The
Biotech Growth Trust PLC
(the
Company)
Annual
Results for the Year Ended 31 March
2024
The
statements below are extracted from the Company’s annual report for
the year ended 31 March 2024 (the
Annual Report).
The Annual
Report, which includes the notice of the Company’s forthcoming
annual general meeting, will be posted to shareholders on
12 June 2024. Members of the public
may obtain copies from Frostrow Capital LLP, 25 Southampton
Buildings, London WC2A 1AL or from
the Company’s website at
www.biotechgt.com where up
to date information on the Company, including daily NAV, share
prices and fact sheets, can also be found.
The Annual
Report will be submitted to the Financial Conduct Authority and
will shortly be available in full, unedited text for inspection on
the National Storage Mechanism (NSM):
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
Frostrow
Capital LLP
Company
Secretary
0203 709
8734
FINANCIAL
HIGHLIGHTS
as
at 31 March 2024
1,078.9p
|
995.0p
|
£361.3m
|
Net
asset value per share**
|
Share
price
|
Shareholders’
funds**
|
2023:
852.6p
|
2023:
783.0p
|
2023:
£330.3m
|
|
|
|
26.5%
|
27.1%
|
5.0%
|
Net
asset value per share
|
Share
price
|
Benchmark*†
|
(total
return)*^
|
(total
return)*^
|
2023:
5.4%
|
2023:
-11.0%
|
2023:
-12.8%
|
|
|
|
|
7.8%
|
1.2%
|
66.6%
|
Discount
of share price to
|
Ongoing
Charges^
|
Active
Share*^
|
net
asset value per share*^
|
2023:
1.1%
|
2023:
76.6%
|
2023:
8.2%
|
|
|
* Source:
Morningstar
^ Alternative
Performance Measure (see glossary)
† Nasdaq
Biotechnology Index (sterling adjusted)
** IFRS
Measure
CHAIR’S
STATEMENT
INTRODUCTION
AND RESULTS
I am
pleased to present to shareholders this annual report for the year
ended 31 March 2024.
After a
challenging two years, the Company performed well in both absolute
and relative terms in the year under review; the net asset value
(NAV) per share total return was 26.5% (2023: -11.0%), and the
share price total return was 27.1% (2023:
-12.8%), both outperforming the Company’s benchmark, the Nasdaq
Biotechnology Index (sterling adjusted), which over the year rose
5.0% (2023: 5.4%). The small disparity between the performance of
the Company’s NAV per share and its share price reflected a slight
narrowing of the share price discount to the NAV per share from
8.2% at
the start of the Company’s financial year to 7.8% at the year
end.
The
average exchange rate over the year was $1.258, some 4.5% higher than the previous year’s
average of $1.204.
The
Company’s gearing, which increased to 9.1% at the year end from
7.8% at the beginning of the year, contributed 1.2% to the
Company’s NAV total return during the year.
While
performance this year has been encouraging and we are relieved to
be seeing signs of recovery in the sector, the Board is aware that
there is still some way to go before the Company fully recovers its
relative and absolute losses from the past two years. Nevertheless,
our Portfolio Manager’s investment strategy has started once again
to yield results. They intend to maintain the Company’s
overweighting to small and mid-capitalisation (cap) companies,
which they believe will deliver increasingly positive results to
shareholders. In addition they anticipate that we can expect to see
a continuation of the consolidation in the biotechnology industry,
as larger companies seek to acquire smaller companies with
promising pipelines of drugs and therapies to address impending
patent expirations which threaten their future earnings.
Our
portfolio contains a diverse range of biotech companies with
exposure to the most exciting and promising new technologies. The
areas in which our Portfolio Manager is finding the most promising
investment opportunities include obesity, oligonucleotide
therapeutics and oncology. I encourage you to read the Portfolio
Manager’s Review to find out more about these themes and the
companies making breakthroughs in these areas. The fact that the
emerging technologies in these areas have been developed into
approved new treatments reaffirms our view that the biotechnology
industry is maturing and demonstrates its ability to convert
laboratory research into effective medicines.
The
Company has maintained a small exposure to Chinese biotechnology
companies which overall made a negligible contribution to
performance over the year. The difficult macroeconomic,
geopolitical and local regulatory environment has meant that the
valuations of Chinese biotech companies remain depressed although
there have been some success stories such as AstraZeneca’s
acquisition of Gracell Biotechnologies (which was held in our
portfolio) for $1.2 billion. Chinese
investments represented 7.7% (2023: 9.0%) of the portfolio at the
year end and while our Portfolio Manager continues to believe the
long-term outlook for Chinese biotech is promising, this level of
exposure is unlikely to be increased unless or until the
environment in China becomes more
supportive.
The
Company has not invested in any new private companies during the
year and at the year end, the two remaining, directly held, private
investments (both of which are Chinese companies) comprised 3.2% of
the Company’s NAV. As announced earlier in the year and explained
further in the Portfolio Manager’s Review, we wrote down the
holding in Stemirna Therapeutics and this contributed to the
negative return from the private investments over the
year.
CAPITAL
STRUCTURE
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 its NAV per share is higher than 6% (under
normal market conditions).
The
Company’s shares traded at a discount throughout the year, leading
to the repurchase of 5,250,221 shares, at an average discount of
7.3% to the Company’s cum income NAV per share at the time, at a
total cost of £43.6 million. This is a substantial return of
capital, representing 13.6% of the issued share capital of the
Company at the start of the year. Buying back these shares at a
discount generated an uplift of 0.9% to the NAV over the
year.
At the
year end there were 33,487,198 shares in issue and the share price
traded at an 7.8% discount to the cum income NAV per share. As we
have previously commented, the shares can trade at a discount wider
than 6% for a period of days or indeed longer, particularly in
volatile or muted markets. However, the Company remains committed
to protecting a 6% share
price discount over the longer term. Since the year end, a further
290,000 shares have been bought back for cancellation and at the
time of writing the share price discount stands at 8.2%.
REVENUE
RETURN
The
revenue return per share was 0.3p (2023: -1.6p). This reflects the
relatively low yield generated from the biotechnology sector and,
in particular, the small and mid-cap companies in this sector that
comprise much of the portfolio.
As the
Company has brought forward revenue losses, no dividend is
recommended in respect of the year ended 31 March
2024 (2023: nil).
BOARD
CHANGES
In October
we were delighted to announce the appointment of Hamish Baillie as a non-executive director,
effective 1 November
2023. Hamish will succeed Steve
Bates as Chair of the Management Engagement Committee and
Senior Independent Director following Steve’s retirement at the
conclusion of the forthcoming annual general meeting
(AGM).
In
anticipation of his retirement, I would like to extend our sincere
gratitude to Steve for his dedicated service. Throughout his
tenure, his expertise, wealth of knowledge and insightful guidance
have been invaluable to the Board. We wish him all the best for the
future.
Other
directors are coming to the end of their tenure and Board
recruitment processes are underway in line with our succession
plan.
PERFORMANCE
FEE
There is
currently no provision within the Company’s NAV for any performance
fee payable at a future calculation date.
The
arrangements for performance fees are described in detail on pages
51 and 52 of the Annual Report but I would highlight that it is
dependent on the long-term outperformance of the Company: any
outperformance has to be maintained for 12 months
after the relevant calculation date and only becomes payable to the
extent that the outperformance gives rise to a total fee greater
than the total of all performance fees paid to date. This ensures
that a performance fee is not payable for any outperformance that
contributes to recovery of prior performance.
CHANGE
OF BENCHMARK INDEX
As noted
above, the Company’s performance is currently measured against the
Nasdaq Biotechnology Index (sterling adjusted) and this is the
index used to determine the entitlement (if any) of OrbiMed to a
performance fee.
The index
measures capital return, and as the biotechnology sector is largely
made up of growth companies that tend not to pay dividends,
historically there was very little difference between the capital
and total return versions of the index.
In recent
years, however, the biotechnology industry as a whole and the
constituents of the index have changed as the industry has matured.
The number of index constituents that pay a dividend has increased,
although the number is still modest and the Company itself is not
receiving sufficient income to be required to pay a dividend under
current investment trust taxation rules. The Board believes this
trend, in which dividend income contributes to the total return
from the index, is likely to increase.
Therefore,
following consultation with our advisers, the Board is proposing to
shareholders that the index used to measure the Company’s
performance and so the entitlement of OrbiMed to a performance fee,
which is based on outperformance of the index, should be changed to
the Nasdaq Biotechnology Index Total Return (sterling adjusted and
net of withholding tax).
Under the
Listing Rules, the proposed change is a related party transaction
and must therefore by approved by shareholders. The proposed change
will be put to shareholders at a general meeting which will be held
immediately after the conclusion of the forthcoming AGM on
18 July 2024.
The
proposed change is explained in more detail in a circular that will
be sent to shareholders with this Annual Report and which will be
available on the Company’s website: www.biotechgt.com.
ANNUAL
GENERAL MEETING
The
Company’s AGM will be held at the Barber-Surgeons’ Hall, Monkwell
Square, Wood St, Barbican, London
EC2Y 5BL on Thursday, 18 July 2024 at
12 noon. As well as the formal proceedings, there will be an
opportunity for shareholders to meet the Board and the Portfolio
Manager, and to receive an update on the Company’s strategy and its
key investments.
I very
much look forward to seeing as many shareholders as possible this
year. For those investors who are not able to attend the meeting in
person, a video recording of the Portfolio Manager’s presentation
will be uploaded to the website after the meeting. Shareholders can
submit questions in advance by writing to the Company Secretary at
info@frostrow.com.
I
encourage all shareholders to exercise their right to vote at the
AGM. The Board strongly encourages shareholders to register their
votes online in advance. Registering your vote in advance will not
restrict you from attending and voting at the meeting in person
should you wish to do so, but as the past few years have shown,
unforeseen extraordinary events can make attendance difficult or
impossible. The votes on the resolutions to be proposed at the AGM
will be conducted on a poll. The results of the proxy votes will be
published following the conclusion of the AGM by way of a stock
exchange announcement and on the Company’s website:
www.biotechgt.com.
OUTLOOK
It has
been a volatile few years for the biotechnology sector and the
Company. 2020 and 2021 saw a surge in investment in healthcare and
biotechnology driven by low interest rates, merger and acquisition
(M&A) activity and of course, the COVID pandemic. In 2022, as
interest rates and inflation rose, the pandemic waned and the
valuations of smaller biotech companies fell to all-time lows. This
generated a performance headwind for the Company.
In the
past year, I am glad to report that there have been signs of
recovery which are reflected in the Company’s good performance over
the past year, with an increase in regulatory approvals and a
potential revival in the IPO market. The challenges facing the
sector are still present: regulatory hurdles, uncertainty around
funding and more broadly, a difficult macroeconomic environment
characterised by persistent inflation and high costs of capital.
However, the global biotech industry is expected to continue its
growth trajectory, with groundbreaking innovations and new
technologies improving and saving lives, creating value for
shareholders and, ultimately, driving performance. The Company is
exposed to a wide variety of the most promising
technologies.
Our
Portfolio Manager and the Board are excited about the innovation
taking place in the sector and the portfolio companies we hold. As
a consequence, our overall investment strategy remains unchanged
and, assuming relatively benign markets, we look forward with
confidence to good long-term returns for the Company.
Roger Yates
Chair
4 June 2024
INVESTMENT
PORTFOLIO
INVESTMENTS
HELD AS AT 31 MARCH
2024
|
|
Fair
value
|
%
of
|
Security
|
Country/Region#
|
£’000
|
investments
|
Biogen
|
USA
|
23,375
|
5.9
|
Janux
Therapeutics
|
USA
|
18,291
|
4.6
|
Regeneron
Pharmaceuticals
|
USA
|
17,365
|
4.4
|
Sarepta
Therapeutics
|
USA
|
16,610
|
4.2
|
Amgen
|
USA
|
14,265
|
3.6
|
Avidity
Biosciences
|
USA
|
13,735
|
3.5
|
Argenx**
|
Netherlands
|
13,580
|
3.5
|
Scholar
Rock Holding
|
USA
|
12,757
|
3.2
|
Apellis
Pharmaceuticals
|
USA
|
12,467
|
3.2
|
Vaxcyte
|
USA
|
12,383
|
3.1
|
Ten
largest investments
|
|
154,828
|
39.2
|
Geron
|
USA
|
11,634
|
3.0
|
XtalPi*
|
China
|
11,460
|
2.9
|
Heron
Therapeutics
|
USA
|
11,044
|
2.8
|
Syndax
Pharmaceuticals
|
USA
|
11,000
|
2.8
|
Ionis
Pharmaceuticals
|
USA
|
10,865
|
2.8
|
Rhythm
Pharmaceuticals
|
USA
|
10,024
|
2.5
|
BioMarin
Pharmaceutical
|
USA
|
9,472
|
2.4
|
Neurocrine
Biosciences
|
USA
|
9,066
|
2.3
|
Mineralys
Therapeutics
|
USA
|
8,664
|
2.2
|
Aerovate
Therapeutics
|
USA
|
8,196
|
2.1
|
Twenty
largest investments
|
|
256,253
|
65.0
|
Vera
Therapeutics
|
USA
|
7,900
|
2.0
|
ALX
Oncology Holdings
|
USA
|
7,863
|
2.0
|
Esperion
Therapeutics
|
USA
|
7,038
|
1.8
|
Praxis
Precision Medicines
|
USA
|
6,664
|
1.7
|
Morphic
Holding
|
USA
|
6,629
|
1.7
|
Innovent
Biologics
|
China
|
6,089
|
1.6
|
Compass
Therapeutics
|
USA
|
5,570
|
1.4
|
Immatics
|
Germany
|
5,435
|
1.4
|
Vertex
Pharmaceuticals
|
USA
|
5,392
|
1.4
|
Amicus
Therapeutics
|
USA
|
5,305
|
1.3
|
Thirty
largest investments
|
|
320,138
|
81.3
|
Krystal
Biotech
|
USA
|
5,233
|
1.3
|
Arrowhead
Pharmaceuticals
|
USA
|
5,146
|
1.3
|
Vir
Biotechnology
|
USA
|
5,127
|
1.3
|
Tyra
Biosciences
|
USA
|
4,974
|
1.3
|
Neumora
Therapeutics
|
USA
|
4,955
|
1.3
|
Xenon
Pharmaceuticals
|
Canada
|
4,951
|
1.3
|
Dyne
Therapeutics
|
USA
|
4,495
|
1.1
|
Nkarta,
Inc.
|
USA
|
4,398
|
1.1
|
BeiGene
|
China
|
4,098
|
1.0
|
Edgewise
Therapeutics
|
USA
|
3,829
|
1.0
|
Forty
largest investments
|
|
367,344
|
93.3
|
Lexicon
Pharmaceuticals, Inc.^*
|
USA
|
3,747
|
1.0
|
CytomX
Therapeutics
|
USA
|
2,900
|
0.7
|
Cytokinetics,
Inc.
|
USA
|
2,551
|
0.6
|
Ventyx
Biosciences
|
USA
|
2,201
|
0.6
|
Fate
Therapeutics
|
USA
|
2,099
|
0.5
|
Exact
Sciences
|
USA
|
2,061
|
0.5
|
10X
Genomics
|
USA
|
1,781
|
0.5
|
Kezar Life
Sciences
|
USA
|
1,375
|
0.3
|
Milestone
Pharmaceuticals
|
Canada
|
1,350
|
0.3
|
Prelude
Therapeutics
|
USA
|
1,300
|
0.3
|
Fifty
largest investments
|
|
388,709
|
98.6
|
|
|
Fair
value
|
%
of
|
Security
|
Country/Region#
|
£’000
|
investments
|
OrbiMed
Asia Partners*†
|
Asia
|
1,122
|
0.3
|
Dynavax
Technologies
|
USA
|
1,115
|
0.3
|
New
Horizon Health***
|
China
|
860
|
0.2
|
YS
Biopharma
|
China
|
850
|
0.2
|
Enliven
Therapeutics
|
USA
|
653
|
0.2
|
Suzhou
Basecare Medical
|
China
|
448
|
0.1
|
Gracell
Biotechnologies CVR*
|
China
|
389
|
0.1
|
Stemirna
Therapeutics*
|
China
|
219
|
0.1
|
Repare
Therapeutics
|
Canada
|
181
|
0.0
|
Lyell
Immunopharma, Inc.
|
USA
|
166
|
0.0
|
Sixty
largest investments
|
|
394,712
|
100.1
|
Imara
|
USA
|
–
|
–
|
Total
investments
|
|
394,712
|
100.1
|
OTC equity
swaps - financed
|
|
|
|
Swaps
|
China
|
5,890
|
1.5
|
Less:
Gross exposure on financed swaps
|
|
(6,308)
|
(1.6)
|
Total
OTC swaps
|
|
(418)
|
(0.1)
|
Total
investments including OTC swaps
|
|
394,294
|
100.0
|
All of the
above investments are equities unless otherwise stated. Please
refer to the glossary for a definition of financed
swaps.
# Primary
listing
† Partnership
interest
* Unquoted
investment
**
Includes
Argenx ADR (see glossary) amounting to £10,139,000
^*
Including
the unquoted element amounting to £1,948,000 (Lexicon Series A
Convertible Preferred stock)
*** Shares
suspended on 28 March 2024 due to a
delay in the issuance of the company’s annual report for
2023.
PORTFOLIO
BREAKDOWN
|
Fair
value
|
%
of
|
Investments
|
£’000
|
investments
|
Quoted
|
|
|
Equities
|
379,574
|
96.3
|
|
379,574
|
96.3
|
Unquoted
|
|
|
Equities
|
14,016
|
3.5
|
Partnership
interest
|
1,122
|
0.3
|
|
15,138
|
3.8
|
Derivatives
|
|
|
OTC equity
swaps
|
(418)
|
(0.1)
|
Total
investments
|
394,294
|
100.0
|
PERFORMANCE
ATTRIBUTION FOR THE YEAR ENDED 31 MARCH
2024
Contribution
to total returns
|
%
|
%
|
Benchmark
return
|
|
5.0
|
Portfolio
Manager’s contribution
|
|
20.6
|
Portfolio
total return
|
|
25.6
|
Gearing
|
1.2
|
|
Management
fee and other expenses
|
(1.2)
|
|
Share
buyback
|
0.9
|
|
Total
|
|
0.9
|
Return
on net assets
|
|
26.5%
|
PORTFOLIO
MANAGER’S REVIEW
PERFORMANCE
REVIEW
We are
pleased to report that the Company delivered strong performance for
the fiscal year ended 31 March 2024.
