LONDON STOCK EXCHANGE ANNOUNCEMENT
The
Biotech Growth Trust PLC
(the
“Company”)
Unaudited
Half Year Results For The Six Months Ended 30 September 2023
This
announcement is not the Company’s Half Year Report. It is an
abridged version of the Company’s full Half Year Report for the six
months ended 30 September 2023. This
announcement contains references to graphs and charts which appear
in the full Half Year Report, which will shortly be available on
the Company’s website at
www.biotechgt.com. Up to
date information on the Company, including daily NAVs, share prices
and monthly fact sheets, can also be found on the
website.
The
Company's Half Year Report for the six months ended 30 September 2023 has been submitted to the
Financial Conduct Authority, and will shortly be available for
inspection on the National Storage Mechanism (NSM) at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
For
further information please contact: Katherine Manson, Frostrow Capital LLP, 020 3709
8734
COMPANY
PERFORMANCE
KEY
STATISTICS
|
As
at
30
September
2023
|
As
at
31
March
2023
|
%
Change
|
Net asset
value (“NAV”) per share
|
817.9p
|
852.6p
|
(4.1)
|
Share
price
|
776.0p
|
783.0p
|
(0.9)
|
Discount
of share price to NAV per share^
|
5.1%
|
8.2%
|
|
Nasdaq
Biotechnology Index (sterling adjusted)
|
3,239.10
|
3,340.80
|
(3.0)
|
Gearing^
|
3.1%
|
7.8%
|
|
Ongoing
Charges^
|
1.1%
|
1.1%
|
|
Active
Share*^
|
68.1%
|
76.6%
|
|
^ Alternative
Performance Measure (see Glossary)
* Source:
Morningstar
CHAIRMAN’S
STATEMENT
INTRODUCTION
AND RESULTS
In the
first six months of this financial year, the Company’s NAV per
share total return^ was -4.1%, underperforming the decline of 3.0%
in the NASDAQ Biotechnology Index (the “NBI” or the “Benchmark”).
The continuing difficult economic environment, rising cost of
capital and associated investor caution all provided a challenging
backdrop for a portfolio heavily weighted to small and mid sized
biotechnology stocks. It is an environment which has persisted for
some 18 months
and lies at the heart of the recent poor performance of our Company
relative to the Benchmark against which we measure
ourselves.
The
principal detractors from performance were Travere Therapeutics,
uniQure and StemiRNA. Travere Therapeutics and uniQure both
announced disappointing trial results during the period. StemiRNA,
one of the Company’s two remaining direct private investments, was
written down by 74% at the period end, contributing 1.3% to the
decline in the Company’s NAV, exceeding the total underperformance
relative to the Benchmark in the period. The reasons for this
substantial write-down
are detailed in the Portfolio Manager’s Review. The valuation was
produced by Kroll (an independent third-party
valuation agent) and then reviewed and agreed by both the AIFM’s
and the Company’s Valuation Committees. The write down was
reflected in the Company’s daily NAV announcements immediately upon
receipt of the updated valuation.
The
Company has not made any new “crossover” investments (investments
in a company’s last private funding round prior to an initial
public offering (“IPO”)) in the period. Investments in China represented 9.2% of the portfolio as at
the period end. The Portfolio Manager continues to believe in the
high levels of innovation found in the biotechnology sector in
China, but the difficult local
macroeconomic and regulatory environments continue to deter further
investment.
In
addition, the presence of gearing over the period detracted 0.3%
from the Company’s NAV performance. While the Portfolio Manager
usually aims to keep gearing in the 5-10% range, given renewed
interest rate pressure in the U.S., gearing was reduced from 7.8%
to 3.1% over the period.
Despite
these setbacks, there were some positive developments in the
portfolio. During the period, GSK announced their intention to
acquire BELLUS Health at a ~100% premium to the share price at the
time, and Novartis announced their intention to acquire Chinook
Therapeutics at a 67% premium to the share price at the time.
BELLUS Health and Chinook Therapeutics were the top two
contributors during the period. Other positive contributors
included Vera Therapeutics and Ionis Pharmaceuticals which both
announced positive trial results during the period.
The
Company’s NAV benefited from the depreciation in sterling over the
period by 1.3% against the U.S. dollar, being the currency in which
the majority of the Company’s investments are
denominated.
A fuller
description of performance in the period is set out in the
Portfolio Manager’s Review.
SHARE
PRICE PERFORMANCE
The
discount^ of the share price to the NAV per share narrowed over the
period: at 31 March 2023, the
discount was 8.2% and at 30 September, 5.1%. This reduction in the
discount meant that the share price return^ over the six months was
-0.9% (2022: +10.7%).
DISCOUNT
MANAGEMENT
The
Company’s shares traded at a discount to the NAV per share
throughout the period. Shareholders will be aware that the Company
pursues an active discount management policy, buying back shares
when the discount of the Company’s share price to the NAV per share
is higher than 6%. Accordingly, during the period the Company
bought back 2,861,502 shares at an average discount of 7.3% to the
NAV per share, at a cost of £23.1m.
At the
period end there were 35,875,917 shares in issue and the share
price traded at a 5.1% discount to the NAV per share. As we have
previously commented, it remains possible for the share price
discount to trade at a discount wider than 6% for a period of days
or indeed longer, particularly in volatile markets and periods when
investor risk appetites are muted. However, the Company remains
committed to protecting a 6% share price discount over the longer
term. Since the period end a further 575,440 shares have been
bought back for cancellation and at the time of writing the share
price discount stands at 6.7%.
BOARD
CHANGES
On 9
October we announced the appointment of Hamish Baillie to the Board, effective 1
November. We are very pleased to have appointed a Director with
such extensive experience and expertise both in managing an
investment trust and as a non-executive director. Hamish has also
been appointed to the Audit, Valuation, Management Engagement, and
Nominations Committees.
Hamish’s
appointment means that there will be seven directors on the Board
for a short period. Steve Bates, our
Senior Independent Director, intends to retire at the next Annual
General Meeting at which point we will return to being a
six person
Board.
PERFORMANCE
FEE
Due to the
ongoing underperformance against the Benchmark, there is no
provision within the Company’s NAV for any performance fee payable
at a future calculation date.
As
explained in more detail in the Annual Report, the performance fee
is calculated quarterly and is dependent on the long-term
outperformance of the Company. In addition, a performance fee only
becomes payable if and when the Company’s cumulative outperformance
gives rise to a performance fee that exceeds the total of
performance fees paid to date. This ensures that a performance fee
is not payable for any outperformance that contributes to recovery
of prior performance.
OUTLOOK
The future
of the biotech sector is complex. On the one hand, current
macroeconomic conditions remain extremely challenging. Volatile
equity markets, rising interest rates and investor risk aversion
all increase the cost of the capital the sector relies on to fund
investment. However, confidence can be found in the exciting range
and pace of innovation in the biotech sector. The pace of
innovation is accelerating and there is a robust pipeline of
therapies based on a wide variety of scientific and technological
developments. The challenge of the forthcoming ‘patent cliff’ faced
by larger biopharmaceutical companies is an opportunity for the
emerging biotech companies in which your Company is invested and we
expect to see a further increase in merger and acquisition
(“M&A”) activity.
The Board
shares the Portfolio Manager’s and, no doubt, shareholders’
frustration with the length of time these catalysts are taking to
materialise but remains confident that the investment strategy will
yield good returns in the long term.
Roger Yates
Chairman
9 November 2023
^ Alternative
Performance Measure. See glossary.
PORTFOLIO
MANAGER’S REVIEW
PERFORMANCE
The
Company’s NAV per share declined 4.1% during the six-month period
ended 30 September 2023. This
compares with a 3.0% decline in the Benchmark, the NASDAQ
Biotechnology Index (measured on a sterling adjusted
basis).
Following
a difficult fiscal year for the Company ending 31 March 2023, macroeconomic factors continued to
dominate biotech sector performance during the review period.
Long-term interest rates rose during the review period, which
continued to pressure shares of unprofitable emerging biotech
companies. The U.S. Federal Reserve (the “Fed”) enacted two 0.25%
increases in the Fed Funds rate in May and July and opted to leave
rates unchanged at its June and September meetings, indicating a
slowdown in the pace of interest rate hikes from the aggressive
pace of increases over the previous nine meetings. Even so, 10-year
U.S. government yields increased from 3.47% to 4.57% during the
review period, as shown in Figure 1 on page 5 of the Half Year
Report. While inflation in the U.S. has been declining since its 9%
peak in June 2022, the U.S. economy
remains strong. This has given the Fed flexibility to leave
interest rates higher for a longer duration of time in order to
achieve its stated inflation target of 2%. We continue to believe
that the Fed is in the final stages of raising interest rates and
do not expect significant further rate hikes from this point
forward. However, Fed messaging that rates may stay “higher for
longer” has caused long-term interest rates to rise in the short
term.
