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  • 08/05/2016

Franklin Templeton talks portfolio health and its investment cures


Discovering Investment Cures

By Carmen Reid

Franklin Templeton combines a close understanding of the companies they invest in with meticulous market research. The result is a BENCHMARK Fund of the Year Retail Top 100 Award, Best in Class in the Equity Biotechnology sector.

Evan McCulloch, Senior Vice President, Director of Equity Research explained that: “We have developed a multi-style investment approach that emphasizes flexibility. We combine bottom-up stock selection principles with an analysis of top-down industry themes, researching the best individual risk-return opportunities available,” adding, “this disciplined process, founded on in-depth, original research and anchored in a long-term outlook, can potentially achieve above-average performance and below-average risk.”

Earning Approval

Before the managers consider an issue for inclusion in a portfolio, the stock goes through a vigorous selection process where many aspects are considered: “We look for companies that are trading significantly below our estimation of their intrinsic value. Then we construct a discounted cash flow base case that includes currently commercialized, and developmental stage products that we believe have a high probability of ultimately earning Food and Drug Administration (FDA) approval. We also explore the revenue projections for those products,” pointed out McCulloch.

“For our revenue forecasts, we review the epidemiology of the disease, learn the treatment algorithm and determine how that drug will act with other existing and developmental medicines. We also look at how the drug will be priced and assess the patents to determine the market exclusivity period. From this, we build detailed models.”

The Key to Success

To determine the probability of a drug’s success, the team reviews scientific literature, scrutinizes prior clinical data, assesses the design of future trials and examines the risk-benefit profile, just as the FDA (US Food and Drug Administration) would.

“Throughout this process, we rely on our in-house research, such as reviewing published literature and interacting with company management teams. We also draw on the experience of a network of industry experts, which includes academics and community physicians, reimbursement personnel and patent attorneys,” noted McCulloch.

Managing Risk

“There can be no doubt that the drug development industry is at times risky and uncertain. In the early stages, biotechnology firms face the risks associated with trial results, regulatory approval and competitor developments. In addressing these issues, we use a disciplined research process and position size as an effective risk management strategy,” adding, “we invest less in developmental-stage companies with few products, and more in commercial-grade companies with multiple offerings. This way, the downside impact of a single binary event is minimized.”

Changes to the Tax Regime

The new US administration’s plans to reduce corporate tax could prove broadly beneficial for the sector. McCulloch explains: “The potential repatriation holiday, or a reduction in taxes for repatriated earnings, would be the most significant outcomes. We would view any reform here as a positive for the biotechnology space. Many large biotech and pharma companies have large amounts of cash held overseas, which they could bring back home, helping them to invest in research or return to shareholders through buybacks or dividends. It would also likely trigger M&A activity, which would be positive for small caps.”

First-Class Holdings

Looking at current holdings, McCulloch noted that: “We favor drugs which are best-in-class, are in an area of unmet clinical need or provide a benefit for patients.” Observing that: “The recent innovations in cancer treatment fit several of our most important investment criteria. Targeted immuno-oncology therapies look to be more effective than traditional chemotherapy and cause fewer side effects, resulting in better outcomes for patients.”

Another area of interest for McCulloch and his team is a treatment for so-called ‘orphan diseases,’ which are conditions which affect a small number of people. “While uncommon, these genetic disorders are often fatal,” McCulloch explains, “so there is a significant amount of unmet medical need for treatments. Given the relatively small number of case and the seriousness of the conditions, the FDA often waives or fast tracks the clinical trial process for treatments as well.”

Emerging Technologies

Indeed, McCulloch is extremely positive about the dramatic cancer research breakthroughs which are currently in progress: “We are impressed with the progress the sector has made.” he says. “In particular, we are excited about some of the emerging technologies like gene therapy and gene editing. Moreover, the entire field of immuno-oncology, or the harnessing of the human immune system to fight cancer, will bring dramatic advances.”

Focus on the US Market

The team has a strong preference for the North American market. Although it does invest in companies located elsewhere, the US remains in focus because it is such an important center of medical research, venture capital and ultimately patients and revenue. Over 90% of the benchmark NASDAQ Biotechnology Index is comprised of US-based firms, although many of these companies do operate in countries across the globe.

A Healthy Backdrop

Looking at the year ahead, McCulloch believes the fundamentals in the biotech and pharmaceuticals industries are robust. There is a new wave of innovation occurring across the sector, and the team like companies that focus their efforts on new drug-discovery platforms, novel compounds and areas of significant unmet medical need. In particular, they concentrate on the areas of immune-oncology and gene therapy, both of which have the potential to transform cancer treatment.

The benefits of heightened development and new-product pipeline activity are visible. Even though volatility is a potential threat, as longer-term investors the managers use market selloffs to make selective stock purchases in companies which combine the development and sale of innovative drugs designed to treat diseases of high unmet need.