The Company’s NAV per share total return was 26.5% during the
fiscal year, compared with a 5.0% increase for the Company’s
benchmark, the Nasdaq Biotechnology Index, measured on a sterling
adjusted basis (the Benchmark).
Macroeconomic
factors continued to dominate portfolio performance during most of
the fiscal year. The fiscal year began with an auspicious start in
April and May, with a number of biotech M&A transactions
helping to improve sentiment in the small and mid-cap biotech
space. However, from June through October, a string of positive
economic news suggested that the U.S. Federal Reserve (the Fed)
could leave interest rates “higher for longer” without tipping the
economy into recession. This led to a gradual rise in 10-year U.S.
government yields, which peaked at around 5% in October. The rise
in interest rates pressured unprofitable, small cap technology
stocks generally, including emerging biotech. In November and
December, the Fed began telegraphing that it had finished raising
interest rates and guided investors to rate cuts in 2024. This
catalysed a sharp recovery in small and mid cap biotech stocks,
coinciding with a drop in 10-year yields from 5% to 3.8% over the
span of a couple of months. With the Fed signaling that it was done
raising rates, investor sentiment towards small and mid cap biotech
noticeably improved, leading to significant performance in that
segment from November through February. Having said that, we
recognise that the interest rate outlook remains variable, and the
Fed will remain data-driven in its approach. In 2024, there were
three successive monthly inflation readings that were a bit higher
than expectations, so investor expectations for the timing and
number of interest rate cuts became more muted towards the end of
the fiscal year. We continue to believe that it is a question of
“when, not if” those interest rate cuts will materialise, and we do
not believe further interest rate hikes are likely. As macro
dynamics stabilise, we believe this will create a conducive
environment for stock selection, and fundamental research will be
rewarded.
As we have
noted over the past two years, our overweight positioning in
smaller cap emerging biotech has been premised on three main
investment points:
1)
Emerging
biotech valuations were driven to unprecedented lows in the
performance drawdown beginning in early 2021, primarily due to
rising interest rates. That drawdown occurred on both an absolute
and relative basis versus the broader market and large cap biotech.
We expected interest rate pressure ultimately to abate as inflation
declined in the U.S., allowing stocks to recover to historical
valuation levels.
2)
We
expected an increase in M&A activity due to: a) the compelling
valuations of smaller biotech targets; and b) the urgent need on
the part of “Big Pharma” to acquire biotech assets to address
revenue gaps due to expected generic and biosimilar competition for
their major blockbuster drugs in the second half of the
decade.
3)
Emerging
biotech, rather than large cap biotech, is still contributing about
two-thirds of the total biopharmaceutical industry pipeline. That
segment of the biotech universe remains the primary driver of
innovation for the sector, and importantly, the valuation
correction that we have witnessed since early 2021 has not properly
reflected the strong fundamental innovation delivered by these
companies.
We were
pleased to see that the long overdue recovery in smaller biotech
began manifesting itself towards the end of the fiscal year. The
portfolio’s heavier weighting in smaller cap stocks relative to the
Benchmark, aided by some particularly strong individual stocks, led
to the Company’s significant outperformance versus the Benchmark
during the review period.
As shown
in Figure 1 (on page 10 of the Annual Report), if one looks at the
market cap distribution of the Company’s portfolio at the beginning
of the fiscal year, the portfolio was 41% overweight small caps and
33% underweight large caps relative to the Benchmark. If one plots
the average stock price performance of the Benchmark constituents
in each of those market capitalisation categories, one observes
that small cap biotech significantly outperformed large cap biotech
by about 35% during the review period. Figure 2 (on page 11 of the
Annual Report) shows the extent of small cap underperformance over
a longer period, since 31 March 2021.
Despite the strong performance of small caps since October 2023, we believe that there is still
quite a bit of outperformance left to be generated by this segment.
If interest rates begin declining over the next several months, we
expect the performance gap between small cap and large cap stocks
since 31 March 2021 to fully “close
up” in the months ahead.
Our
China holdings made an
inconsequential contribution to performance during the fiscal year.
Valuations in Chinese healthcare remain at depressed levels given
the difficult economic environment in China and the persistence of geopolitical
tensions between the U.S. and China. The Hang Seng Healthcare Index, which
tracks Chinese healthcare companies on the Hong Kong exchange, trades at record lows.
Having said that, we continue to like the fundamental outlook for
Chinese biotech. Chinese central government support for biotech
innovation in the country remains robust. Recent comments from the
CEOs of Big Pharma companies like Pfizer and AstraZeneca have
indicated their desire to increase their access to Chinese
innovation. In fact, in December
2023, AstraZeneca announced its intention to acquire a
Chinese cell therapy company called Gracell Biotechnologies, which
was held in the portfolio, for $1.2
billion. Other examples of Western biopharmaceutical
interest in Chinese innovation include Novartis’ recent acquisition
of SanReno Therapeutics, a private Chinese company with two
late-stage assets for immunoglobulin A nephropathy, and Bristol
Myers Squibb’s licensure of a bispecific antibody-drug conjugate
for cancer from Chinese company Sichuan Biokin Pharmaceuticals for
an $800 million upfront payment. We
continue to allocate a portion of the portfolio to investments in
Chinese biotech (approximately 7.7% of the portfolio as of
31 March 2024). Just as U.S. small
cap biotech has begun recovering from record lows, we believe a
similar recovery can occur for Chinese biotech. We are comfortable
with the current level of exposure and do not anticipate
meaningfully increasing our China
exposure until there is more stability on the macro
front.
EMERGING
BIOTECH VALUATIONS RECOVERING FROM UNPRECEDENTED
LOWS
We have
been encouraged to see the early stages of a recovery in small cap
biotech from unprecedented absolute and relative
valuations.
One proxy
commonly used to track the performance of small and mid cap biotech
is the XBI, an exchange traded fund created in 2006 that tracks an
equal-weighted index of biotech companies. About 50% of this index
consists of small cap names. If one plots the relative performance
of the XBI versus the S&P 500 (shown in Figure 3 on page 12 of
the Annual Report), one can see that since inception, the XBI has
outperformed the S&P 500, indicating that emerging biotech has
historically been a sector offering better returns than the broader
market. Over the past 18 years, however, there have been short
periods when the XBI has underperformed the S&P 500, shown by
the red circles. Typically, these drawdown periods result in
underperformance versus the S&P 500 of 30-45%. The most recent
relative drawdown was 77%, making it the longest and largest
drawdown of the XBI on both an absolute and relative basis. Prior
drawdowns have been followed by periods of significant
outperformance of the XBI versus the S&P 500, denoted by the
green arrows on the graph, which usually results in the biotech
index reclaiming prior outperformance highs. We believe the
relative performance drawdown of the XBI versus the S&P 500 has
likely run its course, as shown by some indications of
stabilisation in Figure 3 (on page 12 of the Annual Report) over
the past few months. We continue to expect small cap biotech to
outperform the S&P 500 from current levels, just as it has
rebounded historically.
Despite
the nascent recovery in small cap biotech, absolute valuations
remain at historically depressed levels. A significant
number of biotech companies are still trading at negative
enterprise values (i.e. market caps below the net cash on their
balance sheets). As shown in Figures 4 and 5 (on page 13 of the
Annual Report), we estimate close to 15% of the biotech universe,
representing approximately 60 companies, is now trading at a
negative enterprise value as of 31 March
2024. While there has certainly been an improvement on this
metric coincident with the recent recovery in emerging biotech, we
expect further valuation increases will restore levels to
historical norms.
We believe
the first interest rate cut by the Fed could be the trigger that
catalyses a more full-fledged valuation recovery from currently
depressed levels. At the current time, the Fed is still
anticipating that rate cuts will begin in 2024. In the meantime,
continued M&A activity and positive clinical developments
should help the sector re-rate.
TOP
AND BOTTOM FIVE CONTRIBUTORS TO NET ASSET VALUE PERFORMANCE FOR THE
YEAR TO 31 MARCH
2024
|
|
Contribution
|
|
|
per
share
|
Top
Five Contributors
|
£’000
|
(pence)*
|
Vera
Therapeutics
|
18,242
|
50.6
|
Scholar
Rock Holding
|
14,957
|
41.5
|
Janux
Therapeutics
|
11,182
|
31.0
|
Bellus
Health#
|
9,002
|
25.0
|
Chinook
Therapeutics#
|
6,942
|
19.3
|
|
60,325
|
167.4
|
|
|
|
Top
Five Detractors
|
|
|
Travere
Therapeutics#
|
(9,905)
|
(27.5)
|
uniQure#
|
(6,891)
|
(19.1)
|
Biogen
|
(6,601)
|
(18.3)
|
Stemirna
Therapeutics
|
(4,985)
|
(13.8)
|
Mersana
Therapeutics#
|
(3,818)
|
(10.6)
|
|
(32,200)
|
(89.3)
|
* Based
on 36,041,496 shares being the weighted average number of shares in
issue during the year ended 31 March
2024.
# Not
held at the year end.
CONTRIBUTORS
AND DETRACTORS
Vera
Therapeutics, Scholar Rock Holding, Janux Therapeutics, Bellus
Health, and Chinook Therapeutics were the leading positive
contributors to performance in the portfolio during the
year.
· Vera
Therapeutics is a
clinical-stage biotechnology company
focused on developing and commercialising treatments for patients
with serious immunological diseases. In July
2023, the company reported positive Phase 2a data for its
lead asset atacicept in patients with IgA nephropathy (IgAN), an
autoimmune disease in which antibodies build up in kidney tissue.
In January 2024, additional positive
data was presented, showcasing atacicept as a potential functional
cure for IgAN.
· Scholar
Rock Holding is a
clinical-stage biotechnology company
developing medicines that target myostatin, a protein that
regulates muscle growth. The stock outperformed after the company
announced in October that it will advance programs in obesity. This
effort in obesity is intended to help individuals retain muscle
mass in the context of GLP-1-targeted weight loss therapies, which
are associated with both muscle and fat loss. In conjunction with
the announcement of these new programs, Scholar Rock also completed
an upsized public offering that extended its cash
runway.
· Janux
Therapeutics is a
clinical-stage immuno-oncology company
developing T-cell engager medicines. In February, shares rose
following the release of positive Phase 1 data in prostate cancer,
which suggested that the company may have a best-in-class asset.
This data also suggested that Janux’s technology could be
successfully applied to additional targets in tumor types such as
lung, kidney, and head and neck cancer.
· Bellus
Health is a
clinical stage company developing camlipixant
for the treatment of refractory chronic cough. In mid-April,
GlaxoSmithKline 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 commercialising
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.
Travere
Therapeutics, uniQure, Biogen, Stemirna Therapeutics, and Mersana
Therapeutics were the principal detractors for the year.
· 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. Filspari was subsequently approved under Accelerated
Approval, but the commercial launch has been slower than
expected.
· 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.
· Biogen
is a large
cap biotechnology company with a pipeline
of commercial and clinical stage treatments for neurological and
neurodegenerative diseases. The company’s stock declined due to a
slower-than-expected launch of Leqembi, its first-in-class
treatment for Alzheimer’s disease.
· 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 has diminished substantially, Stemirna decided
to abandon its COVID program and focus on its earlier-stage
programs, including a personalised cancer vaccine in Phase I. As a
result, the company’s next financing round will likely be done at a
substantial discount to its last round. The Company’s third-party
valuation agent, Kroll, recommended an appropriate write-down to
reflect this update.
· Mersana
Therapeutics is a
clinical stage company developing
antibody-drug conjugate therapeutics. At the end of July, the
company’s shares declined when the company announced that its lead
asset, UpRi, had failed to show a significant benefit in late-stage
ovarian cancer patients.
REGULATORY
CLIMATE CONTINUES TO BE CONSTRUCTIVE
The U.S.
Food and Drug Administration (FDA) regulatory environment for the
approval of novel drugs remains constructive. Since the first year
of the Trump administration in 2017, we have witnessed an elevated
level of new drug approvals at the FDA. In fact, as shown in Figure
7 (on page 16 of the Annual Report), 2023 was a record year for FDA
new drug approvals (including biologics approved at FDA’s biologics
division and drugs approved by the FDA’s traditional drug
division). The increased number of approvals likely reflects a
combination of increased innovation in the sector and continued
agency flexibility on approval requirements. The FDA has generally
been proactive about approving new drugs quickly if they address
unmet medical needs, even if some of the clinical trials have
delivered mixed results. About 65% of drug approvals in 2023 used
an expedited means of approval, whether it be Fast Track,
Breakthrough Designation, Priority Review, or Accelerated Approval.
We do not foresee any change to this favourable regulatory climate,
regardless of who is elected president in the U.S. in November 2024.
EXPECT
SOME ELECTION YEAR NOISE ON DRUG PRICING BUT NOTHING MATERIAL IN
THE NEAR TERM
With the
upcoming U.S. presidential election in November 2024, we expect both presidential
candidates, Joe Biden and
Donald Trump, to discuss ways in
which they might reduce drug prices if elected. We view this as
campaign-related rhetoric to attract votes and do not foresee any
substantive legislative changes on this issue post-election. In
2022, the Biden administration signed into law the Inflation
Reduction Act (the IRA), which granted Medicare the authority to
negotiate drug prices. Given that this law already addresses the
drug pricing issue, we think it would be unlikely that Congress
would revisit the topic again post-election. Additionally, any
further adverse drug pricing legislation would likely require the
Democrats to control both chambers of Congress and the presidency,
which is highly uncertain at the current time. Meanwhile, Big
Pharma has launched numerous legal challenges against the
government to overturn the law and the drug industry continues to
engage in intense lobbying to soften some of the IRA’s
requirements. From an M&A perspective, the IRA may actually
assist the biotech industry. The prospect of Medicare-related price
cuts on key products for Big Pharma only increases the need of
those companies to acquire biotech companies to maintain earnings
growth.
FINANCING
ACTIVITY SURGING WITH CONFIDENTIALLY MARKETED TRANSACTIONS OFFERING
OUTSIZED RETURNS
After a
relatively quiet 2022 and the first half of 2023, initial public
offerings (IPOs) have begun increasing again as valuations have
recovered. The Company has selectively participated in some IPOs
thus far and will continue to do so. We did not make any new
private investments during the fiscal year as the IPO market is
still in the early stages of opening up, and we want to make sure
any private investment we make has an opportunity to go public
within the next 12 months.
We continue to monitor the receptivity of the capital markets and
will resume making crossover investments once we feel the IPO
window has conclusively opened.
As of
31 March 2024, the Company had two
private company investments totaling approximately 3.2% of the
Company’s NAV. Both of the positions are Chinese biotech companies:
XtalPi, an artificial intelligence-based drug discovery company,
and Stemirna Therapeutics, a Chinese mRNA vaccine company. During
the fiscal year, as explained above, Kroll recommended (and the
Board approved, following a recommendation from the Valuation
Committee) a significant write-down on Stemirna given the company’s
pivot away from its mRNA COVID vaccine due to the lack of
commercial demand. XtalPi still hopes to go public in
2024.
The
follow-on financing environment for quality emerging biotech
companies remained relatively strong throughout the fiscal year,
capped by a particularly strong quarter ending 31 March 2024. In general, companies with strong
fundamentals have had no problems raising capital from equity
investors, while companies of lesser quality have continued to find
fundraising difficult.
Recently,
there has been an increasing trend of companies conducting
confidentially marketed offerings to a select number of potential
investors. To attract further interest from healthcare investors,
companies are disclosing confidential information about their
programs as part of the process, including clinical trial data and
other material information. The investors that participate are
restricted from trading in the stock while they conduct diligence
on the investment opportunity before the financing is disclosed to
the public. Given OrbiMed’s longstanding presence in the healthcare
investment space, the firm is regularly invited to participate in
many of these deals, averaging four to five deals per week. We
would note that in most cases only a handful of investment firms
are informed of these confidential financings; they are not broadly
offered to the wider investment community. We have been extremely
selective in participating in these deals and only invest in a
small minority of them.
Some
recent financings where we were able to take advantage of this
fundraising paradigm include:
1)
In
October 2023, we invested
$8.5 million in an equity offering
for Scholar Rock Holdings. The company shared confidentially the
launch of a new obesity program with its anti-myostatin antibody,
which has shown promising weight-reduction effects in mice while
preserving lean muscle mass. Our holding in Scholar Rock
contributed approximately 4.6% to NAV performance for the fiscal
year.
2)
In
July 2023, we invested $2.2 million in a confidentially marketed
financing for Janux Therapeutics. The company shared some
encouraging early data for its T-cell engager in prostate cancer as
part of our investment due diligence. We added to our position
after the financing. A positive update on the prostate cancer
dataset was subsequently released in February 2024, leading to a sharp rise in the
stock. Our holding in Janux Therapeutics contributed approximately
5.5% to NAV performance for the fiscal year.
3)
In
August 2023, we invested $4.7 million in an offering for Mirati
Therapeutics. Prior to the deal, the company shared confidentially
updated data for its drug, Krazati, in lung cancer, promising
initial data for a PRMT5 inhibitor for cancer, and news of a CEO
change. All of this news was released to the marketplace
simultaneously with news of the completed financing. The stock
reacted positively to the news and two months later, Bristol Myers
Squibb announced that it was acquiring Mirati for $5.8 billion. Our holding in Mirati contributed
approximately 1.2% to NAV performance for the fiscal
year.
We will
continue to leverage the firm’s access to confidentially marketed
deal flow to make attractive investments.
M&A
ACTIVITY CONTINUES TO BE ROBUST
Biotech
M&A activity continued to be robust during the fiscal year,
driven by: 1) the low valuations of biotech targets; and 2) the
urgent need of Big Pharma to acquire new products to replace lost
revenues from expected patent expirations in the second half of the
decade.
BIOTECH
M&A CONTINUING AT ELEVATED RATE
The
Company benefited directly from six
M&A transactions during the fiscal year because of
holdings at the time of the announcement in the target
companies:
· GlaxoSmithKline’s
acquisition of Bellus Health for $2
billion;
· Novartis’
acquisition of Chinook Therapeutics for $3.5
billion;
· Eli
Lilly’s acquisition of DICE Therapeutics for $2.4 billion;
· Bristol
Myers Squibb’s acquisition of Mirati Therapeutics for $5.8 billion;
· AstraZeneca’s
acquisition of Gracell Biotechnologies for $1.2 billion; and
· Johnson
& Johnson’s acquisition of Ambrx Biopharma for $2 billion.
