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This week on The Armchair Trader podcast we talk to BB Biotech (SWX:BION), the $4.5bn Swiss-listed investment fund, about prospects for the biotech sector in 2022. Dallas Webb, portfolio manager for the fund, joined us to discuss, among other things, their giant trade on Moderna which went amazingly well for the fund in 2020.

BB Biotech is one of the world’s largest investors in fast-growing biotech stocks. It focuses on listed companies that are developing and commercialising novel drugs that offer sound value for the healthcare system. As we hear from Webb on the podcast, innovation is the watchword for the company: it looks for companies that address areas of significant, unmet medical needs and which have above average sales and profit growth potential. The fund investors across a range of opportunities, not just large-cap plays like Moderna.

A successful biotech strategy requires a team of experts who understand what they are looking it when it comes to reviewing R&D activities within a biotech company. Webb explains BB Biotech’s strategy in this respect, as well as how the team evaluates the prospects for new drugs and their potential for crossing that critical FDA-approval fence. Webb sheds some very useful light on the FDA approvals process, how it works, and where potential issues can crop up for companies.

BB Biotech is also not just concentrating on immediate returns, although it did well with some of its trades during the pandemic, as focus turned to what biotech firms could achieve in terms of developing solutions (e.g. vaccines, but also accurate testing for the virus). In many ways the pandemic helped to illustrate the value of the sector. We discuss the overall impact of the pandemic on the sector and how biotech companies navigated their way through it, e.g. how they managed trials during lockdowns.

We look at both long-term and short-term opportunities, and how it is important for investors to pay attention to programs that are developing some of the next generation medicines which could revolutionise healthcare. This includes developments like RNA platforms and cell and gene therapies. This is how BB Biotech is able to target 15% returns per annum over the medium to longer term investment horizon. We talk about the increasing use of artificial intelligence in the development and indeed the approval of new drugs.

Webb sheds further light on the IPO market for biotech, the value for biotech companies going public, and when it is better for a company to stay private.

BB Biotech uses various asset classes to access the biotech sector.  Apart from investing directly into the shares of listed biotech companies it also takes positions in unlisted companies, corporate bonds and options on a range of underlying assets. It commits to keep 90% of its portfolio in listed companies with 50% in equity investments. Corporate bonds are used as an alternative when stockmarket trends look more negative.  On the podcast we also get a chance to discuss the fund’s risk management policies, and how they apply to smaller companies in the portfolio.

Please note this article does not constitute investment advice. Investors are encouraged to do their own research beforehand or consult a professional advisor.

Stuart Fieldhouse

Stuart Fieldhouse

Stuart Fieldhouse has spent 25 years in journalism and marketing, including as a wealth management editor for the Financial Times group, covering capital markets and international private banking, and as an investment banking correspondent for Euromoney in Hong Kong. He was the founder editor of The Hedge Fund Journal.

Stuart has worked at CMC Markets, supporting the re-launch of its global financial spread betting and CFD trading platforms. He is also the author of two books on trading, published by Financial Times Pearson. Based in The Armchair Trader’s London office, Stuart continues to advise fund managers, private banks, family offices and other financial institutions.

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