How to tackle biotech investing

Ever wonder what the next major illness will be?

It may be an inflammatory, neurological or degenerative disease of the brain, predicts Bob Deresiewicz, partner and senior vice president at Wellington Management Company. He manages the Renaissance Global Health Care Fund.

Based on this forecast, he says investors interested in the healthcare sector should look at biotechnology companies researching those specific fields.

When doing their own research, Deresiewicz suggests people “keep abreast of all the latest developments in the important therapeutic areas.”

Read: Investing in biotech – It’s a science

It takes years and decades to find cures, he says, since it takes a while for “diseases to reach a point where enough about them is known that they can be attacked.”

For instance, researchers spent decades learning about viruses like HIV and Hepatitis C—a virus that wasn’t discovered until the 1990s—before they were able to develop drugs that helped patients.

Once researchers reach this point, they understand “the full molecular genetics [of a disease] and its mechanisms.”

The need for in-depth, prolonged analysis of companies is precisely why Deresiewicz spends his “days thinking about [medicinal] drugs,” as well as about whether they’re going to work.

“Portfolio construction is just a derivative of that [process],” he adds, saying “when I look at the holdings [in my portfolio], I want to know in each case which drug, or drugs, within that company is the reason I have that company in my portfolio.”

He sizes his positions based on three factors:

• current market valuations;
• the likelihood of success of each company; and
• future market opportunities.

Deresiewicz says he analyzes more than 200 biotech stocks, both public and private. Most are these are located outside of Canada, given the vast majority of the healthcare sector is domiciled abroad.

“While Canada does have a biotechnology industry, [it’s] sprinkled around Toronto and in Vancouver,” he says. “It’s much smaller and much less diverse than the total universe of biotechnology companies and programs.”

Most people get access by investing in ex-Canadian companies.

Read: Financing flat for Canadian biotechs: E&Y

They look at countries like the U.S., says Deresiewicz, since areas like Boston, San Francisco, and Research Triangle Park in North Carolina are quite active; “these innovation centers spit out the next generation of biotech companies, some of which become enormous players.”

Although there are companies in Canada, he says looking abroad is critical for clients who want to tap into global products, diverse offerings and innovation.

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