Welcome to the Morningstar series, "3 Stock Picks." I'm Holly Black. With me is Ailsa
Craig. She's Manager of the International Biotechnology Trust. Hello.
Hi, there. And today, you're going to tell us about three
stocks in the portfolio that you're quite excited about. Where would you like to start?
Well, I've chosen two oncology companies and one CNS company. And CNS stands for central
nervous system. So, the first stock I've picked is the largest of the three. It's $13 billion
in market cap. It's actually a Danish company that's called Genmab. And they – in the
olden days or in previous times to treat cancer you would give people chemotherapy, which
basically just kills all dividing cells indiscriminately. What they've done is, they've got an antibody
platform, where they specifically target the tumor itself and not the rest of the body.
So, that product is called DARZALEX. It's approved, it's on the market, it's going to
sell approximately 2 billion this year and it's partnered with Johnson & Johnson. And
so, we like that, because there's no other CD38 targeted drugs out there. So, it's effectively
a monopoly at the moment anyway. So, it can command a high price.
Presumably it won't stay a monopoly forever though. How do…
Yeah. Exactly right. That's one of the characteristics of this sector. You will get competition eventually.
But at the moment, it really is the only one out there to treat this particular form of
blood cancer. But do you get the first mover advantage,
and people trust your brand, so even if someone else comes along with the same technology…?
I think certainly in some areas, it's like that. But with oncology, everyone just wants
a drug that works. They want something that's efficacious. And this is extremely efficacious
for a particular type of multiple myeloma. Super. What's stock number two?
So, stock number two, again, is another oncology company. This is a small-cap company. It's
about $500 million in market cap. So, it's for more sort of if you have a higher risk
appetite, if you like. And that's called Stemline. And again, this is for another hematological
cancer. And it's incredibly rare, and they're targeting a molecule CD123 on the cancer cells.
And again, no other competition on the market. It's a very small market at the moment, but
they're looking at other hematological logical indications to see if it works in those and
it could generate more sales from new indications. And this is a company we think won't stay
independent for long. It would fit quite nicely with a mid-sized oncology company.
And there is quite a lot of M&A in this sector. M&A is the broad theme for the sector. What
we've seen over the years is, companies that have products – so the slowing growth, need
to regenerate their growth and they acquire up other companies. And it doesn't just have
to be small companies. We're seeing large and mid-sized companies being acquired as
well. And presumably, a company that's focusing
on such a niche area of oncology, kind of, needs to be bought, because is that profitable
to be so niche? I think there are definitely synergies, especially
if, let's say, a company already has a product within that type of – they are selling into
that hospital, for example, already. And you're absolutely right. We have got a fairly fragmented
market. So, we are expecting consolidation. We've had a number of IPOs over the last decade,
and many companies where it would be much more efficient if they combine. So, we think
this is an ongoing theme. And International Biotechnology Trust has approximately four
to five transactions a year where our portfolio companies are acquired by other companies.
Very good. So, what is our final stock? So, the last stock is a mid-sized company
called Neurocrine. That's $9 billion in market cap and that's the central nervous system
company. And its drug that they've got launched at the moment – it's actually got two drugs
launched now, the lead one, though, is called INGREZZA, and that treats a movement disorder
called tardive dyskinesia. And we expect peak sales for that drug to be 1 billion to 2 billion.
It's been launched for a couple of years now and growing really nicely. And that's another
M&A candidate as well, we believe. What is that disease and how does the drug
help? So, patients are antipsychotics, one of the
side effects of that is that they get these irreversible movement disorders. I don't know
if you've seen that where people are kind of flinching and it's really, really upsetting
for the patient, and it doesn't stop. So, even if you come off the antipsychotics, you've
got it for life. And this drug basically addresses those movement disorders by working on the
synapse within your nervous system. Super. Well, thank you so much for your time.
No worries. Thank you. And thanks for joining us.