the Trust’s shareholders, this one transaction saw the Net Asset Value per share increase by 0.7%.  The increase in Net Asset Value is even greater if you consider the number of portfolio companies who saw their share price strengthen on the news.  As I have said many times in these emails, M&A is a hallmark of International Biotechnology Trust and it is pleasing to see shareholders once again benefitting from the acquisition of one of our portfolio companies.


Fig 2: Acquisitions of International Biotechnology Trust portfolio companies in the last two years


Extract from the factsheet:


“In May 2019, the Trust’s NAV per share returned -0.4% (GBP) while the NASDAQ Biotechnology Index (NBI) returned -3.0% (GBP). The FTSE All-Share Index returned -3.0% (GBP) and the S&P 500 Index returned -3.3% (GBP). IBT’s share price returned -2.2% (GBP). The US dollar strengthened 3.1% against the GBP. 


The main positive contributors to NAV in the month were Neurocrine, PTC Therapeutics and Array Biopharma. Neurocrine shares recovered after a sell-off in the previous month, with concerns easing over the reimbursement for its lead asset, Ingrezza, to treat tardive dyskinesia. PTC Therapeutics gained during the period after partner Roche presented promising data for risdiplam in Spinal Muscular Atrophy. Array Biopharma announced positive data for their Braftovi-Mektovi combination treatment for a specific group of colorectal cancer patients.


The main negative contributors to NAV in the month were Insmed, Alexion and Regeneron. Insmed shares were weak during the month after the company announced an equity raise of $250M. Alexion shares were weak after the announcement that a major shareholder had sold down their position amid speculation that sales would be hit as a result of potential Mexico tariffs. Regeneron shares continued to sell off after the company reported weaker than expected first quarter sales of Eylea.”


Thank you for taking the time to read our factsheet.


Welcome to the International Biotechnology Trust monthly blog for April 2019

22 May 2019


My thoughts on our outperformance over 1, 3 and 5 years


I am pleased to present the International Biotechnology Trust factsheet for April.


April Factsheet (click link to open)


To the end of April 2019, the Trust (NAV and share price) has outperformed the benchmark Nasdaq Biotechnology Index (NBI) on a one-, three- and five-year basis.


Fig 1: Performance table from April factsheet



In recent weeks, I’ve repeatedly been asked how and why we outperform the benchmark and competition.  The answer is that it’s all about the investment process.  The devil is in the detail, as they say.


There are many facets to our investment process.  Simply put, our aim is to build a portfolio of stocks we think will outperform over the longer term and, where possible, avoid incurring losses on the portfolio.  Building a successful portfolio of stocks is hard but minimising losses isn’t so difficult for those well-versed in financial literature.  At International Biotechnology Trust, we have both reactive and proactive strategies to prevent losses.


Every investment manager believes they have constructed the right portfolio but when inevitable losses occur we have to accept that we were wrong. We must sell the investment quickly to prevent further losses and instead focus on backing the winning horses.  There’s an abundance of financial literature to support such a reactive approach and it makes complete sense: holding onto winners for longer and cutting underperformers sooner is always likely to lead to greater returns.


We also use a proactive approach to avoid losses, an approach which is a significant differentiating feature of the Trust.  This includes avoiding investments in stocks over “binary events” whose outcome may lead to the stock quickly declining in value. An example of a binary event is the release of Phase III clinical trial data.  To execute this strategy, our investments need to be fairly liquid to enable us to trade them without wide spreads or long execution times.


The investment process all sounds fairly straightforward so far, right?  Well the more challenging aspect of our investment process is focussed on constructing a portfolio of stocks to deliver strong long-term performance.  This takes time, effort and skill because we need to analyse many companies against a broad set of criteria.  These criteria include management, products, competition, pricing power, financing, ownership structure and many more besides.  I recently asked Rachel, our team assistant, how many meetings the team had held with current and prospective portfolio companies since August 2018.  The answer is 238, or nearly 8 per week.  Almost all of these are meetings originated by us.  We proactively reach out to the companies to ensure we fully understand every single aspect of our portfolio.


