Favourable biotech fundamentals prevail
The central message that Hsu and Golomb wish to continue to convey is that the current
performance gap between the biotech sector and the broader market is not justified,
and represents a stark disconnect from current favourable biotech industry fundamentals.
They highlight that innovation remains the key driver of value creation in the sector,
and reference several important biotech breakthroughs between the last two May AGMs
to reflect this. Notably, ivonescimab, a novel first-in-class PD1/VEGF bispecific
antibody candidate, is being developed for non-small cell lung cancer by Akeso Biopharma
(a Chinese biotech in which BIOG holds a position) and Summit Therapeutics (a US-based
company, partnered with Akeso for this programme). In a recent Phase III trial (HARMONI-2)
ivonescimab achieved a 49% reduction in disease progression relative to the current
standard of care, Keytruda (Merck’s blockbuster drug that generated $29.5bn in sales
in 2024). If approved, ivonescimab is expected to become a mega-blockbuster drug.
Another important breakthrough is Gilead’s lenacapavir, which was recently approved
for pre-exposure prevention of HIV. This is an injectable medicine to be taken every
six months, which was shown in trials to prevent >99.9% of HIV infections, even when
engaging in high-risk behaviour.
Hsu and Golomb also highlight some US Food and Drug Administration (FDA) approvals
for biotech products that represent a series of important ‘firsts’, in terms of disease
treatment, new technologies, or mechanisms of action. These range from being for smaller
indications (such as congenital adrenal hyperplasia) through to more prevalent indications
(such as moderate to severe acute pain). Collectively, this showcases the high levels
of innovation within the biotech sector, and its potential value creation.
From a more top-level perspective, Hsu and Golomb identify oncology as a broader disease
area that they believe is primed for further future innovations, with ageing populations
being a key reason for high demand for new breakthrough therapies. Oncology continues
to be the largest therapeutic area in the healthcare space, representing a c 25% share
of the entire treatment market. According to Evaluate Pharma, sales in this subsector
are projected to reach c $360bn by 2030, a $172bn increase from 2023. While, historically,
cancer treatments were limited to surgery, radiation and chemotherapy approaches,
innovative new technologies now include:
- Cell and gene therapies, which offer the potential for more durable effects compared
to chemotherapy.
- Antibody-drug conjugates, which involve loading antibodies with chemotherapeutic agents
for more specific targeting.
- Bispecific antibodies, which can bind to two different therapeutic targets.
- Targeted therapies, which are designed for specific genetic mutations.
- Radiopharmaceuticals, which use more targeted radiation compared with historical radiation
usage.
- Cancer vaccines, which are a type of immunotherapy harnessing the natural cancer-attacking
abilities of our immune systems.
Collectively, these new technologies, primarily developed by biotech companies, have
the potential to provide improved outcomes for cancer patients. Each of these approaches
has shown promise in successful clinical trials and five out of six have products
approved and on the market. The managers maintain their favourable outlook on the
oncology subsector, and believe that as technologies continue to advance, cancer will
shift to the ‘chronic disease’ category as more curative treatment options are developed
over the coming decades. They believe that these advancements will also be driven
by novel screening technologies and molecular diagnostics, individual patient genetic
sequencing and more personalised drug treatment approaches. Cell and gene therapies
in particular represent a significant area of interest, and while there are currently
only around 30 approved by the FDA (excluding blood products), Hsu and Golomb expect
this could increase by 10x over the next 30 years, as safety and efficacy profiles
of these types of products are set to improve.
Biotech innovations are well represented in BIOG’s portfolio, including antibody-drug
conjugates (14.0% of NAV); gene therapies and gene editing (18.7%); cell therapies
(2.3%); multispecific antibodies and T-cell engagers (13.1%); and oligonucleotide
therapeutics (14.1%). We note that there is some overlap of NAV exposure between these
novel technologies.
The regulatory environment presents both headwinds and tailwinds
The managers maintain a net positive view on the regulatory environment, commenting
that the FDA remains constructive, wanting to accelerate the development of new medicines.
Within the FDA, there are different departments for drug and biologics approvals:
the Center for Drug Evaluation and Research (CDER) and the Center for Biologics Evaluation
and Research (CBER) respectively. Encouragingly, there have been c 450 FDA approvals
in the last eight years, with the rate of approvals beginning to increase from 2017,
from the start of President Trump’s first term in office. As shown in Exhibit 2, the
number of new annual approvals has remained at an elevated level, and Hsu and Golomb
expect this to extend through Trump’s second term.
While the managers acknowledge that political headlines have been a headwind for the
sector, they believe that the positives outweigh the uncertainties. Uncertainties
include the appointment of Robert F Kennedy Jnr as head of the US Department of Health
and Human Services (HSS), as he is a vaccine sceptic, although he has toned down his
rhetoric. FDA commissioner Martin Makary is expected to continue the trend of a high
number of new drug approvals. Although there has been a focus on cost reduction, FDA
drug reviewers are paid for by pharma company Prescription Drug User Fee Act (PDUFA)
fees, and there is no intention to cut drug reviewers. Interest rates could stay higher
for longer, as although Trump wants lower 10-year bond yields, his tariff policy is
likely to be inflationary. However, we note that tariffs are more likely to affect
commercial-stage pharmaceutical companies, rather than biotech companies.
The regulatory backdrop has been clouded in recent months by leadership turbulence
at the US’s health-related administrations. Notably, Dr Peter Marks was forced out
of his role as CBER director in March 2025, having publicly cited lack of scientific
transparency and concerns about politicisation of the agency. Dr Vinay Prasad was
appointed in mid-2025 following the departure of Marks, but he resigned abruptly after
less than three months in the post amid controversy over gene-therapy regulation.
He was later reinstated by HHS leadership, adding uncertainty to the policy direction.
There has been a wave of CDER resignations this year, suggesting broader internal
unrest and staff attrition tied to organisational upheaval. More recently, Dr Susan
Monarez (former director at the Centers for Disease Control, CDC), was fired less
than a month into the job, apparently due to her failing to back the prevailing vaccine
policy. Upon departure, Dr Monarez accused Kennedy Jnr of weaponising public health.
Several other senior leaders at the CDC have since resigned, and there has been a
complete replacement of a key vaccine committee on immunisation practices. This has
implications beyond the US, potentially negatively affecting global health. Collectively,
this turbulence has created some additional investor uncertainty over the potential
for regulatory delays, albeit with most of the focus on vaccine development, in which
biotech companies are typically less involved.
Key positives of President Trump’s second term include an overall aim of reduced regulation,
and wanting to remove regulatory hurdles and accelerate the drug development process.
Inflation Reduction Act Medicare price negotiations are due to start in 2026, but
with the Republicans controlling Congress, drug price reform could be amended or repealed
and pricing exclusivity for small-molecule drugs could be extended from nine to 13
years. Also, changes in Federal Trade Commission leadership should be positive for
M&A as an outgoing commissioner had blocked some proposed transactions. Trump’s economic
policy is likely to be supportive for the biotech sector, with potential extension
of tax cuts or a reduction in corporate tax, as is the administration’s generally
pro-innovation stance.