When it
became apparent in September that 10-year yields might continue to
increase given the “higher for longer” expectation, we reduced some
of our emerging biotech positions to manage interest rate risk. We
also reduced gearing in the portfolio to the lower end of our
normal gearing range of 5-10% to maintain flexibility to add to
positions at lower prices. Having said that, we continue to believe
that the unprecedented low valuations of emerging biotech already
heavily discount the expected impact of higher rates. Eventually
rates will stabilize or even fall, and that should precipitate a
recovery in small capitalization (“cap”) emerging
biotech.
It is
important to note that the impact of higher interest rates has
affected all unprofitable growth stocks, not just biotech. Figure 2
on page 6 of the Half Year Report, is a graph showing a basket of
unprofitable technology stocks put together by Goldman Sachs, of
which only 6% is represented by healthcare. One can see that there
has been no appreciable recovery in the share prices of
unprofitable technology companies since the drawdown that began in
2021.
The
Company’s positioning remains overweight small caps and underweight
large caps versus the Benchmark, as we continue to believe the
small cap names are oversold and better value than the large caps.
As noted in Figure 3 on page 7 of the Half Year Report, small and
mid cap stocks have underperformed large cap stocks by a
considerable margin since 31 March
2021. We had been expecting the small cap segment to begin
outperforming and closing the performance gap, but disappointingly,
that has not occurred yet. The tables in Figure 3 show the market
cap distribution of the Company’s holdings versus the Benchmark.
One will note that the extent of small cap overweighting at
30 September 2023 is less aggressive
than that at 31 March 2021. As
mentioned earlier, this was simply the result of risk reduction in
September when it became clear that 10-year interest rates were
moving higher. Once interest rates have stabilized, it is likely
that we will increase small cap exposure again to capture a
long-overdue small cap recovery.
Our
confidence in a small cap recovery stems from the segment’s
unprecedented underperformance versus the S&P 500, record low
absolute valuations, and continued innovation in the
sector.
One proxy
used by investors to track small and mid cap biotech is the XBI, an
exchange traded fund (“ETF”) that tracks the equal-weighted S&P
Biotech Select Industry Index. Figure 4 on page 8 of the Half Year
Report shows the relative performance of the XBI versus the S&P
500 since the XBI’s inception in 2006. For most of the past 15
years, the XBI has outperformed the S&P 500, but there have
been temporary periods when the XBI has underperformed the S&P
500, as shown by the red circles. Following each of those periods
of underperformance, the XBI has generally recovered and
outperformed the S&P 500 once again (shown by the green
arrows). As shown in Figure 4, the relative underperformance of the
XBI versus the S&P 500 that began in early 2021 has been
unprecedented in its severity and duration. Our continued view is
that the XBI is overdue for a period of outperformance versus the
S&P 500, consistent with the pattern of performance it has
demonstrated previously. We were initially encouraged by the period
of relative outperformance of the XBI in the second half of 2022,
but since the beginning of 2023, the XBI has begun underperforming
again due to rising interest rates. The latest dip in small and mid
cap biotech has once again sent the XBI to record levels of
underperformance versus the S&P 500. A reversion of performance
seems likely.
Our
confidence in a recovery is underpinned by the absolute valuations
of emerging biotech, which are now sitting at unprecedented lows.
One objective measure of looking at valuation is to look at the
ratio of a company’s market cap to net cash on the company’s
balance sheet. Figure 5 (on page 9 of the Half Year Report) shows
that the median ratio for the biotech industry is now at all-time
lows, below that of the dot com bust, the Global Financial Crisis,
and the Hillary Clinton drug pricing tweet in 2015. As shown in
Figure 6 (on page 10 of the Half Year Report), about 25% of the
biotech universe representing over 120 companies are now trading at
market caps below the net cash on their balance sheets.
Importantly, while 10-year U.S. government yields are currently
above 4%, 10-year rates were also above 4% in the 2004-2007
timeframe and yet valuations back then were not nearly as low as
they are now. We believe the impact of higher interest rates is
more than reflected in current valuations and the emerging biotech
sector is extremely oversold.
Given the
Company’s worldwide mandate to invest in the best biotech
investment opportunities globally, the Company has held a portion
of its portfolio in China. As of
30 September 2023, China accounts for 9.2% of the portfolio. The
Chinese central government made developing an innovative domestic
biotechnology industry a priority in its 10-year plan in 2015.
Since then, the government has increased data quality standards at
the National Medical Products Administration (the Chinese
equivalent of the U.S. FDA), accelerated drug review timelines to
be on par with that of U.S. and Europe, and loosened requirements for
unprofitable biotech companies to go public in China and Hong
Kong. IQVIA, a data provider, estimates that Chinese
biopharmaceutical companies accounted for 15% of the worldwide drug
development pipeline in 2022 versus 4% in 2012. Among emerging
biotech (excluding large pharma), IQVIA estimates China-headquartered
companies actually accounted for 20% of the global emerging
biopharma pipeline in 2022, higher than the 17% share from
Europe. Excluding the write-down
in StemiRNA Therapeutics (explained later), the China portfolio outperformed our
non-China holdings during the
review period. As in the U.S., our China portfolio has been pressured over the
past two years due to macro factors, including COVID lockdowns in
China, U.S./China geopolitical tensions, and a
disappointing post-COVID economic recovery. However, Chinese
government commitment to developing an innovative biotech industry
remains unchanged, and large pharma companies like AstraZeneca and
Pfizer continue to invest in the country to tap into Chinese
innovation. The Hang Seng Healthcare Index is now trading at
all-time lows, so we believe a recovery in Chinese biotech is
likely. Our Chinese holdings include BeiGene, which markets a
best-in-class BTK inhibitor in the U.S. and China for leukemia and lymphoma, and Innovent
Biologics, a Chinese biotech company developing the leading
domestic GLP-1 agonist in China
for obesity. We do not anticipate increasing our China exposure from current levels at this
time given the macro uncertainty in the region.
CONTRIBUTORS
TO PERFORMANCE
The
principal contributors to performance during the review period were
BELLUS Health, Chinook Therapeutics, Vera Therapeutics, Ionis
Pharmaceuticals, and Amgen.
-
BELLUS
Health is a
clinical stage company developing
camlipixant for the treatment of refractory chronic cough.
In mid-April,
GSK agreed to acquire the company for $2
billion in cash, representing a 103% premium to BELLUS’
share price prior to the announcement.
-
Chinook
Therapeutics is a
clinical-stage biopharmaceutical company focused on discovering,
developing, and commercializing precision medicines for kidney
diseases. In June, Novartis agreed to acquire the company for up to
$3.5 billion, a ~67% premium to
Chinook’s last closing price.
-
Vera
Therapeutics is a
clinical-stage biotechnology
company focused on developing and commercializing treatments for
patients with serious immunological diseases. In July, the company
reported positive Phase 2a data for its lead asset atacicept in
patients with IgA nephropathy, an autoimmune disease in which
antibodies build up in kidney tissue.
-
Ionis
Pharmaceuticals is a
fully-integrated biotechnology
company and a leader in RNA-targeted therapies. In late September,
the company announced positive results from a Phase 3 study of
olezarsen in patients with familial chylomicronemia syndrome, a
rare genetic disease that prevents the body from breaking down fats
consumed through the diet.
-
Amgen
is a large
cap biotechnology company
with a diversified pipeline of commercial and clinical stage
products in the areas of kidney disease, oncology, cardiovascular
disease, inflammation, metabolic disorders, and neuroscience. The
stock appreciated during the review period due to
better-than-anticipated Q2 2023 earnings and the announcement of
positive data for two clinical stage oncology programs: tarlatamab,
a first-in-class bispecific T-cell
engager for lung cancer and AMG 193, a novel PRMT5 inhibitor for
solid tumors. Additionally, Amgen is evaluating two anti-obesity
drugs in clinical trials. The stock rose in part due to investor
anticipation of data from those drugs in 2024.
DETRACTORS
FROM PERFORMANCE
The
principal detractors from performance were Travere Therapeutics,
uniQure, StemiRNA Therapeutics, Mersana Therapeutics, and Compass
Therapeutics.
-
Travere
Therapeutics is a
commercial-stage biotechnology
company focused on rare diseases. In late September, the company’s
two-year Phase 3 trial showed a numerical benefit for its drug,
Filspari, versus standard of care on kidney function but missed
statistical significance by a narrow margin in patients with IgA
nephropathy.
-
uniQure
is a
clinical-stage gene therapy company
that focuses on neurological disorders. In June, the company showed
interim data from its Phase 1/2 trial of its gene therapy for
Huntington’s disease, a genetic disorder that causes breakdown of
nerve cells in the brain, that fell below investor
expectations.
-
StemiRNA
Therapeutics is a
private Chinese biotech
company developing mRNA-based vaccines and therapeutics. The
Company initially invested in StemiRNA in 2021 because it was
developing one of the leading domestic mRNA-based COVID vaccines in
China at a time when no mRNA-based
vaccines had yet been approved in China. Given that the commercial opportunity
for COVID vaccines had diminished substantially, the company
decided to abandon its COVID program and focus on its earlier-stage
programs, including a personalized cancer vaccine in Phase I. As a
result, the company’s next financing round is likely to be carried
out at a substantial discount to its last round. The Company’s
third-party valuation agent, Kroll, recommended an appropriate
write-down
to reflect this at 30 September 2023,
which has been agreed by the Board and reflected in the Company’s
NAV.
