Biotechnology will be the sector of choice for investors
As International Biotechnology Trust plc (IBT), the investment trust managed by SV Life Sciences (SVLS) reports its Annual Financial Results for the year ended 31 August 2014, Carl Harald Janson, Investment Manager at SVLS Managers, highlights that the outlook for earnings growth generation in the biotechnology sector continues to be strong, and is expected to remain intact for the next decade.
“An improved understanding of biology enables more efficient drug discovery and medical device development. The regulatory environment in the US and in Europe has improved leading to better clinical trial design, higher internal competence and new development paths. The sector has consistently provided novel treatments for diseases of high unmet medical needs. We predict the next ten years will be an era characterised by the launch of many new drugs driving continued strong earnings growth for the sector. Our top investment Gilead’s Sovaldi was approved by the FDA in December 2013 to treat hepatitis C virus infection. Sales of Sovaldi exceeded expectations, and are projected to be more than $10bn (approx. £6.25bn) in its first calendar year.
“Biotech continues to be a feeding ground for larger companies seeking new innovative products. This has been a major driving force of mergers and acquisitions within the sector and is set to continue. In the first half of 2014, biotech was an important component of the $315.3bn M&A deals in healthcare. In August 2014, one of our investments, InterMune was acquired by Roche for $8bn (approx. £5bn). Other M&A transactions also helped the performance, such as Mallinckrodt’s acquisition of Questcor and Lundbeck’s acquisition of Chelsea Therapeutics.
“Healthcare indices such as the NASDAQ Biotechnology Index (NBI) may be at historical highs, but the fundamentals of the companies behind these indices remain compelling. The value of biotech companies is now supported by very real revenues and profits, with prices relative to long-term growth rates at very reasonable levels.
“The optimistic outlook is supported by the increased output of drugs from biotechnology companies. With the greater understanding of disease and an accelerating rate of discoveries in bioscience, there is the real potential for an unprecedented period of value creation in the biotechnology industry.
Alan Clifton, Chairman of the Board of IBT, concluded:
“The year ended 31 August 2014 saw a substantial positive return for the IBT. The NAV increased by 26.4% to 395.7p per share and the share price increased by 16.9% from 269.0p to 314.5p. By comparison, the FTSE All-Share Index produced a total return of 10.7% over the same period.
“For the third year in succession, the portfolio generated positive absolute performance. Investor enthusiasm for the biotechnology sector continued in the period against a backdrop of positive price gains for the broader stock market.
“The Company’s prospects remain strong. In the last two decades the biotechnology sector has generated impressive growth – the NBI has averaged a compound annual growth rate of 12% over the last 20 years, and has better long-term performance than almost every other major index.
Highlights of annual financial results
- The NAV per share increased by 26.4% to 395.7p
- Company share price increased 16.9% to 314.50p