Biotech funds spring like mushrooms in Singapore

Singapore is capturing the attention of biotech fund managers who are competing for the island-state''s investors.
Singapore investors seeking to gamble on biotechnology stocks are suddenly spoilt for choice of investment vehicles.

Just two months ago there were no dedicated biotech funds in Singapore. Now there are three. First came Franklin Templeton Investments and Dresdner Asset Management. This week UBS Asset Management joined the fray with its UBS (SG) Investment Fund-Biotech. Others, such as Polaris Asset Management are also gearing up to launch Asian biotechnology funds.

"The biotechnology sector will continue to develop as more and more companies generate revenue and obtain profitability," says Michael Winter, head of UBS Investment Funds Asia.

UBS's Singapore fund will feed into its $1.7 billion UBS (Lux) Equity Fund-biotech, which was formed in October 1996 and has annualized returns of 37%. The biotech fund, one of the world's largest, is 78% invested in US biotechnology companies such as Genentech.

UBS, like Templeton and Dresdner, is keen to take advantage of Singapore's high domestic savings rate and its growing mutual fund market, which has expanded to around $7 billion from about $3 billion two years ago. The global biotechnology market is worth $350 billion, up from $85 billion three years ago, according to Templeton.

Profits on the increase

The funds look for companies – mainly US-based – that are likely to produce, and get US Food and Drug Administration approval for, a new drug. They also seek out possible acquisition targets, whose shares could rise ahead of a takeover. Most biotechnology companies focus on a single product and are unprofitable. That's changing, UBS's Winter says.

"What we've been seeing is that annual biotech revenue has more than doubled over the last five years and the number of companies that have reached profitability has increased," he says. Moreover, "the number of FDA approvals have tripled over the same period."

Fund managers are also being drawn to Singapore by the island-state's determination to make life sciences the fourth pillar of the economy along with electronics, chemicals and engineering. It plans to make $1 billion available to support the industry's growth. Life sciences loosely refers to the development of pharmaceutical, agricultural and industrial products using live organisms and genetic technology.

Franklin Templeton's Singapore-based Franklin Life Sciences Discovery Fund feeds into its Luxembourg-based $100 million Franklin Biotechnology Discovery Fund, formed in April this year. The company's US-only biotechnology fund, started in September 1997, now has more than $1.6 billion under management and returned 97% in 1999, says Madeline Ho, business development director at Franklin Templeton in Singapore.

"This industry is gaining pace very fast," she says. "Biotechnology has been around for at least 10 years but it's only in the last couple of years that companies are beginning to make profits."

Dresdner's $2.4 billion Global Biotechnology Fund was launched in Singapore on 30 August this year. The mother fund was launched in Germany in January 1998. In the year from 1 August, 1999 to 31 July, 2000 the fund returned 83.9%.

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