Though
many transactions have occurred, many Big Pharma companies still
need to do more to shore up their pipelines. Acquirors are
typically looking for biotech companies with drugs that have
already demonstrated proof of concept in a clinical trial and have
commercial potential in excess of $1
billion in sales. Strategic fit with the acquirors’ existing
therapeutic areas of focus and strong intellectual property are
additional considerations. As shown in Figure 13 (on page 21 of the
Annual Report), we estimate close to $270
billion of blockbuster drug sales are at risk of generic or
biosimilar competition by the end of the decade, including
mega-blockbusters like Merck’s Keytruda and Bristol Myers Squibb’s
Eliquis. We believe there are many holdings in the portfolio that
would make suitable M&A targets for larger
companies.
BIG
PHARMA PATENT CLIFF DRIVES BIOTECH M&A
Company
|
Drug
|
US
Loss of Exclusivity (Projected)
|
'23
Global
Sales
($bn)
|
Merck
|
Keytruda
|
2028
|
$25.0
|
Bristol
Myers Squibb & Pfizer
|
Eliquis
|
2026
|
$12.2
|
Sanofi
|
Dupixent
|
2029
|
$11.6
|
Johnson
& Johnson
|
Stelara
|
2025
|
$10.9
|
Johnson
& Johnson
|
Darzalex
|
2029
|
$9.7
|
Bristol
Myers Squibb
|
Opdivo
|
2028
|
$9.0
|
Abbvie
& Johnson & Johnson
|
Imbruvica
|
2027
|
$4.9
|
Pfizer
|
Ibrance
|
2027
|
$4.8
|
Source:
S&P Global report, company reports
STRONG
INNOVATION CONTINUES TO DRIVE INDUSTRY VALUE
Innovation
remains strong for the biotech industry. A significant proportion
of the 67 drug approvals by the FDA in 2023 consisted of
first-in-class drugs with mechanisms of action different from those
of existing therapies. While biotech has generally been a high-risk
sector, these approvals of drugs based on previously unproven
modalities show that the sector is maturing. Below are just some
examples of first-in-class novel drug approvals originated by
biotech companies in 2024:
· Casgevy,
the first gene-editing CRISPR-based treatment ever approved, for
sickle cell disease (Vertex Pharmaceuticals/CRISPR
Therapeutics);
· Roctavian,
the first gene therapy approved for hemophilia A (BioMarin
Pharmaceuticals);
· Elevidys,
the first gene therapy approved for Duchenne muscular dystrophy
(Sarepta Therapeutics);
· Vyjuvek,
the first topical gene therapy ever approved, for dystrophic
epidermolysis bullosa (Krystal Biotech);
· Daybue,
the first treatment for Rett syndrome (Acadia
Pharmaceuticals);
· Skyclarys,
the first treatment for Friedrich’s ataxia (Biogen); and
· Zurzuvae,
the first oral medication for postpartum depression (Sage
Therapeutics/Biogen).
The number
of next generation biotherapeutics entering development based on
novel development technologies like cell therapy and gene therapy
continues to rise. The Company has exposure across a wide swath of
these new technologies, as shown below (note some positions are
double counted because they use more than one
technology):
Other
seminal events in the biotech sector during the review period
include:
· Argenx
announced positive Phase 3 data for Vyvgart, an anti-FcRN antibody,
in chronic inflammatory demyelinating polyneuropathy (CIDP), an
autoimmune disease that causes muscle weakness. Vyvgart is expected
to become the first novel treatment for CIDP approved in over 10
years.
· MoonLake
Immunotherapeutics reported best-in-class Phase 2 efficacy and
safety data for its anti-IL17 nanobody sonelokimab in hidradenitis
suppurativa, a painful chronic skin condition that causes skin
abscesses and scarring of the skin.
· Crinetics
Pharmaceuticals announced a positive Phase 3 trial for paltusotine,
the first once-daily oral medication for the treatment of
acromegaly, a rare condition where the body produces too much
growth hormone.
· Cytokinetics
reported best-in-class Phase 3 safety and efficacy data for
aficamten, a cardiac myosin inhibitor, for the treatment of
obstructive hypertrophic cardiomyopathy, a disease that causes
impaired heart function. The results of the study showed that
aficamten improved exercise capacity and increased peak oxygen
uptake relative to a placebo.
While
innovation is taking place across all therapeutic areas and drug
development technologies, we are currently finding particularly
attractive investment opportunities in the following
areas:
Obesity
Eli Lilly
and Novo Nordisk have generated significant sales for their obesity
drugs and sell-side analysts now expect the therapeutic category to
reach $100+ billion in sales in 2030. Because those two companies
are considered to be Big Pharma companies, we have not held them in
our biotech portfolio. Given the commanding lead that Eli Lilly and
Novo Nordisk have established and the fact that their pipeline
assets have already shown weight loss of 20-25%,
our view is that biotech companies will need to differentiate based
on mechanism of action, tolerability, or some other significant
aspect in order to take market share. Some examples of biotech
companies held in the portfolio as of 31
March 2024 that have obesity programs include:
· Scholar
Rock Holding - Current
GLP-1 agents cause people to
lose both fat mass and muscle mass. Scholar Rock is developing an
anti-myostatin antibody that could be dosed in conjunction with
GLP-1 agents in order to preserve muscle mass. We like the fact
that this agent would not directly compete with the leading assets
from Eli Lilly and Novo Nordisk but would instead be used as a
companion therapeutic that could ride on the coattails of those
agents.
· Innovent
- Innovent
is a leading Chinese biotech company
that is developing mazdutide, a GLP-1/GPCR dual agonist, for
obesity in Phase 3 trials in China. We believe Innovent will be
first-to-market with a new branded agent in obesity among domestic
companies in China and should
therefore take a significant share in that market.
· BrightGene
Bio-Medical Technology -
BrightGene is a Chinese
biotech developing a dual GLP-1/GIP agent for obesity in Phase 2.
We believe the drug could deliver better efficacy than Eli Lilly’s
Mounjaro/Zepbound.
· Lexicon
Pharmaceuticals - Lexicon
announced a weight loss agent
with a novel mechanism of action targeting ACLS5 in April 2024 during its analyst day.
· Amgen
- Amgen is
a large cap biotech company developing
an obesity agent called MariTide that could be dosed on a
once-monthly basis rather than on a weekly basis.
· Regeneron
Pharmaceuticals -
Regeneron is a large cap biotech
company that is developing antibodies against myostatin and activin
A to preserve lean muscle mass as an adjunct treatment for
GLP-1
agents.
Oligonucleotide
Therapeutics
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. Some
examples of biotech companies held in the portfolio as of
31 March 2024 that have
oligonucleotide therapeutics include:
· Sarepta
Therapeutics - Sarepta
Therapeutics is a leader in
precision genetic medicine for rare diseases. It currently
has three commercial RNA-based products for Duchenne muscular
dystrophy (DMD), and it has the first FDA-approved gene therapy,
Elevydis, for this devastating disease. Elevidys is only approved
for 4-5 year olds currently, but we believe it is likely to secure
a broader label this year that will allow it to be marketed to all
age groups.
· Ionis
Pharmaceuticals - Ionis
Pharmaceuticals is a leader in
RNA-targeted therapeutics. The company has made tremendous progress
in the last 12 months - pivoting from a clinical stage company to
an independent commercial organisation. The company’s marketed
products include Qalsody for SOD1-amyotrophic lateral sclerosis,
Spinraza for spinal muscular atrophy, and Wainua for TTR
polyneuropathy. The next wave of late-stage products include
donidalorsen for hereditary angioedema and olezarsen for familial
chylomicronemia syndrome.
· Dyne
Therapeutics - Dyne
Therapeutics is a clinical-stage muscle disease company with a
proprietary FORCE™ platform to deliver antisense oligonucleotides
conjugated to antigen-binding fragments to muscle tissues. Its lead
program in myotonic dystrophy Type 1 (DM1) has demonstrated
best-in-class efficacy in improving patient function.
· Avidity
Biosciences -
Avidity
Biosciences is an emerging biotech
company developing first-in-class antibody oligonucleotide
conjugates which combine the tissue selectivity of monoclonal
antibodies with the precision of oligonucleotide-based therapies.
It is leading the field with clinical development programs for
three rare muscle diseases: myotonic dystrophy type 1 (DM1),
Duchenne muscular dystrophy (DMD), and facioscapulohumeral muscular
dystrophy (FSHD).
Oncology
Oncology
remains the largest therapeutic area of drug development for the
biopharmaceutical industry given the significant unmet need that
still exists. Some examples of biotech companies held in the
portfolio as of 31 March 2024 that
have novel approaches to treating cancer include:
· Geron
- Geron is
a clinical stage oncology company developing
imetelstat, a telomerase inhibitor. In 2023, Geron announced
positive Phase 3 trial results in low-risk myelodysplastic syndrome
(MDS), an indication with few effective options for patients. If
approved, imetelstat would become the first ever FDA-approved
telomerase inhibitor. We believe that the commercial launch of
imetelstat will be successful, driven by broad uptake among
academic and community physicians seeking to treat a large fraction
of low-risk MDS patients.
· Janux
Therapeutics - Janux is
developing a bispecific T-cell
engager that has shown compelling early data in prostate cancer.
The company’s masking technology allows its bispecific to
preferentially activate the immune system at the site of the tumor,
facilitating tumor-specific killing and reducing toxicity to
healthy tissue. The platform has potential broad applicability to a
range of solid tumors.
· ALX
Oncology - ALX
Oncology is developing a CD47 immune checkpoint
inhibitor to turn off one of the mechanisms by which cancer cells
evade the immune system. The company combines its therapy with
anti-cancer antibodies as well as antibody-drug conjugates to
enhance its effectiveness. ALX has recently shown that its drug
combined with the standard of care in later line gastric cancer
significantly increased the number of patients that had their
tumors shrink relative to patients on the standard of care
alone.
STRATEGY,
OUTLOOK, AND ORBIMED UPDATE
We are
encouraged that the recovery in small and mid cap biotech that we
have been predicting for the past couple of years finally appears
to be manifesting itself. Strategy-wise, we intend to remain
overweight small caps and underweight large caps versus the
Benchmark, as we believe we are still in the early stages of an
emerging biotech recovery from depressed valuation levels. Having
said that, we are cognisant that the interest rate picture in the
U.S. can change rapidly, leading to short-term volatility in the
portfolio. Our aim is to identify quality companies with promising
drugs that can generate value regardless of market
conditions.
From a
risk management perspective, we diversify the portfolio by stage of
company, geography (U.S., Europe,
China), therapeutic area, and drug
development technology. We manage much of the idiosyncratic risk
via prudent position sizing. When we hold stocks into binary events
like a pivotal clinical trial result, we size the positions to
minimise downside risk in case the events turn out to be negative.
The biotech sector is a rapidly changing industry with stock-moving
catalysts occurring on a daily basis, whether it is a clinical
trial result, a regulatory decision, or an earnings result.
Frequently a clinical trial result for one company not only affects
the share price of that company but also the share prices of any
competitors in the field. Because the portfolio is tilted towards
more volatile smaller stocks, turnover in the portfolio is
relatively high in order to successfully navigate these catalysts
in a prudent way. The annual one standard deviation move in a small
cap biotech stock is roughly 78%. Most small cap biotech companies’
entire valuation depends on the success or failure of a single lead
asset. As a result, we regularly trade around positions (trimming
high, adding low) to ensure position sizes appropriately reflect
risk/reward, especially in advance of binary events. The turnover
in the portfolio during the fiscal year was 102% and shareholders
should expect that level of turnover going forward. The portfolio
had an average of 56 positions during the fiscal year and we added
20 names and exited 17 names over the course of the year. In
addition, we made an intra-period entry and exit in nine stocks
during the fiscal year (i.e. we initiated a new position in a stock
and sold the stock completely during the fiscal year). The turnover
reflects valuation discipline and appropriate risk management.
Gearing will remain in the 5-10% range.
There were
no significant changes to the OrbiMed research team during the
fiscal year. Despite the macro volatility, we remain focused on the
fundamentals of each company that we invest in and remain committed
to delivering the best returns for the Company’s shareholders. We
continue to believe that the valuation disconnect we are currently
observing in the sector provides an excellent entry point for
long-term investors seeking to invest in the breakthrough
innovation in biotech.
OrbiMed
Advisors LLC
Portfolio
Manager
4 June 2024
BUSINESS
REVIEW
The
Strategic Report contains a review of the Company’s business model
and strategy, an analysis of its performance during the financial
year and its future developments, as well as details of the
principal risks and challenges it faces.
Its
purpose is to inform shareholders and help them to assess how the
Directors have performed their duty to promote the success of the
Company. The Strategic 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. Such statements should be treated with caution due to
the inherent uncertainties, including both economic and business
risk factors, underlying such forward-looking
information.
BUSINESS
MODEL
The
Biotech Growth Trust PLC is an externally managed investment trust
and its shares are listed on the premium segment of the Official
List and traded on the main market of the London Stock
Exchange.
The
purpose of the Company is to achieve long-term growth in its
shareholders' wealth by providing a vehicle for investors to gain
exposure to a portfolio of worldwide biotechnology companies,
through a single investment.
The
Company’s strategy is to create value for shareholders by
addressing its investment objective. As an externally managed
investment trust, all of the Company's day-to-day management and
administrative functions are outsourced to service providers. As a
result, the Company has no executive directors, employees or
internal operations.
The
Company employs Frostrow Capital LLP (Frostrow) as its Alternative
Investment Fund Manager (AIFM), OrbiMed Capital LLC (OrbiMed) as
its Portfolio Manager, J.P. Morgan Europe Limited as its Depositary
and J.P. Morgan Securities LLC as its Custodian and Prime Broker.
Further details about their appointments can be found in the Report
of the Directors.
The Board
is responsible for all aspects of the Company’s affairs, including
setting the parameters for and monitoring the investment strategy
as well as the review of investment performance and
policy.
The
Company is an investment company within the meaning of Section 833
of the Companies Act 2006 and has been approved by HM Revenue &
Customs as an investment trust (for the purposes of Section 1158 of
the Corporation Tax Act 2010). As a result, the Company is not
liable for taxation on capital gains. The Directors believe that
approval will continue to be retained. The Company is not a close
company for taxation purposes.
INVESTMENT
OBJECTIVE AND POLICY
The
Company seeks capital appreciation through investment in the
worldwide biotechnology industry.
In order
to achieve its investment objective, the Company invests in a
diversified portfolio of shares and related securities in
biotechnology companies on a worldwide basis.
In
connection with the investment policy, the following guidelines
apply:
· The
Company will not invest more than 10%, in aggregate, of the value
of its gross assets in other closed ended investment companies
(including investment trusts) listed on the London Stock Exchange,
except where the investment companies themselves have stated
investment policies to invest no more than 15% of their gross
assets in other closed ended investment companies (including
investment trusts) listed on the London Stock Exchange.
· The
Company will not invest more than 15%, in aggregate, of the value
of its gross assets in other closed ended investment companies
(including investment trusts) listed on the London Stock
Exchange.
· The
Company will not invest more than 15% of the value of its gross
assets in any one individual stock at the time of
acquisition.
· The
Company will not invest more than 10% of the value of its gross
assets in unquoted investments at the time of acquisition. This
limit includes any investment in private equity funds managed by
the Portfolio Manager or any affiliates of such entity.
· The
Company may invest or commit for investment a maximum of
U.S.$15 million, after the deduction
of proceeds of disposal and other returns of capital, in private
equity funds managed by the Portfolio Manager, or any affiliates
thereof.
· The
Company’s borrowing policy is that borrowings will not exceed 20%
of the value of the Company’s net assets. Any loan facility in
place from time to time may be drawn by the Portfolio Manager
overseen by the AIFM.
· The
Company may be unable either to invest directly or invest
efficiently in certain countries or share classes. In these
circumstances, the Company may gain exposure by investing
indirectly through swaps or other derivative instruments where it
is more efficient to do so. Exposure to underlying investments thus
obtained will count towards and be subject to the investment limits
set out above. Further, where the Company invests via swaps or
derivatives for such a purpose, exposure to these financial
instruments will count towards and be subject to the limits on the
use of derivatives and equity swaps set out below.
· In
line with the Investment Objective, derivatives are employed, when
appropriate, in an effort to enhance returns and to improve the
risk-return profile of the Company’s portfolio. The Board has set
the following limits within which derivative exposures are
managed:
· Derivative
transactions (excluding equity swaps) can be used to mitigate risk
and/or enhance return and will be restricted to an aggregate net
exposure of 5 per cent. of the value of the gross assets measured
at the time of the relevant transaction;
· Equity
swaps may be used for efficient portfolio management purposes and
aggregate net counterparty exposure through a combination of
derivatives (as set out in the previous bullet point) and equity
swap transactions is restricted to 12 per cent. of the value of the
gross assets of the Company at the time of the
transaction.
In
accordance with the requirements of the Financial Conduct
Authority, any material change to the investment policy will only
be made with the approval of shareholders by ordinary
resolution.
INVESTMENT
STRATEGY
The
implementation of the Investment Objective has been delegated to
OrbiMed by Frostrow (as AIFM) under the Board’s and Frostrow’s
supervision and guidance.
Details of
OrbiMed’s investment strategy and approach are set out in the
Portfolio Manager’s Review. While performance is measured against
the Benchmark, the Board encourages OrbiMed to manage the portfolio
without regard to the Benchmark and its make-up.
While the
Board’s strategy is to allow flexibility in managing the
investments, in order to manage investment risk it has imposed the
various investment, gearing and derivative guidelines and limits,
within which Frostrow and OrbiMed are required to manage the
investments, as set out in the Investment Policy.
PERFORMANCE
MEASUREMENT
The Board
measures OrbiMed's performance against the Nasdaq Biotechnology
Index (sterling adjusted). The Board also monitors the Company's
performance against its peer group.
The Board
is recommending to shareholders a change to the Benchmark Index.
Please refer to the Chair's Statement beginning for further
information.
DIVIDEND
POLICY
The
Company invests with the objective of achieving capital growth and
it is expected that dividends, if any, are likely to be small. The
Board intends only to pay dividends on the Company’s shares to the
extent required in order to maintain the Company’s investment trust
status.
No
dividends were paid or declared during the year (2023:
None).
CONTINUATION
OF THE COMPANY
An
opportunity to vote on the continuation of the Company is given to
shareholders every five years. The next such continuation vote will
be proposed at the Annual General Meeting to be held in
2025.
COMPANY
PROMOTION
The
Company has appointed Frostrow to provide marketing and investor
relations services, in the belief that a well-marketed
investment company is more likely to grow over time, have a more
diverse, stable list of shareholders and its shares will trade
closer to the net asset value per share over the long term.
