TIDMBIOG
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 As at %
30 September 31 March Change
2023 2023
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 18months 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
sixperson 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. Inmid-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 50peryear,
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 30September 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
thosecells.
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. Asof 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 Arequire 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 12months 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 Asia 1,582 0.5
Partners*?
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 301,118 99.5
investments
Suzhou Basecare China 627 0.2
Medical
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 Canada - -
warrants 18/03/2024
Total equities 303,802 100.4
OTC equity swaps -
Financed
BeiGene China 4,981 1.6
Less: Gross exposure (6,305) (2.0)
on financed swaps
Total OTC equity swaps (1,324) (0.4)
Total investments 302,478 100.0
including OTC equity
swaps
All of the above investments are equities unless otherwise stated.
#Primary listing.
*Unquoted investment.
?Partnership interest.
PORTFOLIO BREAKDOWN
Investments Fair value % of
£'000 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 MONTHSED 30 SEPTEMBER 2023
(Unaudited) (Unaudited)
Six months Six months
ended ended
30 30
September September
2023 2022
Revenue Capital Total Revenue Capital Total
Notes £'000 £'000 £'000 £'000 £'000 £'000
Investment income 2 638 - 638 299 - 299
(Losses)/gains on - (11,070) (11,070) 44,507 44,507
investments held
at fair value
through profit or
loss
Exchange losses - (881) (881) (5,293) (5,293)
on currency
balances
AIFM, portfolio 3 (73) (1,383) (1,456) (91) (1,731) (1,822)
management and
performance fees
Other expenses (350) (10) (360) (371) (18) (389)
Return/(loss) 215 (13,344) (13,129) (163) 37,465 37,302
before finance
costs
and taxation
Finance costs (26) (498) (524) (14) (258) (272)
Return/(loss) 189 (13,842) (13,653) (177) 37,207 37,030
before taxation
Taxation (83) - (83) (39) - (39)
Return/(loss) for 106 (13,842) (13,736) (216) 37,207 36,991
the period
Basic and diluted 4 0.3p (37.0)p (36.7)p (0.5)p 91.2p 90.7p
earnings/(loss)
per share
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 MONTHSED 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 - - - (13,842) 106 (13,736)
for the period
Repurchase of own (715) - 715 (23,138) - (23,138)
shares for
cancellation
At 30 September 2023 8,969 79,951 14,461 190,988 (952) 293,417
(UNAUDITED) SIX MONTHSED 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) - - - 37,207 (216) 36,991
for the period
Repurchase of own (269) - 269 (10,465) - (10,465)
shares for
cancellation
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 303,802 357,229
value through profit or
loss
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 1,324 1,202
swaps
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 MONTHSED 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 10,527 (45,419)
at fair value through profit & loss
Transaction costs** - 912
Foreign exchange losses 881 5,293
Decrease in other receivables 9 24
(Decrease)/increase in other (77) 114
payables
Taxation paid (83) (39)
Net cash outflow from operating (1,872) (1,813)
activities
Investing activities
Purchases of investments (116,198) (254,895)
Sales of investments 152,237 278,800
Transaction costs - (912)
Net cash inflow from investing 36,039 22,993
activities
Financing activities
Repurchase of own shares for (23,668) (9,334)
cancellation
Net repayment of the loan facility (9,614) (11,574)
Finance costs - interest paid (524) (272)
Net cash outflow from financing (33,806) (21,180)
activities
Net increase in cash and cash 361 -
equivalents
Cash and cash equivalents at start 2,772 -
of period
Cash and cash equivalents at end of 3,133 -
period?
* 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 30
September September
Revenue Capital 2023 Revenue Capital 2022
£'000 £'000 £'000 £'000 £'000 £'000
AIFM fee 22 421 443 27 524 551
Portfolio 51 962 1,013 64 1,207 1,271
management
fee -
OrbiMed
Capital
LLC
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 37,411,567 40,781,100
shares in issue during the
period
Pence Pence
Revenue earnings/(loss) per 0.3 (0.5)
share
Capital (loss)/earnings per (37.0) 91.2
share
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 30September 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 threelevels:
· 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 0.44ppershare (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 MONTHSED 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) YEARED 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 20,267 33,927
period
Purchase of unquoted - -
investments
Sale of unquoted investments - -
Net movement in investment (4,480) (3,773)
holding gains during the
period/year
Transfer from level 3 to level - (9,887)
1
Assets as at 30 September/31 15,787 20,267
March
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 817.9 852.6
note 5 for further information)
Discount of share price to net 5.1% 8.2%
asset value per share
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) 2,376 (5,566)
(excluding loan and derivatives)
(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
This information was brought to you by Cision http://news.cision.com
END
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