We are very excited to announce that we recently launched the Trust’s new website.
As we often remind our readers, M&A is a key feature of our sector as larger companies look to replenish their pipelines of blockbuster deals. The qualities we look for in our stocks often coincide with the qualities sought by acquiring companies. We are pleased to inform our readers one of our top ten portfolio companies, Gilead Science (Nasdaq: GILD), is in advanced talks to acquire another top ten portfolio company, Immunomedics (Nasdaq: IMMU). As at close on Friday, 11 September we owned 316,000 shares in IMMU, equating to 3.7% of our NAV. This was lower than our August 31 holding in the attached factsheet since we had recently trimmed our holding. This adjustment was in line with our risk management strategy where we reduce exposure to companies that may be about to announce major news. At this week’s ESMO (European Society of Medical Oncology) conference, Immunomedics was expected to announce the full data set for its breast cancer drug, Trodelvy as well as data for a second indication, Urothelial cancer. Occasionally full data sets can lead to market value retraction if investors learn something that is in some way less compelling than expected so we usually trim our exposure ahead of such announcements.
Despite the impact that the COVID-19 has had on global markets, the Trust’s share price returned 18.4% (on a sterling adjusted, total return basis) in the first eight months of 2020 and its net asset value (NAV) returned 15.4%. On a more personal level, the end of August marks seven years since I joined International Biotechnology Trust as Lead Investment Manager. I am very proud of what we have achieved during this time. Some of the key performance-related achievements during my tenure include the Trust’s share price and NAV returning 219.4% and 171.2%, respectively (on a sterling adjusted, total return basis). This equates to an annualised return of 18.1% and 15.3% on the share price and NAV, respectively (please refer to Figure 1 below).
Figure 1: NAV (on a sterling adjusted, total return basis) 7 years to end of August 2020
Source: Bloomberg. Past Performance is not a guide to future performance
We view the outlook for the biotech sector relatively positively, largely due to two key factors. The first is the unprecedented collaboration and innovation currently taking place within the biotech sector, evidenced by the 40 new drug approvals by the US FDA year to date as at Sept 4, 2020 (please refer to Figure 2 below). The second factor is the consolidation of the biotech sector stock indices, eg. Nasdaq Biotech Index (NBI), leading to earnings multiple contraction within the last five years (please refer to Figure 3 below). In our view the valuations of biotech companies are not inflated when factoring in the growth prospects from innovation (translated into sales and earnings) and the demographics of a growing worldwide population with increasing medical needs and purchasing power.
Figure 2: Novel drugs approved by FDA
Data sourced from Food and Drug Administration (FDA)
Figure 3: NBI 5 years to end of August 2020 (USD)
In the near term, we have the upcoming U.S. Presidential election to consider. In our view, the Presidential candidates, Trump and Biden, do not have very dissimilar healthcare reform agendas. Trump will continue with the status quo and Biden is likely to continue building on Obama’s policies, to improve the Affordable Care Act (commonly referred to as Obamacare). Both candidates aim to deliver better healthcare to more Americans at more affordable prices. In particular, copayments or “co-pay” is currently a topic of focus and we could expect reforms to address this, ensuring that prescription drugs become more affordable to more people. While this could be seen as negative for the industry, in practice lower margins might be mitigated by higher sales volume. In terms of the sector’s stock market performance, one could argue that as drug pricing has been at the forefront of the political agenda for a number of years, this risk is already priced in by the market and therefore any related change would be unlikely to materially impact valuations.
Finally, we are pleased to announce that the Trust has been short listed for AJ Bell’s Fund & Investment Trust Awards 2020 in the category of Technology/ Biotech – Active Fund. If readers would like to show their support for our Trust here is the link: https://fitawards.ajbell.co.uk/vote.