Frostrow actively promotes the Company in the following
ways:
Engaging
regularly with institutional investors, discretionary wealth
managers and a range of execution-only platforms:
Frostrow
regularly meets with institutional investors, discretionary wealth
managers and execution-only platform providers to discuss the
Company’s strategy and to understand any issues and concerns,
covering both investment and corporate governance
matters;
Making
Company information more accessible: Frostrow
works to
raise the profile of the Company by targeting key groups within the
investment community, holding periodic investment seminars,
commissioning and overseeing PR output and managing the Company’s
website and wider digital offering, including Portfolio Manager
videos and social media;
Disseminating
key Company information: Frostrow
performs
the Investor Relations function on behalf of the Company and
manages the investor database. Frostrow produces all key corporate
documents, distributes monthly fact sheets, annual and half yearly
reports and updates from OrbiMed on the portfolio and market
developments; and
Monitoring
market activity, acting as a link between the Company, shareholders
and other stakeholders: Frostrow
maintains
regular contact with sector broker analysts and other research and
data providers, and conducts periodic investor perception surveys,
liaising with the Board to provide up-to-date and accurate
information on the latest shareholder and market
developments.
KEY
PERFORMANCE INDICATORS (KPIs)
The Board
assesses the Company’s performance in meeting its objective against
the following KPIs:
· net
asset value total return;
· share
price total return;
· share
price discount to net asset value per share; and
· ongoing
charges.
A full
description of the Company’s performance is provided in the Chair’s
Statement and the Portfolio Manager’s Review and a record of these
measures is shown on pages 1, 5 and 6 of the Annual Report. The
KPIs have not changed from the prior year:
NET ASSET VALUE PER SHARE TOTAL
RETURN^
The
Directors regard the Company’s net asset value per share total
return as being the overall measure of value generated by the
Portfolio Manager over the long term. The Board considers the
principal comparator to be the Nasdaq Biotechnology Index (sterling
adjusted) (the Benchmark). OrbiMed’s investment style is such that
performance is likely to deviate from that of the
Benchmark.
During the
year under review, the Company’s net asset value per total share
return was 26.5%, outperforming the Benchmark by 21.5% (2023:
-11.0%, underperforming the Benchmark by 16.4%). Since OrbiMed’s
date of appointment (19 May 2005) to
31 March 2024, the Company’s net
asset value per share total return is 983.3% compared with 840.9%
for the Benchmark.
SHARE PRICE TOTAL RETURN^
The
Directors also regard the Company’s share price total return to be
a key indicator of performance. This reflects the Company's share
price growth which the Board recognises is important to
investors.
During the
year under review the Company’s share price total return was 27.1%
(2023: -12.8%). Since OrbiMed’s date of appointment (19 May 2005) to 31 March
2024, the Company’s share price total return is 955.7%
compared with Benchmark performance of 840.9%.
^ Alternative
Performance Measure (See glossary).
SHARE PRICE (DISCOUNT)/PREMIUM TO NET ASSET VALUE PER
SHARE^
The Board
regularly reviews the level of the discount/ premium of the
Company’s share price to the net asset value per share and
considers ways in which share price performance may be enhanced,
including the effectiveness of marketing, share issuance and
buybacks, where appropriate. The Board has a discount control
mechanism in place, the aim of which is to prevent the level of the
share price discount to the net asset value per share exceeding 6%.
Shareholders should note, however, that it remains possible for the
discount to be greater than 6% on any one day due to sector
volatility and the fact that the share price continues to be
influenced by the overall supply of and demand for the Company’s
shares in the secondary market. Any decision to repurchase shares
is at the discretion of the Board. 5,205,221 shares were
repurchased by the Company during the year (2023:
2,421,263).
When the
Company's shares trade at a premium to the net asset value per
share, new shares can be issued at a premium to the net asset value
per share.
The Board
believes that the benefits of issuing new shares in such conditions
are as follows:
· to
fulfil excess demand in the market in order to help manage the
premium at which the Company’s shares trade to net asset value per
share;
· to
provide a small enhancement to the net asset value per share of
existing shares through new share issuance at a premium to the
estimated net asset value per share;
· to
grow the Company, thereby spreading operating costs over a larger
capital base, which should reduce the ongoing charges ratio;
and
· to
improve liquidity in the market for the Company’s
shares.
As the
Company's shares traded at a discount to the net asset value per
share throughout the year, no new shares were issued during the
year (2023: Nil).
The
volatility of the net asset value per share in an asset class such
as biotechnology is a factor over which the Board has no control.
The making and timing of any share buy-backs or share issuance is
at the absolute discretion of the Board.
ONGOING CHARGES^
Ongoing
charges represent the costs that the Company can reasonably expect
to pay from one year to the next, under normal conditions. The
Board continues to be conscious of expenses and seeks to maintain a
sensible balance between high quality service and costs. The Board
therefore considers the ongoing charges ratio to be a KPI and
reviews the figure on a regular basis.
As at
31 March 2024 the ongoing charges
figure was 1.2% (2023: 1.1%).
^ Alternative
Performance Measure (see glossary).
RISK
MANAGEMENT
The Board
is responsible for managing the risks faced by the Company. Through
delegation to the Audit Committee, the Board has established
procedures to manage risk, to review the Company’s internal control
framework and to establish the level and nature of the principal
risks the Company is prepared to accept in order to achieve its
long-term strategic objective. The Audit Committee has carried out
a robust assessment of the principal and emerging risks with the
assistance of Frostrow (the AIFM). A risk management process has
been established to identify and assess risks, their likelihood and
the possible severity of impact. Further information is provided in
the Audit Committee Report. These principal risks and the ways they
are managed or mitigated are set out on the following
pages.
PRINCIPAL
RISKS AND UNCERTAINTIES
|
|
MANAGEMENT/MITIGATION
|
MARKET
RISK
|
|
(No
change)
|
The
Company’s portfolio is exposed to fluctuations in market prices
(changes in broad market measures, individual security prices and
foreign exchange rates) in the biotechnology sector and the regions
in which it invests, which may result in a reduction in assets due
to market falls and higher volatility.
The
biotechnology sector has historically been more volatile than other
equity sectors, reflecting factors inherent in biotech companies,
including emerging technologies, uncertainty of drug approval
outcomes, regulatory and pricing policy.
More
generally, geopolitical and economic uncertainties have affected
markets globally and are likely to continue to do so. These include
the continued impact of the war in Ukraine and the effect of
sanctions against Russia, tensions between the US/ West and China,
and the Israel/Palestine conflict. New regulations designed to
combat climate change and uncertainties associated with shifts in
population and resource availability/demand may also have an impact
on global markets. In addition, climate change events could have an
impact on the business models of the portfolio companies and their
operations. Broad economic risks include prolonged inflation and
elevated interest rates, slowing global economic growth and the
fear or presence of recession.
|
|
To an
extent, this risk is accepted as being inherent to the Company's
activities. However, the Board has set limits in the investment
policy which ensure the portfolio is diversified. Compliance with
the limits and guidelines contained in the Company’s investment
policy is monitored daily by Frostrow and OrbiMed and reported
monthly to the Board.
OrbiMed
report at each Board meeting on the Company’s performance including
the impact of wider market trends and events.
The
Portfolio Manager spreads investment risk over a wide portfolio of
investments. At the year end the Company’s portfolio comprised
investments in 62 companies.
As part of
its review of the going concern and long-term viability of the
Company, the Board considers the sensitivity of the portfolio to
changes in market prices and foreign exchange rates (see note 14)
and the ability of the Company to liquidate its portfolio if the
need arose.
Further details are included in the Going Concern and Viability
Statements.
The Board
monitors and challenges the Portfolio Manager's awareness of
emerging climate change risks and the resources they have devoted
to assessing climate risks.
The Board
is conscious that climate change poses a general risk to the
investment environment and, through discussions with the Portfolio
Manager, has noted that the biotechnology industry is not a major
contributor to greenhouse gas emissions. For this reason, the
Portfolio Manager does not consider climate change to be a material
ESG consideration when engaging with investee companies. However
energy management is noted as a material concern in the wider
healthcare and pharmaceutical sectors, and this forms part of
OrbiMed’s ESG monitoring.
|
PORTFOLIO
PERFORMANCE
|
|
(No
change)
|
Investment
performance may not achieve the Investment Objective and the value
of the investments held in the portfolio may fall materially out of
line with the sector.
The
Portfolio Manager’s approach is expected to lead to performance
that will deviate from comparators, including both market indices
and other investment companies investing in the biotechnology
sector.
|
|
The
Portfolio Manager has responsibility for selecting investments in
accordance with the Investment Objective and Policy and seeks to
ensure that investments in individual stocks fall within acceptable
risk levels.
To manage
this risk, the Board:
· reviews
and challenges, at each Board meeting, reports from OrbiMed which
cover portfolio composition, asset allocation, concentration and
performance;
· reviews
investment performance over the long term against the Benchmark and
the Company's peer group; and
· formally
reviews OrbiMed's appointment, including their performance, service
levels and contractual arrangements, each year.
|
SHARE
PRICE PERFORMANCE
|
|
(No
change)
|
The risk
that the Company’s share price is not representative of its
underlying net assets.
|
|
To manage
this risk, the Board:
· regularly
reviews the level of the share price discount/premium to the net
asset value per share and considers ways in which share price
performance may be enhanced, including the effectiveness of
marketing and investor relations services, new share issuance and
share buybacks, as appropriate;
· has
implemented a discount management policy, buying back the Company’s
shares when the level of the share price discount to the net asset
value per share exceeds 6% (in normal market
conditions).
· may
issue shares at a premium to the net asset value per share to help
prevent a share price premium reaching too high a level;
· reviews
an analysis of the shareholder register at each Board meeting and
is kept informed of shareholder sentiment; and
· regularly
discusses the Company’s future development and strategy with the
Portfolio Manager and the AIFM.
|
CYBER
RISK
|
|
(No
change)
|
Cyber
crime may lead to the disruption or failure of systems covering
dealing, trade processing, administrative services, financial and
other operational functions.
|
|
The Board
relies on controls in place at OrbiMed, Frostrow, J.P. Morgan, Link
and other third-party service providers.
Audit
Committee reviews the internal controls reports of the principal
service providers, as well as their data storage and information
security arrangements.
|
KEY
PERSON RISK
|
|
(Decreased)
|
The risk
that the individuals responsible for managing the Company’s
portfolio may leave their employment or may be prevented from
undertaking their duties.
|
|
The Board
manages this risk by:
· appointing
OrbiMed, who in turn have appointed Geoff Hsu and Josh Golomb to
manage the Company’s portfolio. Mr Hsu and Mr Golomb are supported
by a team of researchers and analysts dedicated to the
biotechnology sector;
· receiving
reports from OrbiMed at each Board meeting, which include any
significant changes in the make-up of the team supporting the
Company;
· meeting
the wider team at OrbiMed’s offices and encouraging the
participation of the wider OrbiMed team in investor updates;
and
· delegating
to the Management Engagement Committee the responsibility to
perform an annual review of the service received from OrbiMed,
including, inter
alia, the team
supporting the lead managers and their succession plans.
In light
of the successful introduction of Mr Golomb as co-portfolio
manager, the Board considers that this risk has reduced during the
year.
|
VALUATION
RISK
|
|
(Decreased)
|
Pursuant
to the Investment Policy, the Company may invest up to 10% of its
gross assets in unquoted investments at the time of acquisition.
The valuation of unquoted assets involves a degree of subjectivity
and there is a risk that proceeds received on the disposal of
unquoted holdings may prove to be significantly lower than the
value at which the investment is held in the Company’s
portfolio.
|
|
Unquoted
investments comprised 3.8% of the Company's portfolio at the year
end. The Company’s directly held unquoted investments are valued by
an independent, third-party valuation agent. The Board has
established a Valuation Committee to review the valuations of the
unquoted investments and the methodologies used in the valuations.
The valuations are recommended to the Committee by Frostrow, the
Company's AIFM, following review by its own valuations committee.
The Valuation Committee makes recommendations to the Board, as
appropriate. Further information can be found in the Audit
Committee Report and note 1 to the financial statements.
In light
of the additional scrutiny provided by the Valuation Committee, and
the reduction in the number and proportion of unquoted investments
in the Company's portfolio during the year, the Board considers
that the potential impact of this risk on the Company has reduced
during the year.
|
COUNTERPARTY
RISK
|
|
(No
change)
|
The
Company is exposed to credit risk arising from the use of
counterparties. If a counterparty were to fail, the Company could
be adversely affected through either a delay in settlement or a
loss of assets.
|
|
The most
significant counterparty to which the Company is exposed is J.P.
Morgan Securities LLC (J.P. Morgan), the Custodian and Prime
Broker, which is responsible for the safekeeping of the Company’s
assets and provides the loan facility to the Company. As part of
the arrangements with J.P. Morgan
they may take assets as collateral up to 140% of the value of the
loan drawn down. The assets taken as collateral by J.P. Morgan may
be used, loaned, sold, rehypothecated or transferred. The level of
the Company's gearing is at the discretion of the AIFM and the
Board and the loan can be repaid at any time, at which point the
assets taken as collateral will be released back to the Company.
Any of the Company’s assets taken as collateral are not covered by
the custody arrangements provided by J.P. Morgan.
J.P.
Morgan is a registered broker-dealer and is accordingly subject to
limits on rehypothecation* imposed by the U.S. Securities and
Exchange Commission (SEC). In the event of J.P. Morgan’s
insolvency, the Company may be unable to recover in full assets
held by it as Custodian or held as collateral.
The risk
is managed through the selection of a financially stable
counterparty, limitations on the use of gearing and reliance on the
SEC's robust regulatory regime. In addition, the Board monitors the
credit rating of J.P. Morgan.
J.P.
Morgan is also subject to regular monitoring by
J.P. Morgan
Europe Limited, the Depositary, and the Board receives regular
reports from the Depositary.
During the
year the Company entered into swap transactions with Goldman Sachs
International.
Further
information can be found in note 14 to the financial
statements.
|
OPERATIONAL
DISRUPTION
|
|
(No
change)
|
As an
externally managed investment trust, the Company is reliant on the
systems of its service providers for dealing, trade processing,
administration, financial and other functions. If such systems were
to fail or be disrupted (including, for example, as a result of a
pandemic, war, network disruption or simply poor
performance/controls) this could prevent accurate reporting of the
Company’s financial position or lead to a failure to comply with
applicable laws, regulations and governance requirements and/or to
a financial loss.
|
|
To manage
these risks, the Board (in some cases meeting as the Audit
Committee):
· periodically
meets representatives from the Company's key service providers to
gain a better understanding of their control environment, and the
processes in place to mitigate any disruptive events;
· receives
a monthly report from Frostrow, which includes, inter
alia,
confirmation of compliance with applicable laws and
regulations;
· reviews
the internal control reports and key policies (including disaster
recovery procedures and business continuity plans) of its service
providers;
· maintains
a risk matrix with details of risks to which the Company is
exposed, the approach to managing those risks, the key controls and
the frequency of the controls operation;
· receives
updates on pending changes to the regulatory and legal environment
and progress towards the Company’s compliance with such changes;
and
· has
considered the increased risk of cyber-attacks and received reports
and assurance from its service providers regarding the information
security controls in place.
|
*
See
glossary.
EMERGING
RISKS
The
Company has carried out a robust assessment of the Company’s
emerging risks and the procedures in place to identify emerging
risks are described below. The International Risk Governance
Council definition of an ‘emerging’ risk is one that is new, or is
a familiar risk in a new or unfamiliar context or under new context
conditions (re-emerging).
The Audit
Committee reviews a risk schedule at its half-yearly meetings.
Emerging risks are discussed in detail as part of this process and
also throughout the year to try to ensure that emerging (as well as
established) risks are identified and, so far as practicable,
mitigated.
During the
year, the Audit Committee identified and discussed emerging
elements of market risk such as threats to research funding and
increased costs in the biotechnology sector which may affect the
Company's investee companies and potentially damage the breadth and
pace of future development. The Audit Committee also discussed
demographic trends in China and
Europe including, notably, the
potential impact of ageing populations. It was noted that this
could present opportunities for the biotech and healthcare sectors
but may also have broader adverse effects including reduced
economic growth and a reduction in the availability of risk capital
needed to fund innovative companies and technologies.
GOING
CONCERN
The
financial statements have been prepared on a going concern basis.
The Directors consider this is the appropriate basis as the Company
has adequate resources to continue in operational existence for at
least the next 12 months from the date of approval of this report
on 4 June 2024. The Company’s
portfolio, trading activity, cash balances, revenue and expense
forecasts, and the trends and factors likely to affect the
Company’s performance are reviewed and discussed at each Board
meeting. The Board has considered a detailed assessment of the
Company’s ability to meet its liabilities as they fall due,
including stress tests which modelled the effects of substantial
falls in portfolio valuations and liquidity constraints on the
Company’s financial position. Further information is provided in
the Audit Committee Report.
Based on
the information available to the Directors at the date of this
report, including the results of these stress tests, the
conclusions drawn in the Viability Statement below, the Company’s
current cash balances, and the liquidity of the Company’s
investments, the Directors are satisfied that the Company has
adequate financial resources to continue in operation for at least
the next 12 months from the date of approval of this report on
4 June 2024. Accordingly, the
Directors are satisfied that it is appropriate to continue to adopt
the going concern basis in preparing the financial
statements.
VIABILITY
STATEMENT
In
accordance with the UK Corporate Governance Code and the Listing
Rules, the Directors have carefully assessed the Company’s position
and prospects as well as the principal risks and have formed a
reasonable expectation that the Company will be able to continue in
operation and meet its liabilities as they fall due over the next
five financial years. The Board has chosen a five-year horizon in
view of the long-term outlook adopted by the Portfolio Manager when
making investment decisions.
To make
this assessment and in reaching this conclusion, the Audit
Committee has considered the Company’s financial position, its
ability to liquidate its portfolio and meet its liabilities as they
fall due and, in particular, notes the following:
· The
portfolio is principally comprised of investments traded on major
international stock exchanges. Based on recent market volumes 96.3%
of the current portfolio could be liquidated within 30 trading days
and 94.5% in seven days. There is no expectation that the nature of
the investments held within the portfolio will be materially
different in future.
· The
Board has considered the viability of the Company under various
scenarios, including periods of acute stock market and economic
volatility, and concluded that it would expect to be able to ensure
the financial stability of the Company through the benefits of
having a diversified portfolio of (mostly) listed and realisable
assets. As illustrated in note 14 to the financial statements, the
Board has considered other price risk (the sensitivity of the value
of shareholders' funds to changes in the fair value of the
Company's investments), foreign currency sensitivity (the
sensitivity to changes in key exchange rates to which the portfolio
is exposed) and interest rate sensitivity (the sensitivity to
changes in the interest rate charged on the Company's loan
facility).