-
Mersana
Therapeutics is a
clinical stage company
developing antibody-drug conjugate therapeutics. At the end of
July, the company’s shares declined when it announced that its lead
asset, UpRi, had failed to show a significant benefit in late-stage
ovarian cancer patients.
-
Compass
Therapeutics is a
clinical stage oncology
company developing bispecific antibodies.
The
company’s lead drug is intended to restrict the supply of blood to
tumors and has the potential to treat a variety of tumor types,
including bile duct cancer and colorectal cancer. Shares declined
as the company delayed clinical data updates due to
slower-than-expected patient enrollment.
BIOTECH
INNOVATION REMAINS STRONG
Ultimately,
the successful development of novel medicines is the principal
driver of value creation in the biotech sector, and innovation
remains as strong as ever. We firmly believe that the valuation
decline we’ve observed in the sector over the past two years is not
reflective of the strong fundamentals of the industry. Innovation
remains robust across a wide range of therapeutic areas and
technologies, and it is the strength of this innovation that
ultimately underpins our confidence that the biotech sector will
recover from its current depressed levels.
As shown
in Figure 7 on page 12 of the Half Year Report, drug approvals for
the first nine months of 2023 are occurring at an annualized rate
above 50 per year,
consistent with the elevated rate of drug approvals we’ve seen over
the past few years.
The
increase in the number of drug approvals over the past 20 years has
been driven by a favorable regulatory environment and the advent of
a number of novel drug development technologies, including
oligonucleotide-based therapies, gene therapy, and bispecific
antibodies.
A snapshot
of the Company’s exposure to some of these next-generation drug
development technologies as at 30 September
2023 is shown in Figure 8 on page 13 of the Half Year
Report. Investors in the Company get exposure to a wide
cross-section of these cutting-edge
technologies as they generate promising new medicines to deliver
significant clinical benefit to patients.
Here are
some specific examples of companies working in each technology
area:
ANTIBODY-DRUG
CONJUGATES (“ADCS”)
Antibody-drug
conjugates are antibodies that are bound to a drug which allows
targeting of drugs to specific cells. Typically, this approach has
been used to deliver toxins to cancer cells in the body, resulting
in targeted killing of those cells.
Examples
of antibody-drug conjugates include Seagen’s Padcev, a
first-in-class ADC targeting nectin-4, a protein expressed in
bladder cancer; and Gilead Sciences’ Trodelvy, a first-in-class ADC
targeting Trop-2, a surface antigen found in breast and bladder
cancer. Trodelvy has been shown to reduce the risk of death for
patients with certain types of advanced breast cancer by
49%.
Amgen
is a
large-cap biotech company with a diversified
pipeline of commercial and clinical stage products. Our investment
thesis for Amgen is premised on attractive revenue growth in the
near term, an undemanding valuation, and a deep, innovative
clinical stage pipeline that is rapidly advancing. Amgen recently
closed its acquisition of Horizon Therapeutics, integrating a
pipeline of clinical and commercial stage rare disease therapies;
we believe this acquisition will accelerate revenue growth for
Amgen. Among Amgen’s development pipeline is a suite of
anti-obesity drugs, including AMG 133, a novel antibody-peptide
conjugate. AMG 133 consists of a GLP-1 (glucagon-like peptide-1)
receptor agonist tethered to a glucose-dependent insulinotropic
polypeptide (“GIP”) receptor antagonist. GLP-1 agonism has been
shown to drive weight loss by promoting satiety and decreasing
gastric emptying. This is the mechanism by which Novo Nordisk’s
obesity drug Wegovy promotes weight loss. GIP receptor antagonism
reduces adipogenesis, or fat cell development and accumulation,
which is synergistic with GLP-1 agonism. This dual mechanism has
the potential to differentiate from the current weight loss drugs
on the market by having better tolerability, generating more
significant weight loss, and delivering longer durability of
effect, which allows for less frequent dosing. Amgen has announced
compelling Phase 1 clinical data with up to 14.5% weight loss after
three-monthly doses of AMG 133 in obese patients.
As of
30 September 2023, the Company had a
9.3% position in Amgen, making it the largest single position in
the portfolio.
CELL
THERAPY
Cell
therapy involves administering modified cells to a patient to treat
disease. The cells can be harvested from the patient’s own body
(autologous) or delivered from another source (allogeneic). The
cells are commonly immune system cells that have been specifically
modified to target and destroy cancer cells in the body. Examples
of cell therapies include Gilead Sciences’ Yescarta, an autologous
T-cell treatment for lymphoma, and Johnson & Johnson’s
Carvykti, an immunotherapy for multiple myeloma in which a
patient’s T-cells are modified to target B-cell maturation antigen
(“BCMA”). The clinical benefit from this approach can be dramatic,
with Carvykti demonstrating a 95% response rate
(i.e. reduction
of tumor burden) with an average duration of response of close to
two years.
Immatics
is a
promising clinical stage oncology company
developing cell therapies for solid tumors (i.e. cancers that occur
in tissues or organs like the breast or lung rather than the blood,
bone marrow, or lymphatic system). Other efforts to develop cell
therapies for solid tumors have largely been unsuccessful as they
have been unable to identify targets that are specific to tumor
cells. Immatics is attempting to solve this problem by using a
novel technology to target its cell therapy to a protein, PRAME,
which is specifically expressed across several tumors and is not
expressed by healthy cells. In Phase 1 clinical studies, Immatics
has shown encouraging data in melanoma with over half of patients
responding to the therapy. Additional updates over the next year
will be key as investors look to understand the full potential of
the approach in melanoma and additional tumor types such as ovarian
cancer, lung cancer, and uterine cancer.
GENE
THERAPY/GENE EDITING
Gene
therapy involves delivering a gene into the body to resolve a
genetic defect in the patient that is causing disease. The gene is
typically delivered into the patient’s cells via a modified virus
or a non-viral delivery vector such as liposome-based
nanoparticles. Gene editing is an advanced form of gene therapy
whereby the patient’s existing genes are modified by a drug to
ameliorate disease or increase patient function. Examples of gene
therapy include Novartis’ Zolgensma, a gene therapy for spinal
muscular atrophy originally developed by biotech company AveXis,
and Roche’s Luxturna, a gene therapy initially developed by biotech
company Spark Therapeutics for a rare retinal disease that leads to
blindness.
BioMarin
Pharmaceutical is a
pioneer in the
development and commercialization of therapies for the treatment of
rare diseases. It has a diversified and growing base business of
ultra-orphan enzyme replacement therapies annualizing at more than
$2 billion a year globally, with a
high barrier of entry generating positive cash-flow. The company
has recently launched two potentially blockbuster therapies,
Voxzogo and Roctavian, that are sold through its existing global
commercial infrastructure, providing significant operating
leverage. Voxzogo, launched in late 2021, is the first treatment
approved for achondroplasia, a form of dwarfism caused by impaired
bone growth, and represents BioMarin's strongest global launch to
date. Roctavian was approved earlier this year in the United States as the first-ever gene
therapy treatment for hemophilia A. We believe there is meaningful
patient demand for improved control of hemophilia A beyond just
eliminating bleeds, including improved quality of life and better
long-term patient outcomes.
Hemophilia
A is a lifelong, genetic condition caused by a mutation in the gene
responsible for producing a protein called Factor VIII (“FVIII”),
which is necessary for blood clotting. Hemophilia A patients are
severely deficient in this clotting protein, making them
susceptible to painful and potentially life-threatening bleeds.
Treatment options for hemophilia A require
infusions three times a week of recombinant FVIII or less frequent
injections of another medication known as Hemlibra. While these
medicines limit the bleeding events that hemophiliacs have,
bleeding events can still occur spontaneously or upon minor injury.
The bleeding risk creates many lifestyle restrictions for patients
who suffer from the disease. Roctavian is the first-ever gene
therapy approved in the United
States and Europe for the
treatment of hemophilia A. While not a cure, Roctavian is a
one-time treatment that eliminates the need for frequent FVIII
replacement therapy because the gene therapy allows the body to
produce its own, natural FVIII. Studies have shown Roctavian can
reduce the number of annual bleeds in hemophilia patients by about
50%. The therapy is new, so its ultimate duration of effect is
currently not known, but the vast majority of patients still have
benefit three years post treatment and beyond. BioMarin estimates
13,000 patients worldwide are eligible to receive Roctavian for its
initial labeled indication. At an estimated net one-time price of
$1.9 million per patient, Roctavian
can significantly enhance BioMarin’s near-term growth
profile.
