The volatility of investments in biotechnology was amply demonstrated by the recent collapse of Phytopharm's share price after a leading product failed its clinical trials. Picking biotech winners is not getting easier, but the sector is starting to mature with an increasing number of new products coming up for regulatory scrutiny this year. One way to solve the problems of biotech investing is to let professionals try on your behalf, which is why SV Life Sciences' International Biotechnology Trust (IBT) could be a useful way of getting access to fast-growing overseas companies without the problems of dealing, exchange rates and taxation that can afflict the ownership of individual shares.
- Low hassle way into US biotech
- Biotech starting to deliver medicines
- Holds mostly liquid shares
- Discount to NAV wider than average
- Unquoted investments hard to value
- NAV growth has underperformed benchmark
The key to IBT's value lies in its holdings of US-quoted biotech companies, which include big names such as Celgene, Amgen, Gilead and Alexion. The significance is that the North American biotech industry is getting to the stage where new products are appearing in front of regulators for review at an expanding rate. The US regulator has already approved six out of approximately 38 drugs that are awaiting a decision this year, most of which have been developed by biotech companies. The key decisions for companies in IBT's portfolio are for Gilead's HIV drug Elvitegravir in April, Biogen's multiple sclerosis medicine BG-12 in June and Celgene's Pomalyst product for myeloma in August.
INTERNATIONAL BIOTECHNOLOGY TRUST | |||
| PRICE: | 219p | GEARING: | 103% |
| AIC SECTOR: | Biotechnology | NAV: | 262p |
| FUND TYPE: | Closed-end | DISCOUNT TO NAV: | 16% |
| SIZE OF FUND: | £145m | 1-YEAR PRICE PERFORMANCE: | 18% |
| No OF HOLDINGS: | 66 | 3-YEAR PRICE PERFORMANCE: | 18% |
| SET-UP DATE: | March 1994 | 5-YEAR PRICE PERFORMANCE: | 12% |
| MANAGER APPOINTED: | January 2005 | YIELD: | nil |
Holdings in large-cap biotechs are important for IBT because the liquidity of their shares means the trust's managers are able to generate cash when needed for new investments without changing the basic structure of the portfolio. That is particularly important as it allows IBT to 'seed' new unquoted companies with start-up funds, which is the other side of the trust's business; about 15 per cent of IBT's holdings are in small, unquoted companies. SV Lifesciences believes that, via trade sales, it can earn two or three times its investment in start-up companies. Such investments are held in the accounts at 'fair value', which is a stab at market value although, as implied by IBT's share price, investors in IBT mark them close to zero.
That's part of the reason why IBT's shares trade at a 16 per cent discount to its net asset value (NAV), slightly wider than its long-term average of 14 per cent. In addition, IBT's failure to grow its NAV in line with its benchmark index, the Nasdaq Biotechnology Index, is a concern.
