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.