Holly Black: Welcome to the Morningstar series, "3 Stock Picks." I'm Holly Black. With me is Ailsa Craig. She's Manager of the International Biotechnology Trust. Hello.
Ailsa Craig: Hi, there.
Black: And today, you're going to tell us about three stocks in the portfolio that you're quite excited about. Where would you like to start?
Craig: Well, I've chosen two oncology companies and one CNS company. And CNS stands for central nervous system. So, the first stock I've picked is the largest of the three. It's $13 billion in market cap. It's actually a Danish company that's called Genmab. And they – in the olden days or in previous times to treat cancer you would give people chemotherapy, which basically just kills all dividing cells indiscriminately. What they've done is, they've got an antibody platform, where they specifically target the tumor itself and not the rest of the body. So, that product is called DARZALEX. It's approved, it's on the market, it's going to sell approximately 2 billion this year and it's partnered with Johnson & Johnson. And so, we like that, because there's no other CD38 targeted drugs out there. So, it's effectively a monopoly at the moment anyway. So, it can command a high price.
Black: Presumably it won't stay a monopoly forever though. How do…
Craig: Yeah. Exactly right. That's one of the characteristics of this sector. You will get competition eventually. But at the moment, it really is the only one out there to treat this particular form of blood cancer.
Black: But do you get the first mover advantage, and people trust your brand, so even if someone else comes along with the same technology…?
Craig: I think certainly in some areas, it's like that. But with oncology, everyone just wants a drug that works. They want something that's efficacious. And this is extremely efficacious for a particular type of multiple myeloma.
Black: Super. What's stock number two?
Craig: So, stock number two, again, is another oncology company. This is a small-cap company. It's about $500 million in market cap. So, it's for more sort of if you have a higher risk appetite, if you like. And that's called Stemline. And again, this is for another hematological cancer. And it's incredibly rare, and they're targeting a molecule CD123 on the cancer cells. And again, no other competition on the market. It's a very small market at the moment, but they're looking at other hematological logical indications to see if it works in those and it could generate more sales from new indications. And this is a company we think won't stay independent for long. It would fit quite nicely with a mid-sized oncology company.
Black: And there is quite a lot of M&A in this sector.
Craig: M&A is the broad theme for the sector. What we've seen over the years is, companies that have products – so the slowing growth, need to regenerate their growth and they acquire up other companies. And it doesn't just have to be small companies. We're seeing large and mid-sized companies being acquired as well.
Black: And presumably, a company that's focusing on such a niche area of oncology, kind of, needs to be bought, because is that profitable to be so niche?
Craig: I think there are definitely synergies, especially if, let's say, a company already has a product within that type of – they are selling into that hospital, for example, already. And you're absolutely right. We have got a fairly fragmented market. So, we are expecting consolidation. We've had a number of IPOs over the last decade, and many companies where it would be much more efficient if they combine. So, we think this is an ongoing theme. And International Biotechnology Trust has approximately four to five transactions a year where our portfolio companies are acquired by other companies.
Black: Very good. So, what is our final stock?
Craig: So, the last stock is a mid-sized company called Neurocrine. That's $9 billion in market cap and that's the central nervous system company. And its drug that they've got launched at the moment – it's actually got two drugs launched now, the lead one, though, is called INGREZZA, and that treats a movement disorder called tardive dyskinesia. And we expect peak sales for that drug to be 1 billion to 2 billion. It's been launched for a couple of years now and growing really nicely. And that's another M&A candidate as well, we believe.
Black: What is that disease and how does the drug help?
Craig: So, patients are antipsychotics, one of the side effects of that is that they get these irreversible movement disorders. I don't know if you've seen that where people are kind of flinching and it's really, really upsetting for the patient, and it doesn't stop. So, even if you come off the antipsychotics, you've got it for life. And this drug basically addresses those movement disorders by working on the synapse within your nervous system.
Black: Super. Well, thank you so much for your time.
Craig: No worries. Thank you.
Black: And thanks for joining us.
