Initiation IBT

6 July 2021 Pharmaceuticals & Biotechnology INTL. BIOTECHNOLOGY TRUST Investing in a broad spectrum of the drug industry IBT was established in 1994 to provide institutional and retail investors with the opportunity to participate in global biotechnology and life science companies, from early-stage development via venture capital (SV Health Investors funds) through to global, multinational biotechnology companies. The main aim of the trust is to Source: Refinitiv generate capital growth, while minimising risk, through a diversified portfolio and with an experienced investment management team. Over the last five years, IBT’s Market data NAV has increased 62%, while the share price has increased 92% over the same EPIC/TKR IBT period – the superior returns generally reflected by a share price premium. Price (p) 755 12m high (p) 862 12m low (p) 653 ► Strategy: IBT’s investment objective is to achieve long-term capital growth by Shares (m) 41.38 investing in biotechnology companies that address unmet medical needs. The Mkt cap (£m) 312 trust offers a diversified portfolio of listed and private companies on a global NAV (£m) 293 basis, although the vast majority of investments are currently in the US. NAV/share (p) 710 Premium/discount to NAV 6% ► Market updates: With 89% of the investment portfolio currently in listed Country of listing UK companies, the NAV changes on a daily basis. IBT has a daily update on its Market Main website, produces informative monthly factsheets (https://ibtplc.com/investor# factsheets), and shows the full portfolio of US listed investments quarterly in Description filings with the SEC (https://ibtplc.com/portfolio). International Biotechnology Trust Portfolio management: The experienced team at SV Health Managers LLP was (IBT) is a well-established investment ► trust with the key objective of appointed investment manager of the trust on 1 January 2005. Recent achieving long-term capital growth by evolution within the team has seen the promotion of Ailsa Craig and Marek investing in a global portfolio of Poszepczynski to co-lead managers; both bring specific industry expertise. biotechnology and life sciences companies that address unmet ► Risks: Risk is minimised through portfolio diversification, geographical spread medical needs. and active specialist investment management. In addition, many valuation inflection points in the drug industry are around the time of binary outcomes Investment management team (e.g. clinical trial results), so the trust aims not to be holding an overweight Lead manager Ailsa Craig position in the shares of companies around such time points. Lead manager Marek Poszepczynski Manager (UQ) SV Partners IBT provides investors with the opportunity to Senior advisor Carl Harald Janson ► Investment summary: Investor Lucy Costa Duarte participate in the drug industry, from early-stage development through to full relations [email protected] commercialisation of regulatory approved drugs. The focus is on companies that address unmet medical needs. The five-year CAGR in NAV has been 7.0%, and +44 20 7421 7070 the trust pays an annual dividend of 4% of NAV at the preceding year-end www.ibtplc.com (CAGR 5.4%). Corporate diary January 1H dividend April Interim results Financial summary August 2H dividend Year-end Aug (£m) 2016 2017 2018 2019 2020 *2021E October Final results Gains/(losses) on investments -1.73 48.53 21.59 -13.94 54.13 32.00 December AGM Effect of forex -2.33 0.00 1.05 -0.52 1.77 -20.00 Total expenses -3.52 -3.51 -2.79 -3.44 -3.17 -3.43 Expenses as % NAV 1.6% 1.4% 1.1% 1.4% 1.1% 1.2% Operating profit/(loss) -6.90 45.53 20.23 -17.23 53.85 9.64 NAV 216.7 252.7 262.5 239.6 283.9 293.5 NAV/share (p) 575.1 672.9 699.0 623.9 738.6 709.2 DPS (p) 0.0 23.0 27.0 28.0 24.8 28.4 Yield 0.0% 3.1% 3.7% 3.8% 3.4% 3.8% Analyst *Based on share prices and forex at close of business on 2 July 2021 Martin Hall 020 3693 7075 Source: Hardman & Co Life Sciences Research [email protected] Disclaimer: This research has been paid for by the company. Please read the important disclaimers at the end of this document. Intl. Biotechnology Trust % NAV by size % NAV by development stage Mid-cap Revenue ($2bn to Small-cap growth $10bn) (<$2bn) 35% 38% 9% SV Fund VI Profitable 6% 34% Unquoted Large-cap 4% ($10bn- $30bn) Mega-cap Early-stage 22% (>$30bn) 31% 21% % NAV by therapeutic area % NAV by geography Rare diseases Oncology CNS Europe/UK Auto-immune 4% Infectious diseases US 95% Ophthamology RoW Metabolic 1% SV Fund VI Other 0% 10% 20% 30% 40% Top 10 quoted investments* 2020 Global Company Ticker Size Therapeutic focus Stage sales % NAV rank ($m) 1 Horizon Ther. HZNP >$10bn<$30bn Rare diseases Profitable 2,200 35 7.1% 2 Gilead Sciences