Against any real or perceived pricing pressures in the consumer marketplace, McCulloch sums up the team’s approach: “We view investing in companies with differentiated products and platforms, as well as innovative research and development as the best defense.” BM

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發掘投資的「靈丹妙藥」

Carmen Reid 撰文

富蘭克林鄧普頓憑著對所投資公司的深入了解及嚴謹市場研究, 在今屆《指標》基金大獎中奪得「零售基金100強」大獎,並在「生物科技股票」類別中贏得「同級最佳基金」獎項。

富蘭克林鄧普頓高級副總裁及股票研究部總監Evan McCulloch指出:「我們研發的投資方法糅合多種風格,且講求靈活性。我們將由下而上的選股原則,與由上而下的行業主題分析結合起來,以研究市場上最佳的個股風險與回報機會。此紀律性的投資過程,基於深入及原創研究,以長遠前景為目標,可於低於平均風險水平的同時獲得高於平均的潛在回報。」

贏得青睞

在獲基金經理考慮納入投資組合前,有關股票須經過嚴謹的篩選過程,在過程中考慮眾多因素。McCulloch說:「我們旨在尋找市價明顯低於我們所估計之內在價值的公司。其後,我們為這些公司建立折現現金流的基本情境,包括現時已推出市場的產品;及尚處於研發階段、但很大機會可獲美國食品和藥物管理局(FDA)批准的產品。我們亦會分析這些產品的收入預測。」

「預測公司盈利時,我們會審查相關疾病的流行病學,深入認識其治療方法,並預計若該藥物與其他現有的及正在研發的藥物一起使用的藥效,將產生甚麼效果。我們亦會探討該藥物的定價及評估其專利權,以判斷其在市場的獨佔期。基於上述研究結果,我們將構建多個詳細的模型。」

致勝之道

為了預估藥物的成功機率,團隊審視科學文獻、細閱歷史臨床數據、評估未來臨床測試設計,及評核藥物的風險及效用,此流程與FDA的程序相若。

「整個過程均依靠內部研究,例如我們會審視已發表的文獻,並與目標公司的管理團隊交流。此外,我們由學者、社區醫生、理賠人員和專利律師等專家組成的行業專家網絡,亦可為我們提供寶貴經驗。」McCulloch說。

管理風險

「毋容置疑,藥物研發行業偶爾涉及高風險及不確定性。在開發初期,生物科技公司須面對由臨床測試結果、監管審批及競爭對手的發展帶來的各種風險等。在解決這些問題時,我們採用嚴格的研究流程,以及持倉規模管理,作為風險管理策略。」McCulloch補充:「我們比較少投資於僅得少數產品、仍處於發展階段的公司,惟對擁有多種產品、已有一定規模的公司之投資比重較高。因此,我們可將單一對立事件的負面影響減到最少。」

稅制變更

美國新一屆政府擬削減企業稅,製藥行業或大大受惠。McCulloch解釋:「稅制改革建議最重要部分,是美國企業境外持有的資金匯回美國本土時享有稅項寬免期,或匯回美國本土的利潤獲減稅優惠。我們認為對生物科技板塊而言,任何稅制改革均屬有利。目前很多大型生物科技及製藥公司均在海外持有大量資金,若將資金重回美國本土,可增加在研發方面的投資,或透過回購及分派股息回饋股東。資金回流美國可觸發更多併購活動,對小型股有利。」

A級持股

談及目前基金的股票持倉,McCulloch稱:「我們偏好優於同儕、能滿足臨床需要,或可惠及患者的藥物。最近在癌症治療上的創新符合我們數個最重要的投資條件,針對性免疫腫瘤治療似乎比傳統化療更有效,副作用較少,對患者療效更大。」

另一個McCulloch及其團隊專注的領域,是影響小眾的「孤兒疾病」的治療。「這些遺傳性疾病雖然罕見,但往往致命,故此範疇有大量未被滿足的治療需求。鑑於此等疾病的病例較少和疾病的嚴重性,FDA通常會豁免或更有效率地審批有關治療的臨床測試。」McCulloch說。

新興科技

McCulloch對癌症研究的突破性發展極為樂觀:「行業取得的進展令人振奮,我們尤其看好如基因治療和基因編輯等新興科技。此外,利用人類免疫系統對抗癌症研究免疫腫瘤領域,將取得顯著進展。」

專注美國市場

團隊對北美市場有強烈偏好,雖然亦有投資在其他地方的公司,但由於美國是醫學研究、創投資本,以至病人及行業收入的重心,故美國市場仍然是團隊的焦點;而納斯達克生物科技指數中,雖然美國公司佔逾九成,但其實當中許多公司的營運業務遍佈全球各地。

健康的經濟環境

展望來年,McCulloch認為生物科技和製藥行業的基本面將維持強勁,該領域正迎接新一波創新浪潮。團隊尤其看好致力開發新藥物平台、研究新化合物和能夠填補重大醫療需求缺口的公司,並特別關注免疫腫瘤學和基因治療領域,因為兩者均有顛覆癌症治療的潛力。

行業高速發展和產品推陳出新的好處顯而易見。雖然醫療板塊仍然受波動性威脅,但作為長期投資者,基金經理把握市場拋售的契機,篩選出能透過研發和銷售創新藥物來填補重大醫療缺口的公司,並購入公司股份 。

對於消費市場上實際及假想的定價壓力,McCulloch總結其團隊的信念:「我們視投資具獨特產品及平台、能夠在研發上創新的公司為最佳防守方法。BM

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