REG - RTW Biotech Opp. - Annual Financial Report
28/03/2024 07:00
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RNS Number : 5910I RTW Biotech Opportunities Ltd 28 March 2024
LEI: 549300Q7EXQQH6KF7Z84
28 March 2024
RTW Biotech Opportunities Ltd
Annual Report and Audited Financial Statements for the Year Ended 31 December
2023
Substantial portfolio activity drove strong NAV performance
RTW Biotech Opportunities Ltd (the "Group", "RTW Bio" or the "Company"), a
London Stock Exchange-listed investment company focused on identifying
transformative assets with high growth potential across the life sciences
sector, is pleased to announce its Annual Results for the year ended 31
December 2023.
RTW Biotech Opportunities Ltd Year-end reporting period Previous Year-end reporting period (01/01/2022-31/12/2022) Admission (30/10/2019)
(01/01/2023-31/12/2023) to 31/12/2023
Ordinary NAV US$399.3 million US$326.1 million US$399.3 million
NAV per Ordinary Share US$1.90 US$1.54 US$1.90
NAV movement per Ordinary Share +23.5% -10.2% +82.3%
Price per Ordinary Share US$1.40 US$1.21 US$1.40
Share price return (i) +16.0% -32.0% +34.9%
Benchmark returns (ii)
Russell 2000 Biotech +10.6% -31.3% +4.8%
Nasdaq Biotech +3.7% -10.9% +29.4%
Portfolio Highlights
• During the year ended 31 December 2023, 2 portfolio companies were acquired:
○ Cincor Pharma by AstraZeneca for a 206% premium (including contingent value
rights) to the prior closing price; and
○ Prometheus Biosciences by Merck for a 75% premium
• During the year to 31 December 2023, 6 portfolio companies went public:
○ Mineralys Therapeutics, Acelyrin Inc., Apogee Therapeutics, and Cargo
Therapeutics, completed an initial public offering (IPO)
○ The average step-up from prior private holding value to IPO price was 46%
○ Orchestra BioMed went public through a merger with RTW's SPAC; Tourmaline Bio
went public through a reverse merger
• The Group added 7 new companies to its core portfolio in 2023;
○ Oricell Therapeutics, Cargo Therapeutics, Allurion Technologies, Abdera
Therapeutics, RTW Royalty Fund, Tourmaline Bio and Basking Biosciences
○ While exiting 7 core portfolio companies excluding takeouts: Monte Rosa
Therapeutics, Ventyx Biosciences, Tenaya Therapeutics, Third Harmonic Bio, C4
Therapeutics, Acelyrin Inc. and Mineralys Therapeutics
• As of 31 December 2023, the Group held 36 core portfolio companies (2022: 39)
○ 12 of which are publicly-listed (2022: 14)
○ 24 of which are privately-held (2022: 25)
• As of 31 December 2023, 66.7% of NAV was invested in core portfolio companies
(2022: 70.9%)
• 61% (2022: 68%) of the core portfolio companies' pipeline products are in
clinical stage programmes, and 22% have commercial products (2022: 14%)
Post Period-End Highlights
• On 9 February, Kyverna Therapeutics successfully listed on the Nasdaq Global
Select Market, with an upsized IPO, raising $319 million. On the first day of
trading, Kyverna's share price traded up by 36.4% to close at $30.00 per
share. As at 31 December 2023, Kyverna represented 0.45% of the Company's NAV.
• On 13 February, the Company announced the completion of the recommended
all-share acquisition of Arix Bioscience plc, effected through a scheme of
reconstruction and the voluntary winding-up of Arix under section 110 of the
Insolvency Act 1986.
• Further, on 20 February, the Company issued an unaudited, indicative and
estimated pro forma NAV attributable to ordinary shareholders of the Company
as at the closing of the Arix transaction on 12 February 2024 of US$644.2
million, equivalent to US$1.88 per Ordinary Share.
Roderick Wong, MD, Managing Partner and Chief Investment Officer of RTW
Investments LP, the "Investment Manager" commented:
"We are delighted to report another strong year for the Group, with a NAV
return of +23.5% for 2023, outperforming both the Russell 2000 Biotechnology
Index and the Nasdaq Biotech Index, which returned +10.6% and +3.7%,
respectively. The NAV per Ordinary Share has grown +82.3% since our IPO in
2019, from $1.04 to $1.90 as of 31 December 2023.
"The Company's share price has not kept pace with the strong NAV performance,
however, with continued NAV outperformance in comparison to the market and
peers, and with the sector's fortunes having turned markedly in the fourth
quarter of 2023, we expect the discount to narrow.
"NAV performance in 2023 was driven by the core public portfolio with a +24.7%
contribution to the NAV. Prometheus Biosciences (+12.6% of NAV) and Rocket
Pharmaceuticals (+8.4% of NAV) accounted for the majority of the gains.
Prometheus was acquired by Merck for US$200.00 per share in cash, a 75%
premium to the prior closing price, whilst Rocket's share price bounced back
strongly this year as it continued to progress several of its clinical
programmes.
"The Group's unique exposure to companies created by RTW Investments was
significantly additive this year. Rocket's continued clinical progression was
rewarded in 2023 after a challenging couple of years for the shares of gene
therapy companies. JIXING had a transformational year by, most notably,
completing the first round of its Series D financing, which was co-led by RTW
and Bayer AG, with whom it also agreed a strategic partnership.
"During the year, four of our portfolio companies completed successful IPOs.
Most notably, Cargo Therapeutics (2.0% of NAV) listed on the Nasdaq Global
Select Market in November. The Group co-led its Series A financing round in
March 2023 and anchored its IPO in November. Since listing, the shares have
performed very well, rising by approximately 70%.
"There was a sharp reversal in the market performance in the final two months
of 2023, as interest rate expectations inflected and a flurry of takeouts
helped buoy sentiment in the biotech sector. The sector's vigorous move off
the bottom is indicative of a re-evaluation after several years of fund flows
out of the sector. With the fundamentals behind M&A remaining unchanged
and a shrinking pool of high-quality assets to acquire, prospects for the
sector's continued recovery look positive. Financing conditions in the sector
may remain tighter than normal, however, and this environment enables RTW to
flex the transactional capabilities it has built over the years to help
support exciting companies and capture investment opportunities. With the
acquisition of Arix Bioscience recently completed, the resultant increase in
scale should prove well-timed to take advantage.
For Further Information
RTW Investments, LP +44 (0)20 7959 6361
Woody Stileman, Managing Director
Krisha McCune, Director, Investor Relations
Elysium Fund Management Limited +44 (0)14 8181 0100
Joanna Duquemin Nicolle, Chief Executive Officer
Sadie Morrison, Managing Director
Deutsche Numis (Joint Corporate Broker) +44 (0)20 7260 1000
Freddie Barnfield
Nathan Brown
Euan Brown
BofA Securities (Joint Corporate Broker) +44 (0)20 7628 1000
Edward Peel
Alex Penney
Buchanan (PR & Communications Adviser) +44 (0)20 7466 5107
Charles Ryland
Henry Wilson
George Beale
Cadarn Capital (Distribution & IR Partner) +44 (0)73 6888 3211
David Harris
Morgan Stanley Fund Services USA LLC +1 (914) 225 8885
RTW Biotech Opportunities at a Glance
Our Purpose: Transforming the lives of millions
RTW Bio's long-term strategy is anchored in identifying sources of
transformational innovations with significant commercial potential by engaging
in deep scientific research and a rigorous idea generation process, which is
complemented by years of investment, company building, and both transactional
and legal expertise.
What we do goes beyond short term financial gain
We invest for the long term, powering the next generation of breakthroughs in
science and medicine to help transform lives. That's what drives us - the
greater impact we can help create.
Our global reach
RTW headquarters (US)
RTW global offices (London and Shanghai)
Netherlands: Argenx
Germany, Spain, Switzerland and the Nordic countries: Rocket Pharmaceuticals,
Numab
Ireland: Avadel, GH Research
Israel: UroGen Pharma
China: JIXING, Nuance, Oricell
UK: Immunocore, Artios
THE US MARKET
We have a core focus on the US, with deep coverage of opportunities from
academia to mid-size public companies. We apply a full range of deal execution
and company building capabilities.
THE UK & EUROPEAN MARKETS
We have identified and invested in exceptional British and European scientific
assets. We look to contribute to these biotech ecosystems by engaging in
creation or ongoing development of new companies around promising early-stage
assets by partnering with uni-versities and in-licensing academic programmes,
and by providing financial and human capital to entrepreneurs to advance
scientific programmes.
What this means for investors:
• access to cutting edge research labs and academic knowledge
• access to greater breadth of science and opportunity
• participation in value creation in local biotech ecosystems
THE CHINA MARKET
We are capturing commercialisation opportunities in China by investing across
the venture capital life cycle: from new company formation to IPO, to bringing
successful, innovative drugs to Chinese patients.
What this means for investors:
• access to a budding biotech market, innovation and expertise
• an opportunity to be established in a market with the scope for significant
growth
Members of the RTW team
2023: 70
2022: 76
The RTW culture
RTW's priority is unlocking value by advancing early-stage scientific
development to deliver innovative therapies to patients in need.
At the core of our business is a set of guiding principles.
COLLABORATION
Leveraging collective genius
PROGRESS
From research, to innovation, to reality
HUMILITY
The hunger to learn and improve
TENACITY
Finding pathways to success while overcoming obstacles
RIGOUR
Poring over the data
LEADERSHIP
The courage to shape a better future
The RTW Difference
RTW connects data, experience, and talent to bring opportunities into focus
We identify transformative assets with growth potential across the life
sciences sector. Our approach is driven by deep scientific expertise with a
long-term investment horizon.
RTW's COMPETITIVE ADVANTAGES
DEEP RESEARCH
We dive into the data to spot opportunities that others miss. Opportunities,
potential, errors, and risks are all easily overlooked, so we analyse and
scrutinise, applying a unique, repeatable research approach, fine-tuned over
years of successful life sciences investment. We combine the best data,
technology, and scientific insight to unearth opportunity.
