Merryn's Blog

Should you buy into Neil Woodford's bet on biotech?

Under Neil Woodford's direction, Invesco has bought a 48% stake in the relatively unknown Aim-listed mini-cap E-Therapeutics. Should you follow him in?

We've been giving MoneyWeek readers much the same advice on investment for some time now: hold gold and probably silver too; buy high-yield defensive stocks; watch the commodity supercycle; and so on.

One of the fund managers we have long liked when it comes to defensive income investing is Neil Woodford of Invesco we've suggested his funds and in particular his Edinburgh Investment Trust many times.

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So I was interested to see a notice from Aim-listed mini-cap and drug discovery company E-Therapeutics (Aim: ETX) about a recent fund raising. It appears that under the direction of Woodford, Invesco has taken a 48% stake in the firm.

It makes sense. Woodford has large holdings in big pharma. That's great for income, but with patent expiry problems looming it doesn't necessarily bode that well for growth. Buying into promising biotech companies might fill the gap.

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And E-Therapeutics could be promising. The firm has a patented technology that analyses biological systems to establish where within them drugs should intervene to have the right effect. This provides a template for designing new drugs and for finding new uses for old drugs. It also works particularly well for looking at complicated biological systems traditional methods of drug discovery have focused more on studying particular proteins in detail rather than on looking at entire systems.

This matters, I am told by one of the E-Therapeutic's directors, because nearly all remaining unmet medical conditions (cancer, MS, heart attacks etc) relate to complex systems. For more on the science you are probably best looking at the company's website.

And despite the fact that it would be nice to think that anything good enough for Woodford to take a bet on in his efforts to find long-term growth is good enough for the rest of us too, it is probably worth doing a bit of extra research too.

I'd also be loath to buy immediately. The shares have seen a big jump since the placing but are bound to fall back once the excitement of Invesco's involvement wears off. So there will probably be a better entry point.


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