Investors in search of sectors and asset classes that still uphold well during difficult market conditions may just find one in the biotechnology industry. While the overall sentiment in the economy has been dampened by major downfalls, the biotech sector keeps its ground.

“Biotech is primarily a technique of applying the biotechnology code, cells and process to produce products and therapies to treat fatal illnesses, like cancer, HIV and hepatitis,” explains Ms Amy Cho, regional head of Business Development, Asia Pacific ex-Japan for both Pictet Funds and Pictet Asset Management.

She says that whether the market is up or down, people with these illnesses still need to get their treatment. So in a way, the income of related companies will be very steady.

“Even if the illness has been cured, people still need to sustain themselves. This is a very long-term driver for these [biotech] companies,” Ms Cho adds.

Based in the Hong Kong office, Ms Cho is jointly responsible for developing businesses and client relationship management activities for both the asset management and fund distribution for Pictet in the Asia Pacific ex-Japan markets.

Founded in 1805, Pictet is one the largest private banks in Switzerland. Headquartered in Geneva, it has presence in 19 cities worldwide including Milan, Paris, Frankfurt and Zurich in Europe and Singapore, Hong Kong and Tokyo in Asia.

In its more than 200 years in operation, Pictet has diversified into other segments. Ms Cho says the company’s four core businesses are private banking, global custody, asset management and funds development.

Pictet is a privately-owned institution where its seven partners remain actively involved in the management and day-today operations of the business. Ms Cho looks after business development activity of Pictet’s funds distribution as well as the institutional marketing efforts of the asset management aspect. She graduated with a degree in Industrial Engineering from the University of Hong Kong. Her first exposure in the finance industry was with Citigroup where she worked as a trainee in 1989. She handled global custody and learned about fund managers.

She credits this stint at Citigroup for providing good training to people like her whose exposure to the fi nance industry was very limited in the beginning. After 11 years, she transferred to HSBC Asset Management then to First State Investment as director of Sales and Marketing before joining Pictet in April 2006.

Ms Cho says, “I really enjoy it. It is a privately-owned institution and it is very entrepreneurial – quite efficient because you don’t have a lot of hierarchy or layers of reporting line. So you can get things done.”

Part of Ms Cho’s responsibility is to deal with intermediaries – which are mostly banks, insurance companies and local asset management companies – and forge partnerships with them towards having Pictet funds distributed to end investors. “In Europe, Pictet is a very established and reputable name. But in Asia, we are not that visible so far,” Ms Cho comments.

Using an open dialogue strategy, where potential partners and senior managers in Europe also take active approach, Ms Cho hopes to strengthen Pictet’s business relations and brand presence in the region.

As wealth accumulates in the institutional and general investor level in Asia, Pictet has seen the importance of being able to cater to the changing needs and demands of the market.

“We feel that we shouldn’t constrain ourselves. The end client is changing and in order to adapt ourselves we have to further expand our distribution network, not just in private banks but also the commercial banks that have a focus on serving the wealthy customer,” Ms Cho says.

Pictet prides itself in having varied selection of over 90 funds. Other than the equity and fixed income focused funds, it also carries a selection of specialist global theme funds that ride on issues such as climate change and other threats. These funds focus on water, clean energy, demographics, global ageing population, biotech, generics and premium brand.

BETTING ON BIOTECH

Among the several funds that Pictet has, Ms Cho singles out the Biotech Fund for the sector’s long-term growth prospects.

Launched in December 1995, the Pictet Biotech Fund has grown to US$2.9 billion as of end July 2008. It invests in companies with activities in the biotech sector. These can be diversified biotech, pure play biotech, drug discovery and life sciences tools which have commercial potential.

In their end July report, managers of the Pictet Biotech Fund say the sector continues to remain resilient as it posted solid earnings during the second quarter of the year. Apart from large cap companies recording better than expected revenues, the series of mergers and acquisitions (M&As) in the industry has provided positive sentiment. Case in point is the 15.7 per cent growth in the Nasdaq Biotech Index in July, which was at a 52-week high.

Ms Cho explains that biotech is a highly specialized industry where barrier to entry is high. It takes about 12 to 16 years for drugs to be researched and approved by drug agencies like the US Food and Drug Administration (FDA). Not all pharmaceutical companies also have research and development capabilities, so they instead acquire other companies.

Last year, there were seven M&As which recorded 40 per cent premium. Th is year, there are already 11 with premium going up to 87 per cent. Ms Cho says it’s because valuations in the industry remain attractive at 19 times. And because biotech companies’ earnings growth are faster than their price growth, big pharmaceutical companies that do acquisitions fi nd it a good deal.

“Th e recent M&A announcements with significant premium reinforced our view that the current valuations in biotechnology are very compelling. Despite the recent run-up, valuations are still close to 10-year lows. Large caps and emerging biotechs are both trading at 24x 2009E EPS (earnings per share) and 5.8x sales. We strongly believe there is mid-and long-term upside for biotech investors,” comments the fund managers in the July performance report.

While majority of the investing community steers clear from the US in light of recent economic setbacks, companies in the biotech industry that the fund invests in are mainly listed in the US. As of end July, the fund had an overweight exposure in the US with 80.5 per cent, followed by Denmark at 6.6 per cent, Switzerland with 2.6 per cent, Canada with 1.2 per cent and Belgium with 1.0 per cent exposure. Th e fund has increased its cash position from 4.7 per cent in June to 8.1 per cent in July.

Its largest holdings include Amgen (7.8 per cent), Celgene (6.8 per cent), Gilead Sciences (6.5 per cent), Genzyme (6.4 per cent) and Novo-Nordisk (6.0 per cent).

The fund uses a bottom-up approach in stock selection. Fund managers choose companies that fall in categories such as pure play biotech, which is focused on one drug; diversified biotech with several different therapies; drug discovery which are companies doing research for new drugs with potential major discoveries and targets of bigger companies; and life sciences, which are companies that produce tools for companies that do the research.

Stocks in the fund portfolio are also evaluated based on how diversified they are, the type and number of drugs they have and their source of income.The fund has consistently outperformed the Nasdaq Biotechnology Index since 2003. While the index registered 4.6 per cent growth in 2007, the fund has recorded 15.4 per cent.

Registered in Luxemburg, the Pictet Biotech Fund is available for institutional investors in Singapore, whereas in Hong Kong and Taiwan, the fund is available to retail investors. Investors in Singapore can access it through the global private banks like Citibank and Standard Chartered Bank. Subscription fee is up to five per cent while management fee is at 1.60 per cent per annum.

Since inception, the fund has been able to have cumulative returns of 400 per cent. And as global population continues to grow, Ms Cho says prospects for the biotech industry will be driven for the longterm and investment in the sector may just off er good returns in the long run.

“We develop products not for short-term. We feel that the product will grow and its is still a strong investment case,” Ms Cho ends.