In my opinion, investing in a portfolio of long-term winners, systematically trying to avoid losses, and rigorous proactive analysis have been the building blocks for our long-term success.  Achieving such success requires a team to have the requisite skills and experience, combined with focus, discipline and dedication to the cause.  I am therefore very proud and grateful for my colleagues at the Trust.


In a podcast recorded by Investors Chronicle two weeks ago I also discussed the investment process among other topics.  For those interested in listening to the podcast, here is the link:


Extract from the factsheet:


“In April 2019, the Trust’s NAV per share returned -5.3% (GBP) while the NASDAQ Biotechnology Index (NBI) returned -5.2% (GBP). The FTSE All-Share Index returned 2.7% (GBP) and the S&P 500 Index returned 3.7% (GBP). IBT’s share price returned -0.3% (GBP).


The main positive contributors to NAV in the month were Stemline, Morphosys and G1 Therapeutics. Stemline shares continued to rise in anticipation of the first quarter sales number for Elzonris, its recently launched drug to treat a rare haematological malignancy. Morphosys shares recovered after multiple analyst upgrades reflecting the company’s positive outlook. G1 Therapeutics announced positive feedback from both the US and European regulators for its lead asset trilaciclib, for treatment for myelopreservation in small cell lung cancer.


The main negative contributors to NAV in the month were Regeneron, Wave Life Sciences and Neurocrine. Regeneron fell due to concerns regarding the long-term competitive landscape of its lead asset, Eylea. Wave Life Sciences announced delays in their Huntington program and negative data for their drug in Duchenne’s muscular dystrophy. Neurocrine reported weaker than expected growth in Q1 2019 in new prescriptions for Ingrezza.”


Thank you for taking the time to read our factsheet.


Welcome to the International Biotechnology Trust monthly blog for March 2019

24 April 2019


BMS edges closer to Celgene acquisition in $74bn mega deal


I am pleased to present International Biotechnology Trust’s factsheet for March 2019.


March Factsheet (click link to open)


I should start by addressing the most recent sell-off in the healthcare equity market, caused by the ‘Medicare for All’ initiative proposed by US Democrats.  The biggest risk remains with the US Managed Care sector.  For those less familiar with the US health system, companies in this sub-sector provide insurance plans which give members reduced-cost access to healthcare, achieved through deals with healthcare providers and facilities.  It is these ‘middle men’ that stand to lose the most from these reforms, but thankfully the Trust is not exposed to this sub-sector.  For the innovative drug developers the Trust is exposed to, we see much less risk.  The US Food and Drug Administration (FDA) should continue to reward innovative new drugs that address disease areas with great medical need.  These drugs will therefore continue to command premium prices while they benefit from regulatory protection.


Regardless of recent developments, the long-term drivers of the sector remain strong. I have included a few figures below to exemplify this. In summary, demand is stronger than ever.  There is a demographic shift towards an ageing population (see figure 1), which will require more healthcare and more therapeutic intervention.  And supply is rising to meet this demand. There are more drugs in development than ever before (figure 2), a record 59 drugs approved by the FDA in 2018 (figure 3), and global sales projections for therapeutic drugs are positive (figure 4).


Figure 1: Expected worldwide age increase, United Nations World Population Prospects 2017

Figure 2: More disclosed drugs in development than ever before, Bank of America Merrill Lynch Global Research

Figure 3: Record number of drug approvals in 2018, as disclosed by the FDA

Figure 4: Expected increase in worldwide drug sales, Evaluate Pharma study, 2018



Extract from the factsheet:


In March 2019, the Trust’s NAV per share returned 2.9% (GBP) while the NASDAQ Biotechnology Index (NBI) returned 1.3% (GBP). The FTSE All-Share Index returned 2.7% (GBP) and the S&P 500 Index returned 4.1% (GBP). IBT’s share price returned 2.0% (GBP). The USD strengthened 1.7% versus the pound sterling.


