OrbiMed trust to raise £50m in placing plan

While the placing was prompted by a major investor, the trust's manager, Geoffrey Hsu, believes the timing is appropriate to tap investor interest in general.

Mr Hsu said the trust aimed to deploy more capital because uncertainty over US president Barack Obama's healthcare reforms had presented biotech investors with a window of opportunity that would close early next year.

He said: "Since February 26 this year, when the reforms were first proposed, the Nasdaq Biotech index - the trust's benchmark - has underperformed other indices by 20-30 basis points.

"Many US investors are underweight the sector because of fears about the cost of these reforms to biotech companies."

He added that Mr Obama's plan to offer healthcare cover to 45m US citizens who are currently uninsured would be paid for by reduced reimbursements to private hospitals, tax levies and increases in rebates from the drugs industry on drugs used by Medicaid.

"Every healthcare subsector is being asked to bear the cost of these proposals," Mr Hsu said.

"Furthermore, people wonder if Mr Obama's proposal for a government-backed insurance plan is the first step towards a nationalised system, and the prospect of such a long-term structural change is causing concern."

However, Mr Hsu said that whether or not the healthcare bill was passed or rejected by legislators, the sector would enjoy a "relief rally".

"When Hillary Clinton failed to push through her reforms, a similar rally occurred," he said. "Even if a healthcare bill were passed, it will be limited in scope.

"In fact, there could be a net benefit to the industry, as increased volume should offset the slightly lower prices the government will be paying for drugs."

For the six months to September 30, the trust outperformed its benchmark by 230 bps. Its net asset value per share rose by 12.1 per cent over the half-year period, compared with 9.8 per cent for its benchmark, measured in sterling terms.

The trust's share price also outperformed its benchmark, rising by 11.9 per cent over the period.

Just over 93 per cent of the trust's portfolio was invested in North America as at September 30.

Around 40 per cent was invested in the large, profitable biotech companies that Mr Hsu said would be major beneficiaries when the healthcare overhang lifted, as investors resumed their confidence in the big names.

But the portfolio also contained a large number of companies relatively unaffected by the macro background and that were more reliant on clinical issues, for example, FDA approval for new drugs, he said.