Transcript
Speaker: See you next time.
Speaker: Welcome to Uncovering Trusts, a podcast by Edison Group. I'm your host, Will Manuel, and today I'm joined by Dr. Aaron Atkar, healthcare analyst at Edison, who will talk about the Biotech Growth Trust, whose ticker is BIOG.
Speaker: So, Aaron, thanks for joining us today. Hi, Will. Great to join you here. Please can we start by providing a high-level introduction to the Biotech Growth Trust for those listeners that are less familiar with this investment company.
Speaker: Sure. So the Biotech Growth Trust, alongside its stablemate, the Worldwide Healthcare care Trust, is managed by global healthcare specialist, Orbimed Capital, which has approximately $17 billion dollars of assets under management, with investments in over 500 companies across the globe.
Speaker: Orbimed employs over 130 professionals based across 12 offices around the world, including New York, San Francisco, London, in Israel, Hong Kong, Shanghai, and Mumbai.
Speaker: AubinMed has over 30 qualified analysts with advanced medical qualifications and several are also former chief execs or company founders. Now, the Biotech Growth Trust is managed by Jeff Hsu and Josh Gollum, who seek long-term capital appreciation by investing in high-quality biotech stocks across the market cap spectrum, but favor in smaller emerging biotech companies.
Speaker: Now, while such businesses are often considered riskier, they also have the potential to offer higher rewards. The performance of the trust is measured against the Nasdaq Biotechnology Index sterling adjusted.
Speaker: Okay, great. So um can we hear a little bit more about the trust stock selection process? So, Xu and Gollum employ a bottom-up approach. Stocks are selected after rigorously evaluating the fundamentals of the company.
Speaker: This includes financial modeling and assessment of R&D pipelines and the identification of any potential upcoming catalysts. Company meetings are also a key component of the investment process.
Speaker: The managers favor taking positions in businesses approaching profitability, those where they anticipate upcoming positive clinical trial results, and companies that they consider to be potential takeover targets.
Speaker: The trust holdings are regularly reviewed by the managers in order to ensure that original investment theses are still valid and that positions are sized appropriately. Our portfolio turnover is relatively high. This is due to the focus on emerging biotech stocks, which are often volatile, typically due to clinical trial readouts and their binary event risks.
Speaker: Yeah, that that makes a lot of sense. So now can you give us more insight into the Biotech Growth Trust portfolio? Sure. I'll point out that while managers look for the best opportunities across the world, the majority of the portfolio is held in US companies, so just under 70%.
Speaker: And this reflects the dominance of this region in the global biotech sector. Notably, the trust has increased its exposure to Chinese biotechs in recent months from roughly 6% of the start of this year to round about 17.5% at end June 2025, with the managers attributing this increase to rapid biotech advancements in this region.
Speaker: The remaining 12.5% of the portfolio is held in continental Europe. And less than 1% of the portfolio lies in unquoted companies. At the end of June 2025, the largest holding was Vertex Pharmaceuticals.
Speaker: This is a company co-responsible for the world's first CRISPR-based gene editing therapy, and that made up 10% of the portfolio. At this time, there were approximately 60 holdings corresponding to £200 million pounds of net assets, with the top 10 names making up roughly half of the fund.
Speaker: Okay, thanks for that. And how has the Trust performed in recent years? So, taking a step back, since the Trust's inception in May 2005 to end June 2025, the Trust generated NAV total return of plus 681%, and this compares to the NASDAQ Biotech Index's plus 732% total return.
Speaker: The Trust's share price reached a high in February 2021, in line with the overall biotech sector, driven by an upsurge during the COVID-19 global pandemic. However, in the following couple of years, there was a flight of capital with smaller biotechs experiencing the brunt of this right sizing given their inherent risk profiles.
Speaker: Hence, the Biotech Growth Trust has been underperforming relative to its benchmark in what the managers refer to as an unprecedented valuation compression. Right. Interesting. um Now turning to the sector as a whole, what's the outlook within healthcare, according to the managers?
Speaker: So Xu and Gollum believe that there is still a disconnect in current biotech valuations and are confident that the fundamentals within the biotech industry remain favourable, with multiple underlying themes at play.
Speaker: Ageing populations are increasing the demand for new medicines, and this is driving the development of breakthrough therapies, with notable innovations being seen in oncology, neurodegenerative diseases and obesity.
Speaker: These developments are occurring in parallel with an emergent patent cliff that's being faced by Big Pharma, which should spur M&A activity as these pharma companies look to replenish their pipelines in order to mitigate large amounts of sales at risk.
Speaker: Orbimed has estimated that there's approximately $250 billion dollars of branded drug sales at risk from 2025 to 2030. We also note that roughly 65% of the US drug development pipeline originates in smaller cap biotechs across all therapeutic areas, highlighting the importance of this subsector for the industry.
Speaker: Furthermore, the managers have a net positive outlook on the effect of President Trump's second term, with the administration ultimately looking to reduce regulatory hurdles to drug approvals and accelerate the drug development process.
Speaker: So in summary, this current landscape may be described as a compelling mix of attractive valuations alongside an increase in demand for new biotech innovations, which may represent an attractive entry point.
Speaker: Okay, thank you. Certainly looks interesting. Before we wrap this up, is there anything else we need to discuss about the Biotech Growth Trust? Just a few things to mention, starting with gearing.
Speaker: The managers are permitted to use gearing up to 20% of NAV and has a loan facility priced at 45 basis points above the US s federal funds rates. Net gearing is typically in a range of 5% to 10%, currently at 7.5%.
Speaker: currently that's seven point five percent so There is an active share repurchase program with the Trust's board targeting a maximum 6% share price discount to NAV. However, this assumes normal market conditions, so in volatile markets the discount may be greater than 6% for a prolonged period.
Speaker: At the time of this recording the discount is 7.5%.
Speaker: Biotech Growth Trust has a capital growth objective and given the nature of the industry, it is only the very large mature biotech companies that pay out shareholders. Hence the trust does not pay out a dividend.
Speaker: Right. That makes sense. um So thank you very much for this rundown. It's a very exciting investment trust focused on really interesting sector. ah You've been listening to Uncovering Trust, a podcast by Edison Group.
Speaker: you want to find out more about BIOG and other investment companies we cover, please visit www.edisongroup.com.