The main positive contributors to NAV in the month were Stemline, Celgene and Ionis. Positive commentary on Stemline’s launch of Elzonris for BPDCN, a hematologic malignancy, caused the company’s shares to strengthen during the month. Celgene shares rose after two shareholder advisory groups, Institutional Shareholder Services and Glass Lewis & Co, recommended that investors vote in favour of the merger with Bristol-Myers Squibb. Ionis shares were strong after partner Roche announced an update to the design of its ongoing Phase III trial in Huntington’s disease.


The main negative contributors to NAV in the month were Biogen, Morphosys and Regeneron. Biogen’s surprise announcement regarding the termination of its Phase III Alzheimer’s Disease program meant the company lost 32% of its market cap. International Biotechnology Trust’s holding of just 1%, versus a weighting of 8% in the NASDAQ Biotechnology Index, meant shareholders were protected from greater losses. Morphosys shares continued to struggle after the February news that CEO Simon Moroney would retire. Regeneron shares fell after a competitor company announced positive data in atopic dermatitis, which investors fear may compete against its Dupixent treatment.



Thank you for taking the time to read our factsheet.


Welcome to the International Biotechnology Trust monthly blog for February 2019

22 February 2019

January got off to an explosive start with a biotech mega-merger. 



January got off to an explosive start with a biotech mega-merger.  Bristol-Myers Squibb announced the $74bn acquisition of Celgene, the third largest company holding in our portfolio.  We would usually sell such a holding on the acquisition announcement because the stock should trade very close to the deal price, but mega deals can be somewhat different. Bristol-Myers will pay $50 plus one of its own shares plus a potential $9 in contingent value rights.  Post announcement, Bristol-Myers was trading at $47 per share, giving a potential deal value of $106 per share.  Celgene was trading at $83 per share.  We therefore added to Celgene to take advantage of the arbitrage.


The M&A theme of the last two months has undoubtedly been oncology.  But why specifically oncology?  The high unmet medical need, the difficulty finding new therapies and the prospect of commanding high prices all play in favour of this subsector.  Therefore, a company with revenue-generating oncology treatments underpinned by a strong pipeline will be a very attractive acquisition target for larger companies, particularly those attempting to sustain or boost top-line growth.

For these reasons, one of the Trust’s largest holdings, Incyte, was the second biggest contributor to NAV growth in January, because many investors saw it as ‘the next Celgene’. Incyte’s two oncology drugs, Jakafi and Iclusig, are expected to reach combined peak sales of circa $3bn per year in 10 years’ time.  When you add in Olumiant, a rheumatoid arthritis treatment with expected peak sales of over $2bn per year, and a strong pipeline of 21 compounds, it is easy to see why the market thought Incyte might be the next M&A target.  The criteria used by large companies to assess acquisition targets just so happens to be very similar to the criteria we use when selecting our stocks.  As a result, Incyte was our largest holding at 31 December 2018 and we have enjoyed the share price growth regardless of whether the company is acquired or not.


Historical performance records have been registered on both sides of the New Year fireworks – a severe retraction in December was followed by an equally strong recovery in January, with almost no change in fundamentals. The outlook remains uncertain so we continue to have a conservative stance on gearing.


Rather than speculate on market direction we focus our day-to-day work on sector stock picking.  A high-volatility market drifting sideways is usually a good market for stock pickers.. We will continue to follow our investment processes to utilise our deep knowledge of the sector to deliver the best returns for our investors.


We have been working hard to be accessible to all investors, attending investor events for both retail and institutional investors and producing more information for investors.  Our quarterly video with IBT Investment Managers Ailsa and Marek is now available on the home page of our website  Our growing popularity in the investor community has led to us recently re-issuing some of the shares that we hold in treasury, a good measure of investor support for our stock.


Extract from the Investment Manager’s review in the factsheet:



In January 2019, the Trust’s NAV per share returned 9.1% (GBP) while the NASDAQ Biotechnology Index returned 10.2% (GBP). The FTSE All-Share Index returned 4.2% (GBP) and the S&P 500 Index returned 4.9% (GBP). IBT’s share price returned 7.0% (GBP). The USD weakened versus sterling by 2.9%.


