Trustnet Magazine Issue 43 September 2018 | Page 22

Your portfolio
“Many firms are now
encountering a lot of
competition as patents
come to an end on some of
their key products”
The Biotech Growth Trust (580.40%)
IT Biotechnology & Healthcare (466.51%)
International Biotechnology Trust (434.02%)
600%
Healthcare brushed off the
threat, pointing out Amazon
is focusing more on the
supply of medicines rather
than manufacturing.
“There have always been
economies of scale in
procurement, particularly
with generics, and these
guys can have a lot of
volume on the direct side,”
he says.
“Amazon is already
active in over-the-counter
pharmaceuticals via its
Solimo range, which is
manufactured by Perrigo.
So there is nothing really
new here, and while this
incremental creep into
healthcare is continuing,
I think generally it is well
appreciated by the healthcare
investment community.”
500%
400%
300%
200%
100%
0%
-100%
due to a slowdown at the top: “The
industry has matured quite a bit over
the past five to 10 years. A lot of the
big names now have quite significant
market capitalisations, while over the
course of that period innovation has
been dramatic. Many firms are now
encountering a lot of competition as
patents come to an end on some of
their key products,” he explains.
According to Paul Mason, manager
of BB Healthcare – one of the newest
trusts in the sector – higher standards
The threat from Amazon
FE TRUSTNET
PERFORMANCE OF TRUSTS VS SECTOR OVER 10YRS
administration is so far fostering
innovation in the sector with
plans for speedier drug approvals,
including the controversial “right to
try” bill for terminally ill patients.
Meanwhile, US health secretary Alex
Azar has ruled out a key election
proposal that threatened to see the
government negotiate directly with
drug companies for Medicare health
plans – considered an existential
threat to many healthcare
companies.
Even though investors have
returned to the sector, however,
growth has continued to lag, with
valuations at many of the bigger firms
still hovering well below 2015 highs.
This, says Geoff Hsu, manager of
The Biotech Growth Trust, is in part
In January 2018 it was
announced that Amazon
would launch a healthcare
company for the 1.2 million
employees of Berkshire
Hathaway and JP Morgan
in the US and there are
fears that the biotech
sector could be the next
industry to be disrupted
by the online retail giant.
However, Paul Mason of BB
[ BIOTECHNOLOGY ]
24 / 25
Source: FE Analytics
are also playing a role in the decline
of large caps. “We live now in an
age of evidence-based medicine,”
he explains. “Twenty years ago
Pfizer and Glaxo [Smith Kline]
etcetera ruled the world because
they could spend billions of dollars
on marketing. Today, doctors have
greater access to research and so it
really is about how good the drug
is.” This, he says, is leading to fierce
competition from smaller firms,
many based in China, that can now
develop and launch better drugs
faster than larger rivals.
Specialise for success
This shifting landscape is visible in
the Biotech Growth trust. Long the
sector leader, a failed trial at key
holding Celgene (a $63bn company)
followed by a general sell-off in large
caps has hit the trust hard, with
shares barely breaking even since
July 2015. Hsu says the portfolio has
been repositioned, but that it retains
a “healthy weight” to large caps,
which he believes will recover.
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