Fund Characteristics
Launched in June 1997 as the Reabourne Merlin Life Sciences Investment Trust, the trust’s name was changed to Finsbury Life Sciences Investment Trust in September 1999 when the then investment manager was taken over by Close Brothers. The original investment mandate had assumed Europe’s importance in the global biotechnology market would increase but this did not happen. So in May 2005 following consultation, the Board adopted the current investment mandate, which changed the focus to global emerging biotechnology companies. Reflecting the new mandate, the name was changed to Finsbury Emerging Biotechnology Trust and OrbiMed Advisors LLC (“OrbiMed”) was appointed as investment adviser. The trust’s name was changed to The Biotech Growth Trust (“BIOG or the Company”) in July 2007.
OrbiMed is the world’s largest independent specialist healthcare fund manager, with assets under management of over $5bn. This New York based group, with offices in Shanghai, Mumbai and Tel Aviv, has been the investment manager since 2005. The portfolio is managed by Geoffrey Hsu and Richard Klemm, who are part of a team of over 40 investment professionals who apply a very collaborative approach to investing in the healthcare sector.
Since 2000, the biotech sector has matured considerably and now consists of several hundred quoted companies, the majority in the US. BIOG invests in emerging companies with market caps of less than US$3bn, that are as yet unprofitable, as well as the major biotech companies which are larger and already generating profits. The BIOG portfolio normally consists of around 40% in major cap companies, with the remainder in emerging biotech companies
The investment process is research intensive, reflecting OrbiMed’s view that a focused portfolio of conviction stocks will lead to superior performance. The focus is on those companies that have a catalyst for an investment thesis and the best ideas are selected to form a core list of around 30 to 40 stocks. This list will tend to consist of all the profitable companies (3-10% positions) and 20-30 emerging companies (1-5% positions). The remaining companies in the biotech sector are actively followed by OrbiMed’s team of analysts who run valuation screens and meet management at least annually.
OrbiMed typically looks to buy Biotech companies 2-3 years before profitability – they see profitability as an inflexion point with companies benefiting from improved liquidity and higher valuations, partly because many investors are only able to buy profitable companies. OrbiMed will look to gain an “edge” over other investors through its scientific expertise, including the ability to predict the success of drug trials based on clinical data. OrbiMed uses its extensive medical and scientific experience to review results of clinical trials. Based on such analysis, they predict the success of future trials and ultimately the potential success of the drugs.
Biotech is regarded as a high risk sector and this fund is exposed to emerging biotech companies where the risk/reward potential is considerable. However, this risk is mitigated somewhat by the portfolio’s diversification and the inclusion of profitable large cap names.
In early 2005, the Company introduced a discount control mechanism, with a commitment to protect a discount of 6% through the buyback of shares, which are then cancelled. This active policy has successfully kept the discount to within acceptable limits.
In 2007, the Board of the Company appointed Frostrow Capital LLP as Manager, Administrator and Company Secretary, responsible also for marketing and promoting the Company. This is an increasingly popular model for investment companies, whereby the Board separates the investment management function from the remainder of the ancillary services required by an investment company. This ensures that the advice and services the Board receives are truly independent of the investment management function.
In December 2010, the Company’s broker, Winterflood Securities, said this about the Company:
“In our view, this fund benefits from a specialist and well resourced management team with strong industry specific experience. For those who are looking for exposure to the Biotech market, we believe The Biotech Growth Trust provides attractive, well-managed exposure.”