Biotech Growth (BIOG)

The Biotech Growth Trust’s (BIOG) small- and mid-cap tilt, gearing and focus on potential M&A candidates all make it well set up to maximise the returns in the biotechnology sector as it comes back into fashion after years in the doldrums. Since last July, BIOG has soared as the industry has seen a sharp rally (see Performance). Reducing political risk and a cutting cycle in interest rates have contributed, while we think growth investors have started to recognise the potential in this under-owned sector as they look to diversify from the mega-cap AI trade.

BIOG is managed by industry specialist OrbiMed, with Geoff Hsu and Josh Golomb the portfolio managers. OrbiMed has a huge presence in the biotech space, both in the US and in Asia, the two main sources of innovation. Its investments in pre-IPO, private businesses, contacts from on-the-ground presence in the key cities on both continents, and deep analyst team are all advantages when it comes to picking the best ideas in a space with wide disparities in single stock outcomes.

BIOG has a good track record of delivering substantial outperformance when the industry rallies, but has struggled in a weak market since 2022, which punished exposure to small caps and to China. These factors have worked in its favour in recent months, reflected in a NAV total return of 50.3% over one year and a share price return of 51.3%, as the Discount has narrowed slightly to 8.9%. Geoff and Josh have leaned further into the small-cap exposure, where they still see very low valuations by historic standards and growing interest by large-caps desperate to replace drugs rapidly going off patent in the next four years.