The main positive contributors to NAV in the month were Celgene, Incyte and Vertex. Bristol-Myers Squibb announced its intention to acquire portfolio company Celgene for $74bn. The deal is the largest ever struck in the pharmaceutical sector after Pfizer’s $110bn takeover of Warner-Lambert in 1999. Many stocks within the biotech universe traded up on the back of M&A speculation, including Incyte which had a strong run through January. Vertex shares were strong after updating investors on their progress with their late stage triple combination in cystic fibrosis and the sales of their current marketed drugs. The company commands a premium valuation due to the lack of near-term competition and strong earnings growth.


The main negative contributors to NAV in the month were Genmab, Ligand and Illumina. Genmab shares were weak after their partner Johnson and Johnson reported disappointing sales growth of their lead asset Darzalex. Ligand shares were hit on the back of a short report by Citron Research, claiming that the company’s long-term outlook was much worse than investors had hoped. Illumina shares fell after the company announced worse than expected profits during the final quarter of 2018.


Thank you for taking the time to read our factsheet.


Welcome to the International Biotechnology Trust monthly blog for January 2019

24 January 2019

 International Biotechnology Trust receives five-star Morningstar rating


After an intensive week in San Francisco at the JP Morgan Healthcare Conference, including our team meeting 22 different companies, I am confident that the sector is as vibrant as ever. The tone for the week was set by the proposed mega-acquisition of Celgene by Bristol-Myers Squibb following the acquisition of Tesaro by GSK in December, both of which were held by the Trust. The M&A theme continued in the week of the conference when Loxo Oncology was acquired by Eli Lilly for $8bn. So the thesis I outlined in the November factsheet email appears to be playing out as anticipated: the stock market correction over the last six months has resulted in substantially reduced valuations, meaning companies are more attractively priced for acquirers. Biotech M&A is alive and well in 2019 and it should come as no surprise, given approximately two thirds of new drugs have been developed by small companies while two thirds of new drugs are commercialised by large companies.


The turbulent market conditions in the autumn led us to thoroughly review the portfolio holdings, particularly with respect to ensuring companies had the financial strength to survive a dry spell in the financial markets. This adjustment, combined with the non-volatile nature of the unquoted portfolio, helped The Trust outperform the benchmark in December. Despite it being a negative month for the biotech market, with the NASDAQ Biotechnology Index down 11.1% (GBP), the Trust NAV only retracted 7.2%. It is also worth pointing out that the retraction was not isolated to biotech. Overall, US equities had their worst December since 1931.


Our gearing strategy remains conservative and we have not used the facility for a number of months. I am still undecided about the direction of the broader stock market in 2019 because of the number of unpredictable moving parts. Potential interest rate increases by central banks, reversal of QE in the US, the continuing trade dispute between China and the United States, Brexit and increasing social unrest in Europe, all lead us to maintain this conservative gearing position for the time being. Otherwise, we continue to manage the Trust as usual, trying to ensure the current negative market sentiment does not affect our long-term view. In a sector with strong fundamental growth characteristics, the long-term view is crucial to finding the best opportunities and maximising returns for our investors.


Summarising 2018 from a performance point of view, the year closed down on where it opened. The NASDAQ Biotechnology Index was down 3.3% (GBP) and the Trust NAV was down 4.9% (GBP), which is far from ideal. The relative overweight in small and mid-cap names contributed to the underperformance in a year when large caps fared better thanks to their lower volatility.  But from another viewpoint, 2018 was an exceptional year for drug development given the FDA approved a record 59 novel drugs, significantly higher than the average of 30 drug approvals per year (last 20 years). The consequence should be an increased number of drug launches in 2019 which, when combined with M&A optimism, has resulted in both the NASDAQ Biotechnology Index and International Biotechnology Trust experiencing their strongest ever starts to a calendar year.


We were also pleased that our efforts to reduce our discount paid off and we were able to grow the trust slightly by issuing 75,000 of our treasury shares in the last week of December. In January, Morningstar re-rated the Trust at five stars (, a rating currently unrivalled by any other UK-based healthcare or biotechnology Investment Trust.


