Biotech Growth lags benchmark but shareholders still make 28%. Biotech Growth says that it produced a good return in absolute terms for the year ended 31 March 2017. The net asset value per share rose by 27.5% during the year, which compares with the benchmark, the NASDAQ Biotechnology Index (sterling adjusted), which rose by 29.2%. As this shows, the biotechnology sector performed well over the year in review, and in line with the broader U.S. stock market. Part of the performance reflects sterling’s decline against other major currencies and in particular the U.S. dollar, which is the currency in which almost all the fund’s holdings are denominated. Sterling fell 13.0% over the year.
The share price rose by 27.9%, a little more than the net asset value, reflecting a slight narrowing in the discount of the share price to net asset value per share, from 6.8% at the start of the financial year, to 6.6% at 31 March 2017.
The manager’s report says: “During the year, the portfolio and the broader biotechnology sector performed strongly, following a prior period of weakness largely caused by concerns over the sustainability of drug pricing in the U.S. These concerns persisted in the first half of the year, fuelled by Hillary Clinton’s rhetoric on potential drug price regulation during the U.S. Election. Additionally, as we detailed in the previous report, the negative publicity of controversial pricing practices by some specialty pharmaceutical companies, such as Valeant and Mylan, caused worries among investors that enhanced scrutiny of pricing policies would spill over to the biotechnology sector, creating an overhang. The NBI remained down over 20% (in dollar terms) during the calendar year to early November. However, the unexpected election of Donald Trump as President and the Republican sweep in Congress caused an immediate positive reaction for biotechnology stocks, with the NBI index up 9% on the day following the election. Subsequently, Mr. Trump’s public statements on drug pricing took on a more populist tone, including that drug companies “are getting away with murder” and that drug “pricing for the American people will come way down”. The sector initially underperformed following these comments, but sentiment has improved as investors have concluded that actual legislation on drug pricing will be hard to enact, and the draft legislation for the repeal and replacement of the Affordable Care Act (ACA, or “Obamacare”) did not contain significant proposals that would be considered hostile toward the pharmaceutical and biotechnology industries.”
The top five contributors to performance were Incyte (+ 25.96m or 45.3p per share), Celgene (+15.87m or 27.7p), Biogen (+15.59m or 27.2p), Vertex Pharmaceuticals (+13.84m or 24.1p and Amgen (+12.76m or 22.3p).
The top five detractors were Impax Laboratories (-4.94m or 8.6p), Achillion Pharmaceuticals (-4.80m or 8.4p), Shire (-3.45m or 6.0p), Ono Pharmaceutical (-3.45m or 6.0p ) and Gilead Sciences (-2.63m or 4.6p).
BIOG : Biotech Growth lags benchmark but shareholders still make 28%