OLIGONUCLEOTIDE
THERAPIES
Oligonucleotides
are short strands of DNA or RNA that can be administered to
patients to allow them to express a new protein or to block
expression of a patients’ genes for therapeutic effect. Such
therapies come in a variety of forms. Antisense oligonucleotides
are single-strand RNA molecules that can block gene expression,
modify how genes are spliced, or repair faulty gene expression in
order to create functional protein. Small interfering RNA
therapeutics are short double-stranded non-coding duplexes that can
silence gene expression by targeting specific messenger RNA
(“mRNA”) sequences for degradation, preventing their translation
into protein. Finally, mRNA therapeutics are synthetic
protein-coding mRNA sequences engineered and delivered to
transiently express target proteins. Moderna and Pfizer’s COVID
vaccines work by delivering mRNA encoding virus protein to a
person’s cells, allowing those cells to express viral protein so
that the immune system can create antibodies against
them.
Ionis
Pharmaceuticals is a
leader in RNA-targeted therapeutics, with a focus on neuroscience,
rare diseases, and cardiometabolic disorders. Its antisense
platform works by binding and destroying mRNA in a highly specific
manner, such that the amount of disease-causing protein is
significantly decreased. The technology can also be used to treat
disease by increasing protein production; this led to the
development of one of the most successful medicines on the market
today, Spinraza, for spinal muscular atrophy. The company has made
tremendous progress in the last 12 months
on both wholly-owned and partnered programs, creating significant
value for shareholders. In November
2022, Ionis reported positive Phase 2 data from an extension
study of its drug donidalorsen in patients with hereditary
angioedema (“HAE”), a rare genetic disorder characterized by
recurrent episodes of rapid swelling of tissues in the hands, feet,
limbs, face, intestinal tract, and airway. In some cases, these
attacks can be life-threatening. Ionis’ drug showed a 95%+
reduction in frequency of attacks in the monthly dosing arm of the
trial, an unprecedented result that suggests it could become the
new standard of care in HAE. In April
2023, Ionis, together with partner Biogen, announced the
approval of Qalsody (tofersen), marking a major scientific advance
in the treatment of superoxide dismutase 1
(SOD1)-amyotrophic
lateral sclerosis (“ALS”). In September
2023, the company announced positive Phase 3 data for its
drug, olezarsen, for familial chylomicronemia syndrome.
Impressively, the drug eradicated acute pancreatitis events,
marking another important medical breakthrough. Finally, following
a very successful Phase 3 study in transthyretin polyneuropathy, we
expect eplontersen (developed with partner AstraZeneca) to be
approved in late December
2023.
MULTI-SPECIFIC
ANTIBODIES/T-CELL ENGAGERS
Antibody-based
drugs have traditionally only bound to one protein target.
Bispecific drugs have now been engineered to bind two different
targets simultaneously. One type of bispecific antibody is a T-cell
engager, which is an antibody that binds a T-cell in the body and a
protein on a cancer cell simultaneously in order to allow the
T-cell to kill the cancer cell. Examples of T-cell engagers include
Amgen’s Blincyto, a bispecific T-cell engager for leukemia, and
Roche’s Lunsumio, a T-cell engager for lymphoma that targets CD20
on B-cells and CD3 expressed on T-cells.
Janux
Therapeutics is a next
generation immuno-oncology
company developing drugs that recruit T cells to kill cancer cells.
T-cell engager therapies have traditionally been associated with
toxicity due to non-specific activation of the immune system. To
solve this problem, Janux has developed its T-cell engagers with
masking technology such that the drugs are only active when they
are present in tumors. In July 2023,
Janux released first-in-human data from its masked T-cell engager
program in prostate cancer demonstrating encouraging signals of
efficacy with a reasonable safety profile. We look forward to
potentially value-inflecting data updates from this prostate cancer
program and another program in lung cancer in 2024.
FINANCING
ENVIRONMENT PRESENTS OPPORTUNITIES
Given the
decline in biotech valuations, IPO activity in the sector remains
relatively muted, though we have seen a slight uptick in activity
over the past couple of quarters as can be seen in Figure 9 on page
17 of the Half Year Report. The few companies undertaking an IPO
are typically depending heavily on existing investors to make up a
significant portion of the order book. We will remain selective in
reviewing those opportunities.
Given the
diminished IPO activity, we did not make any new crossover
investments during the review period.
The
follow-on offering market for biotech companies remains steady, as
shown in Figure 10 on page 18 of the Half Year Report. Quality
companies with strong assets have not had any problems raising
money and many offerings have been multiple times oversubscribed.
Earlier-stage companies have had more difficulty raising money in
the current interest rate environment, and many of them have
resorted to sharing non-public clinical data confidentially with a
select group of investors to entice them to participate in a
financing. Given OrbiMed’s stature in the healthcare investing
space, we are among a select group of investors that are regularly
informed about those confidential equity placements. We believe
this deal flow provides a source of investment opportunities not
available to other investors. In some cases, warrant coverage and
other preferential deal terms can be extracted from companies
desperate for cash to support their operations. We will be
selective in pursuing these financing opportunities to maximize
Company returns.
M&A
ACTIVITY REMAINS ROBUST
We believe
M&A activity will remain an important source of investment
performance in the near term for two reasons: 1) the
unprecedented low valuations of emerging biotech companies make
acquisitions less expensive for larger companies; and 2) there is a
significant need for large pharmaceutical companies to acquire
innovative biotech companies given the expected loss of exclusivity
of approximately $250 bn of branded
drug sales in the 2025-2030 timeframe. Areas of therapeutic
interest in large pharmaceutical companies include inflammation
& immunology, neuroscience, and cardiovascular disease, and we
believe they are particularly interested in acquiring later-stage
or commercial assets that will be able to deliver revenue in the
second half of the decade.
The tables
in Figure 11 on page 19 of the Half Year Report list some selected
transactions that have been announced recently, many of which were
done at triple digit premiums. The red stars indicate transactions
in which the Company held the target at the time of the acquisition
announcement. The Company has directly benefited from M&A
activity in the sector, and we expect to continue to do so. There
are a number of holdings in the portfolio that we believe are
likely M&A candidates.
STRATEGY
AND OUTLOOK
While the
persistent interest rate headwinds have been disappointing, we
remain convinced that smaller emerging biotech will recover from
its unprecedented low valuations and continue to believe
overweighting that segment of the industry makes sense in the
portfolio. Having said that, we did choose to reduce our small cap
exposure and gearing during the month of September to increase our
flexibility to add to names at lower prices. Our target gearing
remains 5-10% but may fluctuate tactically based on the opportunity
set we see at a given time.
Turnover
of the portfolio remains relatively high and annualized at 90.4% as
at the half year end. This is because the smaller emerging biotech
names can be quite volatile and move dramatically in response to
various catalysts, whether it be a clinical trial result or an FDA
regulatory decision. A 100% increase in share price or an 80%
decline in share price on a single day are not uncommon for a stock
when an important clinical trial result is announced. While much of
this risk is idiosyncratic and can be minimized with
diversification, we feel it is important to be nimble to navigate
the catalyst path prudently for those stocks. We are constantly
monitoring the risk/reward of any given position and will regularly
modify the size of each position as appropriate, being mindful of
valuation and downside risk. We aim to size our positions so that
we don’t lose more than 100 bps of performance on any single binary
event. Our goal is to keep the portfolio populated with fresh ideas
that have the best chances of delivering a positive investment
return, so we generally reduce positions once we believe they are
fully valued.
What
could catalyze a recovery in emerging biotech?
1) A pause
in Fed hikes and rate reductions. Rising interest rates have been
by far the greatest headwind to overall performance.
Fortunately,
the Fed has already signaled that it is slowing down rate hikes
since inflation has dropped, and it is quite possible that the Fed
has completely finished raising rates. Current market expectations
suggest a reduction in rates is possible in the second half of
2024. Clearly such a reduction would be a tremendous tailwind for
the sector that could catalyze a recovery.
2) M&A
activity. As we’ve seen thus far, M&A activity can generate
idiosyncratic returns for the portfolio. Increased M&A activity
could spur a broader sector re-rating upwards.
3) Major
new product launches or dramatic clinical results addressing large
markets. Generalist investors who invested in biotech during the
COVID pandemic have largely exited the sector. In order to attract
their interest again, groundbreaking clinical trial results for
therapies addressing large markets or successful launches of
products with multi-billion dollar potential would be helpful.
Generalist investor interest, for example, has helped propel the
share prices of the large pharmaceutical companies Eli Lilly and
Novo Nordisk, the marketers of the GLP-1 based obesity agents,
given the large addressable market opportunity. We think a similar
dynamic could occur as more biotech drugs are developed for large
indications like Alzheimer’s, heart disease, and autoimmune
disorders.
As we’ve
stated before, we have never seen such a large disconnect between
biotech company valuations and the fundamental innovation occurring
in the industry. We continue to believe this is a compelling entry
point for investors seeking to gain exposure to a highly innovative
sector developing important medicines for the benefit of patients
worldwide.