Extract from the Investment Manager’s review in the factsheet:


In December 2018, the Trust’s NAV per share returned -7.2% (GBP) while the NASDAQ Biotechnology Index returned -11.1% (GBP). The FTSE All-Share Index returned -3.7% (GBP) and the S&P 500 Index returned -8.9% (GBP). IBT’s share price returned -4.4% (GBP).


The main positive contributors to NAV in the month were Tesaro, Regeneron and Fibrogen. GlaxoSmithKline announced the acquisition of Tesaro for $5.1 billion, a premium of 63%. Oncology company Tesaro accounted for almost 1% of NAV prior to the acquisition, meaning the announcement increased the NAV by 0.6%. Regeneron shares held up well during a difficult period for the broader equity market on the back of the stock receiving an analyst upgrade. Fibrogen announced positive results for its lead asset, Roxadustat, in chronic kidney disease.


The main negative contributors to NAV in the month were Gilead, Alexion and Celgene although the cause of the weak performance was not company specific. The broader market sell-off throughout December also led to a retraction in the biotech sector, and as a result the Trust’s larger positions contributed most to the negative performance. In fact, the most significant event for these companies was the positive news that Gilead had recruited a new CEO.


December Factsheet 2018 (click to open)


Thank you for taking the time to read our factsheet


Welcome to the International Biotechnology Trust monthly blog for December 2018

19 December 2018

Monthly IBT factsheet: November brings some stability amid macroeconomic uncertainty


November Factsheet 2018 (click to open)


The global equity market stabilised in November after an October that was amongst the worst months in several years. You will recall I previously suggested the October detraction had little to do with the biotechnology sector’s fundamentals, and the stabilisation throughout November and into December demonstrates this to some extent. Nevertheless, macroeconomic factors continue to weigh on the markets. The risk of increased interest rates, heightening trade disputes and the political situation in Europe all require greater clarity to reduce the current market volatility. Emergence of such clarity may see the markets rally, but until then our gearing will remain conservative, as evidenced by our 3% cash position at the end of November.



One uncertainty clarified in November was the US political situation. The mid-term elections resulted in the Republicans expanding their majority in the Senate and the Democrats achieving a majority in the House of Representatives. In our view, this reduces the probability of major partisan reform within the US healthcare system.



Mergers and acquisitions have always been a hallmark of the biotech sector. Treatments developed by smaller companies may be very effective but small-scale, inexperienced marketing teams can be a limiting factor in the treatment’s sales growth. Transferring the treatment to a large, geographically-diverse company with a well-oiled marketing machine will immediately increase the Net Present Value (NPV). This driver of value will make such acquisitions accretive to the acquirer. But that isn’t the only reason large companies are so keen to acquire smaller ones. These more mature companies have ageing product portfolios facing patent expiry, so acquiring a company with a new treatment can help to fill holes left by the blockbuster drugs of yesteryear. Having said all that, the last six months have seen fewer M&A transactions.  So, has something fundamentally changed? Should we expect reduced M&A activity going forward? Well, over time, biotech M&A has been very consistent and, while it is difficult to predict the future, it has always been my view that M&A will continue to be an integral driver of the sector. And this could be exemplified in the coming months. Recent market headwinds have led to a retraction in biotech company valuations. Once acquiree expectations are reset, buyers and sellers will once against be able to agree on sensible prices. Combined with the M&A growth incentives for large companies outlined above, these conditions could produce an uptick in M&A transactions, which we believe International Biotechnology Trust will once again benefit from. Indeed, on 3 December, GSK announced it had reached an agreement to acquire one of our portfolio companies, Tesaro, for £4bn ($5.1bn).  This is the 12th Trust holding to be acquired in the last two years, as demonstrated by the chart below, showing we are usually well placed to capture the value from any M&A uptick in the sector.