SELECTIVITY
We cast a wide net, but only assets with high probability of becoming
commercially viable products and those with the greatest potential to
revolutionise treatment outcomes for patients pass the test. We choose
partners who care less about quick wins and more about lasting change.
KNOWLEDGE
We are doctors, academics, and drug developers; venture capitalists and
investment bankers; lawyers, data scientists and company operators. We work as
a team, applying collective expertise to spark ideas, solve problems, avoid
pitfalls, and build successful companies.
FLEXIBLE SOLUTIONS
Drug development rarely follows a linear path. Whatever the twists and turns,
we have the skills in house to solve problems and accelerate progress, from
providing capital and infrastructure to advance promising academic programmes,
to forming new companies and taking those companies public. We carve new
pathways, allowing scientists and entrepreneurs to bring life-changing
therapies to patients.
PEOPLE
Healthcare innovation is hard work, and easy wins are few and far between.
Those who succeed don't lose sight of why it matters. These are the people we
love working with. We come from many different backgrounds but are united in a
mission to improve people's lives.
LONG-TERM PARTNERS
Bringing new therapies to patients is a long journey that comes with both
thrilling triumphs and inevitable setbacks. We are hands-on and fully invested
in the success of our partners because their success is our success. We choose
partners who are as passionate about revolutionising medicine as we are.
Investment Objective and Investment Policy
Applying deep scientific expertise with a long-term investment horizon
Investment Objective
The Group seeks to achieve positive absolute performance and superior
long-term capital appreciation, with a focus on forming, building, and
supporting world-class life sciences, biopharmaceutical and medical technology
companies. It intends to create a diversified portfolio of investments across
a range of businesses, each pursuing the development of superior
pharmacological or medical therapeutic assets to enhance the quality of life
and/or extend patient life.
Investment Policy
The Group seeks to achieve its investment objective by leveraging the
Investment Manager's data-driven proprietary pipeline of innovative assets to
invest in life sciences companies:
• across various geographies (globally);
• across various therapeutic categories and product types (including but not
limited to genetic medicines, biologics, traditional modalities such as small
molecule pharmaceuticals and antibodies, and medical devices);
• in both a passive and active capacity and intends, from time to time, to take
a controlling or majority position with active involvement in a Portfolio
Company to assist and influence its management. In those situations, it is
expected that the Investment Manager's senior executives may serve in
temporary executive capacities; and
• by participation in opportunities created by the Investment Manager's
formation of companies de novo when a significant unmet need has been
identified and the Group is able to build a differentiated, sustainable
business to address said unmet need.
The Group expects to invest approximately 80 per cent of its gross assets in
the biopharmaceutical sector and approximately 20 per cent of its gross assets
in the medical technology sector.
The Group's portfolio will reflect its view of the most compelling
opportunities available to the Investment Manager, with an initial investment
in each privately held Portfolio Company ("Private Portfolio Company")
expected to start in a low single digit per cent of the Group's gross assets
and grow over time, as the Group may, if applicable, participate in follow-on
investments and/or continue holding the Portfolio Company as it becomes
publicly-traded. It is intended certain long-term holds will increase in size
and may represent between five and ten per cent or greater of the Group's
gross assets.
The Group anticipates deploying one-third of its capital designated for core
private investments toward early-stage and de novo company formations
(including newly formed entities around early-stage academic licenses and
commercial stage corporate assets) and two-thirds of its capital in mid- to
late-stage ventures.
The Company may choose to invest in Portfolio Companies listed on a public
stock exchange ("Public Portfolio Companies") depending on market conditions
and the availability of appropriate investment opportunities. Equally, as part
of a full-life cycle investment approach, it is expected that Private
Portfolio Companies may later become Public Portfolio Companies. Monetisation
events such as IPOs and reverse mergers will not necessarily represent exit
opportunities for the Group. Rather, the Group may decide to retain all or
some of its investment in such Portfolio Companies or the acquiring Company
where they meet the standard of diligence set by the Investment Manager. The
Group is not required to allocate a specific percentage of its assets to
Private Portfolio Companies or Public Portfolio Companies.
The Group also intends, where appropriate, to invest further in its Portfolio
Companies, supporting existing investments throughout their lifecycle. The
Group may divest its interest in Portfolio Companies in part or in full when
the risk-reward trade-off is deemed to be less favourable.
From time to time, the Group may seek opportunities to optimise investing
conditions, and to allow for such circumstances, the Group will have the
ability to hedge or enter into securities or derivative structures in order to
enhance the risk-reward position of the portfolio and its underlying
securities.
Investment restrictions
The Group will be subject to the following restrictions when making
investments in accordance with its investment policy:
• the Group may not make an investment or a series of investments in a Portfolio
Company that result in the Group's aggregate investment in such Portfolio
Company exceeding 15 per cent (or, in the case of Rocket Pharmaceuticals,
Inc., 25 per cent) of the Group's gross assets at the time of each such
investment;
• the Group may not make any direct investment in any tobacco company and not
knowingly make or continue to hold any Public Portfolio Company investments
that would result in exposure to tobacco companies exceeding one per cent of
the aggregate value of the Public Portfolio Companies from time to time.
Each of these investment restrictions will be calculated as at the time of
investment. In the event that any of the above limits are breached at any
point after the relevant investment has been made (for instance, upon
successful realisation of economic and/or scientific milestones or as a result
of any movements in the value of the Group's gross assets), there will be no
requirement to sell or otherwise dispose of any investment (in whole or in
part).
Leverage and borrowing limits
The Group may use conservative leverage in the future in order to enhance
returns and maximise the growth of its portfolio, as well as for working
capital purposes, up to a maximum of 50 per cent of the Group's net asset
value at the time of incurrence. Any other decision to incur indebtedness may
be taken by the Investment Manager for reasons and within such parameters as
are approved by the Board. There are no limitations placed on indebtedness
incurred in the Group's underlying investments.
Capital deployment
The Group anticipates that it will initially, upon Admission and upon any
subsequent capital raises, invest up to 80% of available cash in Public
Portfolio Companies that have been diligenced by the Investment Manager and
represent holdings in other portfolios managed by the Investment Manager,
subsequently rebalancing the portfolio between Public Portfolio Companies and
Private Portfolio Companies as opportunities to invest in the latter become
available.
Cash management
The Group's uninvested capital may be invested in cash instruments or bank
deposits pending investment in Portfolio Companies or used for working capital
purposes.
Hedging
As described above, the Group may seek opportunities to optimise investing
conditions, and to allow for such circumstances, there will be no limitations
placed on the Group's ability to hedge or enter into securities or derivative
structures in order to enhance the risk-reward position of the portfolio and
its underlying securities.
On an ongoing basis, the Group does not intend to enter into any securities or
financially engineered products designed to hedge portfolio exposure or
mitigate portfolio risk as a core part of its investment strategy, but may
enter into hedging transactions to hedge individual positions or reduce
volatility related to specific risks such as fluctuations in foreign exchange
rates, interest rates, and other market forces.
RTW Biotech Opportunities Ltd's acquisition of Arix Bioscience plc ("Arix")
We are delighted to confirm the completion of the all-share acquisition by RTW
Bio of Arix's assets, post year end on 13 February 2024. The transaction was
announced on 1 November 2023 and was effected through a scheme of
reconstruction and the voluntary winding-up of Arix under section 110 of the
Insolvency Act 1986. We welcome Arix shareholders to the RTW Bio shareholder
register.
The RTW Bio board believes that the combination has compelling strategic
rationale, primarily by adding capital and scale to our best-in-class
platform. This stronger foundation is expected to generate future growth
opportunities for shareholders. The combination delivered a meaningful and
immediate increase in NAV, making RTW Bio the second largest full life-cycle
biotech investment company or trust listed on the London Stock Exchange and
the fifth largest listed healthcare company or trust. Arix's uniquely
complementary portfolio adds diversification benefits, while the significant
proportion of liquid assets provides investment firepower at a compelling time
to be deploying capital into the life science sector.
The enlarged market capitalisation, which increased from US$294.9 million as
of 31 December 2023 to US$529.9 million following completion, should improve
secondary market liquidity for trading in RTW Bio shares. RTW Bio may also in
the future qualify for inclusion in the FTSE 250, which could further improve
the secondary market liquidity of its shares. The increased scale is expected
to deliver a more efficient cost base, benefiting from the infrastructure of
RTW and a simple, single management fee across a larger asset base. In all,
these benefits could lead to a meaningful re-rating uplift opportunity for RTW
Bio in the medium term.
Acquiring Arix's complementary life science assets is a step-change
accelerator to our vision for RTW Bio to be a UK-listed fund with meaningful
scale that invests in innovative life science businesses in the UK and
globally. We believe that the scale that this transaction creates should prove
well-timed given the unprecedented life science market conditions, the
accelerating medical innovation, and industry trends that play into RTW's core
strengths. This transaction creates value and opportunity for both RTW Bio and
Arix shareholders and positions all shareholders for future upside.
Chair's Statement
Investing in tomorrow's most promising science
I am pleased to report that the Investment Manager ("RTW") has, once again,
achieved an excellent performance. The Group's NAV returned +23.5% per
Ordinary Share over the twelve months to 31 December 2023, materially
outperforming both the Russell 2000 Biotechnology Index (RGUSHSBT) and the
Nasdaq Biotech Index (NBI) which returned +10.6% and +3.7%, respectively. The
Group's NAV has also outperformed its biotech benchmarks over three years,
much of which was spent in the second worst bear market in the sector's
history.
Since admission in October 2019, the Group's NAV has significantly
outperformed its biotech benchmarks returning +82.3% versus +4.8% and +29.4%
for the Russell 2000 Biotechnology Index and the NBI, respectively. However,
the Group's share price has lagged NAV growth with a +34.9% return as the
shares fell to a discount to NAV in 2022, alongside many of our peers, after
having traded at a small premium for most of the prior years since admission.