· With
an ongoing charges ratio of 1.2%, the expenses of the Company are
predictable and modest in comparison with the assets and there are
no capital commitments foreseen which would alter that
position.
· The
Company has a short-term bank facility which can be used to meet
its liabilities. Details of the Company’s current liabilities are
set out in note 11 to the financial statements.
· The
Company has no employees. Consequently it does not have redundancy
or other employment related liabilities or
responsibilities.
The Audit
Committee, as well as considering the potential impact of the
Company’s principal risks and various severe but plausible downside
scenarios, has made the following assumptions in considering the
Company’s longer-term viability:
· There
will continue to be demand for investment trusts;
· The
Portfolio Manager will continue to adopt a long-term view when
making investments;
· The
Company invests principally in the securities of listed companies
traded on international stock exchanges to which investors will
wish to continue to have exposure;
· Shareholders
will vote for the continuation of the Company at the Annual General
Meeting to be held in 2025. The Company's shareholders are asked
every five years to vote for the continuation of the Company. At
the current time, the Directors believe they have a reasonable
expectation that the next vote will be passed;
· The
closed-ended nature of the Company means that, unlike open-ended
funds, it does not need to realise investments when shareholders
wish to sell their shares;
· The
Company will continue to be able to fund share buybacks when
required. The Company bought back 5,250,221 ordinary shares in the
year under review at a total cost of £43.6 million and experienced
no problem with liquidity in doing so. It had shareholders’ funds
in excess of £361 million at the year end; and
· The
long-term performance of the Company will continue to be
satisfactory.
ENVIRONMENTAL,
SOCIAL, COMMUNITY AND HUMAN RIGHTS MATTERS
As an
externally managed investment trust, the Company does not have any
employees or maintain any premises, nor does it undertake any
manufacturing or other physical operations itself. All its
operational functions are outsourced to third party service
providers. Therefore, the Company has no material, direct impact on
the environment or any particular community and, as a result, the
Company itself has no environmental, human rights, social or
community policies.
Under the
Listing Rules, the Company is also exempt from reporting against
the Taskforce for Climate-Related Financial Disclosures (TCFD)
framework. However, the Board recognises that climate change poses
a general risk to the investment environment and has discussed with
the Portfolio Manager the potential impact of climate change risk
on the Company's investments.
The Board
believes that consideration of environmental, social and governance
(ESG) factors is important and has the potential to protect and
enhance investment returns. The Portfolio Manager’s investment
criteria ensure that ESG factors are integrated into their
investment process and best practice in this area is encouraged by
the Board. The Portfolio Manager engages with the Company’s
underlying investee companies in relation to their corporate
governance practices and the development of their policies on
social, community and environmental matters.
The Board
is committed to carrying out the Company’s business in an honest
and fair manner with a zero-tolerance approach to bribery,
corruption, and tax evasion. As such, policies and procedures are
in place to prevent this. In carrying out the Company’s activities,
the Board aims to conduct itself responsibly, ethically and fairly.
The Board’s expectations are that the Company’s principal service
providers have appropriate governance policies in place.
PERFORMANCE
AND FUTURE DEVELOPMENTS
A review
of the Company’s year, its performance and the outlook for the
Company can be found in the Chair’s Statement and in the Portfolio
Manager’s Review.
The
Company’s overall strategy remains unchanged.
STAKEHOLDER
INTERESTS AND BOARD DECISION-MAKING (SECTION 172 OF THE COMPANIES
ACT 2006)
The
following disclosure, which is required by the Companies Act 2006
and the AIC Code of Corporate Governance, describes how the
Directors have had regard to the views of the Company’s
stakeholders in their decision-making.
STAKEHOLDER
GROUP
|
HOW
THE BOARD HAS ENGAGED WITH THE COMPANY’S
STAKEHOLDERS
|
Investors
|
The
Board’s key mechanisms of engagement with investors
include:
· The
Annual and Half-yearly Reports
· The
Annual General Meeting
· The
Company’s website which hosts reports, articles and insights,
monthly fact sheets and video interviews with the Portfolio
Manager
· The
Company’s distribution list which is maintained by Frostrow and is
used to communicate with shareholders on a regular basis
· Online
seminars with presentations from the Portfolio Manager
· One-to-one
investor meetings
The AIFM
and the Portfolio Manager, on behalf of the Board, completed a
programme of investor relations throughout the year, reporting to
the Board on the feedback received. The Board aims for at least one
Director to attend the in person and online events at which the
Portfolio Manager presents to investors. In addition, the Chair has
been and remains available to engage with the Company’s
shareholders.
|
Portfolio
Manager
|
The Board
met regularly with the Portfolio Manager throughout the year, both
formally at quarterly Board meetings and informally, as required.
The Board engaged primarily with key members of the portfolio
management team, discussing the Company’s overall performance as
well as developments at individual portfolio companies and wider
macroeconomic developments.
The Board
also visited OrbiMed's office in New York where the Directors met
with members of the Portfolio Manager’s risk management, compliance
and trading teams to better understand their internal controls and
processes.
The
Management Engagement Committee reviewed the performance of the
Portfolio Manager and the terms and conditions on which they are
engaged.
|
Other
Service Providers
|
The Board
met regularly with the AIFM, representatives of which attend every
quarterly Board meeting to provide updates on risk management,
accounting, administration, corporate governance and marketing
matters.
The
Management Engagement Committee reviewed the performance of all the
Company’s service providers, receiving feedback from Frostrow in
their capacity as AIFM and Company Secretary. The AIFM, which is
responsible for the day-to-day operational management of the
Company, meets and interacts with the other service providers
including the Depositary, Custodian and Registrar, on behalf of the
Board, on a daily basis. This can be through email, one-to-one
meetings and/or regular written reporting.
The Audit
Committee reviewed the quality and effectiveness of the audit and
recommended to the Board that it be proposed to shareholders that
BDO LLP (BDO) be re-appointed as Auditor. The Audit Committee also
met with BDO to review the audit plan and set their remuneration
for the year.
|
As an
externally managed investment trust, the Company has no employees,
customers, operations or premises. Therefore, the Company’s key
stakeholders (other than its shareholders) are considered to be its
service providers. The need to foster good business relationships
with the service providers and maintain a reputation for high
standards of business conduct are central to the Directors’
decision-making as the Board of an externally managed investment
trust.
KEY
AREAS OF ENGAGEMENT
|
|
MAIN
DECISIONS AND ACTIONS TAKEN
|
INVESTORS
· Ongoing
dialogue with shareholders concerning the strategy of the Company,
performance and the portfolio.
· Share
price performance.
|
|
The Board
and the Portfolio Manager provided updates via RNS, the Company’s
website, the distribution list and the usual financial reports and
monthly fact sheets.
The Board
continued to monitor share price movements closely. When the
discount of the share price to the net asset value per share
exceeded 6%, the Company sought to buy back shares in the market.
As a result, 5,250,221 shares were bought back during the year. No
shares were issued at a premium to the net asset value per share
during the year.
|
PORTFOLIO
MANAGER
· Portfolio
composition, performance, outlook and business updates.
· The
Portfolio Manager’s system of internal controls and investment risk
management including their cyber security arrangements.
· The
terms and conditions of the Portfolio Management Agreement,
including performance measurement in particular.
|
|
The
Directors were pleased to be able to visit OrbiMed's offices in New
York during the year, to meet with the OrbiMed team in person.
While the Board considers the visits to OrbiMed's offices to be
valuable, in view of the environmental and cost benefits associated
with reduced long distance travel, the Board has agreed that the
frequency of such visits should be approximately 18
months.
The Board
concluded that it was in the interests of shareholders for OrbiMed
to continue in their role as Portfolio Manager. Following
discussion with OrbiMed, the Board resolved to recommend to
shareholders that the total return version of the Nasdaq
Biotechnology Index (net, sterling adjusted) should be used as the
benchmark against which to assess the Portfolio Manager’s
performance, rather than the capital return version.
The Audit
Committee concluded that the Portfolio Manager’s internal controls
were satisfactory.
|
OTHER
SERVICE PROVIDERS
· The
promotion and marketing strategy of the Company.
· Service
providers’ internal controls, business continuity plans and cyber
security provisions.
· The
effectiveness of the audit and the Auditor’s
reappointment.
· The
terms and conditions under which the Auditor is engaged.
|
|
The Board
concluded that it was in the interests of shareholders for Frostrow
to continue in their role as AIFM.
The Board
approved the Audit Committee’s recommendation that it would be in
the interests of shareholders for BDO to be re-appointed as the
Company’s auditor for a further year. Please refer to the Audit
Committee Report and the Notice of AGM for further
information.
|
By order
of the Board
Frostrow
Capital LLP
Company
Secretary
4 June 2024
STATEMENT
OF DIRECTORS’ RESPONSIBILITIES
The
Directors are responsible for preparing the Annual Report and the
financial statements in accordance with applicable law and
regulations.
Company
law requires the Directors to prepare financial statements for each
financial year. Under that law, the Directors are required to
prepare the financial statements in accordance with UK-adopted
international accounting standards. Under company law, the
Directors must not approve the financial statements unless they are
satisfied that they give a true and fair view of the state of
affairs of the Company and of the profit or loss for the Company
for that period.
In
preparing these financial statements, the Directors are required
to:
· select
suitable accounting policies and then apply them
consistently;
· make
judgements and accounting estimates that are reasonable and
prudent;
· state
whether they have been prepared in accordance with UK-adopted
international accounting standards, subject to any material
departures disclosed and explained in the financial
statements;
· prepare
the financial statements on the going concern basis unless it is
inappropriate to presume that the Company will continue in
business; and
· prepare
a directors’ report, a strategic report and directors’ remuneration
report which comply with the requirements of the Companies Act
2006.
The
Directors are responsible for keeping adequate accounting records
that are sufficient to show and explain the Company’s transactions
and disclose with reasonable accuracy at any time the financial
position of the Company and enable them to ensure that the
financial statements comply with the Companies Act 2006.
They are
also responsible for safeguarding the assets of the Company and
hence for taking reasonable steps for the prevention and detection
of fraud and other irregularities. The Directors are responsible
for ensuring that the Annual Report and financial statements, taken
as a whole, are fair, balanced, and understandable and provide the
information necessary for shareholders to assess the Company's
position, performance, business model and strategy.
WEBSITE
PUBLICATION
The
Directors are responsible for ensuring the Annual Report and the
financial
statements are made available on a website. Financial statements
are published on the Company’s website in accordance with
legislation in the United Kingdom
governing the preparation and dissemination of financial
statements, which may vary from legislation in other jurisdictions.
The maintenance and integrity of the Company’s website is the
responsibility of the Directors. The Directors’ responsibility also
extends to the ongoing integrity of the financial statements
contained therein.
RESPONSIBILITY
STATEMENT OF THE DIRECTORS IN RESPECT OF THE ANNUAL
REPORT
We confirm
that to the best of our knowledge:
· the
financial statements have been prepared in accordance with the
applicable set of accounting standards and give a true and fair
view of the assets, liabilities, financial position and the return
of the Company for the year ended 31 March
2024; and
· the
Annual Report includes a fair review of the development and
performance of the business and the financial position of the
Company, together with a description of the principal risks and
uncertainties that they face.
The
Directors consider the Annual Report, taken as a whole, is fair,
balanced and understandable and provides the information necessary
for shareholders to assess the Company’s position and performance,
business model and strategy.
On behalf
of the Board
Roger Yates
Chair
4 June 2024
INCOME
STATEMENT
FOR THE
YEAR ENDED 31 MARCH 2024
|
|
|
2024
|
|
|
2023
|
|
|
|
Revenue
|
Capital
|
Total
|
Revenue
|
Capital
|
Total
|
|
Notes
|
£’000
|
£’000
|
£’000
|
£’000
|
£’000
|
£’000
|
Income
|
2
|
1,203
|
–
|
1,203
|
310
|
–
|
310
|
Gains/(losses)
on investments held at fair value through profit or loss
|
8
|
–
|
79,143
|
79,143
|
–
|
(32,727)
|
(32,727)
|
Foreign
exchange losses
|
|
–
|
(621)
|
(621)
|
–
|
(3,759)
|
(3,759)
|
AIFM,
Portfolio management and performance fees
|
3
|
(153)
|
(2,917)
|
(3,070)
|
(176)
|
(3,355)
|
(3,531)
|
Other
expenses
|
4
|
(742)
|
(39)
|
(781)
|
(692)
|
(51)
|
(743)
|
Profit/(loss)
before finance costs and taxation
|
|
308
|
75,566
|
75,874
|
(558)
|
(39,892)
|
(40,450)
|
Finance
costs
|
5
|
(56)
|
(1,059)
|
(1,115)
|
(40)
|
(752)
|
(792)
|
Profit/(loss)
before taxation
|
|
252
|
74,507
|
74,759
|
(598)
|
(40,644)
|
(41,242)
|
Taxation
|
6
|
(159)
|
–
|
(159)
|
(56)
|
–
|
(56)
|
Profit/(loss)
for the year
|
|
93
|
74,507
|
74,600
|
(654)
|
(40,644)
|
(41,298)
|
Basic
and diluted earnings/(loss) per share
|
7
|
0.3p
|
206.7p
|
207.0p
|
(1.6)p
|
(100.9)p
|
(102.5)p
|
The
Company does not have any income or expenses which are not included
in the profit/(loss) for the year. Accordingly the “profit/(loss)
for the year” is also the “total comprehensive profit/(loss) for
the year”, as defined in IAS 1 (revised) and no separate Statement
of Other Comprehensive Income has been presented.
The
“Total” column of this statement represents 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 Investment Companies.
The
accompanying notes are an integral part of this
statement.
STATEMENT
OF FINANCIAL POSITION
AS AT
31 MARCH 2024
|
|
2024
|
2023
|
|
Notes
|
£’000
|
£’000
|
Non
current assets
|
|
|
|
Investments
held at fair value through profit or loss
|
8
|
394,712
|
357,229
|
Derivative
– OTC equity swaps
|
8,
9
|
42
|
–
|
|
|
394,754
|
357,229
|
Current
assets
|
|
|
|
Other
receivables
|
10
|
14,535
|
508
|
Cash and
cash equivalents
|
|
2,131
|
2,772
|
|
|
16,666
|
3,280
|
Total
assets
|
|
411,420
|
360,509
|
Current
liabilities
|
|
|
|
Other
payables
|
11
|
2,575
|
8,846
|
Loan
|
14
|
47,078
|
20,170
|
Derivative
– OTC equity swaps
|
8,
9
|
460
|
1,202
|
|
|
50,113
|
30,218
|
Net
assets
|
|
361,307
|
330,291
|
Equity
attributable to equity holders
|
|
|
|
Ordinary
share capital
|
12
|
8,371
|
9,684
|
Share
premium account
|
|
79,951
|
79,951
|
Capital
redemption reserve
|
|
15,059
|
13,746
|
Capital
reserve
|
16
|
258,891
|
227,968
|
Revenue
reserve
|
|
(965)
|
(1,058)
|
Total
equity
|
|
361,307
|
330,291
|
Net
asset value per share
|
13
|
1,078.9p
|
852.6p
|
The
financial statements were approved by the Board on 4 June 2024 and were signed on its behalf
by:
Roger Yates
Chair
The
accompanying notes are an integral part of this
statement.
The
Biotech Growth Trust PLC – Company Registration Number 03376377
(Registered in England and
Wales)
STATEMENT
OF CHANGES IN EQUITY
FOR THE
YEAR ENDED 31 MARCH 2024
|
|
Ordinary
|
Share
|
Capital
|
|
|
|
|
|
Share
|
premium
|
redemption
|
Capital
|
Revenue
|
|
|
|
capital
|
account
|
reserve
|
reserve
|
reserve
|
Total
|
|
Notes
|
£’000
|
£’000
|
£’000
|
£’000
|
£’000
|
£’000
|
At 1 April
2023
|
|
9,684
|
79,951
|
13,746
|
227,968
|
(1,058)
|
330,291
|
Net profit
for the year
|
|
–
|
–
|
–
|
74,507
|
93
|
74,600
|
Repurchase
of own shares for cancellation
|
|
(1,313)
|
–
|
1,313
|
(43,584)
|
–
|
(43,584)
|
At 31
March 2024
|
12,
13
|
8,371
|
79,951
|
15,059
|
258,891
|
(965)
|
361,307
|
FOR THE
YEAR ENDED 31 MARCH 2023
|
|
Ordinary
|
Share
|
Capital
|
|
|
|
|
|
Share
|
premium
|
redemption
|
Capital
|
Revenue
|
|
|
|
capital
|
account
|
reserve
|
reserve
|
reserve
|
Total
|
|
Notes
|
£’000
|
£’000
|
£’000
|
£’000
|
£’000
|
£’000
|
At 1 April
2022
|
|
10,289
|
79,951
|
13,141
|
291,231
|
(404)
|
394,208
|
Net loss
for the year
|
|
–
|
–
|
–
|
(40,644)
|
(654)
|
(41,298)
|
Repurchase
of own shares for cancellation
|
|
(605)
|
–
|
605
|
(22,619)
|
–
|
(22,619)
|
At 31
March 2023
|
12,
13
|
9,684
|
79,951
|
13,746
|
227,968
|
(1,058)
|
330,291
|
The
accompanying notes are an integral part of this
statement.
See note
16 for details of the amounts of reserves available for
distribution.
STATEMENT
OF CASH FLOWS
FOR THE
YEAR ENDED 31 MARCH 2024
|
|
2024
|
2023
|
|
Notes
|
£’000
|
£’000
|
Operating
activities
|
|
|
|
Profit/(loss)
before taxation*
|
|
74,759
|
(41,242)
|
Finance
costs
|
|
1,115
|
792
|
(Gains)/losses
on investments held at fair value through profit or loss
|
8
|
(80,669)
|
30,945
|
Foreign
exchange losses
|
|
621
|
3,759
|
Decrease/(increase)
in other receivables
|
|
(6)
|
28
|
Increase/(decrease)
in other payables
|
|
98
|
(116)
|
Taxation
paid
|
6
|
(159)
|
(56)
|
Net
cash outflow from operating activities
|
|
(4,241)
|
(5,890)
|
Investing
activities
|
|
|
|
Purchases
of investments and derivatives
|
|
(350,835)
|
(459,606)
|
Sales of
investments and derivatives
|
|
373,176
|
505,300
|
Net
cash inflow from investing activities
|
|
22,341
|
45,694
|
Financing
activities
|
|
|
|
Repurchase
of own shares for cancellation
|
|
(43,913)
|
(20,910)
|
Finance
costs – interest paid
|
|
(1,115)
|
(792)
|
Drawdown/(repayment)
of the loan facility
|
|
26,287
|
(15,330)
|
Net
cash outflow from financing activities
|
|
(18,741)
|
(37,032)
|
Net
(decrease)/increase in cash and cash
equivalents
|
|
(641)
|
2,772
|
Cash and
cash equivalents at start of year
|
|
2,772
|
–
|
Cash
and cash equivalents at end of year†
|
|
2,131
|
2,772
|
* Includes
dividends earned during the year of £1,080,000 (2023: £283,000) and
deposit interest of £123,000 (2023: £11,000).