GILD >$30bn Infectious diseases Profitable 24,355 14 6.4% 3 Seagen SGEN >$10bn<$30bn Oncology Profitable 1,001 38 5.4% 4 Exelixis EXEL <$10bn Oncology Profitable 742 - 5.2% 5 Alnylam ALNY >$10bn<$30bn Rare diseases Revenue-generating 493 - 5.1% 6 Neurocrine Bio NBIX <$10bn Central nervous system Profitable 994 40 4.8% 7 Regeneron REGN >$30bn Ophthalmology Profitable 5,568 28 4.5% 8 PTC Ther. PTCT <$10bn Rare diseases Revenue-generating 333 - 4.2% 9 Vertex VRTX >$30bn Rare diseases Profitable 6,203 25 3.8% 10 Biohaven BHVN <$10bn Rare diseases/CNS Revenue-generating 63 - 3.7% *Based on share prices and forex on 31 May 2021 NAV and share price Dividends 16 14.0 14.2 14 13.5 12.4 12 11.5 10 8 6 4 Dividend per share (p) 2 0 2016/17 2017/18 2018/19 2019/20 2020/21 First interim dividend Second interim dividend Source: Company data, Hardman & Co Life Sciences Research 6 July 2021 2 Intl. Biotechnology Trust Why invest? Portfolio diversification IBT gives investors exposure to the complete spectrum of pharmaceutical development, from venture capital (VC) into very early-stage companies, via its investment in SV Fund VI through to multi-billion-dollar market capitalisation biotechnology companies. As such, its investment portfolio provides diversity of maturity of a company, therapeutic focus and geographical location. Experienced management team IBT has been associated closely with the experienced team at SV Health Managers LLP for many years. Even though there has been some evolution of the management team recently, the current trust managers still have considerable experience, and possess specific strengths with respect to company analysis and biotechnology market knowledge. This positions it well to deliver the key objective of achieving long-term capital growth. Risk mitigation Apart from portfolio diversification, the managers have adopted a specific strategy to avoid holding overweight positions in companies around the time of a binary outcome, such as an important clinical trial outcome, or a regulatory decision on a new drug. This is a key differentiator from its peers. Harman & Co views this as a very sensible strategy, because history tells us that there are more failures than wins in the development of new drugs. This suggests that, on balance, exposure is much reduced when something goes wrong, although upside potential is also missed when things go well. Even the best and most experienced industry experts do not get everything right, as evidenced recently when the FDA approved, unexpectedly, Biogen’s new drug for dementia, even though the clinical evidence of efficacy was weak. Biogen’s shares closed with a rise of 40% on the day, adding $17bn to its valuation. Active portfolio management Although the trust managers are naturally long-term holders, as part of the risk mitigation process surrounding binary outcomes, there will be active portfolio management. However, it should be noted that the SV team has reduced the churn rate form over 200% a few years ago to ca.100% in each of the last three years. Performance Given that IBT was established in 1994, it has a very long track record. However, the trust has been associated closely with SV (and its predecessor) for about 15 years, during which time the performance has been solid. Performance figures are updated regularly, and can be monitored easily, but, over the last five years, IBT’s NAV has increased 62%, while the share price has increased 92% over the same period. ESG principles There is recognition within IBT of the importance of environmental, social and governance (ESG) issues. The board encourages managers to consider the ESG approach taken by investee companies. Given that the aim of biotech companies is to address the unmet medical needs of patients, there is a natural bias to bring about positive social change. Consequently, there is a natural leaning of the biotech industry to ESG principles. 6 July 2021 3 Intl. Biotechnology Trust Latest results – 2021 interims Key features Active portfolio management Evidence of the investment managers’ strategy to limit risk by not owning shares in companies that are expected to announce binary outcomes can be seen in the active portfolio management. ► Of the top 10 investments at the close of business on 31 August 2020, only four were still significant holdings at the end of February 2021. ► In December 2020, portfolio company, Alexion, agreed to be bought out by AstraZeneca (AZN) for $175 per share (45% premium) in cash and AZN shares, propelling it into the top 10. IBT has used the recent clearance by the US Federal Trade Commission (FTC) to reduce its holding in Alexion, such that it is no longer a top 10 investment.

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