Biotechnology companies are seeing record levels of innovation. Approvals of new medicines have held up despite staff turnover at the US Food and Drug Administration (FDA) regulator and large pharmaceutical companies, facing patent expiries on many of their biggest products, are acquiring biotech companies to replenish their pipelines. The catch is that the sector rewards specialist knowledge more than most others: a single trial result can move a share price by half in a day. The Biotech Growth Trust gives investors focused exposure to this theme by investing primarily in biotechnology.

We invest from the bottom up, favouring biotechnology companies developing first-in-class or best-in-class medicines, with a tilt towards small and mid-sized companies where much of the sector's innovation now originates. Our high active share (meaning that our holdings significantly differ from the benchmark index) means that our best ideas populate the portfolio, which is essential for navigating biotech's fast-moving, event-driven landscape. Below are three examples of our holdings, illustrating the breadth of our approach.

Three smaller biotechnology companies to consider

is an established player built largely on treatments for pulmonary arterial hypertension, a rare form of high blood pressure in the lungs, and pulmonary hypertension associated with interstitial lung disease (PH-ILD). It remains one of the most profitable firms in biotech. The company is now expanding into the much broader fibrosis market. Its lead product, Tyvaso, succeeded in late-stage trials in idiopathic pulmonary fibrosis (IPF) and the firm is expecting a US regulatory decision in spring 2027. If approved, it would be the first inhaled anti-fibrotic treatment for the disease. A legal settlement requiring that a rival withdraw from the market clears the path for the Tyvaso franchise to resume growth ahead of the IPF launch. The IPF launch, a return to growth in the company's core franchise and continued strong cash generation should mark an important inflection point.

In October, reported positive Phase III trial results in adults for its pneumococcal vaccine VAX-31, which surpasses the current market leaders, Pfizer's Prevnar 20 and Merck's Capvaxive, in strain coverage. Historically, this is a winner-take-all market where breadth of coverage decides the winner. The next milestone is Phase II data for the vaccine in infants, expected in the first half of 2027. Positive results would open the door to the paediatric market, which makes up the majority of the market opportunity. There is therefore a clear trajectory towards leadership in a pneumococcal market valued at more than $8 billion annually. It would also be an attractive asset for a large pharmaceutical company looking for vaccine exposure.

is developing a topical gel form of rapamycin, an established immunosuppressant, for microcystic lymphatic malformations (mLM), a rare, lifelong condition that can cause persistent leaking, bleeding and infection. With no currently approved therapies and an estimated US patient population of 30,000, Palvella is targeting a launch of the drug in the first half of 2027 if approved. Building on positive Phase II trial results, Palvella is also starting a Phase III trial in cutaneous venous malformations (cVM), with data expected in 2028. Palvella is a first mover in an untapped market with big potential.

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