International Biotechnology Trust (IBT) announced its annual results for the year ended 31 August 2024. The company delivered a NAV total return of 15.9%, outperforming the reference index which returned 15.3%. Despite the strong performance the discount continued to widen during the year, leading to a share price total return per share of 10.3%. The company noted that the successful identification of mergers and acquisitions candidates contributed to the outperformance with a further two quoted holdings being acquired during the financial year.
The company’s dividend policy, is to make dividend payments equivalent to 4% of the company’s NAV, as at the last day of the preceding financial year ending 31 August, through two semi-annual distributions. The first dividend for the year, of 13.9p per share, was paid on 26 January 2024, and the second payment of 14.5p per share, was made on 23 August 2024.
Discussing the performance for the year, managers Ailsa Craig and Marek Poszepczynski commented:
“The year in review commenced with continued weakness in the biotechnology sector, which revisited the lows of 2022 in November 2023 before staging a strong recovery in the last few weeks of 2023 and through the current year.
“Initially, this recovery was led primarily by larger companies, but it has broadened as the year progressed, with small and mid-cap biotechnology stocks increasingly participating in the rally. Encouragingly, this reflects renewed confidence across the sector after three years of a bear market, with higher levels of private and follow-on financing, along with tentative signs that the IPO window is gradually re-opening.
“Consolidation in the sector has also continued, with many companies undergoing restructuring or mergers and acquisitions. Large pharmaceutical companies, in particular, have been keen to fill the revenue gap from their impending patent expiries. Furthermore, the impact of the US Inflation Reduction Act, which limits the potential profits available for pharmaceutical companies from certain mature medicines, has added further impetus to the need to identify the next generation of treatments. We believe this has created opportunities for active investors to benefit from the premiums paid for innovative companies addressing high unmet medical needs.
“Innovation in the biotechnology industry has continued at a rapid pace, reflected in the number of new clinical trials being initiated, which has risen every year since 2011. If the current rate continues, 2024 is expected to set yet another record. This year has, however, been slower for regulatory approvals, which was expected after a record year in 2023 that worked through the COVID backlog of filings. Importantly, there are several imminent key product launches, product approvals, and late-stage clinical readouts in areas such as oncology, neurology, and obesity, all areas to which our portfolio is well exposed.”
Regarding the outlook for the trust, the managers continued:
“The biotechnology sector looks poised to make further progress as we look toward 2025 and beyond. Despite the recent rally, the reference index remains well below its peak of 2021, and valuations are generally reasonable, suggesting significant future upside potential given the sector’s accelerating pace of innovation.
“In large part, we believe this innovation is driven by necessity. The increasingly complex demands of a global population that is growing older, wealthier, and facing greater health challenges are driving rising demand for healthcare services and placing public healthcare systems under increasing strain. These fundamental demographic tailwinds seem capable of driving structural growth and continued biotechnology innovation for many years, if not decades, into the future.
“Meanwhile, with inflation seemingly under control and interest rates expected to decline, the investment environment is becoming increasingly favorable for long-duration assets such as biotechnology. There are signs that the IPO window is beginning to open, and secondary offerings remain strong, indicating renewed investor interest in biotechnology. This aligns with what we would typically expect to see in the more positive stages of the biotechnology investment cycle.
“The potential for further mergers and acquisitions (M&A) activity is another positive feature of the outlook, as large, cash-rich pharmaceutical companies seek to fill gaps in their pipelines and replace expiring patents by acquiring smaller biotechnology businesses. The implementation of the US Inflation Reduction Act, which may negatively impact the pricing of key established drugs sold by large pharmaceutical companies, could further increase demand for innovative biotechnology.
“As in prior years, the US presidential election could result in near-term volatility in the biotechnology sector and in healthcare more broadly. However, we do not expect any election outcome to materially change the positive long-term investment case for biotechnology.”
IBT : International Biotechnology Trust sees 15.9% return through 2024