Geoff Hsu and Josh
Golomb
OrbiMed
Capital LLC, Portfolio Manager
9 November 2023
INVESTMENT
PORTFOLIO
INVESTMENTS
HELD AS AT 30 SEPTEMBER
2023
|
Country/
|
Fair
value
|
%
of
|
Security
|
Region#
|
£’000
|
investments
|
Amgen
|
United
States
|
28,030
|
9.3
|
Biogen
|
United
States
|
21,272
|
7.0
|
BioMarin
Pharmaceutical
|
United
States
|
17,978
|
6.0
|
Argenx
|
Netherlands
|
17,526
|
5.8
|
lonis
Pharmaceuticals
|
United
States
|
17,307
|
5.7
|
XtalPi*
|
China
|
12,867
|
4.3
|
United
Therapeutics
|
United
States
|
10,900
|
3.6
|
Vera
Therapeutics
|
United
States
|
9,750
|
3.2
|
Regeneron
Pharmaceuticals
|
United
States
|
9,099
|
3.0
|
Xenon
Pharmaceuticals
|
Canada
|
7,931
|
2.6
|
Ten
largest investments
|
|
152,660
|
50.5
|
Seagen
|
United
States
|
7,406
|
2.5
|
Sarepta
Therapeutics
|
United
States
|
7,167
|
2.4
|
Vaxcyte
|
United
States
|
7,006
|
2.3
|
Keros
Therapeutics
|
United
States
|
6,411
|
2.1
|
lnnovent
Biologics
|
China
|
6,390
|
2.1
|
Vertex
Pharmaceuticals
|
United
States
|
6,382
|
2.1
|
Horizon
Therapeutics
|
United
States
|
6,179
|
2.0
|
Gilead
Sciences
|
United
States
|
6,141
|
2.0
|
Mirati
Therapeutics
|
United
States
|
6,064
|
2.0
|
Aerovate
Therapeutics
|
United
States
|
6,024
|
2.0
|
Twenty
largest investments
|
|
217,830
|
72.0
|
Rhythm
Pharmaceuticals
|
United
States
|
5,915
|
2.0
|
RAPT
Therapeutics
|
United
States
|
5,804
|
1.9
|
Compass
Therapeutics
|
United
States
|
5,735
|
1.9
|
Neumora
Therapeutics
|
United
States
|
5,192
|
1.7
|
lmmatics
|
Germany
|
4,917
|
1.6
|
Janux
Therapeutics
|
United
States
|
4,341
|
1.4
|
Syndax
Pharmaceuticals
|
United
States
|
4,078
|
1.4
|
Apellis
Pharmaceuticals
|
United
States
|
3,870
|
1.3
|
ALX
Oncology Holdings
|
United
States
|
3,579
|
1.2
|
Scholar
Rock Holding
|
United
States
|
3,522
|
1.2
|
Thirty
largest investments
|
|
264,783
|
87.6
|
uniQure
|
Netherlands
|
3,401
|
1.1
|
KeyMed
Biosciences
|
China
|
3,247
|
1.1
|
Madrigal
Pharmaceuticals
|
United
States
|
2,610
|
0.9
|
Arrowhead
Pharmaceuticals
|
United
States
|
2,548
|
0.8
|
Crinetics
Pharmaceuticals
|
United
States
|
2,541
|
0.8
|
MoonLake
lmmunotherapeutics
|
United
States
|
2,333
|
0.8
|
Karuna
Therapeutics
|
United
States
|
1,940
|
0.6
|
Akero
Therapeutics
|
United
States
|
1,906
|
0.6
|
Kezar Life
Sciences
|
United
States
|
1,863
|
0.6
|
Gracell
Biotechnologies
|
China
|
1,778
|
0.6
|
Forty
largest investments
|
|
288,950
|
95.5
|
# Primary
listing.
* Unquoted
investment.
† Partnership
interest.
|
Country/
|
Fair
value
|
%
of
|
Security
|
Region#
|
£’000
|
investments
|
OrbiMed
Asia Partners*†
|
Asia
|
1,582
|
0.5
|
YS
Biopharma
|
China
|
1,510
|
0.5
|
Ventyx
Biosciences
|
United
States
|
1,473
|
0.5
|
StemiRNA
Therapeutics*
|
China
|
1,338
|
0.4
|
Wuxi
Biologics Cayman
|
China
|
1,308
|
0.4
|
Edgewise
Therapeutics
|
United
States
|
1,247
|
0.4
|
Essa
Pharma
|
Canada
|
1,109
|
0.4
|
Morphic
Holding
|
United
States
|
1,050
|
0.4
|
Prelude
Therapeutics
|
United
States
|
874
|
0.3
|
Heron
Therapeutics
|
United
States
|
677
|
0.2
|
Fifty
largest investments
|
|
301,118
|
99.5
|
Suzhou
Basecare Medical
|
China
|
627
|
0.2
|
Enliven
Therapeutics
|
United
States
|
522
|
0.2
|
Repare
Therapeutics
|
Canada
|
487
|
0.2
|
BioAtla
|
United
States
|
389
|
0.1
|
Xencor
|
United
States
|
316
|
0.1
|
Awakn Life
Sciences
|
Canada
|
309
|
0.1
|
Galecto
|
Denmark
|
34
|
0.0
|
Awakn Life
Sciences warrants 18/03/2024
|
Canada
|
–
|
–
|
Total
equities
|
|
303,802
|
100.4
|
OTC
equity swaps – Financed
|
|
|
|
BeiGene
|
China
|
4,981
|
1.6
|
Less:
Gross exposure on financed swaps
|
|
(6,305)
|
(2.0)
|
Total
OTC equity swaps
|
|
(1,324)
|
(0.4)
|
Total
investments including OTC equity swaps
|
|
302,478
|
100.0
|
All of the
above investments are equities unless otherwise stated.
# Primary
listing.
* Unquoted
investment.
† Partnership
interest.
PORTFOLIO
BREAKDOWN
Investments
|
Fair
value
£’000
|
%
of
investments
|
Quoted
|
|
|
Equities
|
288,015
|
95.2
|
|
288,015
|
95.2
|
Unquoted
|
|
|
Equities
|
14,205
|
4.7
|
Partnership
interest
|
1,582
|
0.5
|
|
15,787
|
5.2
|
Derivatives
|
|
|
OTC equity
swaps
|
(1,324)
|
(0.4)
|
Total
investments
|
302,478
|
100.0
|
CONDENSED
INCOME STATEMENT
FOR
THE SIX MONTHS ENDED 30 SEPTEMBER
2023
|
|
(Unaudited)
Six
months ended
30
September 2023
|
(Unaudited)
Six
months ended
30
September 2022
|
|
|
Revenue
|
Capital
|
Total
|
Revenue
|
Capital
|
Total
|
|
Notes
|
£’000
|
£’000
|
£’000
|
£’000
|
£’000
|
£’000
|
Investment
income
|
2
|
638
|
–
|
638
|
299
|
–
|
299
|
(Losses)/gains
on investments held at fair value through profit or loss
|
|
–
|
(11,070)
|
(11,070)
|
|
44,507
|
44,507
|
Exchange
losses on currency balances
|
|
–
|
(881)
|
(881)
|
|
(5,293)
|
(5,293)
|
AIFM,
portfolio management and performance fees
|
3
|
(73)
|
(1,383)
|
(1,456)
|
(91)
|
(1,731)
|
(1,822)
|
Other
expenses
|
|
(350)
|
(10)
|
(360)
|
(371)
|
(18)
|
(389)
|
Return/(loss)
before finance costs and taxation
|
|
215
|
(13,344)
|
(13,129)
|
(163)
|
37,465
|
37,302
|
Finance
costs
|
|
(26)
|
(498)
|
(524)
|
(14)
|
(258)
|
(272)
|
Return/(loss)
before taxation
|
|
189
|
(13,842)
|
(13,653)
|
(177)
|
37,207
|
37,030
|
Taxation
|
|
(83)
|
–
|
(83)
|
(39)
|
–
|
(39)
|
Return/(loss)
for the period
|
|
106
|
(13,842)
|
(13,736)
|
(216)
|
37,207
|
36,991
|
Basic
and diluted earnings/(loss)
per
share
|
4
|
0.3p
|
(37.0)p
|
(36.7)p
|
(0.5)p
|
91.2p
|
90.7p
|
The
Company does not have any income or expenses which are not included
in the profit or loss for the period. Accordingly the
“return/(loss) for the period” is also the “Total Comprehensive
Income for the period”, as defined in IAS 1 (revised) and no
separate Statement of Other Comprehensive Income has been
presented.
The
“Total” column of this statement is the Company’s Income Statement,
prepared in accordance with UK-adopted International Accounting
Standards and with the requirements of the Companies Act 2006 as
applicable to companies reporting under those standards. The
“Revenue” and “Capital” columns are supplementary to this and are
prepared under guidance published by the Association of the
Investment Companies.
All items
in the above statement are from continuing operations.