† Collateral
cash held at Goldman Sachs £2,131,000 (2023:
£2,772,000).
CHANGES
IN NET DEBT ARISING FROM FINANCING ACTIVITIES
|
2024
|
2023
|
|
£’000
|
£’000
|
Balance as
at 1 April
|
20,170
|
31,741
|
Drawdown/(repayment)
of the loan facility
|
26,287
|
(15,330)
|
Foreign
exchange losses
|
621
|
3,759
|
Loan
balance at 31 March
|
47,078
|
20,170
|
The
accompanying notes are an integral part of this
statement.
NOTES
TO THE FINANCIAL STATEMENTS
1.
ACCOUNTING POLICIES
(A)
BASIS OF PREPARATION
The
financial statements of the Company have been 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
principal accounting policies adopted are set out below.
The
financial statements have been prepared under the historical cost
convention, except for the measurement at fair value of
investments. Where presentational guidance is 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) issued in July
2022, the Directors have sought to prepare the financial
statements on a basis compliant with the recommendations of the
SORP.
The
Company adopted Disclosure of Accounting Policies (Amendments to
IAS 1 IFRS Practical Statement 2) from 1 January
2023. Although the amendments did not result in any changes
to the accounting policies, they impacted the accounting policy
information disclosed in the financial statements. The amendments
require the disclosure of “material”, rather than “significant”
accounting policies. Management received the accounting policies
and made updates to the information disclosed in note 1.
Going
concern
The
Directors are required to make an assessment of the Company’s
ability to continue as a going concern and have concluded that the
Company has adequate resources to continue in operational existence
for at least 12 months from the date these financial statements
were approved.
In making
this assessment, the Directors have considered a wide variety of
emerging and current risks to the Company, as well as the
mitigation strategies that are in place. The Board has also
reviewed stress-testing and scenario analyses prepared by the AIFM.
The stress tests and scenario analyses considered the effect of
various downturns, based on historic bear markets, on the asset
value and expenses of the Company. The tests modelled the impact of
decreases of up to 50% on the value of the investment portfolio and
decreases in current market liquidity of up to 50%.
These
tests are carried out as an arithmetic exercise, which can apply
equally to any set of circumstances in which asset value and income
are significantly impaired. It was concluded that even in an
extreme downside scenario, the Company would be able to continue to
meet its liabilities as they fell due. Whilst the economic future
is uncertain, the opinion of the Directors is that there is no
foreseeable downside scenario that would threaten the Company’s
ability to continue to meet its liabilities as they fall
due.
Based on
the information available to the Directors at the time of this
report, including the results of the stress tests and scenario
analyses, and having taken account of the liquidity of the
investment portfolio, the Company’s cash flow and borrowing
position, the Directors are satisfied that the Company has adequate
financial resources to continue in operation for at least 12 months
from the date of signing these financial statements and that,
accordingly, it is appropriate to adopt the going concern
basis.
The
Company’s financial statements are presented in sterling and all
values are rounded to the nearest thousand pounds (£’000) except
when otherwise indicated.
Judgements
and key sources of estimation and uncertainty
The
preparation of the financial statements requires the Directors to
make judgements, estimates and assumptions that affect the amounts
reported for assets and liabilities as at the Statement of
Financial Position date and the amounts reported for revenues and
expenses during the year. However, the nature of estimation means
that actual outcomes could differ from those estimates. In the
process of applying the Company’s accounting policies, the
Directors have made the following estimate:
Fair
value of the unquoted investments estimate
The Board
has established a Valuation Committee to review the valuations and
the valuation methodologies of the Company’s unquoted investments.
The Board has approved the valuations of the unquoted investments
on the recommendation of the Valuation Committee.
The
unquoted investment in OrbiMed Asia Partners L.P. has been valued
using the Net Asset Value presented in the Statement of Partner’s
Capital Activity as at 31 December
2023, as permitted under the IPEV guidelines. The Statement
of Partner’s Capital Activity as at 31 March
2024 was received in May 2024
and was not materially different from the valuation at 31 December 2023. The Consolidated Financial
Statements of the partnership for the year ended
31 December
2023 were audited by KPMG LLP (New Jersey Headquarters) and
were approved on 29 March
2024.
The
investments in Stemirna Therapeutics and XtalPi have been valued by
Kroll, an independent valuer, using the probability – weighted
expected returns methodology (PWERM). The valuations have been
approved by the Board on the recommendation of the Valuation
Committee. Under the PWERM, fair value is determined through
consideration of the values of the investment under a range of
scenarios. These scenarios range from the “no recovery” to “full
recovery” of the amount invested, through to a number of IPO or
similar exit scenarios. Each scenario is assigned a probability,
with the value of the investment reflecting the sum of each
scenario’s valuation weighted by the probability of its occurrence.
Examples of the inputs into the valuation models are:
The
probability assigned to potential future outcomes;
Likely
exit scenarios; and
The
discount rate used to calculate the present value of future
outcomes.
The
investments in Gracell Biotechnologies Contingent Value Rights
(CVR) and Lexicon series A convertible preference stock (Lexicon)
have also been valued by Kroll. Gracell’s CVRs have been valued
using the PWERM and Lexicon using the price of the recent funding,
discounted for the lack of marketability.
(B)
INVESTMENTS
Investments
are recognised and de-recognised on the trade date.
As the
entity’s business is investing in financial assets with a view to
profiting from their total return in the form of dividends or
increases in fair value, investments are classified as fair value
through profit or loss (FVTPL) and are initially recognised at fair
value. The entity manages and evaluates the performance of these
investments on a fair value basis in accordance with its investment
strategy, and information about the investments is provided
internally on this basis to the Board.
Investments
classified at fair value through profit or loss, which are quoted
investments, are measured at subsequent reporting dates at fair
value which is either the bid or the last trade price, depending on
the convention of the exchange on which it is quoted.
In respect
of unquoted investments, or where the market for a financial
instrument is not active, fair value is established by using
valuation techniques which may include using weighted expected
returns, reference to the current fair value of another instrument
that is substantially the same, discounted cash flow analysis and
option pricing models. Where there is a valuation technique
commonly used by market participants to price the instrument and
that technique has been demonstrated to provide reliable estimates
of prices obtained in actual market transactions, that technique is
utilised.
Transfers
between levels of fair value hierarchy are deemed to have occurred
at the date of the event or change in circumstances that caused the
transfer.
Gains and
losses on disposal and fair value changes are also recognised in
the Income Statement.
(C)
PRESENTATION OF INCOME STATEMENT
In order
to better reflect the activities of an investment trust company,
and in accordance with guidance issued by the AIC, supplementary
information which analyses the Income Statement between items of a
revenue and capital nature has been presented alongside the Income
Statement. Net revenue is the measure the Directors believe
appropriate in assessing the Company’s compliance with certain
requirements set out in section 1158 of the Corporation Tax Act
2010. The requirements are to distribute net revenue but only so
far as there are positive revenue reserves.
(D)
INVESTMENT INCOME
Dividends
receivable on equity shares are recognised on the ex-dividend date.
Where no ex-dividend date is quoted, dividends are recognised when
the Company’s right to receive payment is established. Foreign
dividends are grossed up at the appropriate rate of withholding
tax, with the withholding tax recognised in the taxation
charge.
Dividends
from investments in unquoted shares and securities are also
recognised when the Company’s right to receive payment is
established.
Income
from fixed interest securities is recognised on a time appointment
basis so as to reflect the effective interest rate.
In
deciding whether a dividend should be regarded as a capital or
revenue receipt, the Company reviews all relevant information as to
the reasons for and sources of the dividend on a case by case basis
depending upon the nature of the receipt.
Special
dividends of a revenue nature are recognised through the revenue
column of the Income Statement. Special dividends of a capital
nature are recognised through the capital column of the Income
Statement.
(E)
EXPENSES AND FINANCE COSTS
All
expenses are accounted for on an accruals basis. Expenses are
charged through the Income Statement as follows:
· transaction
costs on the acquisition or disposal of an investment are charged
to the capital column of the Income Statement;
· expenses
are charged to the capital column of the Income Statement where a
connection with the maintenance or enhancement of the value of the
investment can be demonstrated, and accordingly:
· during
the year, AIFM and Portfolio Management fees are charged 95% to the
capital column of the Income Statement as the Directors expect that
in the long term virtually all of the Company’s returns will come
from capital;
· during
the year, loan interest is charged 95% to the capital column of the
Income Statement as the Directors expect that in the long term
virtually all of the Company’s returns will come from
capital.
· performance
fees are charged 100% to the capital column of the Income
Statement. Performance fees are recognised as a liability of the
Company when they crystallise and become due for payment. Details
of the performance fee are set out on pages 51 and 52 of the Annual
Report; and
· all
other expenses are charged to revenue column of the Income
Statement.
(F)
TAXATION
In line
with the recommendations of the SORP, the allocation method used to
calculate tax relief on expenses presented against capital returns
in the supplementary information in the Income Statement is the
“marginal basis”. Under this basis, if taxable income is capable of
being offset entirely by expenses presented in the revenue column
of the Income Statement, then no tax relief is transferred to the
capital column.
Investment
trusts which have approval under Section 1158 Corporation Tax Act
2010 are not liable for taxation on capital gains.
Current
tax is provided at the amounts expected to be paid or
recovered.
Deferred
tax is the tax expected to be payable or recoverable on differences
between the carrying amounts of assets and liabilities in the
financial statements and the corresponding tax bases used in the
computation of taxable profit, and is accounted for using the
Balance Sheet liability method. Deferred tax liabilities are
recognised for all taxable temporary differences and deferred tax
assets are recognised to the extent that it is probable that
taxable profits will be available against which deductible
temporary differences can be utilised.
Deferred
tax is calculated at the tax rates that are expected to apply in
the period when the liability is settled or the asset is realised.
Deferred tax is charged or credited in the Income Statement, except
when it relates to items charged or credited directly to equity, or
Other Comprehensive Income (OCI), in which case the deferred tax is
also dealt with in equity or OCI respectively.
(G)
FUNCTIONAL AND PRESENTATION CURRENCY
The
financial information is shown in sterling, being the Company’s
presentation currency. In arriving at the functional currency the
Directors have considered the following:
(i)
the
primary economic environment of the Company;
(ii)
the
currency in which the original capital was raised;
(iii)
the
currency in which distributions would be made;
(iv)
the
currency in which performance is evaluated; and
(v)
the
currency in which the capital would be returned to shareholders on
a break up basis.
The
Directors have also considered the currency to which the underlying
investments are exposed and liquidity is managed. The Directors are
of the opinion that sterling best represents the functional
currency.
(H)
RESERVES
Ordinary
share capital
· represents
the nominal value of the issued share capital.
Share
premium account
· represents
the surplus of net proceeds received from the issue of new shares
over the nominal value of such shares. The Share premium account is
non-distributable.
Capital
redemption reserve
· a
transfer will be made to this reserve on cancellation of the
Company’s own shares purchased, equal to the nominal value of the
shares. This reserve is non-distributable.
Capital
reserves
The
following are credited or charged to the capital column of the
Income Statement and then transferred to the Capital
Reserve:
· gains
or losses on disposal of investments;
· exchange
differences of a capital nature;
· expenses
allocated to this reserve in accordance with the above
policies;
· increases
and decreases in the valuation of investments held at year-end;
and
· shares
which have been bought back by the Company for
cancellation.
Realised
Capital Reserves are distributable by way of a dividend.
Revenue
reserve
· reflects
all income and expenditure recognised in the revenue column of the
Income Statement. Amounts standing to the credit of the Revenue
Reserve are distributable by way of dividend.
(I)
LOAN
The
Company has a loan facility repayable on demand, provided by J.P.
Morgan Securities LLC (J.P. Morgan). As part of the arrangements
with J.P. Morgan they may take assets as collateral, up to 140% of
the value of the loan drawn down. Such assets taken as collateral
by J.P. Morgan may be used, loaned, sold,
rehypothecated†
or
transferred. Any of the Company’s assets taken as collateral are
not covered by the custody arrangements provided by J.P. Morgan.
Loans payable on demand are carried at the undiscounted amount of
the cash or other consideration expected to be paid. Interest on
the facility is charged at the U.S. overnight bank funding rate
plus 45 basis points. Finance costs are apportioned 95% to capital
in accordance with the policy set out under note 1(e) expenses and
finance costs.
† See
glossary.
(J)
OPERATING SEGMENTS
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 the
investments business. The results published in this report
therefore correspond to this sole operating segment.
(K)
FINANCIAL INSTRUMENTS INCLUDING DERIVATIVE FINANCIAL
INSTRUMENTS
Financial
assets and financial liabilities are recognised on the Statement of
Financial Position when the Company becomes a party to the
contractual provisions of the instrument. Financial assets are
derecognised when the Company’s contractual right to the cash flows
from the asset expires or substantially all the risks and rewards
of ownership are transferred. Financial liabilities are
derecognised when the contractual obligation is discharged, with
gains and losses recognised in the income statement.
The
Company uses derivative financial instruments, namely equity swaps.
All derivative instruments are valued initially, and at subsequent
reporting dates, at fair value in the Statement of Financial
Position.
The equity
swaps are accounted for as non-current assets or current
liabilities.
(L)
ADOPTION OF NEW AND REVISED STANDARDS
Standards
and amendments to existing standards effective 1 January 2023
The
Company has applied the following standards and amendments for the
first time for its annual reporting period commencing 1 April 2023:
· Disclosure
of Accounting Policies – Amendments to IAS 1 Presentation
of Financial Statements and IFRS Practice Statement
2;
and
· Definition
of Accounting Estimates – Amendments to IAS 8.
These
amendments did not have any impact on the amounts recognised in
both current and prior years.
New
standards, amendments and interpretations effective after
1 January 2024 which have not been
early adopted
The below
new amendment and interpretations will become effective for annual
periods beginning after 1 January
2024:
· Classification
of Liabilities as Current or Non-Current – Amendments to IAS
1 Presentation
of Financial Statements.
This
amendment is not expected to have a material effect on the
financial statements of the Company.
2.
INCOME
|
2024
|
2023
|
|
£’000
|
£’000
|
Investment
income
|
|
|
Overseas
dividend income
|
1,080
|
283
|
Other
income
|
|
|
Derivatives
|
–
|
16
|
Deposit
interest
|
123
|
11
|
Total
income
|
1,203
|
310
|
3.
AIFM, PORTFOLIO MANAGEMENT AND PERFORMANCE FEES
|
|
|
2024
|
|
|
2023
|
|
Revenue
|
Capital
|
Total
|
Revenue
|
Capital
|
Total
|
|
£’000
|
£’000
|
£’000
|
£’000
|
£’000
|
£’000
|
AIFM fee –
Frostrow Capital LLP
|
47
|
886
|
933
|
53
|
1,010
|
1,063
|
Portfolio
management fee
– OrbiMed
Capital LLC
|
106
|
2,031
|
2,137
|
123
|
2,345
|
2,468
|
|
153
|
2,917
|
3,070
|
176
|
3,355
|
3,531
|
During the
financial year ended 31 March 2024,
in accordance with the performance fee arrangements in place, no
performance fee was earned (2023: nil).
As at
31 March 2024, no performance fees
were accrued or payable (31 March
2023: £nil).
Further
details of the AIFM, portfolio management fee and the performance
fee basis can be found in the Report of the Directors on page 51
and 52 of the Annual Report.
4.
OTHER EXPENSES
|
2024
|
2023
|
|
Total
|
Total
|
|
£’000
|
£’000
|
Directors’
emoluments
|
177
|
165
|
Fees
payable to the Company’s auditor for the audit of the Company’s
financial statements
|
52
|
50
|
Registrar
fees
|
36
|
35
|
Depositary
fees
|
48
|
58
|
Marketing
and PR costs
|
71
|
68
|
Legal and
professional fees^
|
61
|
51
|
Broker
fees
|
43
|
39
|
Listing
fees
|
39
|
37
|
Printing
costs
|
33
|
32
|
Other
costs
|
182
|
157
|
Total
expenses charged to Revenue
|
742
|
692
|
Professional
fees charged to Capital*
|
39
|
51
|
Total
expenses
|
781
|
743
|
^ Includes
quarterly valuation fees in relation to the valuation of the
unquoted investments.
* Professional
fees in respect of acquisition of unquoted and pre-IPO
investments.
Details of
the amounts paid to Directors are included in the Directors’
Remuneration Report on pages 63 to 66 of the Annual
Report.
5.
FINANCE COSTS
|
|
|
2024
|
|
|
2023
|
|
Revenue
|
Capital
|
Total
|
Revenue
|
Capital
|
Total
|
|
£’000
|
£’000
|
£’000
|
£’000
|
£’000
|
£’000
|
Loan
interest
|
56
|
1059
|
1,115
|
40
|
752
|
792
|
|
56
|
1,059
|
1,115
|
40
|
752
|
792
|
6.
TAXATION
(A)
FACTORS AFFECTING TOTAL TAX CHARGE FOR YEAR
Approved
investment trusts are exempt from tax on capital gains made within
the company.
The tax
assessed for the year is higher than the standard rate of
corporation tax in the UK of 25% (2023: 19%).
