Each week, a professional investor tells us where he’d put his money. This week: Daniel Koller of BB Biotech investment trust.
There are several factors fuelling the strong fundamentals of biotech. These include regulatory approvals of new biotech drugs, vigorous mergers and acqusitions (M&A) activity as bigger companies take over smaller ones, and successful clinical trials of new treatments. In the first six months of 2017, there were 23 drug approvals – more than there were in the whole of 2016.
An ageing population is a major factor in powering innovation in medicine and keeping healthcare spending at a high level. Advances in medical innovation are creating benefits for patients and so the money is being found by governments and patients to pay for them. There are many opportunities for investors to do in-depth analysis to find value in product launches and clinical data updates.
At the recent American Society of Clinical Oncology conference looking at cancer treatments, several companies announced successful clinical trials, especially in the field of immuno-oncology. We think this shows the area will remain a hotbed of drug development in the years to come. In response to this trend, we have increased our oncology weighting, adding holdings in companies investigating cancer immunotherapies such as Kite Pharma (Nasdaq: KITE), Juno Therapeutics (Nasdaq: JUNO) and MacroGenics (Nasdaq: MGNX).
Further positive news comes in the fact that M&A is bouncing back. In the last few years, we have seen more consolidation. The number of companies that want to do deals is increasing, and many of the small- and mid-cap firms are on the radar for potential acquirers. Big pharmaceutical companies have over $500bn in cash to deploy to fill their relatively sparse pipelines of new drugs. In the face of this imperative, consolidation is inevitable.
A prime example of such a move was the acquisition of Actelion for $30bn by Johnson & Johnson (NYSE: JNJ), which was completed last month. This acquisition provided Johnson & Johnson with differentiated medicines and promising late-stage products.
We expect to see a steady stream of clinical results news-flow as 2017 progresses, and a growing number of product approvals compared to 2016. This will attract more investor attention to the biotech sector as a whole – and it should help stocks make further gains.
We are maintaining our approach of building a portfolio of a small number of core holdings, plus some mid- and small-caps that have the potential to grow faster than the market. Growing companies that are poised to become large caps, such as US-based companies Incyte (Nasdaq: INCY) and Ionis (Nasdaq: IONS), are particularly attractive.