Biotechnology’s rapid development of the future of medicine shows little sign of slowing down.
Ailsa Craig, joint fund manager at International Biotechnology Trust, says the sector ‘has been ripe with innovation in recent decades’.
With investment and significant developments over recent decades, from the completion of the gene-mapping Human Genome Project in 2003 to the ground-breaking MRNA vaccine work during the Covid 19 pandemic, there is now a much deeper understanding.
This has led to the creation of treatments such as gene, cell and RNA therapies, the evolution of which means we are now able to treat diseases that Craig says were ‘considered untreatable’.
More recently, the innovation process has changed again. The rapid advancement in AI means a revolution in the way biotech players can analyse and process complex biological data, allowing them to do so more quickly and more accurately.
‘The integration of AI in biotechnology creates many benefits, from accelerating drug discovery to advancing personalised medicine,’ Craig says.
Biotech is now the main engine of healthcare innovation, with more than 70 per cent of FDA approvals originating there
At the same time, biotechnology is viewed as a sector that will benefit from structural growth in coming years.
‘Demand for healthcare is forecasted to grow, driven by an ageing global population and rising incomes across the developing world,’ Craig adds.
This comes thanks to a growing global population, projected to reach 8.5billion by 2030, along with increasing life expectancies and ageing populations in major economies.
As a result, biotech is expected to have a long growth runway, making it ideal for long term investors.
Despite this, investing in individual biotech stocks remains a notably volatile endeavour. This is largely because company success in biotech is reliant on the outcome for specific drugs, with clinical trials showing their efficacy and safety, or lack thereof.
Drugs can also be successful but not meet ever higher safety and efficacy bars, meaning they are a commercial failure.
The sector also faces cyclical valuation swings. During times of economic boom or when growth investing is in favour, investor interest rises, but it can then suffer as they divest to more defensive assets when sentiment is ‘risk off’.
This is where diversifying professionally managed active funds like International Biotechnology Technology Trust comes in. It allows investors to gain access to biotech and its growth opportunities, while spreading the risk beyond single stocks.
Ailsa Craig and Marek Poszepczynski, joint fund managers at International Biotechnology Trust
How has IBT performed?
Over three, five and ten years, International Biotechnology Trust has outperformed its benchmark, with a share price rise of 50 per cent, 33.7 per cent and 144 per cent, compared to the Biotechnology & Healthcare AIC sector average of 2.8 per cent, -10.1 per cent and 83.8 per cent, according to Association of Investment Company figures to 28 October 2025.
Over a challenging past year, this has also been the case. The trust delivered a positive NAV total return of 26.1 per cent, in comparison to a 1.6 per cent return for the Biotechnology & Healthcare AIC sector average, according to Association of Investment Company figures to 28 October 2025.
Craig’s fellow fund manager at IBT, Marek Poszepczynski, says that the trust’s financial year ended 31 August 2025, was one of ‘two halves’.
The first half, he says, was characterised by ‘nervousness as markets awaited the outcome of the US Presidential election, followed by a rally in late 2024 once the result was confirmed to be Trump.’
But the positivity didn’t last, as the President rocked markets by setting his sights on tariffs and later drug pricing. Meanwhile, Robert F. Kenedy’s appointment as Secretary of Health and Human Services added concerns for the healthcare sector due to his views on vaccines.
With Trump’s ‘Liberation Day’ tariff announcements and US Food and Drug Administration (FDA) staff reductions, the sector suffered. The Nasdaq Biotechnology Index hit a low point in mid-April before beginning to climb as worst case scenarios didn’t come to fruition. FDA approvals continued at pace and biotech proved to be more resilient than pharmaceuticals to pricing reform.
Poszepczynski said: ‘Tariffs, politics, interest rates, trade policy and drug pricing reform dominated the market narrative, this macro noise drowned out the fundamentals.
‘That makes the trust’s positive return all the more encouraging, especially given the benchmark decline.’
Since the start of the summer, IBT has grown at a much faster pace than the Nasdaq benchmark.
