24 BARRON’S September 30, 2019
the key attributes of standard-of-care products
(Eylea, Lucentis, and Avastin), but optimized to
address the biggest issue with standard of care—
namely, the need for monthly or bimonthly injec-
tions into the eye. Data this year suggest that
Kodiak is heading in the right direction. The
stock is around $14. My price target is $22.50.
Thanks for sharing those ideas. David, give us
the venture capitalist’s view of the biotech world.
Schenkein: GV has a broad remit in health care,
from pure therapeutics to delivery solutions to
the payer-provider arena. We look for therapies
that have the ability to change medicine, not
make incremental advances. I will discuss three
recent investments in private companies that
are looking to have a big impact.
The first, Verve Therapeutics, was launched
this year. Gene editing, or the ability to edit
DNA, still needs to be proved as a therapeutic
solution. It is very early on. While most gene-
editing therapies are going after rare diseases,
Verve is going after cardiovascular disease. GV
led the Series A financing round. We’re really
excited about the company. It is creating the first
therapy that could be able to correct a gene in a
rare subset of patients whose cholesterol is off
the charts. Conventional therapies aren’t going to
work. Imagine being able to correct this condition
with a one-time editing of the responsible gene.
We have also invested in Beam Therapeutics,
which launched last year and is working on a
gene therapy developed in partnership with the
Broad Institute and others. Beam is developing
a more precise form of CRISPR gene editing
than exists now. CRISPR is a molecule that acts
like a scissor. It cuts your DNA and can insert a
new strand. Sometimes, however, there are er-
rors in the cutting. Beam has developed a ther-
apy best thought of as a pencil with an eraser. It
allows us to change a single genetic code with-
out cutting the patient’s DNA. It just erases one
that’s problematic and inserts a replacement.
The company isn’t in the clinic yet, but it will be
a disruptive technology if it plays out.
What is your third name?
Schenkein: Verana Health is aggregating huge
amounts of clinical data from around the country
in ophthalmology, neurologic diseases, and poten-
tially other diseases. Aggregating this data will
be useful for physicians, payers, and pharma
companies to help them better understand how
their drugs are working. One area that this kind
of data can impact is clinical trials, by creating
synthetic control arms for clinical trials. Instead
of randomizing patients in a trial to either re-
ceive a new drug or a placebo (sugar pill), you
can compare your new drug to the expected data
from a virtual control arm, based on data from
large numbers of patients in Verana’s database.
This is potentially much better for patients.
Forsure.Thankyou,David,andeveryone.
I
t has been a difficult few years
for funds specializing in biotech
stocks, and investors are pull-
ing money from the sector fast.
More than $11 billion has flowed
out of health-care/biotechnology
funds so far this year, according to
Lipper data from Refinitiv. That is
worse than 2018, when just $430
million had flowed out by the end of
September, and the year before,
when $3.5 billion left.
The fund flight comes as valua-
tions of sector stalwarts decline. In
August 2017, Regeneron Pharma-
ceuticals (ticker: REGN) was trad-
ing at 30 times projected earnings;
it is now valued at just 11 times pro-
jected earnings. Biotech giants like
Alexion Pharmaceuticals (ALXN),
Celgene (CELG), and Biogen
(BIIB) have had similar drops.
Indeed, large-cap names across
the sector have stumbled, as they
struggle with aging patents and the
lightning-in-a-bottle challenge of
replicating the scientific break-
throughs that built the companies.
For investors betting on a bio-
tech turnaround, pure-play mutual
funds and exchange-traded funds
offer less risk than picking individ-
ual stocks.
iShares Nasdaq Biotechnology (IBB)
The IBB, which functions as a Wall
Street benchmark for the sector, is
an ETF that holds shares of about
220 biotech companies listed on the
Nasdaq market. Its makeup is
weighted toward large-cap biotech
companies, which helps explain why
it has lost 14.9% of net asset value
over the past 12 months, 11.8 per-
centage points worse than the S&P
1500 Health Care sector index.
Long-term performance isn’t much
better: IBB has returned 1.1% of
annualized net value over the past
three years, trailing the S&P 1500
health-care sector index by 8.5 per-
centage points.
Fidelity Select Biotechnology Portfolio
(FBIOX)
This fund, with large positions in
AbbVie (ABBV) and Amgen
(AMGN), holds 228 largely biotech
stocks. Like IBB, it is relatively
heavily weighted toward large-cap
companies, with 25% of its holdings
in AbbVie, Amgen, Gilead Sciences
(GILD), and Alexion as of the end of
July. It had a total return of negative
13.6% over the past 12 months,
though it has done better this year,
with a year-to-date total return of
11%. Its historical performance is a
bit lackluster, with a total return of
3.8% over the past three years.
Franklin Biotechnology Discovery (FBDIX)
This fund’s large holdings include
Alexion, Gilead, and Amgen. The
fund has returned 11.1% so far this
year, the best of the bunch, though it
still had a total return of negative
12.7% over the past 12 months. Its
portfolio of 71 equity holdings in-
cludes clinical-stage companies, like
Crispr Therapeutics (CRSP) and
Trevi Therapeutics (TRVI), in
addition to large biotech names.
If those choices appear too
risky, there is another option: mu-
tual funds that invest in biotech but
also own other health-care stocks:
T. Rowe Price Health Sciences (PRHSX)
This fund, managed by Biotech
Roundtable participant Ziad Bakri,
owns biotech stocks along with
stocks from pharmaceutical,
medical-device, and other health-
care subsectors. Bakri told Barron’s
this summer that he was bullish on
biotech: ”There is so much innova-
tion going on right now in health
care, and especially in biotech and
drug development—things that we
once thought were science fiction.”
The fund has a total return of
negative 6% over the past year, but
has returned 10.2% over the past
three years, beating the S&P 1500
Health Care sector index, the IBB,
FBDIX, and FBIOX.
Vanguard Health Care (VGHCX)
Vanguard’s health-care fund, which
has a Gold rating from Morningstar,
also has significant exposure to bio-
tech, with Vertex Pharmaceuticals
(VRTX) and Alnylam Pharmaceu-
ticals (ALNY) among its larger
holdings. This fund has returned
5.8% over the past three years, and
the same so far this year. Its per-
formance over the past 12 months
has been rocky, with a total return
of negative 5.1%.
Biotech Funds
In Need of a Cure
After a spell of poor returns, investors
have been fleeing the funds.
By Josh Nathan-Kazis
TurningaCorner?
Whilethisyearhasbeenbetter,biotechfundshavehadarockytimeinthe
past few years.
iShares Nasdaq Biotechnology / IBB $102.13 6.1% -14.9% 1.1% 2.4%
Fidelity Select Biotechnology / FBIOX 19.01 11.0 -13.6 3.8 4.5
FranklinBiotechnologyDiscovery/FBDIX 135.95 11.1 -12.7 0.7 1.5
T.RowePriceHealthSciences/PRHSX 74.05 10.5 -6.0 10.2 9.9
Vanguard Health Care / VGHCX 192.85 5.8 -5.1 5.8 7.2
Fund / Ticker Recent Price YTD 1-Year 3-Year 5-Year
Source: Morningstar *Annualized
Total Return