The discount widened marginally last year, albeit less than its largest
pre-IPO investing peers. This relative narrowing is likely reflective of the
Group's peer-leading performance over most time periods and shareholder
activity in the year which has significantly raised the Group's profile to
investors.
2023 Overview and 2024 Outlook
There was an abundance of positive activity in the portfolio in 2023 despite a
more subdued environment (until the fourth quarter). The Group was able to
benefit from RTW's preferred position in the eyes of biotech companies and a
strong balance sheet to execute both traditional and creative deals. The Group
made seven new private investments (versus a total of three in 2022), had two
take-outs, four IPOs, a SPAC merger, a reverse merger, and struck two
strategic financing deals. At the end of the period, the Group had thirty-six
core portfolio holdings, a small decrease from thirty-nine last year. The core
portfolio represents 67% of NAV, compared with 71% at the same time last year.
The "other public" portfolio (a replica of the long names held in RTW's
private funds, devised to mitigate the cash drag of setting aside cash for
future deployment into core positions) was reduced to 20% as available cash
was increased in preparation for the purchase of a stake in Arix Bioscience,
which subsequently occurred soon after year end.
The Prometheus Biosciences sale was the stand-out event of the year.
Prometheus was the Group's largest holding when it was acquired by Merck at a
75% premium to the prior closing price in the first half. Total proceeds from
the sale of Prometheus shares amounted to US$99.1 million on total invested
capital of US$8.4 million, representing an 11.8x multiple. The multiple on
capital invested in the private rounds was 22x. This transformational
transaction is a perfect example of the Group's full life cycle investment
strategy at work.
The Group's unique exposure to companies created by RTW was significantly
additive this year. Rocket's continued clinical progression was rewarded in
2023 after a challenging couple of years for the shares of gene therapy
companies. The company now looks well set to transition to a commercial stage
company in 2024, a significant inflection point. JIXING experienced two
transformational events in the last two months of the year. Firstly, they
completed the first round of their Series D financing, which was co-led by RTW
and Bayer AG, with whom they also agreed a strategic partnership. Secondly,
JIXING-related company, Cytokinetics, announced the results of its pivotal
Phase 3 clinical trial of Aficamten in patients with symptomatic obstructive
hypertrophic cardiomyopathy. JIXING has an exclusive license for Aficamten for
development and commercialisation in Greater China. The data are viewed as
better than the incumbent approved drug owned by Bristol Myers called
mavacamten in a drug class that is expected to generate billions of revenues.
JIXING is expected to communicate with the relevant regulatory authorities for
Aficamten's new drug application as soon as possible with approval expected in
the first half of 2025.
From a market perspective, the Federal Reserve's interest rate pivot and a
flurry of takeouts helped the biotech sector avert what would have been an
historic three down years in a row, with a sharp rally in the last two months
of the year. The sector's vigorous move off the bottom is indicative of a
re-evaluation after several years of fund flows out of the sector. With the
fundamentals behind M&A remaining unchanged and a shrinking pool of
marquee assets to acquire, prospects for the sector's continued recovery look
promising. Financing conditions in the sector may remain tighter than normal,
however, and this environment enables RTW to flex the transactional
capabilities it has built over the years to help support exciting companies
and capture investment opportunities.
In a time when private market valuations are so heavily scrutinised, it is
important to have a robust valuation process. We strongly believe this to be
the case with RTW's Valuation Committee's fair value approach to marking the
private portfolio on a monthly basis, with regular supporting opinions from
two independent third-party valuation firms. The validation comes when private
investments become public companies. With four IPOs in 2023, we have a
reasonable sample to assess the private portfolio's fair value. With an
average step-up from prior private holding value to IPO price of 46%, we
emphasise our confidence in the Group's portfolio.
The public portfolio is well placed too with the sector's positive momentum
continuing into 2024. In January and February alone, there were five IPOs
versus twelve for the whole of last year. The sector indices have started the
year well, the smaller cap Russell 2000 Biotech Index in particular. To the
end of February, it has returned +12.0% vs the Nasdaq index's +7.2% and 6.8%
for the S&P500.. For RTW Bio the completion of the Arix Bioscience
acquisition on the 12(th) of February, brings fresh capital and scale at an
opportune time. We reiterate our confidence in the outlook for 2024.
Shareholder Activity and Arix Bioscience Acquisition
Despite these many positives, the Company's share price traded at a discount
to NAV this year alongside many of our investment company peers, especially
those that provide growth financing to private companies. In order to help
address this and raise the profile of the Company, we undertook several
significant changes and initiatives throughout the year. To help generate new
demand, we appointed Numis Securities (now Deutsche Numis) as joint corporate
broker and Cadarn Capital to manage fund distribution and investor relations,
both in April 2023. This followed the Company's rebranding and new website
launch in early 2023. In the second half of the year, we changed the Company's
name from RTW Venture Fund Limited to RTW Biotech Opportunities Ltd to better
reflect the full life cycle nature of the investment strategy.
We introduced a buyback programme using the proceeds from the sale of
Prometheus Biosciences, believing it to be a good allocation of capital as the
discount to NAV per Ordinary Share at which the Company's shares were then
trading materially undervalued the Company and its portfolio.
The most transformational event came in early November as the Company
announced its intention to acquire the assets of Arix Bioscience via a
recommended all-share offer through a scheme of reconstruction. The scheme was
conditional upon regulatory and Arix shareholder approval, both of which have
since been obtained. We believe that combining the assets of Arix with the
Company's enhances the Company's position as a leading UK-listed life
sciences fund by adding significant scale. Shareholders in the combined entity
will be in a stronger position to benefit from potential future value creation
through NAV growth, improved secondary market liquidity, and a potential
re-rating uplift of the combined company's shares. Following this increase in
scale, the Board believes it an appropriate time to recruit an additional
independent director with relevant industry expertise and is in the process of
reviewing potential candidates. Later in November, the Company hosted its
first London Capital Markets Day which featured presentations from the senior
RTW Investments team members, panels of eminent guests from academia, HM
Government and industry, and was a great success with over one hundred
professional investors and analysts attending, demonstrating, we believe, that
the efforts undertaken so far to raise the Company's profile are working, and
a solid foundation for a re-rating is in place.
2024 AGM
The Company will hold its Annual General Meeting on 16 May 2024 to review the
annual results and provide portfolio updates. We would like to dedicate a part
of the meeting to address questions from our shareholders. At the present
time, we anticipate holding it at Royal Chambers, St Julian's Avenue, St Peter
Port, Guernsey. We encourage our shareholders to share questions at the
following email, and we will endeavour to answer as many as we can:
biotechopportunities@rtwfunds.com.
On behalf of the Board, I would like to express my gratitude for your
continued support as well as extend a warm welcome to new shareholders from
Arix. Wishing you all the best for 2024.
William Simpson
Chair of the Board of Directors
RTW Biotech Opportunities Ltd
27 March 2024
Report of the Investment Manager
A full life cycle approach to innovative biotech investing
Executive summary
Since its listing on the London Stock Exchange in October 2019, the Group has
grown the NAV attributable to Ordinary Shareholders from US$168.0 million to
US$399.3 million as of 31 December 2023. The NAV per Ordinary Share has grown
82.3% from $1.04 to $1.90 as of 31 December 2023. Disappointingly, the share
price has not kept pace with NAV, returning +34.9% in the same period, as the
shares fell to a discount in early 2022, as did many listed investment trusts
in most sectors, and have remained there since, despite a strong NAV per
Ordinary Share performance. In 2023, the NAV per Ordinary Share returned
+23.5% while the share price returned +16.0%. With continued NAV
outperformance versus the market and peers, and with the sector's fortunes
having turned markedly in the fourth quarter of 2023, we would expect the
discount to narrow.
Table 1. Financial Highlights
RTW Biotech Opportunities Ltd Year end reporting period Previous year end reporting period (01/01/2022-31/12/2022) Admission
(01/01/2023-31/12/2023)
(30/10/2019-31/12/2023
Ordinary NAV - start of period US$326.1 million US$363.0 million US$168.0 million
Ordinary NAV - end of period US$399.3 million US$326.1 million US$399.3 million
NAV per Ordinary Share - start of period US$1.54 US$1.71 US$1.04
NAV per Ordinary Share - end of period US$1.90 US$1.54 US$1.90
NAV movement per Ordinary Share +23.5% -10.2% +82.3%
Price per Ordinary Share - start of period US$1.21 US$1.78 US$1.04
Price per Ordinary Share - end of period US$1.40 US$1.21 US$1.40
Share price return (i) +16.0% -32.0% +34.9%
Benchmark returns (ii)
Russell 2000 Biotech +10.6% -31.3% +4.8%
Nasdaq Biotech +3.7% -10.9% +29.4%
(i) Total shareholder return is an
alternative performance measure.
(ii) Source: Capital IQ
RTW Investments, LP, the "Investment Manager", a leading global
healthcare-focused investment firm with a strong track record of supporting
companies developing life-changing therapies, created the Group as an
investment fund focused on identifying transformative assets with high growth
potential across the biopharmaceutical and medical technology sectors. Driven
by deep scientific expertise and a long-term approach to building and
supporting innovative businesses, we invest in companies developing
transformative next-generation therapies and technologies that can
significantly improve patients' lives while creating significant value for our
shareholders.
NAV performance in 2023 was overwhelmingly driven by the core public portfolio
with a +24.7% contribution to the NAV. This is how the strategy is designed to
function. As full life cycle investors our belief is that in our sector the
vast majority of value creation happens post IPO, so we leverage the
conviction gained working with a company when it is private to help us decide
which are the best to keep post IPO, so that we can participate in that value
creation. Prometheus Biosciences (+12.6%) and Rocket Pharmaceuticals (+8.4%)
accounted for the majority of the gain. Prometheus was acquired by Merck for
US$200.00 per share in cash, a 75% premium to the prior closing price.
