You’d think the biotech industry would be worried right now. If American lawmakers push through a ‘follow on’ biologics bill, biotech firms will be forced to compete with generic versions of the drugs it took them years to develop, pushing down prices. But it’s not as easy as that. Biotech drugs don’t just “come about by throwing chemicals in a test tube”, says Geoffrey Hsu, manager of the Biotech Growth Trust (LSE:BIOG).
Made from living cells, these drugs are “difficult to make, so if not done exactly right can result in different reactions, clinical profile and efficacy”. So even if the bill is passed, there’s no guarantee competitors will be able to create generic rivals rapidly. That means biotech should continue to thrive, just as it did in 2008.
Up 26% over one year, Hsu’s fund has been helped by sterling’s drop against the dollar and the defensive nature of the industry. “If someone is dying of cancer, they’ll get the drug no matter how the economy is,” he says. Some shrewd stock picks have also paid off. Life sciences group Tepnel Life Sciences was bought for 27p a share last month by Gen-Probe. At the beginning of 2008, it traded at 11p. More acquisitions are expected this year as big pharma diversifies into biotech.
Focusing on mid-cap companies that don’t need regular infusions of cash, Tsu invests 60%-80% of the fund in firms with a biotech slant that have yet to turn profitable. This might sound like a risky approach to investing, he says, as only a minority of companies will make it to profitability. But “our job is identify which ones will”. An investment trust, the fund trades on a discount of 8.6%.
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The Biotech Growth Trust top ten holdings
| Name of holding | % of assets |
|---|---|
| Amgen Inc | 13.6 |
| Gilead Sciences Inc | 11.7 |
| Genentech Inc | 8.0 |
| Celgene Corp | 6.4 |
| Vertex Pharmaceutical | 5.3 |
| Genzyme Corp | 4.9 |
| Biogen Idec Inc | 4.7 |
| Allos Therapeutics | 4.2 |
| Onyx Pharmaceuticals | 3.7 |
| Infinity Pharmaceuticals Inc | 3.6 |