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