Looking forward, early January brings the JP Morgan Healthcare Conference, a four-day gathering in San Francisco of the world’s healthcare companies and the associated investment community. It is our team’s kick-off for 2019, where we meet an array of management teams in the search for exciting growth prospects to provide better returns for our investors.
Finally, I would like to wish all our readers and investors a happy holiday season as we all look forward to a healthy start to 2019.
Extract from Investment Manager’s Review in the factsheet:
In November 2018, the Trust’s NAV per share returned 1.1% (GBP) while the NASDAQ Biotechnology Index returned 4.8%% (GBP). The FTSE All-Share Index returned -1.6% (GBP) and the S&P 500 Index returned 1.9% (GBP). IBT’s share price rose 3.6% (GBP). The USD strengthened by 0.1% vs the GBP.
The main positive contributors to NAV in the month were Exelixis, Genmab and Morphosys. Exelixis reported stronger than expected sales for its drug Cabometyx, which is used to treat patients with Renal Cell Carcinoma. Genmab released encouraging data within its abstracts ahead of the Amercian Society of Hematology conference, for front line treatment of multiple myeloma with its drug Darzalex. Morphosys also announced positive data ahead of the same medical conference for its late stage oncology drug, MOR208, in the treatment of a rare form of lymphoma.
The main negative contributors to NAV in the month were Stemline, Aerie and Adamas. Stemline shares were hurt as the market sold off but in our view the company fundamentals remain intact. Aerie shares fell because of tempering investor expectations for its newly launched glaucoma drug, after the company’s latest quarterly earnings report. Adamas shares were hit on weaker than expected sales of Gocovri.


Thank you for taking the time to read our factsheet.

Welcome to the International Biotechnology Trust monthly blog for October 2018

24 October 2018

I should start by addressing the recent equity market volatility observed throughout October.  The Trust is invested in a sector of the market that has higher historical returns than the wider market, but also higher historical volatility than the wider market, given its higher beta characteristics.  I expect the Trust to continue to experience similar returns and volatility when compared to the wider market.  Whilst the recent sell-off may cause short-term concern, I expect long-term investors will be rewarded since the sector is fundamentally unchanged.  In my view, the cause of the recent volatility is the new restrictive monetary policy by The Fed, increasing short term interest rates and restricting liquidity.


Turning to the immediate future, on 6 November 2018 US midterm elections will see all 435 seats in the lower house, The House of Representatives, and 35 of 100 seats in the upper house, The Senate, up for election. In my opinion, it is highly unlikely that the Democrats will win 60% of the Senate, resulting in either a Republican government or “grid-lock”, without any major changes to the healthcare system. If that happens, support for innovation will continue and generic competition will continue to increase. But, as Nobel Laurette Nils Bohr once said, prediction is very difficult, especially about the future.


On the topic of Nobel Prize winners, in early October, the Nobel Prize for Medicine was awarded to James Allison and Task Honjo for discovering how to treat cancer by taking the brakes off the immune system, thus enabling the immune cells to attack the tumour. And on the same day, Sanofi and Regeneron, a top ten holding of the Trust, announced the approval of their anti-PD-1 Libtayo, whose mechanism of action is derived from the work of Allison and Honjo.  A growing number of drugs in this field are in development or have already been approved, increasing hope for cancer patients and adding more investment opportunities in a highly innovative area of drug discovery. The PD-1/PD-L1 drugs have broad applicability which presents greater market opportunities, demonstrated by a number of marketed drugs from large pharma companies including Bristol-Myers Squibb, Merck, AstraZeneca and Roche.


I don’t often discuss the unquoted portfolio in my monthly emails but since one of our legacy unquoted investments listed this month, I felt I should highlight it, particularly given it’s a part of the market most other Trusts do not have exposure to.  The Trust aims to invest in a venture fund in the range of 5-15% of NAV which increases diversification and reduces volatility.  At the end of September, the non-listed investments amounted to 12.3% of NAV, consisting of 8.3% investment in SV Fund VI, 2.3% directly-held legacy unquoted companies, and 1.8% unquoted legacy which have been exited but have contingent milestone payments attached. As you might remember, the Board of the Trust decided to stop new investments in individual unquoted companies in 2014 and to invest in a venture fund in 2016, thus the current holding in these unquoted companies and earnouts should be considered a “run-off” portfolio, and the investment in the SV venture fund a “run-in” investment.


