As International Biotechnology Trust plc (IBT), the investment trust managed by SV Life Sciences (SVLS) reported its financial results for the six months ended 28 February 2015, Carl Harald Janson, Investment Manager at SVLS Managers, elaborates on why he remains excited and positive of the biotech sector’s long-term prospects.
Carl Harald noted: “The biotechnology sector has had a great run in recent years, which has generated both interest and concerns from investors. Some believe that stocks are overvalued, future earnings are unpredictable and pricing power may evaporate.
“Taking each point in turn: the sector price / earnings ratios (P/E) for profitable companies are not stretched, with forward P/E at 20x to buy a compound annual growth rate of 17% for years 2015 to 2018. We think this is not expensive and certainly not in bubble territory. Secondly, sales and earnings are both predictable and visible.
“Finally, we look at the drug pricing debate. This year we have seen an increased focus on the importance of reimbursement, specifically where similar products compete in a specific disease area. Furthermore, the substantial cash generated by sales of Gilead’s Harvoni and Sovaldi drugs could be used to acquire small innovative companies that may contribute towards future growth of the sector.
“Although new drugs are introduced at great cost, many drugs go off patent each year, resulting in savings of an equivalent amount to the new spend. In addition, this does not take into account the long term savings from curing diseases that without treatment or a cure create long term treatment costs for the healthcare services.”
Carl Harald continued: “Each year brings a scientific breakthrough, either through individual drug success stories such as Biogen’s recent Alzheimer’s data or through the advances of new technology platforms such as gene therapy, cell therapies and gene editing. We are optimistic that the sector’s performance will continue, not just for the next year but for the longer-term.”
By investing in a portfolio of companies across various sub-sectors, IBT gives investors benefit from exposure to both strong-earnings growth and new technologies. It provides investors with access to many companies with exposure to all phases of development, both in commercial phase and in development phase, giving an extra layer of protection and gain, when scientific advances are made.
Reflecting on IBT’s excellent performance Alan Clifton, Chairman of the Board, said: “The NAV per share rose 44.5%, ending at a period high of 571.8p per share. The share price was up 57.4%, driven by outstanding performance of both the unquoted and quoted parts of the portfolio, and share buy backs.”
Highlights of interim results
- 44.5% increase in the Net Asset Value (NAV) per share
- Company share price increased 57.4% to 571.8p