Christopher
Johnson:
Welcome
to
Morningstar.
My
name
is
Christopher
Johnson.
Today
I’m
joined
in
the
studio
by
Ailsa
Craig,
fund
manager
at
the
International
Biotechnology
Trust.
My
first
question
to
you
is,
over
one
year,
the
share
price
of
the
International
Biotechnology
Trust
dropped
8.38%.
So,
what
do
you
put
this
fall
down
to?
Ailsa
Craig:
We
pay
a
dividend
out
of
capital
at
IBT
and
that
amounts
to
4%
paid
into
instalments,
2%
plus
2%.
So
that
8%
is
the
share
price
move,
but
you’d
add
back
the
4%
to
get
the
total
return
from
our
shareholders.
But
you’re
absolutely
right.
We
have
seen
some
short-term
volatility
and
the
reasons
behind
that
this
year
have
been
mostly
macro.
So,
the
rise
and
fall
of
interest
rates
that
we’re
seeing
on
the
back
of
the
inflation
issue
has
been
causing
a
lot
of
volatility
within
biotech.
Over
the
long
term,
however,
investors
in
IBT
have
seen
a
return
of
over
180%
in
10
years
versus
the
benchmark
of
160%
in
NAV
terms.
CJ:
I
wanted
to
hear
a
bit
about
Gilead
Sciences.
So,
it
is
your
top
holding
at
6.19%.
So
why
are
you
so
bullish
on
this
stock?
AC:
Yeah,
it’s
been
a
fascinating
story,
Gilead,
founded
back
in
the
late
80s.
These
guys
have
been
quite
unusual
in
that
they’ve
actually
reinvented
themselves
after
a
very
successful
franchise.
Lots
of
biotech
companies
have
a
one-hit-wonder,
if
you
like,
and
then
end
up
getting
acquired
or
just
sort
of
diminishing
away.
These
guys
have
reinvented
themselves
not
once,
but
multiple
times.
So,
they’ve
effectively
helped
patients
with
HIV
go
from
what
was
practically
a
death
sentence
to
a
chronic
disease.
It’s
been
absolutely
amazing
what
the
pharma
industry
has
done
and
Gilead
specifically
for
these
patients
over
time.
They
then
made
an
acquisition
in
Hepatitis
C,
and
those
patients
now
effectively
cured,
whereas
previously
they
had
chronic
therapies
for
life
again,
and
they’re
reinventing
themselves
again.
So,
they’re
acquiring
oncology
companies,
cancer
companies.
The
latest
acquisitions
have
been
from
cutting-edge
science
with
cell
therapy
company
Kite
acquisition
and
then
more
recently,
Immunomedics,
an
ADC
company.
CJ:
Amgen
is
your
second
top
holding,
and
its
share
price
has
been
steadily
ticking
up.
What
is
driving
this
run,
and
to
what
extent
does
this
increase
have
to
do
with
this
anti-obesity
injection
MariTide?
AC:
Yeah,
we’re
all
hearing
about
obesity
at
the
moment.
It
is
the
hot
topic.
And
you’re
absolutely
right,
Amgen
is
well-placed
to
benefit
from
the
obesity
market.
At
the
moment,
you’ll
know
that
there
are
two
major
players,
Lilly
and
Novo.
The
magnitude
of
potential
sales
in
this
market
could
be
anywhere
from
$50
billion
to
$100
billion.
Amgen
have
a
pipeline
asset,
so
not
yet
approved,
but
the
early
signs
of
the
data
coming
out
of
that
from
management
have
been
very
positive.
So,
they’re
hinting
at
20-plus
percent
weight
loss
in
a
year.
It’s
got
a
dual
action,
so
a
dual
GLP-1
as
opposed
to
just
one
GLP-1
with
the
competitor
products.
So,
it
could
be
more
efficacious.
It
could
mean
only
monthly
injections
instead
of
weekly
injections.
And
the
benefit
of
that
for
patients
would
be
a
more
tolerable
drug
than
what
we’re
seeing
today.
So,
at
the
moment,
there’s
a
bit
of
nausea
and
vomiting
from
the
Lilly,
Novo
products.
However,
Amgen
say
that
their
drug,
possibly
if
it
proves
out
in
trials,
might
bring
that
down
and
make
it
more
tolerated.
So,
this
is
a
potentially
massive
market
for
Amgen.
So
yeah,
we’ve
seen
a
good
boost
in
share
price
from
those
guys.
CJ:
When
do
you
think
it
will
come
out
to
market?
AC:
So,
the
next
step
will
be
at
the
end
of
this
year,
we
have
Phase
2
data.
So,
in
clinical
development,
there
are
three
phases.
So,
it
would
have
to
go
through
Phase
2
and
then
Phase
3
and
then
file
with
the
regulator
and
then
launch.
So,
it’s
years
away,
but
the
demand
is
so
high.
What
we’re
seeing
right
now
with
the
Lilly
and
Novo
is
they
literally
can’t
make
enough
of
the
stuff.
