Biotechnology trusts are positioning themselves to take advantage of “blockbuster” drug launches in 2015, as the market continues to rally.
In spite of a 20 per cent correction in March and April, the Nasdaq Biotechnology index has risen 34.2 per cent so far this year and is now up 307 per cent in the past five years, according to data from FE Analytics.
Moreover, the managers of two investment trusts that invest in the sector have said further growth is set to come as large biotech firms launch “blockbuster” new drugs onto the market.
The managers of the Biotech Growth Trust and the International Biotechnology Trust (IBT) have positioned their portfolios to take advantage of this trend by skewing their holdings towards large-cap biotechnology stocks.
Carl Harald Janson, co-manager of IBT, said large-cap biotech firms “have great potential for growth in the next few years”.
Mr Janson contrasted the growth potential in large-cap biotech to large-cap pharmaceutical companies, where he said there was “slower growth and higher valuations”.
The manager said he had wanted to devote a “substantial part of the portfolio to these big companies”, an area where IBT currently has more than 50 per cent of its money invested in.
Gilead Sciences, Amgen, Biogen and Celgene currently dominate the large-cap sector in biotechnology.
All of these firms have recently launched, or are scheduled to launch, “blockbuster” drugs that should generate multibillion dollars in sales.
Sven Borho, a member of the team at Orbimed Capital, the investment manager on the Biotech Growth Trust, highlighted the hepatitis C drugs Sovaldi and Harvoni from Gilead Sciences, which can cure hepatitis C and could reach combined sales of more than $20bn (£12.6bn).
But he said there were other significant drugs coming onto the market in 2014, including a multiple sclerosis treatment from Biogen that is expected to hit $7bn in sales and a tumour treatment from ONO Pharmaceutical that could sell more than $10bn.
The Biotech Growth Trust currently has 62.6 per cent of its assets in what it terms “major” biotechnology companies, in order to benefit from a “reacceleration” in earnings from these larger companies in 2015.
The most recent earnings season in the US has shown the strength of biotechnology companies and has led the sector to outperform the S&P 500 significantly since the sell-off in October.
Mr Janson said there was no obvious “threat” to stymie that outperformance. Valuations were still supportive in the sector, new drugs were being approved at an ever-faster rate, and there was so far no evidence of new regulations that would affect the high prices biotech companies were charging for their drugs.
