International Biotechnology Trust’s (IBT) has reported full-year results, to 31 August 2020. IBT’s NAV per share and share price returned 22.4% and 18.7%, whilst the NASDAQ Biotechnology index (NBI) returned 20.6% (to 31 August 2020) and the FTSE All-Share index returned -12.6% (to 28 August 2020).
The table below summarises IBT’s cumulative total return performance over the past five years.
|12m (%)||3yr (%)||5yr (%)|
|Share price total return to 28 August||18.7||32.3||55.8|
|NAV per share total return to 31 August||22.4||23.2||40.9|
|NASDAQ Biotechnology Index (NBI) to 31 August||20.6||19.6||40.1|
|FTSE All-Share Index to 28 August||-12.6||-8.2||17.4|
‘Quoted portfolio represented 94% of NAV’
As at 31 August 2020, for financial reporting purposes, the quoted portfolio represented 94.0% of IBT’s NAV. The quoted portfolio returned 26.4%. In 2016, the board took the decision that the company would no longer make any new investment directly in unquoted investments but instead will allow investors access to the unquoted market through a diversified venture capital fund. IBT’s investment in SV Fund VI had a fair value gain of £2.9m (on a sterling-adjusted basis), representing a total return of 14.6% on the fund’s portfolio.
‘M&A remains a key driver of performance’
IBT’s manager noted the following: “M&A activity continues to be a key driver of performance for the biotechnology sector despite the impact of COVID-19. During the year ended 31 August 2020, the Company has been well placed to take advantage of this M&A activity to generate returns for its investors. Our view is that many companies within the biotechnology sector are currently undervalued, a sentiment we believe is supported by the increased level of M&A activity within the sector.
In November 2019, Novartis acquired The Medicines Company, a US-based biopharmaceutical company, for $9.7bn, which represented a premium of 41%. The sale completed in January 2020. At the time of the announcement, 0.7% of the Company’s NAV was invested in The Medicines Company. The Company’s NAV benefited from the announcement and the Company sold out of its investment shortly thereafter, therefore crystallising this gain.
In December 2019, Merck acquired ArQule, a biopharmaceutical company focused on kinase inhibitor discovery and development for the treatment of patients with cancer and other diseases, for $2.7bn, representing a 107% premium over the share price. The sale was completed in January 2020. The Company held positions in both Merck (2.2% of NAV) and ArQule (0.1% of NAV) at the time of the announcement and the Company’s NAV benefited from this deal.
The second half of the financial year, specifically the month of August, was particularly successful for M&A activity within the biotechnology sector.
Sanofi announced its intention to acquire Principia Biopharma, a late-stage biopharmaceutical company focused on developing treatments for immune-mediated diseases, for approximately $3.7bn, representing a premium of 70%. At the time of the announcement, Principia comprised 0.6% of the Company’s NAV and the transaction is expected to complete in the fourth quarter of 2020.
Johnson & Johnson announced its intention to acquire Momenta Pharmaceuticals, a company that discovers and develops novel therapies for immune-mediated diseases, for a cash consideration of $6.5bn, representing a premium of 70% over the share price. Momenta comprised 0.3% of the Company’s NAV at the time of the announcement.
This pace of M&A is showing no indications of slowing down. Since the year-end, Gilead Sciences has announced that it has entered a deal to acquire Immunomedics for approximately $21bn, which represented a premium of 108% to the share price. The Company’s NAV benefited from this announcement as the Company had 3.7% of its NAV invested in Immunomedics and 5.3% of its NAV invested in Gilead Sciences.
In October 2020, Bristol Myers Squibb announced its intention to acquire MyoKardia for a cash consideration of $13.1bn, representing a 61% premium to the share price. At the time of the announcement, the Company had 2.3% of its NAV invested in MyoKardia.”
‘Positive developments in the FDA’s development and review process contributed to biotech’s relative outperformance’
The manager added: “Innovation remains one of the core drivers of the biotechnology sector’s performance. This, in conjunction with the positive developments made in the FDA’s development and review process, also contributed to the biotechnology sector’s relative outperformance during the financial year. As at 31 August 2020, there were over 25,000 ongoing clinical studies, with the number of studies expected to exceed the previous calendar years by the end of 2020. It is expected that this pace of innovation and efficiency displayed by the FDA will continue its forward momentum and will be translated into sales and earnings for the biotechnology sector going forward.
The US Presidential Election and any associated potential drug pricing and healthcare reforms have historically caused volatility within the biotechnology and healthcare sectors. Former Vice President Joe Biden’s formal election as the Democratic Candidate means that the more disruptive Medicare for All policy changes, favoured by his opponents Elizabeth Warren and Bernie Sanders, are now seen as highly unlikely. The risk to the biotechnology sector has, therefore, lessened, with Biden more generally viewed as a centrist candidate and President Donald Trump considered relatively supportive of the biotechnology sector.
With the fundamentals of the biotechnology sector intact, we are optimistic about the future of the Company and the biotechnology sector, more generally.”
IBT: Its been a strong year for International Biotechnology Trust