RCS - Intnl. Biotechnology - Results analysis: International Biotechnology

International Biotechnology Trust

05/11/2024 11:08

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RNS Number : 0149L  Intl. Biotechnology Trust PLC  05 November 2024

International Biotechnology Trust (IBT)

05/11/2024

Results analysis from Kepler Trust Intelligence

Once again, IBT has beaten the NASDAQ Biotechnology Index with a NAV total
return of 15.9% for the year ending 31/08/2024, compared to 15.3% for the
benchmark index (on a sterling-adjusted basis with dividends reinvested). The
share price total return was 10.3% due to a widening of the discount during
the year, despite the trust's strong performance.

The biotech sector saw a marked recovery over the financial year, driven by
investor confidence that interest rates had peaked at the end of 2023. This
recovery started with the larger-cap pharmaceutical companies and later
broadened to small and mid-cap companies, reflecting renewed confidence in the
sector.

IBT's portfolio continued to benefit from M&A activity, with the
acquisition of two quoted holdings by Bristol Myers Squibb during the
financial year. The company's acquisition of commercial-stage, targeted lung
cancer specialist Mirati Therapeutics completed in January. This was followed
by the completion of its acquisition of Karuna Therapeutics, which has
potential first-in-class drugs under development for neurological and
psychiatric conditions, with Cobenfy receiving FDA approval in September 2024
for the treatment of schizophrenia.

The private equity portfolio, which currently comprises 8.6% of total assets,
is primarily represented by two venture capital funds managed by SV Health.
These funds have also had a successful year with two acquisitions and another
company achieving a significant uplift in share price following its IPO on
NASDAQ.

Chair Kate Cornish-Bowden commented: "It is rewarding to report on the green
shoots of a recovery in the biotechnology sector following an unprecedented
period of share price declines in the sector. Relative valuations are
compelling and the potential rewards for investors in innovative companies
developing future treatments look more attractive than ever."

Kepler View

After a three-year bear market, it is encouraging to see clear signs of a
recovery in the biotech sector. This reflects more positive sentiment as
interest rates start to fall, with an uptick in private and follow-on
financing and tentative signs that the IPO pipeline may be strengthening,
albeit slowly.

The managers' investment strategy remains focused on identifying companies
with innovative technologies, strong intellectual property and solid growth
potential. The managers continue to manage 'binary event risk' by reducing
exposure ahead of key milestones such as clinical trial results and regulatory
approvals. They also take a 'basket' approach to certain therapeutic areas,
taking smaller positions across the most promising companies rather than
backing a single company.

As a result, Ailsa and Marek continue to demonstrate the benefits of active
management in an inherently cyclical sector. The managers believe that the
biotech sector is currently entering the 'equilibrium' phase, characterised by
strong growth but fair valuations, prompting IBT's well-timed move into
higher-growth, earlier-stage small-caps in late 2023. However, there is also a
strong emphasis on capital preservation, with the managers reducing the
trust's exposure to higher-risk, smaller companies during the downturn in
2022.

Looking ahead, the biotech sector is supported by strong secular growth
drivers, including the demographic timebomb of ageing populations, increased
healthcare spending by developing countries and the soaring incidence of
age-related diseases such as cancer and heart disease. Additionally, falling
interest rates could be a tailwind for returns due to the sector's strong
historical inverse correlation with US interest rates. We think these robust
fundamentals may present an attractive opportunity for investors given IBT's
proven track record and current discount.

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