CONDENSED
STATEMENT OF CHANGES IN EQUITY
(UNAUDITED)
SIX MONTHS ENDED 30 SEPTEMBER
2023
|
Ordinary
|
Share
|
Capital
|
|
|
|
|
Share
|
premium
|
redemption
|
Capital
|
Revenue
|
|
|
capital
|
account
|
reserve
|
reserve
|
reserve
|
Total
|
|
£’000
|
£’000
|
£’000
|
£’000
|
£’000
|
£’000
|
At 31
March 2023
|
9,684
|
79,951
|
13,746
|
227,968
|
(1,058)
|
330,291
|
Net
(loss)/profit for the period
|
–
|
–
|
–
|
(13,842)
|
106
|
(13,736)
|
Repurchase
of own shares for cancellation
|
(715)
|
–
|
715
|
(23,138)
|
–
|
(23,138)
|
At 30
September 2023
|
8,969
|
79,951
|
14,461
|
190,988
|
(952)
|
293,417
|
(UNAUDITED)
SIX MONTHS ENDED 30 SEPTEMBER
2022
|
Ordinary
|
Share
|
Capital
|
|
|
|
|
Share
|
premium
|
redemption
|
Capital
|
Revenue
|
|
|
capital
|
account
|
reserve
|
reserve
|
reserve
|
Total
|
|
£’000
|
£’000
|
£’000
|
£’000
|
£’000
|
£’000
|
At 31
March 2022
|
10,289
|
79,951
|
13,141
|
291,231
|
(404)
|
394,208
|
Net
profit/(loss) for the period
|
–
|
–
|
–
|
37,207
|
(216)
|
36,991
|
Repurchase
of own shares for cancellation
|
(269)
|
–
|
269
|
(10,465)
|
–
|
(10,465)
|
At 30
September 2022
|
10,020
|
79,951
|
13,410
|
317,973
|
(620)
|
420,734
|
CONDENSED
STATEMENT OF FINANCIAL POSITION
AS
AT 30 SEPTEMBER
2023
|
|
(Unaudited)
|
(Audited)
|
|
|
30
September
|
31
March
|
|
|
2023
|
2023
|
|
Notes
|
£’000
|
£’000
|
Non
current assets
|
|
|
|
Investments
held at fair value through profit or loss
|
|
303,802
|
357,229
|
Current
assets
|
|
|
|
Other
receivables
|
|
1,276
|
508
|
Cash and
cash equivalents
|
|
3,133
|
2,772
|
|
|
4,409
|
3,280
|
Total
assets
|
|
308,211
|
360,509
|
Current
liabilities
|
|
|
|
Other
payables
|
|
2,033
|
8,846
|
Loan
|
|
11,437
|
20,170
|
Derivative
– OTC equity swaps
|
|
1,324
|
1,202
|
|
|
14,794
|
30,218
|
Net
assets
|
|
293,417
|
330,291
|
Equity
attributable to equity holders
|
|
|
|
Ordinary
share capital
|
|
8,969
|
9,684
|
Share
premium account
|
|
79,951
|
79,951
|
Capital
redemption reserve
|
|
14,461
|
13,746
|
Capital
reserve
|
|
190,988
|
227,968
|
Revenue
reserve
|
|
(952)
|
(1,058)
|
Total
equity
|
|
293,417
|
330,291
|
Net
asset value per share
|
5
|
817.9p
|
852.6p
|
CONDENSED
STATEMENT OF CASH FLOWS
FOR
THE SIX MONTHS ENDED 30 SEPTEMBER
2023
|
(Unaudited)
|
(Unaudited)
|
|
Six
months ended
|
Six
months ended
|
|
30
September 2023
|
30
September 2022
|
|
£’000
|
£’000
|
Operating
activities
|
|
|
(Loss)/profit
before taxation*
|
(13,653)
|
37,030
|
Finance
costs
|
524
|
272
|
Losses/(gains)
on investments held at fair value through profit &
loss
|
10,527
|
(45,419)
|
Transaction
costs**
|
–
|
912
|
Foreign
exchange losses
|
881
|
5,293
|
Decrease
in other receivables
|
9
|
24
|
(Decrease)/increase
in other payables
|
(77)
|
114
|
Taxation
paid
|
(83)
|
(39)
|
Net
cash outflow from operating activities
|
(1,872)
|
(1,813)
|
Investing
activities
|
|
|
Purchases
of investments
|
(116,198)
|
(254,895)
|
Sales of
investments
|
152,237
|
278,800
|
Transaction
costs
|
–
|
(912)
|
Net
cash inflow from investing activities
|
36,039
|
22,993
|
Financing
activities
|
|
|
Repurchase
of own shares for cancellation
|
(23,668)
|
(9,334)
|
Net
repayment of the loan facility
|
(9,614)
|
(11,574)
|
Finance
costs - interest paid
|
(524)
|
(272)
|
Net
cash outflow from financing activities
|
(33,806)
|
(21,180)
|
Net
increase in cash and cash equivalents
|
361
|
–
|
Cash and
cash equivalents at start of period
|
2,772
|
–
|
Cash
and cash equivalents at end of period†
|
3,133
|
–
|
*
Includes
dividends earned during the period of £557,000 (six months ended
30 September 2022:
£299,000).
**
In the
current period, transaction costs are included within “loss before
taxation”, hence it is zero compared to the prior
period.
† Collateral
cash held at Goldman Sachs (2022: £nil).
CHANGES
IN LIABILITIES ARISING FROM FINANCING
ACTIVITIES
|
(Unaudited)
|
(Unaudited)
|
|
Six
months ended
|
Six
months ended
|
|
30
September 2023
|
30
September 2022
|
|
£’000
|
£’000
|
Balance as
at start of period
|
20,170
|
31,741
|
Net
repayment of the loan facility
|
(9,614)
|
(11,574)
|
Foreign
exchange losses
|
881
|
5,293
|
Loan
balance
|
11,437
|
25,460
|
NOTES
TO THE FINANCIAL STATEMENTS
1.A)
GENERAL INFORMATION
The
Biotech Growth Trust PLC is a company incorporated and registered
in England and Wales. The Company operates as an investment
company within the meaning of Section 833 of the Companies Act 2006
and has made a successful application under Regulation 5 of the
Investment Trust (Approved Company) (Tax) Regulations 2011 for
investment trust status to apply to all accounting periods
commencing on or after 1 April
2012.
1.B)
BASIS OF PREPARATION
The
Company’s condensed financial statements for the six months ended
30 September 2023 have been prepared
in accordance with IAS 34 “Interim Financial Reporting”. They do
not include all the financial information required for the full
annual financial statements and have been prepared using accounting
policies adopted in the audited financial statements for the year
ended 31 March 2023.
Those
financial statements have been prepared in accordance with
International Financial Reporting Standards (“IFRS”).
The
Directors have sought to prepare the financial statements in
compliance with presentational guidance set out in the Statement of
Recommended Practice (the “SORP”) for Investment Trust Companies
and Venture Capital Trusts produced by the Association of
Investment Companies (“AIC”), dated July
2022.
The
Company’s financial statements are presented in sterling and all
values are rounded to the nearest thousand pounds (£’000) except
when otherwise indicated.
The
financial statements have not been audited by the Company’s
auditors.
1.C)
SEGMENTAL REPORTING
IFRS 8
requires entities to define operating segments and segment
performance in the financial statements based on information used
by the Board of Directors. The Directors are of the opinion that
the Company is engaged in a single segment of business, being
investment business.
1.D)
GOING CONCERN
The
Directors believe that it is appropriate to adopt the going concern
basis in preparing the financial statements as the assets of the
Company consist mainly of securities that are readily realisable
and, accordingly, the Company has adequate financial resources to
continue in operational existence for at least 12 months from the
date of the approval of the financial statements. The next
continuation vote of the Company will be held at the Annual General
Meeting in 2025 and further opportunities to vote on the
continuation of the Company will be given to shareholders every
five years thereafter.
2.
INCOME
|
(Unaudited)
|
(Unaudited)
|
|
Six
months
|
Six
months
|
|
ended
|
ended
|
|
30
September
|
30
September
|
|
2023
|
2022
|
|
£’000
|
£’000
|
Investment
income
|
|
|
Overseas
dividend income
|
557
|
299
|
Other
income – bank interest
|
81
|
–
|
Total
income
|
638
|
299
|
3.
AIFM, PORTFOLIO MANAGEMENT AND PERFORMANCE FEES
|
|
|
Total
|
|
|
Total
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
Six
months
|
|
|
Six
months
|
|
|
|
ended
|
|
|
ended
|
|
|
|
30
September
|
|
|
30
September
|
|
Revenue
|
Capital
|
2023
|
Revenue
|
Capital
|
2022
|
|
£’000
|
£’000
|
£’000
|
£’000
|
£’000
|
£’000
|
AIFM
fee
|
22
|
421
|
443
|
27
|
524
|
551
|
Portfolio
management fee – OrbiMed Capital LLC
|
51
|
962
|
1,013
|
64
|
1,207
|
1,271
|
Performance
fee
|
–
|
–
|
–
|
–
|
–
|
–
|
|
73
|
1,383
|
1,456
|
91
|
1,731
|
1,822
|
As at
30 September 2023, no performance
fees were accrued or payable (30 September
2022: Nil).