Sutro Biopharma, a legacy unquoted investment, successfully listed on NASDAQ in September, resulting in a valuation uptick of 58% and a reduction in the legacy unquoted investments since the holding is now quoted. Coupled with the positive run-off, SV Fund VI has performed strongly in the first 22 months since our first investment, with an unrealised return of 1.3x of our invested capital to-date. My conclusion, therefore, is that the Board’s decision to change strategy is proving to be an excellent one, and one which is already benefitting shareholders.

Welcome to the International Biotechnology Trust monthly blog for August.

July saw strong positive returns for both the biotechnology and pharmaceutical sectors. The NASDAQ Biotechnology Index was up 6.7% (GBP) and the NYSE Pharmaceutical Index was up 8.4% (GBP). This was mainly driven by solid Q2 earnings reports and positive news in drug development projects, in particular Biogen and Eisai reporting positive Phase II results in Alzheimer’s Disease for BAN2401. It was encouraging to see the market react to the positive fundamentals rather than focusing on President Trump’s political tweets. Despite the encouraging signs, mid and small-cap companies experienced profit-taking towards the end of the month. Historically low trading volumes in the summer months and the upcoming US mid-term elections in November has naturally resulted in the market focusing on larger companies. As a result, International Biotechnology Trust’s focus on the higher growth mi- and low-cap stocks has not been as successful as in other months but we remain positive about the longer-term outlook for these smaller stocks.


The month of July also saw interesting developments for IBT’s portfolio companies.  Life science tools company Illumina, one of the larger holdings in the Trust, reported strong revenue and earnings growth based on an increased demand for their gene sequencing machines and consumables. Gene sequencing has come of age and its ever-increasing use will allow Illumina to profit from its dominant position in the market.


As mentioned above Biogen and partner Eisai reported positive Phase II results for the drug candidate BAN2401 in early stage Alzheimer’s Disease,  with the shares of both companies reacting positively. It is understandable that these promising results attracted great interest since many people are affected by Alzheimer’s and there remains little to offer these patients in terms of effective therapies. A new disease modifying drug would fill a significant unmet medical need and would be an important success story for the developing company, generating significant future revenue. For the last 25 years, the “amyloid hypothesis” has been the dominant theory in the development of potential Alzheimer’s drugs but all of these drug candidates have failed to date. BAN2401, also founded on the amyloid hypothesis, clearly has the odds firmly stacked against it.  Based on our assessment of the results presented we remain unconvinced that BAN2401 will become a drug in the future, and we have invested accordingly.


*Source: Bloomberg

Thanks for reading!

Carl Harald Janson

Lead Investment Manager, International Biotechnology trust plc


In July 2018, the Trust’s NAV per share increased by 3.8% (GBP) while the NASDAQ Biotechnology Index increased by 6.7% (GBP). The FTSE All-Share Index increased by 1.3% (GBP) and the S&P 500 Index increased by 4.3% (GBP). IBT’s share price increased 9.5% (GBP). The USD strengthened by 0.6% vs the GBP.


The main positive contributors to NAV in July were Illumina, Celgene and Biogen. Celgene announced positive Phase III data for Luspatercept in Myelodysplastic Syndrome, in their partnership with Acceleron Pharma, followed by data showing improved overall survival for lymphoma patients when treated with its drug Revlimid. Celgene then ended the month with a strong second quarter earnings release. Illumina also reported strong revenue and earnings growth for the second quarter, sending shares higher. Biogen announced results in Alzheimer’s Disease for the drug candidate BAN-2401.


The main negative contributors to NAV in July were Array BioPharma, Adamas Pharmaceuticals and Abiomed. Array BioPharma announced the failure of Selumetinib in thyroid cancer. Adamas Pharmaceuticals shares fell due to lack of clarity regarding the potential future competitive landscape for its lead asset Gocovri. Abiomed shares fell in line with a sector rotation out of high growth medical technology names.

