REG-Biotech Grw Tst PLC: Investor Update

Biotech Growth TrustAnnouncement

31/03/2020 11:30

The Biotech Growth Trust PLC

31 March 2020

Coronavirus Investor Update

It is clear that the coronavirus pandemic is having a far more severe impact
on markets than previous virus outbreaks, with governments taking increasingly
draconian measures to contain the virus. However, despite the significant
economic implications, with unprecedented volatility in the markets, we still
believe the outbreak will ultimately be a temporary phenomenon and should not
have a long-term fundamental effect on the biotech industry.

While there is clearly a lot of panic in the markets, there are several
near-term events that could potentially calm investors, including signs that
the social distancing measures implemented by various governments are
effectively reducing the rate of new cases, a peaking in the number of
confirmed cases in hotspots like Italy and New York, the continued decline of
mortality rate estimates as broader testing is carried out and physicians
learn more about properly managing the disease, and progress from the biotech
and pharmaceutical sector on the development of treatments and vaccines for
COVID-19. It is also possible that warmer weather later in the spring may help
to limit further spread of the virus.  The stock market is forward-looking,
so we don’t believe every case of the virus needs to disappear for the
market to begin to recover.

Much of the virus’ economic impact has already been reflected in share
prices with the steep drop in the market.  As the increasingly stringent
lockdown measures implemented in the US cause a dramatic slowing of the
economy, the US government has already taken unprecedented actions to
stimulate the economy, including the Federal Reserve’s implementation of
“unlimited” quantitative easing and passage of a $2 trillion fiscal
stimulus package, the largest in US history.  There is now talk in Congress
of an additional fiscal stimulus package to be passed in the coming weeks. 
These financial measures should help stabilize markets and accelerate a
recovery once the virus outbreak has been brought under control.

Healthcare, as a defensive sector, should fare better economically during
government-mandated lockdowns than other parts of the economy.  In terms of
the impact to biotech specifically, there may be some temporary negative
impact to commercial sales, potential delays for clinical trials, possible
regulatory delays, and a more dilutive financing environment with the decline
in share prices.  However, sales of drugs taken by patients at home should be
minimally impacted, supply chain disruption for biotech has been largely
non-existent, the FDA has stated that it intends to adhere to drug approval
timelines, and most biotech companies have sufficient cash to avoid any
imminent financing needs.  Overall, any headwinds should be manageable for
the industry.

While we cannot predict the daily volatility of the market in the near-term,
we think the current market dislocation provides an excellent buying
opportunity for the biotech sector for long-term investors.  Outside of the
coronavirus, all of the fundamental investment themes for biotech remain
intact: unprecedented innovation based on novel technologies, a friendly FDA
proactively approving new drugs, compelling valuations relative to historical
norms, and expected continued M&A activity.  The only headwind that had
dampened sector performance prior to COVID-19 was the political overhang of
the Democrats potentially nominating a progressive Presidential candidate like
Bernie Sanders, who supports nationalizing the US healthcare system.  With
Joe Biden’s strong performance in recent Democratic state primaries, Biden
has become the clear presumptive Democratic nominee.  His centrist approach
markedly reduces the likelihood of dramatic healthcare reform, and we believe
the political overhang has largely abated with his ascendance.  This
significant positive fundamental development for biotech has been completely
overshadowed by the coronavirus.  Additionally, we think the
biopharmaceutical industry’s public image may actually be strengthened by
the ongoing crisis.  If a biotech or pharma company successfully develops a
treatment or vaccine that curtails the epidemic, the electorate may develop a
greater appreciation for the value to humanity that the industry provides.

Our investment strategy in light of the coronavirus outbreak remains largely
unchanged.  We are fundamental stock pickers, and we have been capitalizing
on the market volatility to improve the quality of the portfolio and add to
our best ideas.  We have not made significant changes to the overall
structure of the portfolio or altered our emphasis on emerging biotech. 
While the higher-beta emerging biotech names experienced a greater share price
decline on average in March compared to the large-cap biotechs, we believe the
emerging names will rebound more strongly when the virus crisis abates.  We
are encouraged by the biotech companies attempting to develop potential
treatments and vaccines for COVID-19, but we have not actively “chased”
these names, as the probability of success and ultimate revenue potential from
those therapies remains unknown.  Having said that, some of the Trust’s
portfolio companies happen to have active coronavirus programs, including
Gilead Sciences (developing the antiviral remdesivir), Regeneron
Pharmaceuticals (developing antibody treatments for COVID-19), and CanSino
Biologics (a Chinese vaccine company which has already advanced a vaccine for
coronavirus into human trials).

Overall, we are staying the course but trying to be as nimble as we can.  The
entire public equity team – analysts, portfolio managers, traders – are in
constant virtual communication every day in real time using the latest
technologies available.  Despite the significant challenges the coronavirus
is posing to countries worldwide, we are more focused than ever on choosing
the best investment opportunities for long-term sustained performance.

Geoffrey Hsu, CFA, OrbiMed Advisors LLC
Portfolio Manager, The Biotech Growth Trust PLC

Please note a number of the companies mentioned are owned by The Biotech
Growth Trust PLC (‘BIOG’)

Important Information

The Biotech Growth Trust PLC (the Company) is a public limited company whose
shares are premium listed on the London Stock Exchange (LSE) and is registered
with HMRC as an investment trust. The Company has an indeterminate life,
although shareholders consider and vote on the continuation of the Company
every five years (the next such vote will be held in 2020).

This update is for information purposes only and does not constitute an offer
or invitation to purchase shares in the Company and has not been prepared in
connection with any such offer or invitation. Before investing in the Company,
or any other investment product, you should satisfy yourself as to its
suitability and the risks involved, and you may wish to consult a financial
adviser. Any return you receive depends on future market performance and is
uncertain.

The Company does not seek any protection from future market performance so you
could lose some or all of your investment. For information on the principal
risks the Company is exposed to please refer to the Company’s Annual Report
or Investor Disclosure Document available at www.biotechgt.com.  

Shares in the Company are bought and sold on the London Stock Exchange. The
price you pay or receive, like other listed shares, is determined by supply
and demand and may be at a discount or premium to the underlying net asset
value of the Company. Usually, at any given time, the price you pay for a
share will be higher than the price you could sell it.

The Company has increased its exposure to investments via the use of an
overdraft facility and derivatives, and this could potentially magnify any
losses or gains made by the Company. The Annual Report and Investor Disclosure
Document, available on the Company’s website, include further details on the
use of, and exposure to, derivatives.

Enquiries:
Mark Pope
Frostrow Capital LLP
Company Secretary
Tel:  020 3008 4913



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