Biotech: Should investors pay up for R&D pipelines?

Investors are showing increasing willingness to pay for R&D pipelines in biotech, explains AXA Framlington's Linden Thomson.

The biotech sector has produced impressive returns over recent years. The Russell Top 200 Defensive Pharmaceuticals and Biotech index has returned 102% over five years to 30 January in sterling terms, for example. Now, while investors should remain conscious of the risks – particularly those inherent in research and development (R&D) – current valuation multiples suggests there could be over 20% growth for the sector through the year. Indeed, with the broader healthcare and US equity markets both rising over the past year (as measured by the MSCI World Healthcare and S&P 500 indices),...