International Biotechnology Trust plc (IBT) Earnings Call Transcript & Summary

Well, hello, everyone, and welcome to the International Biotechnology Trust Update coming to you today from the Schroders headquarters in the heart of the city of London. I'm Roland Jones, I work for Schroders on the Investment Trust team. I'm delighted today to be joined by your 2 fund managers, Ailsa and Marek who will be answering questions on IBT over the next 5-or-so minutes. So Ailsa, what exactly is IBT and what does it do?

Thank you, Rollie. Yes. So IBT is a closed-ended fund listed on the London Stock Exchange. It's approximately GBP 300 million in size and invested across the whole spectrum of the biotech industry from early ideas and companies coming out of the university, all the way up to the mega cap, cash flow profitable companies over -- based over in the U.S. Marek and I co-lead the fund. It's our 3-year anniversary coming up in March '24, another anniversary of the fund itself. So the fund was founded back in 1994, so this year will be the 30-year anniversary for the trust. And just one thing to add, the company does pay a dividend. So 4% of NAV each year currently is paid out to shareholders.

Wonderful. Well, I mean it sounds quite an exciting sector, Marek. What are the main drivers of the biotechnology sector?

Thank you, Roland. To begin with, we are graying, we get older, we are getting more of us in the world. So that's a good tailwind if you want to see it from that perspective. Medical innovation has made us live longer, which means that we can take medications for longer. We tend to get sick when we -- when the ailments start to kick in at the age of 50 or thereabouts. So we live longer and longer. So that's a tailwind that's been going on for many years, and we believe it will be continuously doing so. When you think about the ecosystem of biotech and pharma, which kind of interacts with each other, majority of drugs approved nowadays, I would say, come from biotech or innovated in universities, meaning that the pharma needs to acquire biotech, and this is the industry we work with. There are a lot of M&As in the industry that drives the sector from a valuation perspective.

Okay. So Ailsa, historically, biotechnology may have picked up an undeserved reputation for being higher risk. What are the risks inherent in biotechnology today?

Yes. So I guess there are 2 risks that we're aware of. There is company risk. Now as you know and most people would be familiar with, companies can trade down hard if they read out a clinical trial and it's negative. And the same is true on the upside. We can diversify around that risk through owning a number of companies. We've got circa 70 in the fund now, for example. So that lessens that risk. We also manage each individual investment by understanding when clinical trials are being read out, and then we can reduce our weighting in that position going into the event to protect capital and preserve capital. Another thing we do is we take a whole look at the portfolio and think what proportion of the portfolio is in the kind of smaller, slightly more volatile names and what proportion is in the cash-generating profitable names, and we can tilt that weighting depending on where we are in the business cycle. Back in the pandemic, we saw bubble-like valuations in some of biotech companies. And we stepped to the sidelines and invested more in the defensive names. And we're actually doing the inverse of that now. We're now dipping our toes back into the small cap names and inherently that will increase the volatility of the fund and should be able to capture any returns in a recovery.

It sounds a pretty sensible way of reducing risk. So a question for both of you here, how does your background and experience help you navigate the pitfalls in the biotechnology sector.

Yes. So I studied biology at university. So I'm scientifically trained and really understand the science behind the innovation in these companies. And obviously, I've been following biotech now since I left university in 2001, so many years under my belt. Marek?

I am similar background. I have a Masters in chemistry and finance. And in contrast to Ailsa, I worked a couple of years, 15 years actually in the industry, looking at companies in-licensing and out-licensing of projects and companies. And together, we kind of always debate which companies to invest in and how and why. And I think the dynamic works very well when investing in publicly traded companies.

And we should point out, Marek used to work in biz dev in the biotech industry. So he really understands what pharma are looking for, how they think, and we've had a good hit rate on M&A coming out of the fund. We've had a number of deals benefit the NAV.

So look, we're all really excited at Schroders that you've joined the firm. But what was the reason for the Board's move?

The Board went through a very competitive process over the past 12-or-so months. Over 20 people were interested in taking the mandate. Schroders won that mandate. I think the reason behind that was because each party won, if you like. So Schroders have a ventures biotech business. They also have a business in big pharma health care funds, but they don't have what's in the middle. And IBT slots rather nicely into that. We as Fund Managers have access to the insights from the venture team and the insights from the pharma team. So everyone sort of gained something from this move. And then also on top of that, the Board were impressed with the strength of the sales team, and they have ambitions to grow the Trust.

Well, that's right. And we look forward to working with you both. Okay. But Marek, one last question. Why should an investor consider biotechnology at this stage in the cycle?

Yes, it's a really good question. To begin with, you need to think about how long a drug takes to develop. It usually takes from the bench to approval at least 10 years, if you have a normal drug in development. So the sentiment of the industry or valuations in the stock market can change several times during that period. But the thing is, fundamentally, the pharma and biotech industry is in a good health. We have new drugs coming through. And also biotech historically has been very sensitive to high interest rates. And with -- if that abates over time, we see a good opportunity for the industry to recover.

Wonderful. So some exciting prospects it would appear for the biotechnology sector. Thank you very much for listening. Goodbye.