Welcome to the International Biotechnology Trust monthly blog for July.

Before we review the all-time highs experienced by International Biotechnology Trust (“the Trust”) this month, I’d like to remind our readers about the upcoming dividend payment. In accordance with the dividend policy, on 11 July 2018 the Directors declared the second Interim Dividend for the period ended 31 August 2018, of 13.5p per Ordinary Share. The second Interim Dividend will be payable on 31 August 2018 to holders of Ordinary Shares on the Register at the close of business on 3 August 2018 (ex-dividend Thursday, 2 August 2018).


Turning our attention to performance, reaching new heights is always a positive. On 20 June 2018, the share price of the Trust reached an all-time high (total return with dividends reinvested) whilst the NAV was equally successful, reaching an all-time high on 22 June 2018*. And in July this trend has continued with the Trust reaching all-time highs for both share price and NAV on 13 July 2018*. Whilst performance has been strong, part of the reason for this success is the recent weakness of the Pound Sterling, triggered by political turbulence as the UK Government struggles to agree on the terms for its departure from the EU.  The Trust is focused on global healthcare so exposure to Brexit-related issues is envisaged to be minimal.


Regarding the Trust’s portfolio, it is worth remembering that the large cap (>10bn USD) biotech companies have seen both their growth rates and performance begin to falter. The Trust has therefore reduced exposure to large caps in favour of an increased weighting in mid-caps (1-10bn USD), which made up 42% of the portfolio at 30 June 2018. We expect to find the outperforming stocks of the future amongst these small and mid-caps in the coming months.


*Source: Bloomberg

Thanks for reading!

Carl Harald Janson

Lead Investment Manager, International Biotechnology trust plc


“In June 2018, IBT’s NAV per share rose by 3.2% (GBP) while the NASDAQ Biotechnology Index rose 2.2% (GBP). The FTSE All-Share Index decreased by 0.2% (GBP) and the S&P 500 Index increased by 1.4% (GBP). IBT’s share price rose 2.5% (GBP). The USD strengthened by 0.7% vs the GBP.


During the month, the main positive contributors to NAV were Morphosys, Regeneron Pharmaceuticals and Vertex Pharmaceuticals. Morphosys presented at the European Hematology Association Annual Meeting, displaying positive clinical data from a Phase 2 COSMOS trial evaluating its candidate, MOR208, in combination with idelaisib in patients with relapsed or refractory chronic lymphocytic leukemia. Regeneron reversed its downtrend in anticipation of strong second quarter earnings, following better than expected sales of its drug Eylea. Vertex shares rose after Galapagos, its main competitor, reported disappointing cystic fibrosis data.


The main negative contributors to NAV were Stemline Therapeutics, Adamas Pharmaceuticals and Nektar Therapeutics. Stemline shares retreated after reporting clinical results at a medical conference, compounded by a lack of near-term catalysts. Adamas shares fell as launch expectations of its drug Gocovri have tempered, whilst Nektar reported disappointing data for its candidate, NKTR-214.”

Risk Warning
This document is issued for information purposes only by SV Health Managers LLP who is authorised and regulated by the Financial Conduct Authority (“FCA”). It should not be relied upon to make an investment decision; any such investment decision should be made only on the basis of the fund scheme documents and appropriate professional advice.  The value of investments, and the income from them, may go down as well as up, and is not guaranteed, and investors may not get back the full amount invested. Past performance is not a guide to future performance and exchange rate changes may cause the value of overseas investments to rise or fall.



Investors should bear in mind that investment in biotechnology shares can be subject to risks not normally associated with more developed markets or stocks. Investing in the biotechnology sector carries some particular risks and investment in the Company should be regarded both as long term and as carrying a high level of financial risk. In addition, there is no guarantee that the market price of shares in investment trusts will fully reflect their underlying NAV and it is not uncommon for the market price of such shares to trade at a substantial discount to their NAV.




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