Interview

Our investment philosophy is simple – own the best companies

Interview with Dr. Daniel Koller, Head Investment Team BB Biotech AG.

How is BB Biotech different from regular investment trusts in this space?

BB Biotech runs  a very concentrated portfolio (maximum of 35 companies, which is about half a typical fund). There are very few constraints on the fund managers in terms of individual holdings and each fund is free to deviate from its benchmark as the managers see fit. Finally,it pays a dividend out of capital (5.0% ). Many of our holdings pay no dividends, so our funds offer income sensitive investors an opportunity to participate in the secular growth story across Biotech .


Can you explain your investment approach? Do you invest in large and small caps?

Our  investment philosophy is simple – own the best companies from a total return perspective within our universe. As it is unconstrained, the fund is free to invest across any market capitalization range and geographical area, as long as companies meet our rigorous due diligence requirements, although liquidity is a practical consideration as regards company size.

What do you look for in prospective biotech  companies?

We are looking for companies whose products are potentially transformative to the healthcare paradigm. The right products often gain market access and payor uptake quickly as they are delivering something that the healthcare system wants. In the case of BB Biotech, that is offering novel treatments that serve unmet medical needs, often delivering curative therapies for serious diseases.

Where have you found the best opportunities then?

From a geographical perspective, the majority of investments are in the US market and US-listed companies. There are several reasons for this: the US is the largest healthcare marketplace and has one language and one regulator for drugs and devices, making it the obvious first market for developing new products and services. Furthermore, it has a well-established base of venture capitalists who understand the timeframe and risk/return aspects of healthcare, so many startup companies more readily secure funding there. From a product/technology perspective, the frontiers of medical knowledge continue to advance at a dizzying rate and, with only around 4% of known diseases currently having curative approaches, there is still a huge amount of innovation to come. Put simply, we follow the developments at the frontiers of medical science and then look to see which companies are leading the translation of that knowledge into new products.

Biotech has been a particular outperformer of late. What’s been the driving force behind this?

Biotechnology is the harnessing of the natural protein and DNA-based molecules our own bodies use to exquisitely target a specific process. In the last 20 years, we have exponentially increased our genetic understanding of various diseases, allowing us to address them with novel therapies that target the genes or the proteins that they make. It takes 10-20 years for basic science to become drugs, so the acceleration in new products reflects that academic progress. As such, this is likely to continue for many more years.

There has been a lot of M&A and consolidation in biotech lately. Has this helped? How are you looking to play this?

As the pace of medicine accelerates and the knowledge specializes, it becomes increasingly likely that innovation will come from start-ups than from the big pharma, as was the case 20+ years ago. Sometimes, it is easier and quicker to acquire new competencies than to build out, so we expect this M&A trend to continue. If you focus on the science and own the best companies, it is hardly surprising the industry leaders want to own those same quality assets too, to remain at the forefront of medicine. They really cannot afford to do anything else. However, we do not buy companies in the expectation they will be bought, they must work as an investment on a stand-alone basis. However, we expect to see continued turnover of the portfolios due to M&A.

Why does it make sense to invest in a specialist biotech manager vs a general portfolio manager?

Healthcare is a highly complex and data-driven industry, with biotech being the most data-driven of all its pieces. Specialist knowledge and experience is required to analyze all this data for investment due diligence and that is why we have a specialist investment team a with many decades of combined experience in doing this, as well as experience in managing investments, as our track record clearly demonstrates.

How can the trust complement an investor portfolio? Who might be interested in it?

BB Biotech as a listed fund, can be incorporated into a typical investment portfolio. This approach has the advantage of putting our experienced specialist PM team between you and the underlying holdings, saving the need to spend a lot of time on the complex due diligence described above.