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Dramatic year for Biotech Growth

Biotech Growth's big-bio focus a cause of underperformance in February

Dramatic year for Biotech Growth – as its chairman says “as a result of the COVID-19 pandemic the year to 31 March 2020 proved to be one of the most dramatic in the history of the company since its inception in 1997.”

For the year to 31 March 2020, the net asset value per share total return was +18.5%, and the share price total return was +10.9%, significantly outperforming the benchmark, the NASDAQ Biotechnology Index (sterling adjusted) which rose by 1.2%.

US dollar strength and a modicum of gearing helped returns but the main driver was stock selection. A shift to smaller and newer biotech companies, and some investments in Chinese biotechnology companies both helped returns.

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 the biotechnology industry has been largely non-existent and the U.S. Food and Drug Administration (FDA) has stated that it intends to adhere to drug approval timelines. Most biotechnology companies are believed to have sufficient cash to avoid any imminent financing needs.”

Some of the company’s portfolio companies do have active COVID-19 programmes, 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 COVID-19 into human trials).”

Extract from the manager’s report

Deciphera Pharmaceuticals, CanSino Biologics, Aurinia Pharmaceuticals, Vertex Pharmaceuticals, and Karyopharm Therapeutics were the leading positive contributors to performance in the portfolio during the year.

•        Deciphera Pharmaceuticals is a Massachusetts-based biotechnology company developing kinase inhibitor treatments for cancer. The company’s shares appreciated following positive Phase 3 study results for ripretinib in gastrointestinal stromal tumours (GIST) in August 2019, which exceeded expectations. The company expects U.S. Food and Drug Administration (FDA) approval in August 2020 and based on strong data and high unmet medical need, we expect the drug to become the standard of care in fourth-line GIST. Deciphera has an ongoing Phase 3 study in second-line GIST, expected to read out in 2021/22.

•        CanSino Biologics is an emerging Chinese vaccine company developing vaccines for the private pay market in China. The fund participated in the company’s IPO (Initial Public Offering) as a cornerstone investor in March 2019. CanSino’s shares initially outperformed due to investor enthusiasm about their meningococcal vaccine portfolio. Shares gained further momentum when the company began developing one of the leading vaccine candidates for COVID-19 in China, now in Phase 2 clinical trials.

•        Aurinia Pharmaceuticals shares outperformed following the release of successful phase 3 trial results for their novel calcineurin inhibitor, voclosporin, in lupus nephritis. Data from the pivotal trial showed a meaningful increase in the complete response rate for voclosporin when given on top of the current standard of care. This is the first positive phase 3 trial for a lupus nephritis drug in a large, global, randomised, placebo controlled study.

•        Vertex Pharmaceuticals shares outperformed as the company’s cystic fibrosis triple combination therapy, Trikafta, was approved early and achieved impressive early commercial uptake. The company remains the leader in cystic fibrosis, with a multi-billion dollar commercial portfolio driven by Trikafta as well as its first- and second-generation treatments Orkambi, Kalydeco and Symdeko. Vertex also reported encouraging early data for its gene editing candidate CTX001 in beta-thalassemia and sickle cell disease, with early data suggesting a potential functional cure. CTX001 is partnered with CRISPR Therapeutics.

•        Karyopharm is an oncology company developing treatments for haematologic malignancies. The shares outperformed following positive Phase 3 trial results for their oral drug selinexor in multiple myeloma in March 2020.

Milestone Pharmaceuticals, Alexion Pharmaceuticals, Mirati Therapeutics, Puma Biotechnology, and Heron Therapeutics were the principal detractors for the year.

•        Milestone Pharmaceuticals shares fell following disappointing results for their Phase 3 trial of etripamil for the treatment of paroxysmal supraventricular tachycardia. While the drug demonstrated an improvement relative to placebo in converting tachycardia to normal sinus rhythm early on, the placebo response in the later stages of the trial prevented the study from achieving the primary endpoint. These results likely leave the company in need of running an additional pivotal trial.

•        Alexion Pharmaceuticals is a large capitalisation biotechnology company whose lead franchise consists of complement inhibitors for a variety of orphan haematological and neurological indications. The stock declined over the period due to continued concerns by investors about future competition to the company’s lead products Soliris and Ultomiris.

•        Mirati Therapeutics is a targeted oncology company developing a KRAS inhibitor for a variety of solid tumour types. Shares rallied into the JP Morgan Healthcare Conference in January 2020 on the hopes of a possible takeout but then significantly underperformed when no takeout occurred. Shares have also been negatively impacted by competitor Amgen’s more cautious commentary on their own KRAS program.

•        Puma Biotechnology is an emerging biotechnology company that markets the drug Nerlynx for breast cancer. Shares declined over the period because the commercial launch has disappointed expectations, primarily due to the high rate of diarrhea associated with the compound. In addition, changes in standard of care for breast cancer have diminished the market opportunity for Nerlynx.

•        Heron Therapeutics is developing a long-acting form of bupivacaine for post-surgical pain. Despite multiple clinical trials that have shown the superiority of their product HTX-011 versus both placebo and short-acting bupivacaine, the FDA announced in February that they were postponing the action date for their drug application by three months. We continue to believe that HTX-011 will eventually get approved and provide a valuable non-opioid alternative to pain management post-surgery.”

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