Rocket's share price bounced back strongly in 2023 as it continued to progress
several of its clinical programmes. Most significantly, they reached an
agreement with the FDA on a very efficient path to registration for its Danon
disease gene therapy, which received RMAT designation in February based on
positive safety and efficacy data from the Phase 1 trial. Cargo Therapeutics
(+2.0%) also deserves recognition. It is one of our most exciting new
investments. We co-led its Series A financing round in March 2023 and anchored
its IPO in November. The shares have subsequently performed very well in the
public markets. Avidity Biosciences was the only material detractor (-3.2%)
having reported disappointing clinical data in myotonic dystrophy, which is a
challenging disease to target. We remain invested in Avidity, believing that
the next two muscle diseases they are targeting may be easier to address.
The core private portfolio contributed +1.5% to NAV. Including royalty
investments, the contribution was +3.2%. JIXING was the largest contributor
(+1.7%) having initiated its Series D financing round in November, which was
co-led by RTW and Bayer AG with whom JIXING also agreed a strategic
partnership agreement. Within the royalty segment, RTW Royalty 2 (Urogen)
contributed 1.0% and the investment in RTW Royalty Fund contributed +0.6%.
Neurogastrx (-0.5%) was the only material detractor in the core private
portfolio having suffered a clinical setback in the first half of the 2023 and
was in the process of winding down. The "other public" segment of the
portfolio contributed -0.7% to NAV.
Since admission, the Group has had fifty-four core positions. On 31 December
2023, the average multiple on invested capital (MOIC) of these positions
(excluding Rocket Pharmaceuticals, the only core position to be added to the
portfolio as a publicly traded name) stood at 1.7x. Within that, the average
MOIC of the eighteen exited positions is 2.7x. Twenty-nine of the positions
(i.e. 54%) have generated a positive return with an average MOIC (for the
privates) of 2.7x, while twenty-four positions have generated a negative
return with an average MOIC of 0.6x, and one position remains valued at cost.
These ratios are roughly in line with our expectations over the medium to long
term, especially when considering nearly two and half years of the four since
our admission have been in a sector bear market that was particularly
punishing for early-stage companies.
Table 2. Performance of Rocket Pharmaceuticals from admission to 31 December
2023
Share price at admission Share price at 31 December 2023 Share price return %
Rocket Pharmaceuticals US$14.00 US$29.97 114%
Figure 1. Performance drivers as of 31 December 2023 - Contributions to
Ordinary NAV (%)
*Exited position
Key updates for Core Portfolio Companies during 2023:
Clinical & Commercial
• In January, Rocket Pharmaceuticals announced the addition of a new cardiac
gene therapy programme, RP-A601, for arrhythmogenic cardiomyopathy due to
plakophilin 2 pathogenic variants (PKP2-ACM).
• In March, Avidity Biosciences announced that discussions were ongoing with the
US FDA regarding the partial clinical hold on new participant enrolment in its
Phase 1/2 clinical trial for AOC 1001 (treats Myotonic Dystrophy).
• In May, Rocket Pharmaceuticals posted several positive data updates from their
PKD, Fanconi Anaemia, LAD-I and Danon Disease programmes at the American
Society of Cell and Gene Therapy ("ASGCT") conference.
• In May, Avidity's partial clinical hold was eased. However, the data from the
higher dose of AOC 1001 in the muscular dystrophy trial didn't appear to
further reduce expression of toxic DMPK, the hallmark of the disease.
• In April, Neurogastrx announced the latest data from its NG010 trial that
indicated the top-line primary end point did not meet statistical significance
and its resultant potential liquidation.
• In September, Rocket Pharmaceuticals successfully aligned with the FDA on its
registrational trial design for its Danon Disease gene therapy programme. This
is a significant milestone for Rocket and for patients with Danon Disease, as
it brings them closer to a potential therapy for a uniformly fatal, inherited
disease.
• In September, Orchestra BioMed was granted FDA approval to initiate a global
pivotal study for BackBeat CNT™ for the treatment of hypertension in
pacemaker patients.
• In December, Milestone Pharmaceuticals received a refusal letter from the FDA
to file for a New Drug Application for Etripamil for the treatment of PSVT.
The FDA did not express concerns about the nature or severity of adverse
events. Rather, the FDA determined that the NDA was not sufficiently complete
to permit substantive review and requested clarification about the time of
data recorded for adverse events in Phase 3 trials. Milestone has since met
with the FDA, with the latter indicating that the timing of adverse events had
minimal impact on the overall characterisation of Etripamil's safety profile.
To align with the FDA, Milestone will restructure certain data sets, reformat
certain data files and resubmit the NDA. Milestone expects that this will
address the FDA's letter. It expects a standard review period following
resubmission which is planned for Q2 2024.
Financing
• In January, CinCor Pharma announced an agreement to be acquired by AstraZeneca
for US$1.3 billion cash up front. CinCor shareholders also received a
non-tradable contingent value right, payable upon receipt of FDA approval.
Combined, these payments represented a transaction value of approximately
US$1.8 billion and a 206% premium.
• In January, Orchestra BioMed announced the closing of its merger with RTW's
Health Sciences Acquisition Corporation 2 and started trading on the Nasdaq
under the ticker "OBIO". Medtronic joined as Orchestra's commercial partner,
anchoring the combination alongside RTW.
• In February, Mineralys Therapeutics went public through an upsized initial
public offering, which raised US$192 million, under the ticker "MLYS".
• In February, the Group participated in a bridge financing round in Allurion
Technologies, a company with a swallowable, procedureless gastric pill balloon
for weight loss. Earlier that month the company announced its intention to go
public via a business combination that closed in August and included a PIPE
led by RTW Investments and a non-dilutive, synthetic royalty financing.
• In March, the Group and other funds managed by RTW co-led a US$45 million
Series B-1 financing round of OriCell Therapeutics, a China-based cell therapy
company.
• In March, the Group and other funds managed by RTW co-led a US$200 million
Series A financing round in Cargo Therapeutics, a clinical stage CAR T-cell
therapy company.
• In March, the Group announced its participation in a US$125 million strategic
financing deal with Milestone Pharmaceuticals. The strategic financing
included US$50 million in convertible notes from RTW-managed funds, including
the Group, as well as a commitment by RTW of US$75 million in royalty funding.
• In April, Prometheus Biosciences announced that it had agreed to be acquired
by Merck for US$200.00 per share in cash, a 75% premium to the prior closing
price, for a total consideration of US$10.8 billion. The acquisition was
completed in June.
• In April, the Group participated in a Series B financing of Abdera
Therapeutics; a pre-clinical stage biopharmaceutical company focused on small
cell lung cancer and other solid tumours. The company raised US$142 million in
a combined Series A and B.
• In May, Acelyrin went public through an upsized US$540 million initial public
offering under the ticker "SLRN".
• In July, Apogee Therapeutics went public through an upsized IPO. It raised
US$300 million at $17 per share. The shares started trading on Nasdaq under
the ticker "APGE".
• In September, the Group participated in the Series D financing of Beta
Bionics, a medical technology company focused on diabetes management. The
company raised US$100 million to advance diabetes technology with its iLet
Bionic Pancreas.
• In October, Cargo Therapeutics went public through an IPO raising US$281m. The
shares started trading on Nasdaq under the ticker "CRGX".
• In October, the Group participated in a seed round financing of Basking
Biosciences, a clinical stage company focused on acute thrombosis.
• In October, Tourmaline Bio completed its merger with public company, Talaris
Therapeutics, alongside a US$75 million private placement, and the shares
started trading on the Nasdaq under the ticker symbol "TRML".
• In November, JIXING completed the first tranche of its Series D financing. RTW
co-led the round alongside Bayer AG with whom JIXING also agreed a strategic
partnership agreement focused on cardiovascular diseases and ophthalmology in
China.
Portfolio breakdown and new investments
We define the core public portfolio as companies that were initially added to
our portfolio as private investments, reflecting the key focus of the Group's
strategy. Our investment approach is defined as full life cycle and therefore
involves retaining private investments beyond their IPOs; hence the core
portfolio consists of both privately-held (41%) and publicly-listed (59%)
companies.
As of 31 December 2023, the Group's core portfolio accounted for 67% of NAV
(2022: 71%) and included 36 companies (2022: 39), ranging from biotechnology
companies developing preclinical to clinical-stage therapeutic programmes,
companies developing traditional small molecule pharmaceuticals, and med-tech
companies developing and commercialising transformative devices. We selected
these companies based upon our rigorous assessment of scientific and
commercial potential and with regard to the valuation of the assets at the
time of investment. Table 5 shows the top fifteen portfolio companies at the
end of the reporting period.
Private companies accounted for 17.6% of NAV on 31 December 2023 (2022: 24.6%)
and core public companies accounted for 39.3% (2022: 46.3%). "Core royalties"
(9.8% of NAV on 31 December 2023) was added as a portfolio segment this year
after the announcement of a capital allocation plan in July in which royalty
financing was highlighted as an attractive and growing area of focus. These
investments are cash generative, providing life sciences exposure that is
uncorrelated to the volatility of the equity markets, and have limited
scientific risk due to their being typically constructed around commercial
products. The decrease in exposure to private investments reflects the
migration of several positions into the core public portfolio as a result of
IPOs (Mineralys, Acelyrin, Apogee, and Cargo), a SPAC merger (Orchestra
BioMed) and a reverse merger (Tourmaline). These events outweighed the
addition of the new private positions shown in Table 4. The lower exposure to
the core public portfolio reflects the aforementioned sales of Prometheus to
Merck and Cincor to AstraZeneca and the exiting of our holdings in Monte Rosa,
Ventyx, Tenaya, Third Harmonic, C4, Acelyrin and Mineralys.
Approximately 20% of the Group's NAV is invested in other publicly listed
companies, down from 29.8% on 31 December 2022. The "other public" portfolio
is designed to mitigate the drag of setting aside cash for future deployment
into core positions. This portfolio of assets has been carefully selected,
matching, on a pro-rata basis, the long investments held in our private funds.
