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What is Biotech Investing?

VIDEO: Ailsa Craig, manager of the International Biotechnology Trust, on why investing in the sector involves looking at higher growth companies

Holly Black 26 September, 2019 | 1:56PM

 

 

Holly Black: Welcome to the Morningstar series, "Why Should I Invest With You?" I'm Holly Black. With me is Ailsa Craig. She's Manager of the International Biotechnology Trust (IBT).

Hello.

Ailsa Craig: Hi, there.

Black: So, tell us a bit about what the Trust does.

Craig: So, International Biotechnology Trust is a biotech fund. It's made up of a quoted portion, say 90%, approximately, in quoted assets and approximately 10% in unquoted assets. It's invested purely in high growth biotech and healthcare companies. This is approximately $250 million in size, and it's listed on the London Stock Exchange. And what we do is we look for highly innovative, high growth biotech companies, and then provide our investors with a diversified exposure to unquoted and quoted assets. And predominantly, they're mostly U.S. assets, because the industry is pretty dominant over in the U.S.

Black: So, this might be a really silly question. But what is biotech? Why is that different from healthcare or from technology?

Craig: Well, there are two definitions as to what biotech is. Originally, it used to mean developing proteins as opposed to small molecules like little white tablets. But in the capital markets, it's really sort of discussing – it's investing in companies that are higher growth versus say a big pharma. So, really, we kind of consider the high growth area. It doesn't necessarily mean that it's not little tablets or small molecules; it can be proteins and small molecules. It's really the innovative side of the industry.

Black: And one of the themes driving this bit of the industry is the ageing population. We're all getting older and that means we need more drugs and medical devices.

Craig: Yeah. So, by 2050, there's going to be over 2 billion people considered as elderly. And they're the population that need drugs most, that's where you spend most in your life in terms of healthcare. So, with that demand, we think that longer term that will help drive the growth of the sector. So, in terms of return on investment, biotech has returned on average 10% per year over the longer term versus the broader market which should be 5%.

Black: So, what are some of the diseases or ailments that you think are the most investment worthy?

Craig: So, when we make a decision on an investment, what we try and consider is, is it going to treat a high end medical need, will it be able to command a high price, for example, or does it have a monopoly, and things like that. And oncology is a perfect example, and that's treating cancer, of where that fits in. So, some of our – in fact, our major exposure in the portfolio is in oncology for those very reasons. And then, it also helps mitigate any issues with drug pricing regulations, for example, because that's not an area where the administration will come down on that. They're much more likely to come down on areas such as diabetes. So, we focus on the oncology side of the industry.

Black: The pricing regulation is a big issue at the moment, particularly as we're just over a year away from the US election.

Craig: Exactly.

Black: Do you have to take that into account?

Craig: Yeah, and this happens every time we have a U.S. election, the drug pricing debate comes up, and it's used as a political football for Democratic and Republican campaigns. So, we're going into an election year. And we're seeing – at the moment, we actually consider this as a perfect opportunity to start putting money to work because the sector is out of favour going into the U.S. election.

Black: Well, thank you very much for your time.

Craig: No problem.

Black: And thanks for joining us.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
International Biotechnology Ord636.00 GBX0.63

About Author

Holly Black  is Senior Editor, Morningstar.co.uk

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