RCS - Intnl. Biotechnology - Results analysis from Kepler Trust Intelligence

International Biotechnology TrustAnnouncement

13/05/2025 14:15

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RNS Number : 4990I  Intl. Biotechnology Trust PLC  13 May 2025

International Biotechnology Trust (IBT)

13/05/2025

Results analysis from Kepler Trust Intelligence

International Biotechnology Trust (IBT) has reported strong results for the
half-year ending 28/02/2025. Its positive NAV total return of 2.9% came during
a negative period for its reference index, the Nasdaq Biotechnology Index,
which ended it down 3.0%.

Ailsa Craig and Marek Poszepczynski, co-managers of the trust since March
2021, have delivered a NAV total return of 14.7% to the period end, well ahead
of the reference index' 2.9% return.

The quoted portfolio (92.4% of the total investments) performed even better
during the half-year, up 4.3%. The successful identification of M&A
targets was a major driver of returns, with the takeout of IBT's then
largest-holding Intra-Cellular Therapies by Johnson & Johnson being the
most meaningful of these.

Since the period end, uncertainty about US policy on tariffs and drug
approvals have hit biotechs. Ailsa and Marek argue the dislocation is unlikely
to persist for long given the strength of the sector on a fundamental basis,
and they continue to look for opportunities in the smaller companies in their
space.

Kepler View

These are impressive results which continue Ailsa and Marek's strong
performance since taking over the portfolio, during which period they have
outperformed in a variety of environments, and in both rising and falling
markets. We think this resilience reflects in part the basket approach the
managers take to therapeutic areas, which avoids too much dependence on single
stock picks in an area in which returns are driven by developing medical
science and uncertain trial results.

Another factor has been the successful identification of likely M&A
candidates. M&A is always an important driver of returns in the biotech
sector, but the managers argue that upcoming patent expiries mean the need for
large-cap pharma to find revenue-generating new ideas is especially acute.
Some evidence can be seen in the acquisitions by Johnson & Johnson of
Intra-Cellular Therapeutics and by Immedica of Marinus Pharmaceuticals during
the period as well as Merck's agreement to acquire Springworks, another
International Biotechnology Trust (IBT) holding, post period-end. Promising
medical research, patent expiries and easing funding costs are all structural
factors which would seem to support the growth of M&A as a trend, and
IBT's tilt to the smaller end of the biotech market should increase the
chances of it benefitting.

In our view, the current uncertainty is creating a valuation opportunity in
what should remain an attractive growth market. Ailsa and Marek report
valuations in the smaller companies in their universe are at historically low
levels, while IBT's shares can be bought at a discount of around 9% at the
time of writing. Wherever policy settles, we think biotechnology is likely to
prove a source of attractive returns to investors, particularly as and when
interest rates decline. We think IBT offers access to an exciting growth
market well supported by sector fundamentals, a sector that is cheap thanks to
policy uncertainty, but which should be a prime beneficiary of a lower
interest rate environment. And IBT offers active management under a team who
have demonstrated their ability to add value through varied and difficult
environments.

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