This biotech trust will ben­e­fit from Covid – just not in the way you might ex­pect

Drug mak­ers will go from vil­lains to he­roes if they beat the virus, and pres­sure on the prices they charge for their prod­ucts will ease

The Daily Telegraph - Business - - Business - RICHARD EVANS

NO ONE is likely to make any money from a coro­n­avirus vac­cine, such is the pres­sure for them to be supplied at cost. But the epi­demic will be a shot in the arm for drugs com­pa­nies in more sub­tle ways.

If th­ese firms do ride to the res­cue with a vac­cine or cure – and the chances are “al­most 100pc”, ac­cord­ing to one ex­pert this col­umn spoke to – they will find their im­age in the pub­lic mind trans­formed and pres­sure for con­trols on the prices of all types of drug will di­min­ish. Covid-19 may not make them a penny di­rectly, in other words, but it will make their other prod­ucts more prof­itable for years to come. Drug pric­ing tends to come to the fore dur­ing US pres­i­den­tial elec­tions but the signs are that the in­dus­try will be spared this time. All this will be good news for in­vest­ment trusts

that own the in­no­va­tive firms in­volved in find­ing new drugs and we tip one of them, Biotech Growth, to­day.

This fund is run by Or­bimed, the spe­cial­ist Amer­i­can in­vest­ment house that also man­ages World­wide Health­care, which has gained al­most 50pc since we tipped it in De­cem­ber 2017.

There is some sim­i­lar­ity be­tween the two port­fo­lios but whereas World­wide Health­care owns a broad range of health-re­lated stocks, Biotech Growth is much more fo­cused on the dis­cov­ery of new drugs.

Peter He­witt, who runs the BMO Man­aged Port­fo­lio Trust, has had a stake in Biotech Growth since 2008. He said: “It did very well early on, then had a cou­ple of years of go­ing side­ways when it bought a lot of ma­ture biotech busi­nesses – of which there are many in Amer­ica – at low val­u­a­tions. About a year ago it de­cided that its edge over the com­pe­ti­tion was its huge re­search team and that it would make use of it by chang­ing the port­fo­lio to two thirds ex­po­sure to emerg­ing biotech firms.”

The move has paid off: the trust’s net as­set value rose by 67pc in the year to the end of May.

“Amer­i­can reg­u­la­tors have been pre­pared to ap­prove drugs more quickly and there is a lot of merger and ac­qui­si­tion ac­tiv­ity in the sec­tor,” Mr He­witt said. “The fund’s as­sets have risen a lot and it has had a lot of wins.”

He warned in­vestors that the biotech trust would be more volatile than World­wide Health­care but said it was “the way for pri­vate in­vestors to play biotech”.

“They [Or­bimed] are the ex­perts in this, they know what they are do­ing and have achieved great per­for­mance. Their re­sources have suc­ceeded in un­earthing the right stocks among the emerg­ing biotech firms.”

Per­haps sur­pris­ingly after such strong gains, the trust is avail­able at a small discount. Like World­wide Health­care, it’s one to buy and hold on to: the need for new vac­cines and treat­ments is never go­ing to go away. Questor says: buy

Ticker: BIOG

Share price at close: £12.72

Up­date: Se­cure In­come Reit

Last month we re­ported that one of this prop­erty trust’s big­gest ten­ants, the Trav­elodge ho­tel chain, was seek­ing a “com­pany vol­un­tary ar­range­ment” or CVA to ease its com­mit­ments to cred­i­tors dur­ing the pan­demic.

The CVA was approved and last week Se­cure In­come said it had now re­ceived 100pc of rents due for the June quar­ter, al­low­ing for agreed de­fer­rals and re­duc­tions, while just 0.2pc of March rents re­mained un­paid.

Stifel, the bro­ker, said it now ex­pected earn­ings per share of 10.2p this year, com­pared with the 14.4p it fore­cast pre­vi­ously, and 12.9p in 2021, from 15.2p. “In 2022, when rental in­come will re­vert to its orig­i­nal path, our fore­cast is 16.3p, from 16p,” it said. It pointed out that the trust had suf­fi­cient re­serves to main­tain the div­i­dend if it chose. Hold.

Up­date: Scot­tish Mort­gage

The trust is to in­crease its max­i­mum ex­po­sure to un­listed com­pa­nies from 25pc to 30pc. On Tues­day the shares reached a record high. Hold.

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