The differences
are explained below:
|
|
|
2024
|
|
|
2023
|
|
Revenue
|
Capital
|
Total
|
Revenue
|
Capital
|
Total
|
|
£’000
|
£’000
|
£’000
|
£’000
|
£’000
|
£’000
|
Net
profit/(loss) before taxation
|
252
|
74,507
|
74,759
|
(598)
|
(40,644)
|
(41,242)
|
Corporation
tax at 25% (2023: 19%)
|
63
|
18,627
|
18,690
|
(114)
|
(7,722)
|
(7,836)
|
Effects
of:
|
|
|
|
|
|
|
Non-taxable
(gains)/losses on investments
|
–
|
(19,631)
|
(19,631)
|
–
|
6,932
|
6,932
|
Non-taxable
overseas dividends
|
(270)
|
–
|
(270)
|
(54)
|
–
|
(54)
|
Overseas
tax suffered
|
159
|
–
|
159
|
39
|
–
|
39
|
Expenses
charged to capital available to be utilised
|
(14)
|
–
|
(14)
|
–
|
–
|
–
|
Excess
expenses unused
|
221
|
1,004
|
1,225
|
168
|
790
|
958
|
Corporation
tax charge
|
–
|
–
|
–
|
17
|
–
|
17
|
Total
taxation for the year (see note 6(b))
|
159
|
–
|
159
|
56
|
–
|
56
|
(B)
ANALYSIS OF CHARGE IN THE YEAR:
|
|
|
2024
|
|
|
2023
|
|
Revenue
|
Capital
|
Total
|
Revenue
|
Capital
|
Total
|
|
£’000
|
£’000
|
£’000
|
£’000
|
£’000
|
£’000
|
Overseas
tax suffered
|
159
|
–
|
159
|
39
|
–
|
39
|
Corporation
tax charge†
|
–
|
–
|
–
|
17
|
–
|
17
|
Total
taxation for the year
|
159
|
–
|
159
|
56
|
–
|
56
|
† Corporation
tax was paid during the financial year ended 31 March 2023 due to the large performance fee
reversed in 2022 which was captured by the corporate loss
restrictions rules.
(C)
PROVISION FOR DEFERRED TAX
No
provision for deferred taxation has been made in the current or
prior year.
The
Company has not provided for deferred tax on capital profit or
losses arising on the revaluation or disposal of investments, as it
is exempt from tax on these items because of its status as an
investment trust company.
At
31 March 2024, the Company had
unutilised management expenses and other losses of £88,442,000
(2023: £83,627,000) that are available to offset future taxable
revenue.
A deferred
tax asset of £22,111,000 (25% tax rate) (2023: £20,907,000 (25% tax
rate)) arising as a result of these excess management expenses and
other losses has not been recognised because the Company is not
expected to generate sufficient taxable income in future periods in
excess of the available deductible expenses. Given the composition
of the Company’s portfolio, it is not likely that this asset will
be used in the foreseeable future and therefore no asset has been
recognised in the financial statements.
7.
BASIC AND DILUTED EARNINGS/(LOSS) PER SHARE
|
|
|
2024
|
|
|
2023
|
|
Revenue
|
Capital
|
Total
|
Revenue
|
Capital
|
Total
|
|
pence
|
pence
|
pence
|
pence
|
pence
|
pence
|
Earnings/(loss)/per
share
|
0.3p
|
206.7p
|
207.0p
|
(1.6)
|
(100.9)p
|
(102.5)p
|
The total
earnings per share of 207.0p (2023: loss of 102.5p) is based on the
total earnings attributable to equity shareholders of £74,600,000
(2023: loss £41,298,000).
The
revenue profit per share 0.3p (2023: loss of 1.6p) is based on the
revenue profit attributable to equity shareholders of £93,000
(2023: loss of £654,000). The capital profit per share of 206.7p
(2023: loss of 100.9p) is based on the capital profit attributable
to equity shareholders of £74,507,000 (2023: loss of
£40,644,000).
The total
profit per share is based on the weighted average number of shares
in issue during the year of 36,041,496 (2023:
40,287,724).
There are
no dilutive instruments issued by the Company (2023:
none).
8.
INVESTMENTS
As at
31 March 2024, all investments with
the exception of the unquoted investments and derivatives have been
classified as level 1. The unquoted investments have been
classified as either level 2 or level 3. See note 14 for further
details.
|
|
|
|
2024
|
|
|
|
2023
|
|
|
|
Derivative
|
|
|
|
Derivative
|
|
|
|
|
Financial
|
|
|
|
Financial
|
|
|
Quoted
|
|
Instruments
|
|
Quoted
|
|
Instruments
|
|
|
Investments
|
Unquoted
|
–
Net
|
Total
|
Investments
|
Unquoted
|
–
Net
|
Total
|
|
£’000
|
£’000
|
£’000
|
£’000
|
£’000
|
£’000
|
£’000
|
£’000
|
Opening
book cost
|
392,482
|
14,341
|
–
|
406,823
|
512,894
|
22,943
|
–
|
535,837
|
Opening
investment holding (losses)/gains
|
(55,520)
|
5,926
|
(1,202)
|
(50,796)
|
(119,725)
|
11,287
|
–
|
(108,438)
|
Valuation
at 1 April
|
336,962
|
20,267
|
(1,202)
|
356,027
|
393,169
|
34,230
|
–
|
427,399
|
Movement
in the year
|
–
|
–
|
|
–
|
|
|
|
|
Purchases
at cost
|
342,843
|
1,952
|
–
|
344,795
|
465,360
|
–
|
–
|
465,360
|
Sales
proceeds
|
(388,521)
|
(71)
|
1,395*
|
(387,197)
|
(505,787)
|
–
|
–
|
(505,787)
|
Transfer
between levels
|
–
|
–
|
–
|
–
|
9,887
|
(9,887)
|
–
|
–
|
Net
movement in investment holding gains/(losses)
|
88,290
|
(7,010)
|
(611)
|
80,669
|
(25,667)
|
(4,076)
|
(1,202)
|
(30,945)
|
Valuation
at 31 March
|
379,574
|
15,138
|
(418)
|
394,294
|
336,962
|
20,267
|
(1,202)
|
356,027
|
Closing
book cost at 31 March
|
354,597
|
16,268
|
–
|
370,865
|
392,482
|
14,341
|
–
|
406,823
|
Investment
holding gains/(losses) at 31 March
|
24,977
|
(1,130)
|
(418)
|
23,429
|
(55,520)
|
5,926
|
(1,202)
|
(50,796)
|
Valuation
at 31 March
|
379,574
|
15,138
|
(418)
|
394,294
|
336,962
|
20,267
|
(1,202)
|
356,027
|
The sales
proceeds of £387,197,000 (2023: £505,787,000) includes transaction
costs of £814,000 (2023: £991,000). The book cost of these
investments when they were purchased was £380,753,000 (2023:
£594,374,000).
These
investments have been revalued over time and until they were sold
any unrealised gains/loss were included in the fair value of these
investments.
* Sale
of financed equity swap.
GAINS/(LOSSES)
ON INVESTMENTS
|
2024
|
2023
|
|
£’000
|
£’000
|
Gains/(losses)
on investments
|
80,669
|
(30,945)
|
Transaction
costs
|
(1,526)
|
(1,782)
|
Gains/(losses)
on investments held at fair value through profit or loss
|
79,143
|
(32,727)
|
The total
transaction costs for the year were £1,526,000 (31 March 2023: £1,782,000) broken down as
follows: purchase transaction costs for the year to 31 March 2024 were £712,000 (31 March 2023 £791,000), sale transaction costs
were £814,000 (31 March 2023:
£991,000). These costs consist mainly of commission. Transaction
costs are recorded in the capital column of the Income
Statement.
9.
DERIVATIVE FINANCIAL INSTRUMENTS
|
2024
|
2023
|
|
£’000
|
£’000
|
Fair value
of OTC equity swaps (assets)
|
42
|
–
|
Fair value
of OTC equity swaps (liabilities)
|
(460)
|
(1,202)
|
|
(418)
|
(1,202)
|
(See note
1(k) for further details).
10.
OTHER RECEIVABLES
|
2024
|
2023
|
|
£’000
|
£’000
|
Future
settlements – sales
|
14,508
|
487
|
Prepayments
and accrued income
|
27
|
21
|
|
14,535
|
508
|
11.
OTHER PAYABLES
|
2024
|
2023
|
|
£’000
|
£’000
|
Future
settlements – purchases
|
167
|
6,206
|
Amounts
due to brokers in respect of shares repurchased by the Company for
cancellation
|
1,379
|
1,695
|
Other
creditors and accruals
|
1,029
|
945
|
|
2,575
|
8,846
|
12.
ORDINARY SHARE CAPITAL
|
2024
|
2023
|
|
Number
of
|
Number
of
|
|
Shares
|
Shares
|
Allotted,
issued and fully paid at 1 April 2023
|
38,737,419
|
41,158,682
|
Shares
bought back for cancellation during the year
|
(5,250,221)
|
(2,421,263)
|
At 31
March 2024
|
33,487,198
|
38,737,419
|
|
2024
|
2023
|
|
£’000
|
£’000
|
Allotted,
issued and fully paid shares of 25p
|
8,371
|
9,684
|
During the
year no new ordinary shares were issued (2023: nil). 5,250,221
shares were bought back for cancellation for a consideration of
£43,584,000 (2023: 2,421,263 shares were bought back for a
consideration of £22,619,000).
13.
NET ASSET VALUE PER SHARE
|
2024
|
2023
|
Net asset
value per share
|
1,078.9p
|
852.6p
|
The net
asset value per share is based on the net assets attributable to
equity shareholders of £361,307,000 (2023: £330,291,000)
and on 33,487,198 (2023: 38,737,419) shares in issue at
31 March 2024.
14.
RISK MANAGEMENT POLICIES AND PROCEDURES
As an
investment trust, the Company invests in equities and other
investments for the long term in order to achieve its investment
objective. In pursuing its investment objective, the Company is
exposed to a variety of risks that could result in either a
reduction or increase in the Company’s net assets or
profits.
The
Company’s financial instruments comprise securities and other
investments, cash balances, debtors and creditors and a loan
facility that arise directly from its operations (for example, in
respect of sales and purchases awaiting settlement).
The main
risks the Company faces from its financial instruments are (i)
market price risk (comprising currency risk, interest rate risk and
other price risk (i.e. changes in market prices other than those
arising from interest rate or currency risk)), (ii) liquidity risk
and (iii) credit risk. The Board also considers (iv) fair value
measurement and (v) capital management.
The Board
reviews and agrees policies regularly for managing and monitoring
each of these risks.
OTC
EQUITY SWAPS
The
Company uses OTC equity swap positions to gain access to Chinese
markets where the Company is not locally registered to trade
directly. During the year the Company entered into an OTC equity
swap contracts related to Brightgene Bio-Medical, Mabwell Shanghai
Bioscience and Shanghai Runda Medical, with Goldman Sachs as the
counterparty. See glossary for further details.
1.
MARKET PRICE RISK:
The
Company’s portfolio is exposed to fluctuations in market prices in
the biotechnology sector and the regions in which it invests.
Market-wide uncertainties which have recently caused increased
volatility in the markets include the war in Ukraine, increasing political, military and
commercial tensions between the US/West and China, and increased inflationary
pressures.
The
Company’s portfolio is exposed to market price fluctuations which
are monitored by the AIFM and the Portfolio Manager in pursuance of
the investment objective.
This
market risk comprises three elements – foreign currency risk,
interest rate risk and other price risk.
(a)
Foreign currency risk:
The
Company’s portfolio is denominated in currencies other than
sterling (the Company’s functional currency, and in which it
reports its results). As a result, movements in exchange rates can
significantly affect the sterling value of those items.
Management
of the risk
The AIFM
and the Portfolio Manager monitor the Company’s exposure to foreign
currencies on a continuous basis and report to the Board regularly.
The Company does not hedge against foreign currency movements to
manage market price risk.
The
Company does not use financial instruments to mitigate the currency
exposure in the period between the time that the income is included
in the financial statements and its receipt.
Foreign
currency exposure
At the
date of the Statement of Financial Position the Company held
£379,359,000 (2023: £345,049,000) of investments denominated in
U.S. dollars and £14,935,000 (2023: £10,978,000) in other
non-sterling currencies.
Foreign
currency sensitivity
The fair
value of the Company’s monetary items that have foreign currency
exposure at 31 March 2024 is shown
below.
Where the
Company’s equity investments (which are not monetary items) are
priced in a foreign currency they are shown separately in the
analysis as to show the overall level of exposure.
|
2024
|
2023
|
|
£’000
|
£’000
|
Sterling
equivalent of U.S.$ and other non-sterling exposure
|
|
|
Current
assets
|
16,640
|
3,257
|
Creditors
|
(167)
|
(6,206)
|
Spot
currency contracts
|
(1,406)
|
(1,692)
|
Loan
(non-sterling)
|
(47,063)
|
(20,167)
|
Foreign
currency exposure on net monetary items
|
(31,996)
|
(24,808)
|
Investments
held at fair value through profit or loss including derivative
equity swap
|
394,294
|
356,027
|
Total net
foreign currency exposure
|
362,298
|
331,219
|
The table
on page 92 of the Annual Report details the sensitivity of the
Company’s profit or loss after taxation for the year (investment
values) to a 10% increase and decrease in the value of sterling
compared with the U.S. dollar and other non-sterling currencies
(2023: 10% increase and decrease).
The above
percentages have been determined based on market volatility in
exchange rates over the previous twelve months. The analysis is
based on the Company’s foreign currency financial instruments held
at each Statement of Financial Position date, after adjusting for
an increase/decrease in the AIFM and portfolio management
fees.
If
sterling had weakened against the U.S. dollar and other
non-sterling currencies, as stated above, this would have had the
following effect:
|
2024
|
2023
|
|
£’000
|
£’000
|
Impact on
revenue return
|
–
|
–
|
Impact on
capital return
|
46,816
|
43,302
|
Total
return after tax/effect on shareholders’ funds
|
46,816
|
43,302
|
If
sterling had strengthened against the U.S. dollar and other
non-sterling currencies, as stated above, this would have had the
following effect:
|
2024
|
2023
|
|
£’000
|
£’000
|
Impact on
revenue return
|
–
|
–
|
Impact on
capital return
|
(26,943)
|
(24,220)
|
Total
return after tax/effect on shareholders’ funds
|
(26,943)
|
(24,220)
|
(b)
Interest rate risk:
Interest
rate risk is the risk that the fair value of a financial instrument
will fluctuate because of changes in market interest
rates.
Interest
rate exposure
The
Company’s main exposure to interest rate risk is through its loan
facility with J.P. Morgan Securities LLC which is repayable on
demand. Interest is charged at the US overnight bank funding rate
plus 45 basis points.
At the
year-end financial assets and liabilities subject to interest rate
risk were as follows:
|
Fixed
|
Floating
|
Floating
|
|
rate
|
rate
|
rate
|
|
2024
|
2024
|
2023
|
|
£’000
|
£’000
|
£’000
|
Loan
facility with J.P. Morgan Securities LLC
|
–
|
47,078
|
20,170
|
Gross
exposure on OTC equity swaps
|
–
|
6,308
|
6,224
|
Total
liabilities subject to interest rate risk
|
–
|
53,386
|
26,394
|
Less cash
held at Goldman Sachs
|
–
|
2,131
|
2,772
|
Total net
liabilities subject to interest rate risk
|
–
|
51,255
|
23,622
|
Management
of the risk
The level
of borrowings is approved and monitored by the Board and the AIFM
on a regular basis.
Interest
rate sensitivity
The
majority of the Company’s financial assets are equity shares and
other investments which neither pay interest nor have a maturity
date. The amount subject to interest risk as at 31 March 2024 was £51,256,000 (2023:
£23,622,000). If the
rate increased by 1%, the impact on the profit or loss and net
assets would be expected to be £513,000 (2023:
£236,000).
(c)
Other price risk
Other
price risk may affect the value of the quoted
investments.
If market
prices at the date of the Statement of Financial Position had been
20% higher or lower (2023: 20% higher or lower) while all other
variables had remained constant, the return and net assets
attributable to shareholders for the year ended 31 March 2024 would
have increased/decreased by £78,110,000 (2023: £71,762,000), after
adjusting for an increase or decrease in the AIFM and the Portfolio
management fees. The calculations are based on the portfolio
valuations as at the respective Statement of Financial Position
dates.
Other
price risk exposure
|
|
|
2024
|
|
|
2023
|
|
|
|
Net
|
|
|
Net
|
|
Assets
|
Liabilities
|
Fair
Value
|
Assets
|
Liabilities
|
Fair
Value
|
|
£’000
|
£’000
|
£’000
|
£’000
|
£’000
|
£’000
|
Investments
|
394,712
|
–
|
394,712
|
357,229
|
–
|
357,229
|
OTC equity
swaps
|
42
|
(460)
|
(418)
|
–
|
(1,202)
|
(1,202)
|
|
394,754
|
(460)
|
394,294
|
357,229
|
(1,202)
|
356,027
|
The
notional exposure of the OTC equity swaps calculated in accordance
with AIFMD requirements, is £5,890,000 (2023: £5,022,000) see
glossary for further details.
2.
LIQUIDITY RISK:
This is
the risk that the Company will encounter difficulty in meeting
obligations associated with financial liabilities.
Management
of the risk
Liquidity
risk is not significant as the majority of the Company’s assets are
investments in quoted equities that are readily realisable within
one week, in normal market conditions. Stress tests have been
performed to understand how long the portfolio would take to
realise in such situations. The Board is comfortable that in such
situations the Company would be able to meet its liabilities as
they fall due. Short-term funding flexibility can be achieved
through the use of the bank loan facility. The maximum amount of
gearing permitted by the Board is 20% of net assets which equated
to £72,261,000 at the year end.
The Board
gives guidance to the Portfolio Manager as to the maximum amount of
the Company’s resources that should be invested in any one
company.
Liquidity
exposure and maturity
Contractual
maturities of the financial liabilities as at 31 March 2024, based
on the earliest date on which payment can be required, are as
follows:
|
2024
|
2024
|
2023
|
2023
|
|
3
months
|
3
to
|
3
months
|
3
to
|
|
or
less
|
12
months
|
or
less
|
12
months
|
|
£’000
|
£’000
|
£’000
|
£’000
|
Loan
facility (repayable on demand)
|
47,078
|
–
|
20,170
|
–
|
Future
settlements
|
167
|
–
|
6,206
|
–
|
Derivative
– OTC equity swaps
|
–
|
460
|
–
|
1,202
|
Other
creditors and accruals
|
2,408
|
–
|
2,640
|
–
|
|
49,653
|
460
|
29,016
|
1,202
|
3.
CREDIT RISK:
Credit
risk is the risk of failure of a counterparty to discharge its
obligations resulting in the Company suffering a loss.
J.P.
Morgan Securities LLC (J.P. Morgan) may take assets with a value of
up to 140% of the loan as collateral. Such assets held by J.P.
Morgan are available for rehypothecation†.
As at 31
March 2024, the maximum value of assets available for
rehypothecation was £65,909,000 being 140% of the loan balance of
£47,078,000 (31 March 2023: £28,238,000 being 140% of the loan
balance of £20,170,000).