So,
this
market
is
going
to
be
big.
And
if
Amgen
can
get
a
piece
of
that,
then
they’ll
really
benefit.
CJ:
In
2023,
a
record
number
of
large
healthcare
companies
in
the
US
filed
for
bankruptcy.
So,
has
this
sector
seen
the
worst
of
it
or
is
there
more
pain
to
come,
do
you
think?
AC:
Yes,
so
we
write
a
monthly
blog
and
in
one
of
the
blogs
we
addressed
exactly
this.
What
we’ve
seen
since
the
pandemic
where
there
was
a
big
bubble
like
valuations
in
biotech
on
the
back
of
the
vaccine
discoveries,
et
cetera,
we’ve
seen
a
bear
market.
This
is
a
cycle
that
happens
time
and
time
again.
And
we
did
a
blog
on
exactly
this
topic
and
what
we’d
expect
to
see
at
the
various
different
stages
of
the
cycle.
So,
when
you
get
a
boom,
after
that
you
get
a
retraction
in
valuations,
IPO
window
closes,
fundraisings
dry
up,
M&A
picks
up
and
then
the
IPO
window
opens
up
and
then
you
get
the
whole
cycle
again.
So,
we
have
seen
a
cleanup
of
biotech
companies,
which
we
think
is
no
bad
thing.
So,
a
lot
of
low-quality
companies
have
disappeared,
the
number
of
companies
in
our
benchmark
has
shrunk.
At
the
end
of
the
day
that
means
our
sector
is
sort
of
higher
quality
now.
Maybe
programs
that
were
being
in
pipelines
are
being
streamlined
and
cut
where
money
shouldn’t
really
go.
So,
it
has
happened.
We
think
we’re
coming
out
to
the
other
side
of
that,
and
we
think
it’s
a
better
sector
to
invest
in
now.
CJ:
Do
you
think
that
US
healthcare
could
survive
a
second
Trump
presidency?
AC:
Well,
certainly,
our
sector
during
the
previous
Trump
presidency
thrived
very
well.
So,
the
Republicans
are
known
for
being
very
industry
friendly.
Prior
to
the
pandemic
our
index
actually
rose
40%
and
then
on
the
back
of
the
pandemic
the
whole
of
his
presidency
over
80%.
So,
they
did
well
last
time
and
more
importantly
actually
Trump
appointed
a
very
industry
friendly
gentleman,
Scott
Gottlieb,
to
head
up
the
FDA.
So,
another
presidency
of
Trump
might
be
seen
as
quite
investor
friendly.
CJ:
And
under
Biden
how
has
it
been?
AC:
So,
Biden
has
done
something
extraordinary.
The
biotech
sector,
the
healthcare
sector
has
often
used
as
a
political
football
going
into
elections
and
they
talk
about
drug
pricing
and
that’s
banded
around
as
a
primary
top
agenda
for
the
elections.
This
time
however
the
Biden
administration
have
introduced
within
the
Inflation
Reduction
Act
a
means
for
Medicare
to
negotiate
drug
prices
with
the
industry.
This
is
legislation
of
drug
price
negotiations,
something
that’s
been
discussed
for
decades
and
the
Democrats
have
achieved
it.
So,
I
think
going
into
this
election
we
might
not
see
healthcare
as
a
top
of
the
agenda
because
Trump
is
not
going
to
want
to
bring
up
the
fact
that
Biden
has
achieved
this.
And
Biden
ultimately
–
it’s
more
likely
to
be
geopolitical
events
rather
than
healthcare
we
think
going
into
this
election.
CJ:
We’re
also
in
an
election
year
in
the
UK
and
I
want
to
get
your
view
on
whether
investors
in
this
trust
could
possibly
benefit
from
the
private
sector’s
growing
influence
on
the
UK’s
National
Health
Service.
AC:
Yeah.
So,
taking
a
step
back
what
we
invest
in
is
innovative
new
branded
drugs.
They’re
mostly
companies
in
the
US.
The
privatisation
of
the
NHS
would
probably
affect
investors’
investments
into
hospitals
and
insurance
companies.
That’s
not
where
we
invest.
What
we
should
point
out
though,
the
benefit
that
branded
drugs
can
have
for
patients
tends
to
be
that
it
could
keep
patients
out
of
hospital.
And
the
big
cost
to
society
are
hospitals.
In
the
UK,
we
spend
approximately
10%
of
GDP
on
healthcare;
in
the
US,
it’s
20.
And
within
that,
only
10%
is
on
drugs.
The
rest
of
it’s
made
up
of
hospitals,
doctors,
nurses,
et
cetera.
So,
to
keep
patients
out
of
hospitals
with
new
medications
would
actually
benefit
society
overall.
CJ:
Thank
you
so
much
for
taking
the
time
out
to
speak
to
me.
AC:
Thank
you
for
having
me.
CJ:
This
is
Christopher
Johnson
for
Morningstar
UK.
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