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Biotech Growth hit by broader market turmoil as it enters 25th year

Biotech Growth's NAV shrinks by a quarter

Biotech Growth hit by broader market turmoil as it enters 25th year – Biotech Growth (BIOG) has published its final results for the year to 31 March 2022. During the period under review, the company’s NAV per share total return was down 33.8% while its share price total return was down 37%. This compares with a 7.4% drop from its NASDAQ Biotechnology index. The disparity between the performance of BIOG’s NAV per share and its share price reflected a widening of the share price discount to the NAV per share from 1.4% at the start of the trust’s financial year to 6.2% at the year end.

The principal driver of the disappointing results has been the very significant divergence in performance affecting all sectors, but particularly those with a technology base, including biotech, between large and small cap. This represents a reversal in the long trend of recent decades.

Within the biotech sector itself, the trust underperformed its benchmark not only because it is invested almost exclusively in small cap stocks and also because it has some exposure to Chinese biotechnology companies, which were affected by the broad market downturn in China during the year. The index does not include China-listed stocks.

The principal detractors from performance reflected these macro trends, including Guardant Health, an oncology diagnostics company, which declined in value despite generally strong financial results. However, there were some positive contributors during the year, most notably Trillium Therapeutics (which develops cancer immunotherapy treatments) which was acquired by Pfizer at a price representing a 203% premium to the pre-bid share price.

The company was launched in June 1997, making this year the 25th anniversary of its listing on the London Stock Exchange.

Chair’s outlook:

There has been no let up in the difficult financial conditions since the year end, and the Company’s NAV and share price have continued to be weak. Looking at the broader economic environment, the immediate future looks challenging at best.

The largest driver of the current volatile stock market conditions is the recent rise in interest rates, which are aimed at nipping inflation in the bud. As noted earlier, this is a reversal of a long trend.

Adding to this headwind has been Russia’s invasion of Ukraine. This has resulted in a sharp rise in political instability, created economic disruption and threatens to exacerbate inflationary pressures as energy and food supplies are constrained. Alongside these direct economic effects, geopolitical instability reduces investors’ risk appetites, potentially undermining asset prices across a wide range of markets and sectors.

Although the impact of vaccine roll outs means that life in the US and other developed economies is returning to normal, new variants continue to pose a risk, and China in particular continues to grapple with rising incidence of the disease, compounded by low vaccination rates in the elderly population, in turn leading the authorities to impose lockdowns.

Although the impact of these factors will continue to weigh on financial markets, our Portfolio Manager remains confident that there are a number of potential catalysts that could lead to a recovery in the biotechnology sector this year and into the future, and their overall investment strategy remains unchanged. Furthermore, they believe that the fundamental investment themes for the biotechnology sector remain intact and their focus remains on the selection of stocks with strong prospects for capital enhancement. Your Board fully supports this strategy and continues to believe that long-term investors will be rewarded.

Looking back over the ten years I have been on the Board, life sciences, including biotech, have assumed an increasingly central role in healthcare. Their critical role in developing modern vaccines for COVID-19 is a good example. The speed and scale of innovation are breathtaking, and will surely remain so. The Company is an excellent way to participate in this growing, dynamic sector.

BIOG : Biotech Growth hit by broader market turmoil as it enters 25th year

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