The investments represented in this portfolio are similarly categorised as
innovative biotechnology and medical technology companies developing and
commercialising potentially disruptive and transformational products. When
considered alongside available cash (12.9% on 31 December 2023 vs. -0.7% on 31
December 2022), the total (33.3%) is similar to 31 December 2022 (29.1%). The
increased cash position was in preparation for the purchase of a stake in Arix
Bioscience, which is discussed in more detail elsewhere in this report.
In July 2023, the Group announced a share buyback of up to US$10 million as
part of a capital allocation plan to deploy the substantial cash proceeds of
the Prometheus Biosciences sale to Merck. In total, to the end of the
reporting period, the Group had bought back 1,753,791 shares for a
consideration of US$2,089,223, representing 0.8% of share capital.
As of 31 December 2023, the portfolio was diversified across treatment
modalities, therapeutic focus, and clinical stage. While the portfolio is
still majority invested in US-based companies, we are committed to adding UK
and EU companies in an effort to support the best assets across the globe and
help foster local biotech ecosystems. By constructing the portfolio in such a
way, investors get exposure to the most innovative parts of a highly
specialised sector with the explosive potential of companies that successfully
navigate clinical, regulatory or commercial inflection points.
Looking forward, we expect the total portfolio sector allocation to remain
close to 80% biopharmaceutical assets and 20% medical technology assets. In
line with prospectus guidance, we anticipate two-thirds of new investments
will be made in mid- to later-stage venture companies and one-third focused on
active company building around the discovery and development or licensing and
distribution of promising assets. As per the announced capital allocation
plan, royalty investments will be limited to approximately 15% of NAV.
Table 3. NAV capital breakdown as of 31 December 2023 and 31 December 2022
Portfolio segment % of NAV at 31 Dec 2023 % of NAV at 31 Dec 2022
Core private 17.6% 24.6%
Core public 39.3% 46.3%
Core royalty¹ 9.8% -
Other public 20.4% 29.8%
Available Cash(2) 12.9% -0.7%
Total 100% 100%
(1) In the prior annual report, royalty investments were included in the
portfolio segment, Core private.
(2) Prior periods reported the financial statement account "cash and cash
equivalents", while the current period and going forward will report Available
Cash, as defined in the Alternative Performance Measures.
Table 4. New core investments in 2023
Company name Description % NAV*
Oricell Therapeutics Preclinical stage pharmaceutical company focusing on multiple myeloma 0.6%
Cargo Therapeutics Clinical stage biotech company targeting large B-cell lymphoma 4.0%
Allurion Technologies Medtech company with a swallowable, procedureless gastric pill balloon for 0.1%
weight loss, commercially available in 5 countries, clinical stage in the U.S.
RTW Royalty Fund RTW-created royalty dedicated fund that plans to invest in 5-10 royalty 6.1%
assets, thereby obtaining the rights to future royalty payment streams. Fees
will be taken at the Company level only (i.e. no double charging).
Abdera Therapeutics Preclinical biopharma company developing radiopharmaceuticals for lung cancer 0.3%
Tourmaline Bio Late-stage biotech developing medicines for thyroid eye disease and 0.4%
atherosclerotic cardiovascular disease
Basking Biosciences Clinical stage company developing an RNA aptamer to treat acute thrombosis 0.1%
*As of 31 December 2023
Figure 2. Core portfolio breakdown, by (A) Modality, (B) Therapeutic focus,
(C) Clinical stage and (D) Geography as of 31 December 2023. These breakdowns
do not include royalty vehicles.
Table 5. Top fifteen core portfolio positions as of 31 December 2023
Portfolio company Description Therapeutic area Clinical stage of lead programme Expected catalysts % NAV
Rocket Gene therapy company for rare paediatric diseases Rare paediatric diseases Phase 2 Fanconi Anaemia BLA filing Q1 2024; LAD1 approval in Q2 17.9%
JIXING RTW incubated company focused on acquiring rights to innovative therapies for Cardiovascular, Ophthalmology Phase 3 Additional Series D tranches in Q1 and Q2 7.9%
development and commercialisation in China
Immunocore T-cell receptor therapy company focused on oncology and infectious disease. Oncology Commercial PRAME data Q2 2024 7.4%
RTW Royalty Fund Royalty dedicated fund that will invest in 5-10 royalty assets, thereby Multiple Commercial Refile Milestone NDA mid-2024 6.1%
obtaining the rights to future payment streams
Cargo Biotech company targeting large B-cell lymphoma Oncology Phase 1 Interim Ph2 data possible in 2024 4.0%
RTW Royalty 2 Royalty deal with Urogen for JELMYTO, the first FDA-approved treatment for Oncology Commercial Quarterly sales updates 3.7%
low-grade upper tract urothelial cancer
Orchestra Medical device company focused on developing products for the treatment of Cardiovascular Pivotal Mid-2024 renegotiate co-development of Virtue programme 2.1%
coronary artery disease and hypertension
Milestone Developing interventions for tachycardias Cardiovascular Registrational Refile NDA mid-2024 2.0%
Apogee Biopharma company developing treatments for inflammation Inflammatory Phase 1 Data updates in H1 2024 1.8%
Beta Bionics Closed-loop pancreatic system for automated and autonomous delivery of insulin Type 1 Diabetes Pivotal Aiming for late 2024 IPO 1.7%
Tarsus Biotech company developing therapeutics for ophthalmic conditions Ophthalmology Commercial Launch updates quarterly 1.5%
Avidity Antibody conjugated RNA medicines Myotonic dystrophy Phase 1 Myotonic dystrophy Ph1 update Q1 2024 1.4%
NiKang Developing innovative small molecules against promising molecular targets in Oncology Phase 1 Data updates in Q3 2024 1.4%
oncology
Ancora Medical device company developing products that target dysfunction of the left Cardiovascular Pivotal Complete US pivotal enrolment YE 2024 1.1%
ventricle, the underlying cause of heart failure
Magnolia Medical diagnostics company that has patented a steripath blood collection Inflammation, sepsis Commercial Mid-2024 launch of new low-cost automatic blood diversion device 0.7%
device
Table 6. Core portfolio positions as of 31 December 2023 compared to 31
December 2022
Portfolio Company Private¹/ Public² Valuation in US$ at 31/12/2023 % of Group's net assets at 31/12/2023 Valuation in US$ at 31/12/2022 % of Group's net assets at 31/12/2022
Rocket Public 76,751,123 17.9% 46,982,775 13.5%
JIXING Private 33,851,037 7.9% 25,225,606 7.3%
Immunocore Public 31,861,831 7.4% 25,908,924 7.4%
RTW Royalty Fund Private 25,982,258 6.1% - -
Cargo Public 17,181,097 4.0% - -
RTW Royalty 2 Private 15,873,634 3.7% 14,074,846 4.0%
Orchestra³ Public 9,146,636 2.1% 4,490,264 1.3%
Milestone⁴ Public 8,774,286 2.0% 2,871,141 0.8%
Apogee Public 7,802,385 1.8% 2,102,903 0.6%
Beta Bionics Private 7,283,681 1.7% 5,633,890 1.6%
Tarsus Public 6,563,082 1.5% 3,169,037 0.9%
Avidity Public 6,149,783 1.4% 14,502,829 4.2%
NiKang Private 5,841,773 1.4% 4,416,891 1.3%
Ancora Private 4,552,449 1.1% 4,163,943 1.2%
Magnolia Private 2,980,286 0.7% 2,403,543 0.7%
Umoja Private 2,948,739 0.7% 2,540,152 0.7%
Oricell Private 2,378,363 0.6% - -
Encoded Private 2,255,099 0.5% 2,364,636 0.7%
Kyverna Private 1,921,703 0.4% 1,455,105 0.4%
Tourmaline Public 1,861,346 0.4% - -
Nuance Private 1,789,691 0.4% 1,622,898 0.5%
GH Research Public 1,778,970 0.4% 2,981,309 0.9%
Numab Private 1,723,249 0.4% 1,768,384 0.5%
Lenz Private 1,677,798 0.4% 1,449,836 0.4%
Alcyone Private 1,419,169 0.3% 1,280,484 0.4%
Abdera Private 1,108,396 0.3% - -
Lycia Private 929,092 0.2% 1,008,626 0.3%
Artiva Private 890,476 0.2% 880,074 0.3%
Artios Private 760,071 0.2% 675,895 0.2%
InBrace⁵ Private 556,338 0.1% 649,150 0.2%
Cincor Public 541,706 0.1% 2,175,674 0.6%
Basking Private 449,058 0.1% - -
Allurion Public 283,948 0.1% - -
Neurogastrx Private 115,353 0.0% 1,612,974 0.5%
Prometheus Labs Private 105,808 0.0% 186,504 0.1%
Yarrow Private 64,228 0.0% 1,001,854 0.3%
1 Valuations for private portfolio companies on a fair value basis.
2 The valuations of public positions were calculated using their market
capitalisation as of 31 December 2023
3 Includes shares held in the initial SPAC vehicle (HSAC2) that merged with
Orchestra in January
2023
4 Includes pre-funded warrants
5 Previously referred to as Swift Health Systems
Table 7. RTW representation on portfolio company boards as of 31 December 2023
Portfolio company¹ RTW representative on the board
JIXING Rod Wong, Peter Fong, Gotham Makker
Magnolia Ovid Amadi
Nikang Chris Liu
Rocket Rod Wong, Gotham Makker, Naveen Yalamanchi
Yarrow Rod Wong, Peter Fong, Gotham Makker
RTW Royalty 2 Matthew Bieret
HSAC 2 Holdings, LLC Rod Wong, Naveen Yalamanchi, Alice Lee
1 In aggregate these represented 28% of the Group's NAV at 31 December 2023
Table 8. Top 5 "Other Public" portfolio segment holdings as of 31 December
2023
Position Ticker % of NAV Description
Sage Therapeutics SAGE 2.7% Biopharmaceutical company for brain health disorders
Akero Therapeutics AKRO 2.5% Cardio-metabolic biotechnology company developing treatments for non-alcoholic
steatohepatitis
Mirati Therapeutics MRTX 2.2% Commercial stage biotechnology company targeting cancer
Axsome Therapeutics AXSM 2.1% Commercial stage biotech focused on CNS
PTC Therapeutics PTCT 1.7% Commercial stage biotech making therapies for rare genetic diseases
Private Portfolio Valuations and Cash Runway Analysis
The core private, core royalty, and core public portfolios are the foundation
of the Group's strategy. They are built on our rigorous assessment of the best
private market investment opportunities. We have always been highly selective
in this area, focusing only on companies with both well-founded science and
attractive commercial opportunities. We have benefitted from this discipline
as we emerge from a challenging capital markets environment, with a private
portfolio that is a good size and well-funded.