For
further details on the performance fee arrangements see pages 48
and 49 of the Company’s 2023 Annual Report.
4.
BASIC AND DILUTED EARNINGS/(LOSS) PER SHARE
|
(Unaudited)
|
(Unaudited)
|
|
Six
months
|
Six
months
|
|
ended
|
ended
|
|
30
September
|
30
September
|
|
2023
|
2022
|
|
£’000
|
£’000
|
The
earnings/(loss) per share is based on the following
figures:
|
|
|
Net
revenue return/(loss)
|
106
|
(216)
|
Net
capital (loss)/return
|
(13,842)
|
37,207
|
Net total
(loss)/return
|
(13,736)
|
36,991
|
Weighted
average number of shares in issue during the period
|
37,411,567
|
40,781,100
|
|
Pence
|
Pence
|
Revenue
earnings/(loss) per share
|
0.3
|
(0.5)
|
Capital
(loss)/earnings per share
|
(37.0)
|
91.2
|
Total
(loss)/earnings per share
|
(36.7)
|
90.7
|
5.
NET ASSET VALUE PER SHARE
The net
asset value per share is based on the net assets attributable to
equity shareholders of £293,417,000 (31
March 2023: £330,291,000) and on 35,875,917 shares
(31 March 2023: 38,737,419) being the
number of shares in issue at the period end.
6.
TRANSACTION COSTS
Purchase
and sale transaction costs for the six months ended 30 September 2023 amounted to £543,000 (six
months ended 30 September 2022:
£912,000); broken down as follows: purchase transactions for the
six months ended 30 September
2023 amounted to £124,000 (six months ended 30 September 2022: £411,000). Sale transactions
amounted to £419,000 (six months ended 30
September 2022: £501,000). These costs comprise mainly
commission.
7.
INVESTMENTS
IFRS 13
requires the Company to classify fair value measurements using the
fair value hierarchy that reflects the significance of the inputs
used in making the measurements. The fair value hierarchy consists
of the following three levels:
-
Level 1 –
quoted prices (unadjusted) in active markets for identical assets
or liabilities;
-
Level 2 –
inputs other than quoted prices included with Level 1 that are
observable for the asset or liability, either directly (i.e. as
prices) or indirectly (i.e. derived from prices); and
-
Level 3 –
inputs for the asset or liability that are not based on observable
market data (unobservable inputs).
At
30 September 2023 the investments in
OrbiMed Asia Partners LP Fund (the LP Fund), XtalPi, and StemiRNA
have been classified as Level 3 (see Level 3 reconciliation
below).
The LP
Fund is valued quarterly by OrbiMed Advisors LLC and is audited
annually by KPMG LLP. As the 30 September
2023 valuation is not yet available, the LP Fund has been
valued at its net asset value as at 30 June
2023. It is believed that the value of the LP Fund as at
30 September 2023 will not be
materially different. If the value of the LP Fund were to increase
or decrease by 10%, while other variables had remained constant,
the return and net assets attributable to shareholders for the
period ended 30 September 2023 would
have increased or decreased by £158,000 or 0.44p per share
(year ended 31 March 2023: £216,000
or 0.56p per share).
The
following investments have been valued by the Board following
recommendations made by the Valuation Committee which has reviewed
in detail both the valuations and the methodologies provided by
Kroll, an independent valuer.
StemiRNA
and XtalPi have been valued using the probability-weighted expected
returns methodology and are classified as Level 3. If the value of
these investments were to increase or decrease by 10%, while all
other variables remain constant, the return attributable to
shareholders for the period ended 30
September 2023 would have increased or decreased by
£1,421,000 or 3.96p per share (year ended 31
March 2023: £1,786,000 or 4.61p per share).
The table
overleaf sets out fair value measurements of financial assets in
accordance with the IFRS13 fair value hierarchy system:
(UNAUDITED)
SIX MONTHS ENDED 30 SEPTEMBER
2023
|
Level
1
|
Level
2
|
Level
3
|
Total
|
|
£’000
|
£’000
|
£’000
|
£’000
|
Equity
investments
|
288,015
|
–
|
14,205
|
302,220
|
Derivatives:
equity swap
|
–
|
(1,324)
|
–
|
(1,324)
|
Partnership
interest in LP Fund
|
–
|
–
|
1,582
|
1,582
|
Total
|
288,015
|
(1,324)
|
15,787
|
302,478
|
(AUDITED)
YEAR ENDED 31 MARCH
2023
|
Level
1
|
Level
2
|
Level
3
|
Total
|
|
£’000
|
£’000
|
£’000
|
£’000
|
Equity
investments
|
336,962
|
–
|
18,103
|
355,065
|
Derivatives:
equity swap
|
–
|
(1,202)
|
–
|
(1,202)
|
Partnership
interest in LP Fund
|
–
|
–
|
2,164
|
2,164
|
Total
|
336,962
|
(1,202)
|
20,267
|
356,027
|
LEVEL
3 RECONCILIATION
Please see
below a reconciliation disclosing the changes during the six months
for the financial assets and liabilities, designated at fair value
through profit or loss, classified as being Level 3.
|
(Unaudited)
|
|
|
Six
months
|
(Audited)
|
|
ended
|
Year
ended
|
|
30
September
|
31
March
|
|
2023
|
2023
|
|
£’000
|
£’000
|
Assets as
at beginning of period
|
20,267
|
33,927
|
Purchase
of unquoted investments
|
–
|
–
|
Sale of
unquoted investments
|
–
|
–
|
Net
movement in investment holding gains during the
period/year
|
(4,480)
|
(3,773)
|
Transfer
from level 3 to level 1
|
–
|
(9,887)
|
Assets as
at 30 September/31 March
|
15,787
|
20,267
|
8.
PRINCIPAL RISKS PROFILE
The
principal risks the Company faces from its financial instruments
are:
i)
market
price risk, including currency risk, interest rate risk and other
price risk;
ii)
liquidity
risk; and
iii)
credit
risk.
Market
price risk – This is
the risk that the fair value or future cash flows of a financial
instrument held by
the Company may fluctuate because of changes in market prices. This
market risk comprises three elements – currency risk, interest rate
risk and other price risk.
Liquidity
risk – This is
the risk that the Company will encounter difficulty in meeting
obligations associated
with financial liabilities.
Credit
risk – This is
the risk that the counterparty to a transaction fails to discharge
its obligations under that
transaction, which could result in the Company suffering a
loss.
Details of
the Company’s management of these risks can be found in note 14 in
the Company’s 2023 Annual Report.
There have
been no changes to the management of or the exposure to these risks
since the date of the Annual Report.
9.
RELATED PARTY TRANSACTIONS
There have
been no changes to the related party arrangements or transactions
as reported in the Annual Report for the year ended 31 March 2023.
10.
CREDIT RISK
J.P.
Morgan Securities LLC (“J.P. Morgan") may take assets with a value
of up to 140% of the Company’s loan facility as collateral. Such
assets held by J.P. Morgan are available for
rehypothecation*.
As at
30 September 2023, the maximum value
of assets available for rehypothecation was £16 million being 140%
of the loan balance (£11.4 million).
* See
Glossary.
11.
COMPARATIVE INFORMATION
The
financial information contained in this half year report does not
constitute statutory accounts as defined in sections 434 to 436 of
the Companies Act 2006. The financial information for the six
months ended 30 September 2023 and
2022 has not been audited by the Company’s auditor.
The
information for the year ended 31 March
2023 has been extracted from the latest published audited
financial statements. The audited financial statements for the year
ended 31 March 2023 have been filed
with the Registrar of the Companies. The report of the Company’s
auditor on those accounts was unqualified, did not include a
reference to any matters to which the Company’s auditor drew
attention by way of emphasis without qualifying the report and did
not contain statements under section 498(2) or 498(3) of the
Companies Act 2006.
INTERIM
MANAGEMENT REPORT
PRINCIPAL
RISKS AND UNCERTAINTIES
A review
of the half year, including reference to the risks and
uncertainties that existed during the period and the outlook for
the Company can be found in the Chairman’s Statement and in the
Portfolio Manager’s Review. The principal risks faced by the
Company fall into the following broad categories: market risk;
portfolio performance; share price performance; cyber risk; key
person risk; valuation risk; climate change; counterparty risk; and
operational disruption. Information on each of these areas is given
in the Strategic Report/Business Review within the Annual Report
for the year ended 31 March 2023. The
Company’s principal risks and uncertainties have not changed
materially since the date of that report and are not expected to
change materially for the remaining six months of the Company’s
financial year.
The Board,
the AIFM and the Portfolio Manager discuss and identify emerging
risks as part of the risk identification process and have
considered that demographic trends in China and Europe, including the effects of an ageing
workforce, may have an impact on global markets and that threats to
research funding and the effects of increased costs in the biotech
sector may affect the Company's investee companies.
RELATED
PARTY TRANSACTIONS
During the
first six months of the current financial year, no transactions
with related parties have taken place which have materially
affected the financial position or the performance of the
Company.
