The Biotech Growth Trust: Four things investors need to know
1. The trust focuses on capital growth via investment in the global biotechnology industry.
The Biotech Growth Trust (BIOG) is managed by Geoffrey Hsu and Josh Golomb at healthcare specialist OrbiMed, which has around $17bn of assets under management and a team of around 150 professionals based in 12 offices across the world, including in New York, Shanghai and London. They aim to generate capital growth from a diversified portfolio of global biotech stocks across the market cap spectrum. BIOG’s performance is measured against the Nasdaq Biotechnology Total Return Index (sterling adjusted). The total return (formerly a capital return) measure reflects the maturation of the biotech industry where more companies are paying a dividend; although the number remains small and BIOG currently does not receive sufficient income to pay a dividend.
2. Biotech industry fundamentals are favourable.
The biotech industry has experienced an extended period of share price weakness, which began in early 2021, during a period of higher interest rates. This turned into the largest absolute, the largest relative and longest drawdown in its history. This share price weakness resulted in very attractive valuations, with the number of companies trading below the value of cash on their balance sheets at a record high. It should be noted that prior industry drawdowns have been followed by periods of significant biotech stock price outperformance.
The valuations are disconnected to industry fundamentals, which are very strong. People refer to the biotech sector as enjoying a ‘golden era of innovation’, across a wide range of drug development areas including oncology, weight loss and dementia. Innovation has historically been the biggest driver of the biotech sector’s performance. The regulatory environment remains favourable, evidenced by another high number of new drug approvals by the US Food and Drug Administration in 2024, following a record level in 2023. Also, M&A within the biotech sector is robust and is expected to remain so, as large pharma companies look to bolster their pipelines ahead of a major 2025–30 patent cliff.
3. BIOG’s small-cap bias is likely to benefit its returns in a declining interest rate environment.
BIOG’s managers employ a strategy that favours smaller (also known as emerging) biotech companies rather than large-cap biotech firms. Although smaller companies can be higher risk, they potentially offer higher rewards. In the major industry drawdown starting in 2021, emerging biotech stocks fell much further than large ones and are expected to outperform when interest rates start to come down. Smaller companies are more likely to be acquisition targets, and they are contributing around two-thirds to the total biopharmaceutical industry pipeline.
While the trust’s performance has proved challenging during a period of biotech share weakness, over the long term, a focus on emerging biotech stocks has proved successful.
4. The trust’s managers can draw on OrbiMed’s extensive resources.
Hsu and Golomb select stocks on a bottom-up basis following thorough in-depth fundamental research, which includes financial modelling, an assessment of research pipelines and identification of potential catalysts. Company meetings are a very important element of the research process. Reasons to initiate a new position include whether an early-stage company is approaching profitability, ahead of anticipated positive clinical data, or if a business is considered a potential takeover target.
While the managers seek out the best potential opportunities across the globe, most of the portfolio is held in US companies, reflecting its dominance in the biotech industry, although BIOG has a notable exposure to China. BIOG’s portfolio turnover is relatively high because of its large emerging biotech exposure, where stocks can be volatile around clinical results news.
Published 22 May 2025
