International Biotechnology Trust plc (IBT), the dividend generating biotech investment trust managed by SV Health Managers LLP (SVMH), has shown that its policy of reducing volatility through diversification, tactical gearing and active management has enabled it to outperform its benchmark over the six months ending 28 February 2022.
Despite a knock in sentiment impacting the biotech space, the trust’s Net Asset Value (NAV) per share returned
-13.1% and its ordinary share price returned -9.4%, meaningfully outperforming the NASDAQ Biotechnology Index at
-23%. Additionally, the trust’s discount narrowed from -6.8% to -2% over the same period, thanks in part to the board’s decision to repurchase 225,970 shares.
The trust focuses on innovative biotechnology companies with strong fundamentals addressing unmet medical needs. These are concentrated in the therapeutics sector with the trust’s quoted portfolio focused on three major specialty areas – rare diseases (32%), oncology (27%), and central nervous system diseases (15%).
Ailsa Craig and Marek Poszepczynski, who were appointed joint lead fund managers in March 2021 having worked at IBT since 2006 and 2014 respectively, have the scientific and financial expertise and experience to interpret clinical trial data accurately and spot investment opportunities.
Over the six months to 28 February 2022, the trust also benefitted from several M&A deals. Holdings Acceleron, Vifor Pharma, Arena Pharmaceuticals and Zogenix all received offers of acquisition at a high premium to the share price, with Merck’s acquisition of Acceleron contributing £2.6m to the trust’s NAV.
Additionally, IBT has continued to benefit from its exposure to earlier stage unlisted biotechnology companies, which has acted as a ballast to its NAV during periods of stock market volatility. In December 2021, the board committed to invest $25m in SV Health Investors’ SV Biotech Crossover Opportunities Fund LP.
On the upswing
Fund managers Craig and Poszepczynski are optimistic about the prospects of a biotech sector rebound, citing two attractive themes supporting the sector – low valuations and a likely resurgence in M&A activity: “While the biotech sector has suffered a long and historic retraction since its highs of spring 2021, the current valuations in the sector pose a compelling opportunity to tap exciting innovation at highly attractive prices – particularly within smaller players in the space, many of which are trading at a fraction of their valuations a year ago.
“Moreover, it is unlikely the de-rating of the sector will have gone unnoticed by the larger pharmaceutical companies, which may catalyse a pick up in sector M&A. We believe that we are well positioned for this eventuality.”
Jim Horsburgh, Chairman of the IBT board, says: “The biotech sector’s unique growth drivers, namely the steadily ageing global population and unabated scientific innovation, are largely unaffected by geopolitical events and major economic downturns.
“The trust’s outperformance of the benchmark over the last six months of severe market turbulence is a testament to the effectiveness of its highly selective, valuation focused approach to portfolio construction. With the sector’s growth fundamentals still very much intact, we are confident IBT will deliver strong returns over the long term, while simultaneously fuelling the development of life-changing biotech innovation.”
Meanwhile, IBT has begun scoring portfolio companies on its ESG screening process implemented in October 2021, with the aim to encourage adherence to high ESG standards in its portfolio companies. Within its top ten holdings, companies scored an average of 98% on governance, 69% in the environmental section, and 67% in the social section.
IBT shareholders were rewarded with a first of two semi-annual dividends paid in January 2022 of 15.7p per share, an increase of 10.7% on the previous dividend and representing a yield of 4.98% on the share price as at 28 February 2022.