The markets tell us what investors are doing. But what, exactly, are they thinking? Edison’s Inside the mind of investors aims to find out. In this edition, we talk to Ailsa Craig and Marek Poszepczynski of International Biotechnology Trust.
After several challenging years, the biotechnology sector appears poised for recovery but what is driving this renewed optimism? Ailsa Craig and Marek Poszepczynski, portfolio managers at International Biotechnology Trust, see multiple catalysts emerging.
The industry itself is growing at a steady pace, driven by the demand for new drugs. People are getting older, sicker and richer,’ explains Craig. ‘We’re seeing the fruition of platform technologies discovered a decade ago. While funding ebbs and flows, that process actually helps tidy up the sector – removing weaker programmes and leaving higher-quality companies.’
Therapeutic focus
The managers have positioned about a fifth of their portfolio in central nervous system (CNS) therapies, targeting conditions like schizophrenia, depression, ADHD, epilepsy, Alzheimer’s disease and Parkinson’s disease. This reflects the growing excitement around CNS innovation and recent M&A activity, exemplified by the recent Karuna Therapeutics deal.
Another fifth of the portfolio targets next-generation oncology treatments, particularly focused on cell therapy, protein degradation and T-cell engagers. However, this is a reduction from historical levels, with the capital being reallocated to other emerging opportunities such as obesity treatments, where the managers see potential across multiple therapeutic approaches outside the current incumbents.
Exhibit 1: Asset allocation by sector
Source: International Biotechnology Trust factsheet. Note: As at 30 November 2024.
Regulatory evolution
The managers highlight how the US FDA’s approach has evolved to accommodate increasingly complex diseases and treatment models. ‘The FDA has become more accommodating,’ notes Poszepczynski. ‘For diseases that might take five years to show definitive results, [the FDA] is now willing to grant conditional approvals based on shorter-term disease progression data, while monitoring long-term benefits.’
2025 catalysts
The managers identify several key events that could move markets next year. ‘The two biggest readouts on the horizon are the Vertex chronic pain data and Novo’s CagriSema combination data for obesity,’ says Craig.
Policy considerations also loom large. The Inflation Reduction Act will identify 15 additional drugs for government pricing pressure, which, Poszepczynski notes, ‘might create some interesting market dynamics.’ While some worry about potential changes under a second Trump presidency, Poszepczynski is measured: ‘When Trump was last in charge, he didn’t make changes to Obamacare. We don’t believe he’ll make major changes to the Inflation Reduction Act.’
Investment approach
The managers employ a flexible, valuation-driven strategy that adapts to market conditions. This has meant reducing exposure to higher-risk smaller biotechs during market stress, then selectively increasing exposure as conditions improve. They maintain a disciplined approach to ‘binary event risk’, reducing positions ahead of critical trial results to manage volatility.
Exhibit 2: International Biotechnology Trust’s performance over five years
Source: International Biotechnology Trust factsheet, Morningstar. Note: Net income reinvested, net of ongoing charges and portfolio costs and where applicable, performance fees, in GBP. The five year performance reflects ex income performance.
Optimistic outlook
Despite recent gains, Craig and Poszepczynski remain optimistic about the sector’s prospects. With ageing demographics driving healthcare demand and signs the IPO window is reopening, they see conditions aligning for what has historically been one of the most rewarding phases of the biotech investment cycle.
The traditional January JP Morgan Healthcare Conference could provide early validation. As Craig notes with characteristic optimism, ‘We’re hopeful people are saving up their news for that. Traditionally, it’s always been a key forum for the sector.’
We would like to thank Ailsa Craig and Marek Poszepczynski for sharing their views in this edition of Inside the mind of investors.
