Top 3 Ways to Invest in Biotech Companies

Biotech is booming. Last year, initial public offerings (IPOs) by UK biotech firms raised £234m – more than double the £105m which was raised in 2016[1].

At the end of January, the BioIndustry Association (BIA) declared that the UK’s biotech sector was the strongest in Europe, leading to an instant bump in stock prices on the London Stock Exchange (LSE).

Meanwhile, data from MSCI’s World Biotechnology Index has shown that biotech stocks rose in value by a massive 560 per cent between 2007 and 2017[2].

All of this has led to speculation that biotech stocks will be the investment success story of 2018.

So how can UK investors access the sector?

1. Invest in biotech shares

Unfortunately, the vast majority of the world’s biotech stocks are listed on the New York Stock Exchange, making it difficult (and expensive) for UK investors to access the best variety of companies.

However, there are a few strong LSE-listed performers which are worthy of consideration.

FTSE 250 firm Syncona IT has delivered 48.96 per cent[3] on its share price over the past year, and Worldwide Healthcare Trust has returned a massive 158.71 per cent over the past five years[4].

The Biotech Growth Trust is down by 1.38 per cent over the past year, but up by 122.08 per cent over the past five years.

In the US, Acadia Pharmaceuticals has returned 36.27 per cent[5] over the past five years, while Celgene has delivered 14.48 per cent[6] and Regeneron has returned 15.11 per cent[7] over the same period.

However, it is important to bear in mind the enormous volatility which accompanies biotech shares. Pharmaceutical companies are only as good as their next best-selling product, and drug production is an extremely expensive and risky business.

In the US, medical regulations are notoriously strict, and without regulatory approval, all that biotech firms have to show for years of research is an enormous loss.

2. Invest in a biotech-themed ETF

Biotech ETFs have swept the market over the past few years, as investors searched for low-cost ways to diversify their exposure to the volatility of the sector.

As a result, there is an abundance of ETFs to choose from, offering access to indices such as the Nasdaq Biotechnology Index, the MSCI World Biotechnology Index, and the S&P Biotech Index.

ETFs offer an easy way to split your money across a number of biotech stocks and shares, reducing the risk of making big losses if one or two firms have a bad year due to stalled regulatory approval or expensive law suits.

They track the performance of their index automatically, so investors can benefit from the overall success of the sector. Over the past year, the Nasdaq Biotechnology Index has grown by 16.64 per cent[8], and the S&P Biotechnology Select Industry Index has gone up by 35.34 per cent[9].

3. Invest in a biotech funds

For a few years, investing in biotech funds was the only way to access the market as a retail investor. Fund managers such as Rajiv Kaul (Fidelity),

Sir Christopher Evans (Excalibur) and David Pinniger (Polar Capital) were early fans of biotech investing, and their funds continue to do well. Kaul’s two biotech funds hold more than $15bn in assets under management and both funds – Fidelity Select Biotechnology Portfolio and Advisor Biotechnology Fund – have a history of delivering strong returns.

Pinniger’s Polar Capital Biotechnology Fund has consistently outperformed its benchmark, with an impressive three-year return of 51 per cent[10].

Managed funds are a more expensive investment option, but it is worth remembering that you are paying for the expertise of the fund manager.

Kaul, for example, has been working with biotech investments for more than 20 years, and through Fidelity’s own private equity life sciences group Fidelity Biosciences, he has some insight into the latest developments in the sector.

For less confident, risk-averse investors, managed funds are a great option, although as with any fringe investment, there is no concrete guarantee of continued growth.

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Kathryn Gaw

Kathryn Gaw is a financial journalist based in Belfast, Northern Ireland. She has been writing about personal finance and investment trends for more than a decade, and her work has been featured in the Financial Times, City A.M., the Press Association, and The Irish Independent, among many other publications.