See page
35 of the Annual Report for further details on the loan facility
and the associated credit risk.
† See
glossary.
Management
of the risk
The risk
is not significant and is managed as follows:
J.P.
Morgan
· by
receiving and reviewing regular updates from the Custodian and
Prime Broker and Depository.
· by
reviewing their Internal Control reports and regularly monitor J.P.
Morgan’s credit rating. J.P. Morgan has a credit rating of Aa3
(Moody’s), A+ (S&P) and AA (Fitch).
· by
reviewing on a monthly basis assets which are available for
rehypothecation.
Other
counterparties
· by
only dealing with brokers which have been approved by OrbiMed
Capital LLC and banks with high credit ratings such as Goldman
Sachs International who have a credit rating of A1 (Moody’s), A+
(S&P) and A+ (Fitch);
· by
investing in markets that mainly operate DVP (delivery versus
payment) settlement.
· all
cash balances are held with approved counterparties. J.P. Morgan is
the Custodian of the Company’s assets and all assets are segregated
from J.P. Morgan’s own assets.
At 31
March 2024 the Company’s exposure to credit risk amounted to
£16,639,000 and was in respect of amounts due from brokers in
relation to future settlements and cash held as collateral (2023:
£3,260,000).
4.
FAIR VALUE MEASUREMENT
Hierarchy
of investments
As
required under IFRS 13 “Fair Value Measurement”, the Company has
classified its financial assets designated at fair value through
profit or loss using a fair value hierarchy that reflects the
significance of the inputs used in making the fair value
measurements. The hierarchy has the following 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).
As
of 31 March 2024
|
Level
1
|
Level
2
|
Level
3
|
Total
|
£’000
|
£’000
|
£’000
|
£’000
|
Assets
|
379,574
|
–
|
15,138
|
394,712
|
Derivatives:
equity swap (assets)
|
–
|
42
|
–
|
42
|
Derivatives:
equity swap (liabilities)
|
–
|
(460)
|
–
|
(460)
|
Financial
investments held at fair value through profit or loss
|
379,574
|
(418)
|
15,138
|
394,294
|
As
at 31 March 2023
|
Level
1
|
Level
2
|
Level
3
|
Total
|
£’000
|
£’000
|
£’000
|
£’000
|
Assets
|
336,962
|
–
|
20,267
|
357,229
|
Financial
investments held at fair value through profit or loss
|
–
|
(1,202)
|
–
|
(1,202)
|
|
336,962
|
(1,202)
|
20,267
|
356,027
|
As at 31
March 2024, the investments in OrbiMed Asia Partners LP Fund has
been classified as Level 3. The OrbiMed Asia Partners Fund LP has
been valued at the net asset value presented in its Statement of
Partners Capital Activity as at 31 December 2023, as permitted
under the IPEV guidelines. The Statement of Partner’s Capital
Activity as at 31 March 2024 was received in May 2024 and was not
materially different from the valuation at 31 December 2023. If the
value of the fund were to increase or decrease by 10%, while all
other variables remain constant, the return and net assets
attributable to shareholders for the year ended 31 March 2024 would
have increased/decreased by £112,000 (2023: £216,000).
The
following two investments have been valued by the Board, following
recommendations received from the Valuation Committee which has
reviewed in detail both the valuation and the methodologies
provided by Kroll, an independent valuer. Stemirna and XtalPi have
been valued using the probability-weighted expected returns
methodology (PWERM) and are classified as Level 3.
These
Level 3 investments include assumptions based on non-observable
market data such as:
(i)
the
probability of certain scenarios;
(ii)
the
expected time to the date of sale or realisation opportunity;
and
(iii)
discount
rates.
Stemirna
As at 31
March 2024, the PWERM was used. Under the PWERM, the fair value was
mainly determined based on consideration of the values for the
company under different scenarios. As highlighted in the Portfolio
Manager’s Review, this investment was written down to reflect a
change in the company’s outlook. As a result, the following
scenarios were used to value the Company:
(i)
No
recovery – probability 10%
(ii)
Restructuring
scenario 1, where the proposed financing closes as expected, with
no additional shares issued – probability 70%
(iii)
Restructuring
scenario 2, where the proposed financing closes as expected with a
proportion of additional shares – probability 20%
If the
probabilities of scenario were to change by 10%, while all other
variables remain constant, the return to shareholders would have
increased/decreased by £22,000 (2023: £515,000).
XtalPi
As at 31
March 2024, the PWERM was also used. The scenarios used for this
investment were as follows:
(i)
Partial
Recovery – probability 2.5%
(ii)
Full
Recovery Scenario – probability 2.5%
(iii)
IPO
Scenario 1 (30/6/2024) – probability-37.5%
(iv)
IPO
Scenario 2 (30/9/2024) – probability-37.5%
(v)
IPO
Scenario 3 (30/9/2024) – probability-20.0%
If the
probabilities of scenario were to change by 10%, while all other
variables remain constant, the return to shareholders would have
increased/decreased by £1,162,000 (2023: £1,271,000).
The tables
below set out the range of inputs applied in arriving at the fair
value of the Level 3 investments valued by Kroll.
Probability
of Scenario – (Stemirna and XtalPi)
The
probability assigned to certain scenarios is determined by the
independent valuer following consultation with the Portfolio
Manager. The probability assigned to any scenario reflects a number
of factors including the operating performance and prospects of the
investee company and market receptivity for IPOs or other
realisation routes.
2024
|
Probability
of scenario
|
2.5%-70%
|
|
Weighted
average probability of scenario
|
36.25%
|
2023
|
Probability
of scenario
|
5%-35%
|
|
Weighted
average probability of scenario
|
20%
|
Expected
time to date of sale or realisation opportunity
(XtalPi)
The
expected time to a sale or realisation opportunity is determined by
the independent valuer following consultation with the Portfolio
Manager and reflects a number of factors including the operating
performance and prospects of the investee company and the current
and expected market receptivity for IPOs and other realisation
routes.
2024
|
Expected
time to sale or realisation opportunity
|
0.2
years - 0.8 years
|
|
Weighted
average expected time to sale or realisation
opportunity
|
0.5
years
|
2023
|
Expected
time to sale or realisation opportunity
|
1-2.5
years
|
|
Weighted
average expected time to sale or realisation opportunity
|
1.75
years
|
If the
expected average time to date of sale or realisation was extended
by three months, while all other variables remain constant, the
return to shareholders would have decreased by £544,000 (2023:
£656,000).
Discount
rate (XtalPi)
The
discount rates assigned to certain scenarios are determined by the
independent valuer using market surveys of discount rates used in a
range of private equity and unquoted investment
transactions.
2024
|
Discount
rate
|
23.5%
|
|
Discount
rate weighted average
|
23.5%
|
2023
|
Discount
rate
|
22.5%
|
|
Discount
rate weighted average
|
22.5%
|
If the
discount rate was to increase by 5%, while all other variables
remain constant, the return to shareholders would have decreased by
£159,000 (2023: £382,000).
The
valuations of Gracell Biotechnologies CVR and Lexicon Series A
Convertible Preferred Stock (Lexicon) as at 31 March
2024, which were produced by Kroll, have been approved by the Board
on the recommendation of the Valuations Committee. The Gracell CVR
was valued using the PWERM and Lexicon was valued using the price
of the most recent funding round, with a discount applied to
reflect their lack of marketability.
Level
3 Reconciliation
Please see
below a reconciliation disclosing the changes during the year for
the financial assets and liabilities designated at fair value
through profit or loss classified as being Level 3. There has been
no transfer between fair value hierarchy levels.
|
2024
|
2023
|
|
£’000
|
£’000
|
Assets
|
|
|
As at 1
April
|
20,267
|
33,927
|
Purchase
of unquoted investments
|
1,952
|
–
|
Repayment
of capital – unquoted investment
|
(71)
|
–
|
Net
movement in investment holding gains during the year
|
(7,010)
|
(3,773)
|
Transfer
from level 3 to level 1
|
–
|
(9,887)*
|
Assets as
at 31 March
|
15,138
|
20,267
|
*Yisheng
Biopharma and Summit Healthcare Acquisition Corp. entered into a
definitive agreement for a business combination and upon closing of
the transaction in March 2023, the combined company was renamed as
YS Biopharma Co. Ltd and became a publicly traded company on the
Nasdaq.
FAIR
VALUE OF FINANCIAL ASSETS AND FINANCIAL
LIABILITIES:
Financial
assets and financial liabilities are either carried in the
Statement of Financial Position at their fair value or at a
reasonable approximation of fair value.
5.
CAPITAL MANAGEMENT
The
Company’s capital management objectives are:
· to
ensure that it will be able to continue as a going concern;
and
· to
maximise the total return to its equity shareholders.
The
Board’s policy is to limit gearing to a maximum of 20% of the
Company’s net assets.
As at 31
March 2024 the Company’s gearing ratio was 9.1% (2023:
7.8%).
The
capital structure of the Company consists of the equity share
capital, retained earnings and other reserves shown in the
Statement of Financial Position.
Shares may
be repurchased by the Company as explained on pages 30 and 31 of
the Annual Report.
The
Company’s objectives, policies and processes for managing capital
are unchanged from the preceding accounting period. As at 31 March
2024, the maximum value of assets available for rehypothecation was
£65,909,000, being 140% of the
loan balance of £47,078,000 (31 March 2023: £28,238,000 being 140%
of the loan balance of £20,170,000).
15.
TRANSACTIONS WITH RELATED PARTIES AND THE
MANAGERS
Related Parties
The
Directors of the Company are considered to be related
parties.
Details of
the remuneration of the Directors of the Company can be found on
page 64 of the Annual Report. Geoff Hsu has waived his Directors’
fees. Details of the Directors’ interests in the capital of the
Company can be found on page 66.
Transactions with the
Managers
· Frostrow
Capital LLP
· OrbiMed
Capital LLC
Details of
the relationship between the Company and Frostrow Capital LLP, the
Company’s AIFM, and OrbiMed Capital LLC, the Company’s Portfolio
Manager, are disclosed on page 51 of the Annual Report. Geoff Hsu,
who joined the Board on 16 May 2018, is a General Partner at
OrbiMed. Details of fees paid to OrbiMed by the Company can be
found in note 3. All material related party transactions have been
disclosed in notes 3 and 4.
The
Company holds an interest in OrbiMed Asia Partners Fund which
equates to 0.3% of the investments held at 31 March
2024. Further details can be found on page 80 of the Annual
Report.
Three
current and two former partners at OrbiMed Capital LLC have a
minority financial interest totalling 20% in Frostrow Capital LLP,
the Company’s AIFM. Details of the fees paid to Frostrow Capital
LLP by the Company can be found in note 3.
16.
CAPITAL RESERVE
|
|
2024
|
|
|
2023
|
|
|
|
Capital
Reserves
|
|
|
Capital
Reserves
|
|
|
|
Investment
|
|
|
Investment
|
|
|
|
holdings
|
|
|
holdings
|
|
|
|
gains/
|
|
|
gains/
|
|
|
Other
|
(losses)
|
Total
|
Other
|
(losses)
|
Total
|
|
£’000
|
£’000
|
£’000
|
£’000
|
£’000
|
£’000
|
At 1
April
|
278,564
|
(50,596)
|
227,968
|
399,416
|
(108,185)
|
291,231
|
Net
gains/(losses) on investments
|
5,014
|
74,129
|
79,143
|
(90,316)
|
57,589
|
(32,727)
|
Foreign
exchange losses
|
(621)
|
–
|
(621)
|
(3,759)
|
–
|
(3,759)
|
Expenses
charged to capital
|
(4,015)
|
–
|
(4,015)
|
(4,158)
|
–
|
(4,158)
|
Repurchase
of own shares for cancellation
|
(43,584)
|
–
|
(43,584)
|
(22,619)
|
–
|
(22,619)
|
At 31
March
|
235,358
|
23,533
|
258,891
|
278,564
|
(50,596)
|
227,968
|
Sums
within the Total Capital Reserve less unrealised gains (those on
investments not readily convertible to cash) are available for
distribution. Investment holding gains in the table above are
unrealised.
17.
CONTINGENT LIABILITIES AND CAPITAL COMMITMENTS
As at 31
March 2024 there were no contingent liabilities or capital
commitments for the Company (2023: nil).
The
figures and financial information for 2023 are extracted from the
published Annual Report for the year ended 31 March 2023 and do not
constitute the statutory accounts for that year. The Annual Report
for the year ended 31 March 2023 has been delivered to the
Registrar of Companies and included the Independent Auditor’s
Report which was unqualified and did not contain a statement under
either section 498(2) or section 498(3) of the Companies Act
2006.
The
figures and financial information for 2024 are extracted from the
Annual Report for the year ended 31 March 2024 and do not
constitute the statutory accounts for the
year.
The
Annual Report for the year ended 31 March 2024 includes the
Independent Auditor’s Report which is unqualified and does not
contain a statement under either section 498(2) or section 498(3)
of the Companies Act 2006.
The
Annual Report and financial statements have not yet been delivered
to the Registrar of Companies.
GLOSSARY
OF TERMS AND ALTERNATIVE PERFORMANCE MEASURES
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.
ADR
An
American depositary receipt (ADR) is a negotiable security that
represents securities of a foreign company and allows that
company’s shares to trade in the U.S. financial markets. Shares of
many non-U.S. companies trade on U.S. stock exchanges through ADRs,
which are denominated and pay dividends in U.S. dollars, and may be
traded like regular shares of stock.
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 Alternative Performance
Measures, the Directors considered the key objectives and
expectations of typical investors in an investment trust such as
the Company.
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 31
|
As
at 31
|
|
|
March
2024
|
March
2023
|
|
|
(pence)
|
(pence)
|
Share
price
|
|
995.0
|
783.0
|
Net asset
value per share (see note 13 for further information)
|
|
1,078.9
|
852.6
|
Discount
of share price to net asset value per share
|
|
7.8%
|
8.2%
|
^ Alternative
Performance Measure
GEARING^
Gearing
represents prior charges, adjusted for net current liabilities,
expressed as a percentage of net assets (AIC methodology). Prior
charges includes all loans and overdrafts for investment
purposes.
|
|
31
March
|
31
March
|
|
|
2024
|
2023
|
|
|
£’000
|
£’000
|
Loan
|
|
47,078
|
20,170
|
Net
current (assets)/liabilities (excluding loan and
derivatives)*
|
|
(14,091)
|
5,566
|
|
|
32,987
|
25,736
|
Net
assets
|
|
361,307
|
330,291
|
Gearing
|
|
9.1%
|
7.8%
|
* Current
liabilities less current assets
IPO
An Initial
Public Offering (IPO) is the process by which the shares of a
previously private company are listed on a stock exchange for the
first time. Through this process a company can raise new capital,
offer an exit opportunity for private investors and founders, and
enable the trading of its shares.
IPO
LOCK-IN
When a
company offers shares in an IPO, investors sometimes enter into a
lock-in agreement preventing them from selling their shares for a
specified period after the IPO.
LEVERAGE
The AIFMD
leverage definition is slightly different from the Association of
Investment Companies’ method of calculating gearing and is defined
as follows: any method by which the AIFM increases the exposure of
an AIF it manages whether through borrowing of cash or securities,
or leverage embedded in derivative positions.
For the
purposes of the AIFMD, leverage is any method which increases the
Company’s exposure, including the borrowing of cash and the use of
derivatives. It is expressed as a ratio between the Company’s
exposure and its net asset value and can be calculated on a gross
and a commitment method. Under the gross method, exposure
represents the sum of the Company’s positions after the deduction
of sterling cash balances, without taking into account any hedging
and netting arrangements. Under the commitment method, exposure is
calculated without the deduction of sterling cash balances and
after certain hedging and netting positions are offset against each
other.
|
Gross
Method
|
Commitment
Method
|
Maximum
limit
|
130.0%
|
130.0%
|
Actual as
at 31 March 2024
|
110.5%
|
109.7%
|
MARGINABLE
SECURITIES
Marginable
securities are stocks, bonds, futures or other securities capable
of being traded on a Margin Account and are available for
rehypothecation*.
NET
ASSET VALUE (NAV)
The net
asset value of the Company’s assets, principally investments made
in other companies and cash held, less 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 have been issued. 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.
* See
glossary.
NET
ASSET VALUE PER SHARE TOTAL RETURN^
The net
asset value per share return for the year ended 31 March 2024 is
calculated by taking the percentage movement from the net asset
value per share as at 31 March 2023 of 852.6p (2022: 957.8p) to the
net asset value per share at 31 March
2024 of 1,078.9p (2023: 852.6p). The Company has not paid any
dividends to shareholders in respect of the above-mentioned
years.
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.
|
|
31
March
|
31
March
|
|
|
2024
|
2023
|
|
|
£’000
|
£’000
|
AIFM &
portfolio management fees (note 3)
|
|
3,070
|
3,531
|
Other
re-occurring expenses (note 4)
|
|
742
|
692
|
Total
ongoing charges
|
|
3,812
|
4,223
|
Average
daily net assets for the year
|
|
323,811
|
394,525
|
Ongoing
charges
|
|
1.2%
|
1.1%
|
OTC
EQUITY SWAPS
Over-the-Counter
(OTC) refers to the process of how securities are traded via a
broker - dealer network, as opposed to on 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 security; 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.
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.
SUSTAINABILITY
ACCOUNTING STANDARDS BOARD (SASB)
The
Sustainability Accounting Standards Board (SASB) is a non-profit
organisation, founded in 2011 to develop sustainability accounting
standards. Its stated mission is “to establish industry-specific
disclosure standards across ESG topics that facilitate
communication between companies and investors about financially
material, decision-useful information. Such information should be
relevant, reliable and comparable across companies on a global
basis.”
SHARE
PRICE TOTAL RETURN^
The share
price total return represents the theoretical return to a
shareholder, on a closing market price basis. The share price total
return is calculated by taking the percentage movement from the
share price as at 31 March 2023 of 783.0p (2022: 898.0p) to the
share price as at 31 March 2024 of 995.0p (2023: 783.0p). The
Company has not paid dividends to shareholders in respect of the
above mentioned years.
VARIABLE
INTEREST ENTITY (VIE)
A
corporate structure through which an investor can own the economic
interests of shares in a company through a contractual
relationship. This structure is common in China, including in the
biotechnology sector.
ANNOUNCEMENT
ENDS
Neither
the contents of the Company's website nor the contents of any
website accessible from hyperlinks on the Company's website (or any
other website) is incorporated into, or forms part of, this
announcement.