Investment Manager’s Blog


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 November 2018

21 November 2018


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


October Factsheet (click link to open)


October saw a sharp increase in volatility for the equity markets. It was one of the worst months in several years, in fact, with all major world equity markets displaying negative returns. The MSCI World Equity Index was down 5.2% GBP, the MSCI World Healthcare index was down 4.5% GBP, and the NASDAQ Biotech Index was down 12.7% GBP. This rather abrupt turn to the negative has been attributed to a number of macro-economic factors that are unrelated to the biotechnology sector.  Most notably, the market retraction correlates in time with a speech by the new Chairman of the US Federal Reserve, Jerome Powell, in which he stated that we should expect additional increases in the Federal Reserve interest rates after a period of positive economic development. Increasing interest rates often lead to short term sell-offs, both in equity and debt markets, which can then create buying opportunities for long term investors.



The US midterm elections on 6th November resulted in gridlock, with the Democrats controlling the House and the Republicans strengthening their grip on the Senate. With the more industry-friendly Republican party in control of the upper house, we do not expect any major changes to the healthcare system in the near to medium term, and many political commentators have suggested the moderately surprising outcome of Republicans increasing their majority in the Senate has actually lowered the probability of a Democratic clean sweep in 2020. Whilst there is a proposal to amend Medicare part B to reduce the price for patients at the expense of drug companies, which would clearly be unfavourable for some companies in the industry, it seems unlikely that it will be implemented while the US is in this gridlock situation. Therefore, in the absence of any personal political views, it would appear the outcome of the mid-term elections is a positive one for our sector and therefore the Trust.



At the end of October, the Trust had a gearing ratio of 1%. The current strategy of the Trust has been to maintain a relatively neutral cash position, only increasing the gearing for shorter periods to take advantage of dips in the market. Our reasoning is that it is relatively late in the economic cycle, so we prefer to have the opportunity to take advantage of retractions in the market rather than being negatively exposed to them. Interestingly, in October, we only made marginal use of this tactic because the October retraction did not appear to be the isolated “V-shaped” retraction we would usually see. With increasing interest rates ahead, we may see additional volatility in the near to medium term and we will therefore employ a more conservative gearing strategy for the time being.



Despite this short-term volatility, the fundamentals underlying the sector remain robust, giving us comfort that the longer-term outlook is still very much positive. The FDA approved six novel drugs in October, the second highest monthly approval rate for any month in the last four years (August 2018 being the highest). Whilst October might have been an uncertain month for the market, this approval rate helps to highlight that the fundamentals of the biotechnology sector are as strong as ever. Including the two additional new drugs approved in early November, the total number of novel drugs approved in 2018 is 49, the highest number of new drug approvals in a single year for the last twenty years, as per the figure below. And we expect that number to increase before the end of 2018.



Therefore, the only conclusion I can draw is that, despite potential near-term headwinds, the industry is in good shape, innovation is on the rise, and we will continue to see new drugs to meet the ever-growing patient demand.





Source: US Food and Drug Administration



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



October 2018 was a tough month for the entire global equity market. The Trust’s NAV per share returned -12.0% (GBP) while the NASDAQ Biotechnology Index returned -12.7% (GBP). The FTSE All-Share Index returned -5.2% (GBP) and the S&P 500 Index returned -6.8% (GBP). IBT’s share price fell 12.5% (GBP). The USD strengthened 5.0% vs the GBP.



The main positive contributors to NAV in the month were Array, Genfit and Shire. Array reported first full-quarter of sales for its newly launched oncology drugs, Braftovi and Mektovi, used to treat melanoma patients with a specific mutation. The company reported better than expected sales whilst also advising investors to expect clinical trial data in early 2019. Metabolic disease company Genfit recovered in October after its share price fell the previous month, caused by the resignation of the Chief Medical Officer. Speciality pharmaceutical company Shire performed well in a difficult month because Takeda has already agreed the price at which it will acquire the company, thereby limiting the share price range.



The main negative contributors to NAV in the month were Celgene, Ligand and Illumina. In a negative month for equities, Celgene shares were weak amid concerns surrounding ex-US Revlimid franchise sales, which missed expectations in the third quarter. Ligand shares fell in October after its partner Novartis reported weaker than expected sales of Promacta. Illumina shares traded down despite reporting very strong quarterly sales, with the gene sequencing company suffering from the same contraction in valuation that affected many companies with high price/earnings multiples throughout the month.


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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