As of 31 December 2023, the average cash runway of our core private companies
was over two years, which provides them with sufficient time to focus on
clinical development plans. There are eight companies with less than twelve
months of runway, two of which are RTW company creations, which is by design,
as RTW's funds have the flexibility to inject cash when necessary. Of the
remainder, most have reasonable and well-formed capital raising plans in
place. Only one is in a more challenging financial position and has been
written down in our portfolio to an insignificant level.
Which brings us to our private valuations. We hold our private company
investments at 'fair value' i.e., the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction between market
participants. This is assessed in accordance with US GAAP, utilising valuation
techniques consistent with the International Private Equity and Venture
Capital Guidelines including, but not limited to, the income approach and the
market approach. Valuations are adjusted both during regular valuation cycles
and on an ad hoc basis in response to 'trigger events', which may include
changes in fundamentals, an intention to carry out an IPO, or changes to the
valuations of comparable public companies. Our valuation process ensures that
private companies are valued in both a fair and timely manner.
The process is overseen by the RTW Valuation Committee. The Committee is
supported by RTW's valuation team that is independent from the investment team
and receives advice from two independent third-party valuation firms. The
Committee approves valuations of private company investments on a monthly
basis and utilises the analysis of an independent third-party valuation firm
no less frequently than twice a year in helping to determine the fair value of
each material private investment. The valuations are also reviewed twice per
year by the Board as part of the interim and annual reporting process and are
subject to the scrutiny of KPMG.
The private portfolio saw a total of fifty-one valuation adjustments in 2023.
At year end, thirteen positions were marked up by an average of 12.4%; ten
were marked lower by an average of -28.1%. The balance remained at cost given
the recent date of the investment. 70% of the markdowns were primarily driven
by changes to relative comparables or market-based inputs. 54% of the markups
were primarily driven by comparables, and 46% were primarily driven by
idiosyncratic company performance, a financing round or transaction. At year
end, the average time since the last third-party valuation was 3.7 weeks and
with an average of 1.3 years having elapsed since the last financing round.
The value of the private portfolio is best demonstrated by the four portfolio
IPOs in the year (which do not appear in figure 5 because they were public
companies or had since been exited). The average step-up from the prior
holding value to the IPO price was 45.9%. The average multiple on invested
capital to the IPO price was 1.65x.
Figure 3. New core private investments, IPOs and other "Go Public" events¹ by
year since admission
1 Other "Go Public" events include SPAC mergers and reverse mergers.
Figure 4. Core private portfolio - approximate cash runway as of 31 December
2023
Figure 5. Core private portfolio on 31 December 2023 - year to date valuation
changes and contributions to NAV
Table 9. Private Valuation Statistics for 2023
Statistic 2023
Number of revaluations in 2023 51
Average time since last third party valuation (weeks) 3.7
Average time since last financing round (years) 1.3
Average valuation change -5.0%
Average mark-up +12.4%
Average mark-down -28.1%
Average step-up to IPO price +45.9%
Average MOIC to IPO price 1.7x
Sector review and outlook
The Federal Reserve's interest rate pivot and a flurry of takeouts helped the
biotech sector avert a historic three down years in a row with a sharp rally
in the last two months of the year. In October, the sector was close to
recording and setting new lows across most of the key metrics we track.
However, the sector's vigorous move off the bottom gives clues to how
complacent the market had become. For the past year and a half, selling
exposure to the biotech sector was an easy trade and worked even in the face
of strikingly low valuations, strong innovation, and accelerating M&A.
Those caught off-side the last two months of the year have likely driven this
early move. Capital flows are suggestive of what may be in store for 2024.
Flows were consistently negative throughout 2023, with total outflows the
highest in three decades. Generalists have remained on the sidelines but
should that turn, it will be a significant tailwind for the sector.
Figure 6. Russell 2000 Biotechnology index value
At the same time, the list of investible assets has declined significantly.
In the past year the acquisitions of Seagen, Horizon, Karuna, Prometheus,
Immunogen, Cerevel, Reata, Televant, Iveric, Mirati, and Rayze totaled over
US$140bn, which amounts to about a third of acquirable US market cap in the
post-mega merger FTC era (i.e. companies with a market cap below US$25bn).
Investors will compete with large pharma companies for the sector's remaining
marquee assets. While Pfizer and AbbVie have made significant progress on
refilling their pipelines, Bristol and Merck must remain active or face
existential patent cliff risk. Meanwhile, companies like J&J, Roche, and
the obesity giants, Eli Lilly and Novo Nordisk, have over US$200bn of unused
capacity that is growing rapidly due to the transformation of obesity-related
products. In total, large pharma companies have about US$600bn of dealmaking
capacity and premiums are already indicative of increased competition for
assets. For deals over US$1bn in 2023, the average deal premium was 71%, which
is right at the upper end of historical ranges.
Figure 7. 2023 was the second-best year ever for M&A value and best ever
for volume
Source: Jefferies Report as of 26 December 2023
Despite the end of year rally, 32% of sub-US$10bn market cap biotech companies
in the US still trade at less than the cash on their balance sheets, down only
3% from the high. The number of companies has started to decline, which is
healthy. Many of these are companies that never should have made it out in the
last bull market, but importantly, from a market dynamic perspective, they now
represent only a small percentage of the sector's market capitalisation. Even
then, digesting these companies over the last several years has resulted in an
IPO bear market. Twelve companies IPO'd last year, down from nineteen the year
before and 108 in 2021. We think this is likely the bottom and expect normalcy
to return in 2024 with a slate of promising companies already in the pipeline.
Figure 8. The US biopharma financing market is still digesting excess supply
from the boom in 2019-2021
Source: Bloomberg and Lazard Monthly Life Sciences US Equity Issuance Overview
as of 29 December 2023.
The most challenged part of the ecosystem should continue to be companies with
smaller products (sub-US$1bn peak sales). Since the demise of Valeant
catalysed the disappearance of specialty pharma, there are few natural buyers
for sub-scale products, no matter how promising. Lack of investor interest in
such companies is instructive for the FTC, which fails to understand the
positive impact M&A has on promoting competition and innovation in our
sector. Should any midsized biopharmas with financial flexibility (e.g.
Vertex, Regeneron, BioNTech, or Daiichi) emerge as consolidators for smaller
products, interest could return, although we do not see evidence of this
happening yet.
In 2022, the Inflation Reduction Act gave Medicare the ability to dictate drug
prices for small molecules nine years post-launch. The drug industry has
responded by shifting innovation away from pills for the elderly. This most
notably impacts targeted oncology and cardiovascular disease. Of course, these
remain the leading causes of death in developed societies, so it is important
to our collective future health to support policy mitigations and litigation.
A win in the courts in the coming year has the potential to improve the status
quo. In all, there are nine legal challenges to the IRA's Medicare price
negotiations including challenges from the likes of Merck, Novo Nordisk and
Johnson & Johnson.
Fortunately, new modalities, mostly not subject to government price setting
until thirteen years, have the potential to take medical innovation to new
heights. While less convenient and safe, cell therapy and novel antibody
technologies have shown striking efficacy in multiple cancers. RNA medicines
also have the ability to address some cardiovascular targets and have matured
enough to offer placebo-like safety profiles. Gene therapy made a strong
recovery this year. As the FDA has gained comfort with the modality, Director
of the Center for Biologics Evaluation, Peter Marks, has led by offering
regulatory flexibility for companies pursuing urgent unmet needs.
Figure 9. The FDA approved 61 novel drugs in 2023, the highest in history
NME = new molecular entity
GtX = gene therapy
In total, the FDA approved sixty-one novel drugs in 2023, the highest number
in one year in history. Drugs from new modalities represented fourteen, one
more than last year. We continue to expect more new highs to be set in the
coming years. This is consistent with our belief that we are living through a
golden age of innovation in our sector, built on a combination of cheap
genetic information and the foundation of new modalities to address disease.
Looking forward, we are excited about opportunities in several areas. Within
metabolic disease, we eagerly await the first approval for fatty liver
disease. In oncology, we have shifted our emphasis towards novel antibody
technologies (e.g. bispecifics, ADCs, radioRx) and cell therapy. We expect
continued innovation in neurology, rare disease, and after a wave of historic
breakthroughs, slightly more incremental advances in immunology. Like gene
therapy this past year, we are optimistic RNA medicines could make a comeback
in 2024.
Post period end Arix acquisition updates and other key portfolio company
events
Following the end of the period, there was no shortage of Group-related news.
• In early January, the FCA approved a new prospectus in relation to the
proposed admission of new RTW Bio shares pursuant to the Arix Bioscience
acquisition.
• Also in early January, portfolio company JIXING announced a new strategic
partnership with Bayer AG focusing on cardiovascular diseases and
ophthalmology in China and the initial closing of its Series D preferred stock
financing, co-led by Bayer and RTW Investments.
• RTW Bio then completed the previously announced US$57.1 million acquisition
of a 25.5% stake in Arix from a wholly owned subsidiary of Acacia Research
Corporation.
