In the first half of 2020, the COVID-19 pandemic affected financial markets across the world. We have often commented on how mergers and acquisitions (M&A) are a key driver of performance for the biotech sector. Like other sectors affected by COVID-19, we noted a reduced level of M&A activity in the first half of the year. However, human beings are resilient by nature. We have adapted to a “new-normal” way of living. Historically, crises have primed progress and our response to COVID-19 has been no different. Innovative solutions have allowed the biotech sector to continue business as usual and we have seen that M&A activity has started to pick up in recent months. The Trust has benefitted from four of our portfolio companies being acquired since August 2020, namely Principia, Momenta, Immunomedics and MyoKardia (in October), as detailed in Fig 1 below. A key theme of the biotech sector is that innovation, in the form of drug development, is driven by universities and smaller companies, while global marketing and commercialisation of these drugs is best performed by large companies with global reach. This creates an optimal environment for M&A activity, and we do not expect this level of M&A activity to dissipate any time soon.
Fig 1: The Trust benefitted from the following M&A activity over the last three years
Source: SV Health Managers LLP
In the near term, the upcoming U.S. Presidential Elections could impact the biotech sector. We have summarised our view on the potential impact of the upcoming election in two key points:
- It is unlikely that there will be a major reform of the current healthcare system. If current polls are representative of the outcome of the election, then the Democratic Party will increase its influence on U.S. politics in the next four years. The more radical reforms associated with Medicare for All are not advocated by Joe Biden and his running mate, Kamala Harris. Their agenda is more focused on improving Obamacare (The Affordable Care Act), strengthening Medicaid, reducing the age of eligibility for Medicare from 65 years old to 60 years old and reforming Medicare part B (for outpatient coverage) and D (for prescription drug coverage). These initiatives, and in particular reforming Medicare part B and D, may lead to reduced drug pricing, the effect of which is expected to be offset by an increased volume/demand, therefore having only a minor impact on the healthcare system.
- From a healthcare perspective, the Democratic agenda is more focused on finding ways to improve healthcare for the average American, rather than focused on reducing drug prices, as was the focus of the latest election. The Trust’s stock selection process targets companies that address a high unmet medical need through innovation and which are, therefore, less exposed to potential price pressure.
This month we released a podcast on the Association of Investment Companies’ Soundcloud platform, which can be accessed using the following link:https://soundcloud.com/theaic/international-biotechnology-trust-the-biotechnology-sector
We also released an investor update video which is available on our website: https://ibtplc.com/investor/videos/september-2020
There are also two key upcoming events in the Trust’s Corporate Calendar. With 31 August 2020 marking the end of the Trust’s financial year end, the Trust is expecting to publish its 2020 Annual Report on 30 October 2020. The Trust’s Annual General Meeting (AGM) will be held on 15 December 2020. With the developments of COVID-19 unfolding and the health and safety of our Shareholders being a top priority, we encourage our readers to refer to the Annual Report to see the changed format of the AGM this year.