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 (https://www.fda.gov/about-fda/office-clinical-policy-and-programs/office-orphan-products-development and https://www.ema.europa.eu/en/human-regulatory/overview/orphan-designation-overview). 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.