• The Board of RTW Bio announced at the same time its intention to increase
capital returns to shareholders to a total of up to US$30 million, post
completion of the Arix acquisition. This total includes the previously
announced share buyback of up to US$10 million. The Board believes that this
allocation clearly demonstrates its confidence in the outlook for the biotech
sector and the Group's portfolio and its capital allocation discipline, whilst
also providing additional liquidity to shareholders.
• The first general meeting and vote of Arix shareholders was held on 29 January
2024, where the resolution to approve the acquisition passed with 92% of votes
cast in favour.
• On 8 February, core portfolio company Kyverna Therapeutics announced the
pricing of an upsized US$319 million IPO. As at 26 March 2024, Kyverna
traded on Nasdaq Global Select Market (under the ticker "KYTX") at US$24.86
per share, up 13.0% from the IPO price of US$22.00 per share.
• The second general meeting of Arix shareholders was held on 12 February 2024,
where 98% of votes were cast in favour of resolutions to successfully complete
the scheme of reconstruction and voluntary winding up of Arix.
RTW Investments, LP
27 March 2024
RTW's Long-Term Strategy
Transforming the lives of millions
RTW's long-term strategy is anchored in identifying sources of
transformational innovations with significant commercial potential by engaging
in deep scientific research and a rigorous idea generation process,
complemented by years of investment, company building, and both transactional
and legal expertise.
Identify
Identify transformational innovations
RTW has developed expertise through a comprehensive study of industry and
academic efforts in targeted areas of significant innovation. Thanks to the
decoding of the human genome, there is more clarity around the causes of
disease. Coupled with exciting new modalities that can address genetic
diseases in a targeted way, drug innovation is accelerating.
Engage
Engage in deep research to unlock value
RTW has developed repeatable internal processes, combining technology and
manpower to comprehensively cover critical drivers of innovation across the
globe. We seek to identify, through rigorous scientific analysis,
biopharmaceutical and medical technology assets that have a high probability
of becoming commercially viable products, dramatically changing the course of
treatment, and bringing effective, or in some cases, even fully curative
outcomes to patients.
Build
Build new companies around promising academic licences
RTW has capabilities to partner with universities and in-license academic
programmes, by providing capital and infrastructure to entrepreneurs to
advance scientific programmes. Particularly in rare disease, there is often
little existing research and few treatment options, so forming a rare
disease-focused company is a way of shining a light on this space and creating
a roadmap to developing potentially curative treatments.
Support
Supports investment through the full life cycle
A key part of RTW's competitive advantage is the ability to determine at which
point in a company's life cycle we should support the target asset or
pipeline. As a full life cycle investor, RTW provides growth capital, creative
financing solutions, capital markets expertise, and guidance. Taking a
long-term, full life cycle approach and having an evergreen structure enables
us to avoid the pitfalls and structural constraints of venture-only or
public-only vehicles. RTW's focus is on becoming the best investors and
company builders we can be, delivering exceptional results to shareholders and
making a positive impact on patients' lives.
Strategy in Action
CASE STUDIES
CASE STUDY 1: Cargo Therapeutics
Learn more about Cargo Therapeutics,
Home - Cargo Therapeutics (cargo-tx.com) (https://cargo-tx.com/)
NAV
4.0%
2022: N/A
Portfolio company ownership
>5%
2022: N/A
The need
CAR-T therapy is a relatively new type of cancer treatment that uses the
body's own immune system to kill cancer cells. Transformative advances have
been made by commercially available CAR T-cell therapies; however, resistance
mechanisms can limit the strength and quality of T-cell response and
contribute to disease progression. Patients whose disease relapses or is
refractory to CD19 CAR T-cell therapy face a median survival of less than 6
months.
Furthermore, treatments are not readily available to many of the patients who
could benefit from them due to manufacturing challenges, supply constraints,
unpredictable turnaround time and other logistical challenges.
Mission
Cargo is a clinical-stage biotechnology company positioned to advance next
generation, potentially curative cell therapies for cancer patients. Cargo's
programmes, platform technologies, and manufacturing strategy are designed to
directly address the limitations of approved cell therapies, including limited
durability of effect, safety concerns and unreliable supply.
Status
It was a transformational year for the company with growth across the
business, including expanding the leadership team and creation of a Scientific
Advisory Board, commencing a Phase 2 clinical trial for CRG-022, and becoming
a publicly traded company. In March 2023, Cargo completed a US$200m Series A
financing round, which RTW co-led. The proceeds from the financing round were
to advance Cargo's autologous CD22 CAR T-cell therapy candidate, CRG-022,
through a pivotal multi-centre Phase 2 trial in patients with LBCL whose
disease has relapsed or is refractory to CD19 CAR T-cell therapy. In November,
Cargo successfully IPO'd on Nasdaq under the ticker "CRGX", raising US$281.3
million. In the two months from listing to 31 December 2023, Cargo's share
price increased by approximately 54%.
Next milestone
Interim results from Cargo's Phase 2 trial are anticipated in 2025.
"We are pleased to continue to support Cargo Therapeutics in their mission to
deliver innovative CAR-T cell therapy to patients with cancer. Despite the
ongoing challenges in the capital markets, with very little IPO activity, we
continue to see that good companies, such as Cargo Therapeutics, with
innovative technologies and strong management teams can access the public
markets."
Roderick Wong, MD
Managing Partner
CASE STUDY 2: JIXING PHARMACEUTICALS
Learn more about JIXING
www.jixingbio.com (https://www.jixingbio.com)
NAV
2023: 7.9%
2022: 7.3%
Portfolio company ownership
2023: >5%
2022: >5%
The need
China has a large cardiovascular disease patient population, with an estimated
prevalence of 270 million hypertension (high blood pressure), 5 million
cardiac arrhythmia (i.e. irregular heartbeat, such as PSVT or atrial
fibrillation), and 1.5 million hypertrophic cardiomyopathy (enlarged heart)
patients. It also has an enormous aging population, with over 400 million
people suffering from presbyopia and 200 million people suffering from dry eye
disease.
Mission
Founded by RTW in 2019 and headquartered in Shanghai, JIXING is a leading
cardiovascular and ophthalmology biotech that partners with other global
biotech companies to develop and commercialise novel, innovative therapeutics
to treat unmet medical needs in China and beyond.
Status
JIXING's pipeline now includes 9 assets focused on cardiovascular and
ophthalmology conditions with high unmet need through partnerships with
Cytokinetics, Milestone, LENZ Therapeutics, Oyster Pharma, and TMS.
In December 2023, Cytokinetics (CYTK) announced positive topline results from
SEQUOIA-HCM, the pivotal phase 3 clinical trial of Aficamten in patients with
obstructive hypertrophic cardiomyopathy, and a few days later JIXING announced
its own positive results from the China Cohort trial of the same drug.
Next milestone
JIXING will complete an additional closing of its Series D financing in Q2
2024.
Operational and Financial Review for the Year
Innovative asset growth
MARKET CAPITALISATION
The Company's market capitalisation increased from U$257 million at 31
December 2022 to US$295 million at 31 December 2023. The Company issued no
shares in 2023 and repurchased 1,753,791 shares, so the 15% increase in market
capitalisation was due to the 16% increase in the share price, which was
slightly offset by the decrease in Ordinary Shares outstanding.
ORDINARY NAV
The Ordinary NAV increased from US$326 million to US$399 million during the
year. The main driver of the increase was the performance of the core public
segment of the portfolio, notably due to the sale of portfolio company
Prometheus Biosciences to Merck, adding 12.6% to the NAV, and the share price
performance of Rocket Pharmaceuticals, adding 8.4%. Core private and core
royalty investments contributed another ~3%. The Group returned to positive
performance in 2023, which saw the return of a performance allocation accrual.
An approximate attribution of the Company's performance is provided below.
Core Public +24.7%
Core Royalty +1.7%
Core Private +1.5%
Other Public -0.7%
Cash & Other -3.7%
Net Performance +23.5%
NAV PER ORDINARY SHARE
The +23.5% increase in NAV per Ordinary Share was driven by the increase in
the Company's ordinary NAV and a slight decrease in Ordinary Shares
outstanding following share repurchases.
PREMIUM / DISCOUNT
The Company's shares traded on average at a c.25% discount to NAV due to
reduced market demand for growth and venture capital assets during the
reporting period. At year end, the Company's Ordinary Shares were trading at a
26% discount to NAV (2022: 21% discount to NAV).
TOTAL RETURN TO SHAREHOLDERS BASED ON ORDINARY NAV
As the Company has not paid dividends, the total return for the year of +23.5%
(2022: -10.2%) equates to the increase in NAV per Ordinary Share. Performance
allocation accrual was triggered during the reporting period as the total
shareholder return based on ordinary NAV movements was positive.
TOTAL RETURN TO SHAREHOLDERS BASED ON SHARE PRICE
The share price return of +16.0% in the year compared with the NAV movement of
+23.5% was the result of a decline in demand for growth companies as interest
rates increased in the US and UK. Investors also assumed that private
companies within venture capital portfolios would be subject to substantial
market-based valuation adjustments leading to a cyclical widening of share
price discounts. Companies with the highest proportion of private growth
assets experienced the most significant widening.
ONGOING CHARGES
The Group's ongoing charges ratio is 1.87% (2022: 1.92%), calculated in
accordance with the AIC recommended methodology, which excludes non-recurring
costs and uses the average NAV in its calculation.
Highlights
Market Capitalisation as of 31 Dec 2023
2023: US$295m
2022: US$257m
2021: US$378m
Ordinary NAV as of 31 Dec 2023
2023: US$399m
2022: US$326m
2021: US$363m
Discount to NAV as of 31 Dec 2023
2023: -26.0%
2022: -21.2%
2021: +4.1%
Ongoing charges as of 31 Dec 2023
2023: 1.9%
2022: 1.9%
2021: 1.7%
Key Performance Indicators
Measuring our performance
The Board has identified the following indicators for assessing the Group's
annual performance in meeting its objectives:
Financial KPIs
NAV Growth
PERFORMANCE
Performance of the portfolio companies and cash management strategy net of all
fees and costs
KEY FACTORS
• Portfolio performance and progression through clinical trials
• Cash management
• Capital pool and deployment
• Scientific and financial risks
• Market context including interest rates and bond yields
PROGRESS
Ordinary NAV
2023: +23.5%
2022: -10.2%
During the reporting period this was largely driven by public companies' share
price performance, most significantly the realised gain from the Prometheus
acquisition by Merck.