Poszepczynski said clinical milestones and commercial traction are once again driving performance.
Biotech is expected to have a long growth runway, making it ideal for long term investors
IBT’s late-stage focus pays off
With the biotech sector facing considerable volatility in early-stage development, IBT instead chooses to invest in companies that ‘are well on their way to commerciality’.
This means focusing on firms in the phase three trial stage, those filing with the FDA and undergoing review, and those entering the launch phase of their product
These firms, IBT believes, offer the ‘most compelling’ investment opportunities.
Biotech is now the main engine of healthcare innovation, with more than 70 per cent of FDA approvals originating there. A decade ago the majority came from the pharmaceutical sector.
Where biotech shines if in tackling the looming patent cliff that will see some $200billion of pharma revenues lost as drug protections expire.
IBT says more pharma companies may look to acquire late-stage assets, such as those in its portfolio, to replace their lost revenues.
Despite subdued M&A activity over recent years, IBT saw four completed acquisitions over their past financial year: Intra-Cellular Therapies, SpringWorks Therapeutics, Verona Pharma and Blueprint Medicines.’
Craig said: ‘Two of these were the portfolio’s largest holding at the time of the bid.’
Since 31 August, other holdings Metsera, 89Bio, Merus, Akero and, most recently, Avidity Biosciences have all been acquired, which marks IBT’s ninth M&A transaction in 2025 and their 34th since 2020
Avidity Biosciences, for example, is to be acquired by Novartis for $12billion, while Akero and Metsera were purchased by Novo Nordisk and Pfizer respectively.
Craig said: ‘Given the looming patent cliff and continued pressure on large-cap pharma to replenish pipelines, we believe further consolidation is likely in the years ahead.’
She adds: ‘M&A can offer a quick win for shareholders, but if these advanced clinical-stage businesses remain independent, the ultimate rewards may be even greater.
‘Many of our key holdings will be launching their therapies independently over the next couple of years if they are not acquired.’
How to avoid biotech red flags
IBT’s process, Poszepczynski says, ‘is as much about avoiding the losers as it is about picking winners, and experience undoubtedly helps’. This means avoiding ‘red flags’.
‘Having met thousands of companies over the years, our instincts are finely tuned – there are certain characteristics we regularly see that will immediately rule an opportunity out as a potential investment.’
These don’t ‘automatically mean failure,’ says Poszepczynski. Meanwhile ‘the absence of red flags is by no means a guarantee of success.’
IBT splits red flags into three categories: management, strategic and clinical.
Within management, it means watching out for firms where there are conflicts of interest, scientific founders that resist transition to industry professionals and misplaced priorities, such as spending capital on expensive offices, branding and corporate presence over fundamentals.
Concerns will also be raised where company ownership is concentrated in the hands of one entity, such as founders, a venture capitalist firm, or corporate partner, which he says could lead to a ‘lack of alignment with public shareholders and difficulty exiting positions’.
IBT also looks to avoid investing in firms that don’t have a clear innovation pipeline, either because they are spread over too many projects or are simultaneously working on drugs in too many different areas of medicine.
Firms can also present red flags if they have weak patent protection for their intellectual property, or due to discrepancies in their clinical trial reporting, which could indicate poor study design or the omission of concerning results.
To ensure that companies bearing these concerning features aren’t included, potential investments undergo an extensive due diligence process, while IBT also grills management teams.
Craig said: ‘We meet around 200 companies a year, face to face where possible, and this is an enormously important part of our investment process.
‘In a complex sector such as biotech, where outcomes can often be binary, these soft skills and the ability to effectively make informed judgements give experienced active managers the opportunity to add significant value for investors.’
She added: ‘By combining decades of experience with a structured, disciplined approach and the ability to quickly focus in on opportunities with a higher probability of success, we remain confident in our ability to add value for our shareholders over the long term.’
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Past Performance is not a guide to future performance. The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested. Exchange rate changes may cause the value of any overseas investments to rise or fall.
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