GOING
CONCERN
The
Directors believe, having considered the Company’s investment
objective, risk management policies, capital management policies
and procedures, the nature of the portfolio and expenditure
projections, that the Company has adequate resources, an
appropriate financial structure and suitable management
arrangements in place to continue in operational existence for the
foreseeable future and, more specifically, that there are no
material uncertainties relating to the Company that would prevent
its ability to continue in such operational existence for at least
twelve months from the date of the approval of this half yearly
financial report. For these reasons, they consider there is
reasonable evidence to continue to adopt the going concern basis in
preparing the financial statements.
DIRECTORS’
RESPONSIBILITIES
The Board
of Directors confirms that, to the best of its
knowledge:
(i)
the
condensed set of financial statements contained within the Half
Year Report have been prepared in accordance with applicable
International Accounting Standards (“IAS") 34; and
(ii)
the
interim management report includes a true and fair review of the
information required by:
(a)
DTR 4.2.7R
of the Disclosure Guidance and Transparency Rules, being an
indication of important events that have occurred during the first
six months of the financial year and their impact on the condensed
set of financial statements; and a description of the principal
risks and uncertainties for the remaining six months of the year;
and
(b)
DTR 4.2.8R
of the Disclosure Guidance and Transparency Rules, being related
party transactions that have taken place in the first six months of
the current financial year and that have materially affected the
financial position or performance of the entity during that period;
and any changes in the related party transactions described in the
last annual report that could do so.
The Half
Year Report has not been audited by the Company’s
auditors.
This Half
Year Report contains certain forward-looking statements. These
statements are made by the Directors in good faith based on the
information available to them up to the date of this report and
such statements should be treated with caution due to the inherent
uncertainties, including both economic and business risk factors,
underlying any such forward-looking
information.
For and on
behalf of the Board
Roger Yates
Chairman
9 November 2023
GLOSSARY
OF TERMS AND ALTERNATIVE PERFORMANCE MEASURES
AIC
Association
of Investment Companies.
ALTERNATIVE
INVESTMENT FUND MANAGERS DIRECTIVE (“AIFMD”)
Agreed by
the European Parliament and the Council of the European Union and
transposed into UK legislation, the AIFMD classifies certain
investment vehicles, including investment companies, as Alternative
Investment Funds (“AIFs”) and requires them to appoint an
Alternative Investment Fund Manager (“AIFM”) and depositary to
manage and oversee the operations of the investment vehicle. The
Board of the Company retains responsibility for strategy,
operations and compliance and the Directors retain a fiduciary duty
to shareholders.
ALTERNATIVE
PERFORMANCE MEASURE (“APM”)
An APM is
a numerical measure of the Company’s current, historical or future
financial performance, financial position or cash flows, other than
a financial measure defined or specified in the applicable
financial framework. In selecting these APMs, the Directors
considered the key objectives and expectations of typical investors
in an investment trust such as the Company. Definitions of the
terms used and the basis of calculation are set out in this
Glossary and the APMs are indicated with a caret (^).
ACTIVE
SHARE^
Active
Share is expressed as a percentage and shows the extent to which a
fund’s holdings and their weightings differ from those of the
fund’s benchmark index. A fund that closely tracks its index might
have a low Active Share of less than 20% and be considered passive,
while a fund with an Active Share of 60% or higher is generally
considered to be actively managed.
CROSSOVER
INVESTMENTS
Investments
in a company’s last private round prior to an initial public
offering (“IPO”).
DISCOUNT
OR PREMIUM^
A
description of the difference between the share price and the net
asset value per share. The size of the discount or premium is
calculated by subtracting the share price from the net asset value
per share and is usually expressed as a percentage (%) of the net
asset value per share. If the share price is higher than the net
asset value per share the result is a premium. If the share price
is lower than the net asset value per share, the shares are trading
at a discount.
|
|
As
at
|
As
at
|
|
|
30
September
|
31
March
|
|
|
2023
|
2023
|
|
|
pence
|
pence
|
Share
price
|
|
776.0
|
783.0
|
Net asset
value per share (see note 5 for further information)
|
|
817.9
|
852.6
|
Discount
of share price to net asset value per share
|
|
5.1%
|
8.2%
|
DRAWDOWN
A measure
of downside volatility, a drawdown refers to how much an investment
or sector is down from the peak before it recovers back to the
peak.
GEARING^
Gearing
represents prior charges, adjusted for net current
assets/liabilities, expressed as a percentage of net assets. Prior
charges includes all loans for investment purposes.
|
|
As
at
|
As
at
|
|
|
30
September
|
31
March
|
|
|
2023
|
2023
|
|
|
£’000
|
£’000
|
Loan
facility
|
|
(11,437)
|
(20,170)
|
Net
current assets/(liabilities) (excluding loan and
derivatives)
|
|
2,376
|
(5,566)
|
|
|
(9,061)
|
(25,736)
|
Net
assets
|
|
293,417
|
330,291
|
Gearing
|
|
3.1%
|
7.8%
|
GICS
Global
Industry Classification Standards. GICS is an industry analysis
framework that helps investors understand the key business
activities for companies around the world. MSCI and S&P Dow
Jones Indices developed this classification standard to provide
investors with consistent and exhaustive industry
definitions.
NET
ASSET VALUE (“NAV”)
The value
of the Company’s assets, principally investments made in other
companies and cash being held, minus any liabilities. The NAV is
also described as ‘shareholders’ funds’. The NAV is often expressed
in pence per share after being divided by the number of shares
which are in issue at the relevant date. The NAV per share is
unlikely to be the same as the share price which is the price at
which the Company’s shares can be bought or sold by an investor.
The share price is determined by the relationship between the
demand and supply of the shares in the secondary market.
NAV
PER SHARE TOTAL RETURN^
The NAV
per share total return for the period ended 30 September 2023 is calculated by taking the
percentage movement from the NAV per share as at 31 March 2023 of 852.6p (31 March 2022: 957.8p) to the NAV at 30 September 2023 of 817.9p (30 September 2022: 1,049.7p). The Company has not
paid any dividends to shareholders during the period.
ONGOING
CHARGES^
Ongoing
charges are calculated by taking the Company’s annualised operating
expenses expressed as a proportion of the average daily net asset
value of the Company over the year.
The costs
of buying and selling investments are excluded, as are interest
costs, taxation, performance fees, cost of buying back or issuing
ordinary shares and other non-recurring costs.
|
|
As
at
|
As
at
|
|
|
30
September
|
31
March
|
|
|
2023
|
2023
|
|
|
£’000
|
£’000
|
AIFM and
portfolio management fees*
|
|
2,862
|
3,531
|
Operating
expenses*
|
|
688
|
692
|
Total
expenses*
|
|
3,550
|
4,223
|
Average
daily net assets for the period/year
|
|
325,833
|
394,525
|
Ongoing
charges
|
|
1.1%
|
1.1%
|
* Estimated
expenses for the year ending 31 March
2024 based on assets as at 30
September 2023.
OTHER
COST RATIOS
Total
ongoing costs as disclosed in the Company’s latest Key Information
Document (KID) is 1.30%. This represents the impact of the costs
that are incurred each year for the running of the Company
including the impact of the finance costs (0.2%).
OTC
EQUITY SWAPS
Over-the-Counter
(“OTC”) refers to the process of how securities are traded via a
broker - dealer network, as opposed to a centralised
exchange.
An equity
swap is an agreement where one party (counterparty) transfers the
total return of an underlying equity position to the other party
(swap holder) in exchange for a payment of the principal, and
interest for financed swaps, at a set date. Total return includes
dividend income and gains or losses from market movements. The
exposure of the holder is the market value of the underlying equity
position.
There are
two main types of equity swaps:
-
Funded –
where payment is made on acquisition. They are equivalent to
holding the underlying equity position with the exception of
additional counterparty risk and not possessing voting rights in
the underlying investment; and
-
Financed –
where payment is made on maturity. As there is no initial outlay,
financed swaps increase exposure by the value of the underlying
equity position with no initial increase in the investments’ value
– there is therefore embedded leverage within a financed swap due
to the deferral of payment to maturity.
QUANTITATIVE
TIGHTENING
Quantitative
tightening is when the Federal Reserve reduces its balance sheet by
selling its Treasury bonds or allowing them to mature, removing
liquidity from the financial markets. It is the opposite of
quantitative easing.
REHYPOTHECATION
Rehypothecation
is the practice by banks and brokers of using collateral posted as
security for loans as regulated by the U.S. Securities Exchange
Commission.
SHARE
PRICE TOTAL RETURN^
The share
price total return for the period ended 30
September 2023 is calculated by taking the percentage
movement from the share price as at 31 March
2023 of 783.0p (31 March 2022:
898.0p) to the share price as at 30
September 2023 of 776.0p (30
September 2022: 994.0p). The Company has not paid any
dividends to shareholders during the period.
^ Alternative
Performance Measure
9 November 2023
Frostrow
Capital LLP
Company
Secretary
END