Questor: this biotech trust will benefit from Covid – just not in the way you might expect

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

In May 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.

Questor says: hold

Ticker: SIR

Share price at close: 271p

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Update: Scottish Mortgage

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

Questor says: hold

Ticker: SMT

Share price at close: 824p

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