AXA Framlington Biotech

Investment process

Linden and the team target companies of all sizes as well as looking at the sector through a therapeutic lens, ranging from oncology to neurodegeneration.

AXA Framlington Biotech is benchmarked against an index of some 400 stocks (a figure which has doubled in the past five years). The science-led background of the team sees them initially apply a quality filter to these companies. Essentially, their respective backgrounds help them to make an informed call about whether a drug/product is going to be suitable for the market and whether the opportunity is robust.

To put this into context, a drug typically goes through three trial phases before being considered as an effective medical treatment. The average probability of success (to approval) is about 10% at Phase I; around 20% at Phase II; and c. 50% at Phase III – however there are marked differences in each therapeutic area.

If the team believes a product will be successful, it is willing to wait for a long period provided the original thesis stays in place. Passing each stage also de-risks the product or opportunity – which will likely mean an increase in the value of the company. This requires heavy due diligence, such as reading scientific papers published on the respective illness/drug and peer reviews.

The second stage is meeting management. This is arguably more important than ever in the biotech space, as the team has to trust the management to take the product through those clinical trials competently. For example, having the confidence in management to have the right manufacturing agreements in place with suppliers and having productive conversations with appropriate regulators (something which takes place behind closed doors). Linden and the team will probe to make sure management are asking the right questions around designing the trials and the external research they have undertaken.

Linden also taps into her extensive network to understand the potential of a product or drug. For example, speaking to doctors about their own confidence in a new drug or any potential ideas in their specialist area of the market.

The final portfolio will typically consist of around 50 stocks, with a focus on quality/later stage opportunities that have a greater chance of making it to market. The AXA Framlington Biotech fund will typically have a greater defensive ballast than some of its peers through its large-cap weighting, although it will tap into mid and small-caps.

The defensive exposure is highlighted by the fact that over half of the companies held in the portfolio in January 2023 were already profitable and that 95% have a cash runway for at least the next two years.