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‘Not for the faint-hearted’: Matt McNamara on the high stakes world of biotech investing

October 6, 2021

‘Not for the faint-hearted’: Matt McNamara on the high stakes world of biotech investing

Biotechnology is a high-risk market with early-stage investments delivering losses more often than not, but the sector is still delivering impressive returns for some professional fund managers.

Biotechnology is a high-risk market with early-stage investments delivering losses more often than not, but the sector is still delivering impressive returns for some professional fund managers.

The biotechnology industry has grown in recent years as large economies – like those of India and China – become increasingly developed and their citizens demand better healthcare.

“This trend has been helped along, too, by a global pandemic that has put an “enormous” focus onto the industry”, according to Horizon 3 Chief Investment Officer Matt McNamara.

More recently, Mr McNamara noted, “returns for the S&P BioTech Select Industry index have doubled those of the broader-based S&P 500”.

But speaking to Reach Markets’ The Insider: Meet the Fund Manager biotech special, Mr McNamara cautioned the market is not for everybody.

“It’s not for the faint-hearted, this sector,” he said.

“It is very technical. The volatility is typically high but then the returns can also be high”.

“This is exactly an example of why it requires professional management as opposed to having a stab in the dark.”

Mr McNamara added that 65% of early-stage Venture Capital (VC) investments in the sector end up returning less than the initial capital outlay.

“That’s just too risky for us, so we invest in later-stage [companies],” he said.

Rather than throwing money into fresh-faced start-ups that are more likely to generate losses than returns, Mr McNamara said “Horizon 3 tries to find businesses that are closer to an exit prospect”.

This helps to de-risk the fund, as almost one-third (29%) of these businesses return less than the investor’s initial outlay.

“Rather than traditional VC investing [strategy] of 5-8, sometimes 10 years, we look at an investment and really only invest if we think it’s three or four or maybe five years to get to what we call the ‘finish line’,” he said.

“[Otherwise] too many things can go wrong.”

Mr McNamara recently joined us for a special biotech edition of The Insider: Meet the Fund Manager, where he discussed his three favourite stocks, his approach to investing and his market views and insights. Watch the replay below or click here to book into the next session where we will be joined by Luke Winchester, Founder and Portfolio Manager of Merewether Capital.

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