FUTURE INTENT
Achieve superior long-term capital appreciation; target an annualised total
return of 20% over the medium term
LINK TO STRATEGY
Identifying
Engaging
Building
Supporting
LINK TO PRINCIPAL RISKS
Failure to achieve investment objective
Exposure to global political and economic risks
Clinical Development & Regulatory Risks
Total shareholder return
PERFORMANCE
Delivering value to the shareholders
KEY FACTORS
• Portfolio performance
• Liquidity of RTW shares
• General market sentiment
PROGRESS
Share Price Return
2023: +16.0%
2022: -32.0%
A cyclical reduction in demand for growth and venture capital assets led to
the company's share price not keeping up with the increase in NAV per share,
thus widening the discount at which the shares trade.
FUTURE INTENT
Achieve superior long-term capital appreciation; target an annualised total
return of 20% over the medium term
LINK TO STRATEGY
Identifying
Engaging
Building
Supporting
LINK TO PRINCIPAL RISKS
Failure to achieve investment objective
Exposure to global political and economic risks
Clinical Development & Regulatory Risks
Premium/Discount to NAV
PERFORMANCE
The level of supply and demand for the Company's shares
KEY FACTORS (in order of impact at year end)
• The percentage of private growth assets within the Group's portfolio
• Portfolio performance
• Liquidity of the Company's shares
• Increased visibility with key UK shareholder audience (London office, UK
distribution partner)
PROGRESS
Premium/discount to NAV (average during the year)
2023: -25%
2022: -13%
FUTURE INTENT
Return to a premium to NAV such that total shareholder returns match or exceed
NAV performance
LINK TO STRATEGY
Identifying
Engaging
Building
Supporting
LINK TO PRINCIPAL RISKS
Failure to achieve investment objective
Exposure to global political and economic risks
Percent of NAV invested in core portfolio companies
PERFORMANCE
Level of capital deployment into core portfolio companies
KEY FACTORS
• Level of capital deployment and investment pace, as well as availability of
funds to be deployed into new portfolio companies and follow-on investments
PROGRESS
NAV invested in core portfolio
2023: 67%
2022: 71%
Deployed into core portfolio companies
FUTURE INTENT
Identify transformative assets with high growth potential across the
biopharmaceutical and medical technology sectors
LINK TO STRATEGY
Identifying
Engaging
Building
Supporting
LINK TO PRINCIPAL RISKS
Clinical Development & Regulatory Risks
The Investment Manager relies on key personnel
Exposure to global political and economic risks
Non-financial KPIs
Geographically & therapeutically diversified portfolio
PERFORMANCE
Measures the Group's commitment to invest in best-in-class science and
innovative assets worldwide
KEY FACTORS
• Continue to diversify within the life sciences sector and support local
biotech ecosystems across the globe
PROGRESS
Therapeutic areas addressed
2023: 10
2022: 10
Core portfolio companies' focus spans multiple therapeutic areas, treatment
modalities and geographies.
FUTURE INTENT
Continue investing in and supporting companies developing next generation
therapies and technologies that can significantly improve patients' lives
LINK TO STRATEGY
Identifying
Engaging
Building
Supporting
LINK TO PRINCIPAL RISKS
Clinical Development & Regulatory Risks
Exposure to global political and economic risks
Active and robust pipeline
PERFORMANCE
Delivers transformational new treatments to patients in need.
KEY FACTORS
• Balance and breadth of the pipeline across all clinical stages
• Data readouts and progress through multiple clinical stages
• Commercial opportunity and competitive landscape
PROGRESS
Core portfolio companies that have leading programmes in a clinical stage
2023: 22 of 36
2022: 25 of 39
Capturing a spectrum of early-stage Phase 1 to late stage Pivotal
FUTURE INTENT
Progress towards delivering transformational treatments to patients in areas
of high unmet need.
LINK TO STRATEGY
Identifying
Engaging
Building
Supporting
LINK TO PRINCIPAL RISKS
Clinical Development & Regulatory Risks
Exposure to global political and economic risks
Imposition of pricing controls
Risk Management
Applying deep scientific expertise with a long-term investment horizon
RTW's long-term strategy is anchored in identifying transformative assets with
high growth potential across the biopharmaceutical and medical technology
sectors. Driven by a deep scientific understanding and a long-term approach to
supporting innovative businesses, we invest in companies developing
next-generation therapies and technologies that have the potential to
significantly improve patients' lives. With this significant opportunity also
comes risk.
RTW's risk framework is overseen by the Audit Committee under delegation from
the Board. Multiple parties contribute to managing risk, including the Board,
the RTW Investments team, and the Group's advisers.
Risk framework
The risk framework begins with the Board, who define risk appetite, oversee
the process to ensure a robust assessment of principal risks, consider current
and potential risks, and receive an update from the Investment Manager at each
Board meeting. A risk register is maintained that sets out principal risks and
risk appetite. The RTW team is responsible for day-to-day operations and
oversight of the risk framework. RTW has a culture of transparency, ensuring
that developments are shared and addressed timely, with the benefit of input
from multiple team members, and reported to the Board as appropriate. The
Group relies on having highly experienced personnel at the Investment Manager
to support and manage issues as they arise.
The Audit Committee oversees and monitors the risk framework, including
reviewing the risk register regularly to ensure it properly captures principal
risks, continuously identifying potential risks, reviewing the ongoing
operation and effectiveness of the control environment, and ensuring that
proposed actions are implemented by the RTW team. This process drives
continuous improvement in risk identification and monitoring.
Identifying principal risks
The Board uses both top-down and bottom-up inputs to evaluate principal risks.
Over the past year, the Board and the Investment Manager had ongoing
discussions to consider the Group's risks. The discussions generated insights
into potential emerging risks and have helped to focus attention on additional
areas for monitoring.
The RTW team carries out a bottom-up review, considering each portfolio
company, as well as internal operations, both as a specific exercise and on an
ongoing basis. The team also draws on assessments made by management teams of
portfolio companies. These inputs are brought together in the risk register,
which is reviewed by the Audit Committee in detail each quarter The principal
risks identified by the Board are set out below. These have not substantially
changed in the last year. The Board also monitors future risks that may arise,
including the longer-term risks of changes to US pharmaceutical drug pricing
and US FDA productivity.
Risk management structure
Board of Directors
Risk management leadership; risk appetite
Audit Committee
Reviews and monitors the risk framework
RTW Team
Risk management is integral to the investment process and financial management
Implementing and monitoring risk controls; risk reporting
Other advisers
Risk identification; risk reporting
Portfolio companies' management teams
Risk identification and mitigation
Risk appetite
The Board is willing to accept a certain level of risk in order to achieve
strategic goals. As part of the risk framework, the Board sets the risk
appetite in relation to each of the principal risks and monitors the actual
risk against it. Where a risk is approaching or moves beyond its target, the
Board will consider the actions being taken to manage it. This year the Audit
Committee carried out a detailed review of the defined risk types, to ensure
that they continue to reflect the understanding of the Board and accurately
reflect relevant risks. Following that review, the Audit Committee advised the
Board that the risk appetite remained appropriate, and the Board has accepted
that assessment.
Principal and Emerging Risks and Uncertainties
Principal risks and how we mitigate them
Under the FCA's Disclosure Guidance and Transparency Rules, the Directors are
required to identify the material risks to which the Group is exposed and the
steps taken to mitigate those risks.
The Group has five categories of risk in its risk register, namely:
• Investment Risks
• Operational Risks
• Governance/Reputational Risks
• External Risks
• Emerging Risks
Investment Risks
1. FAILURE TO ACHIEVE THE INVESTMENT OBJECTIVE
RISK DESCRIPTION
The Group's target return on net assets is not guaranteed and may not be
achieved. There is increased investment risk associated with the purchase of
the Arix Bioscience portfolio, but this is being offset by falling interest
rate risk.
RISK CONTROL MEASURES
The Board will monitor and supervise the Group's performance compared to the
target return, similar investment funds and broader market conditions. Where
performance is unsatisfactory, the Board will discuss the appropriate response
with the Investment Manager. The Investment Manager's team is evaluating each
investment in the Arix portfolio for suitability, continued funding, or
disposal, and communicating the intended approach with the Board.
STABLE
STRATEGIC LINK
Identify
Engage
Support
Operational Risks
2. UNFAVOURABLE TAX EXPOSURE
RISK DESCRIPTION
With the recent acquisition of Arix and the integration of the two portfolios,
the Group's structure has become more complex. Along with this complexity
comes potential for new tax-related risk.
RISK CONTROL MEASURES
The Group has consulted throughout the planning and execution of the
acquisition transaction with legal counsel having expertise in corporate
structure and tax matters. The Investment Manager's team that was dedicated to
the transaction project, along with the Board, received advice and evaluated
structural options at every step, benefitting from internal flexibility and
expertise.
INCREASING
STRATEGIC LINK
Identify
Engage
3. COUNTERPARTY RISK
RISK DESCRIPTION
The Group has the potential to be exposed to the creditworthiness of trading
counterparties in OTC derivatives contracts, its prime broker in the event of
re-hypothecation of its investments, and any counterparty where collateral or
cash margin is provided or where cash is deposited in the normal course of
business.
RISK CONTROL MEASURES
The Group uses Goldman Sachs, Morgan Stanley, Bank of America Merrill Lynch,
JP Morgan and Jefferies as prime brokers and Cowen, UBS, Bank of America
Merrill Lynch, Goldman Sachs, Jefferies, and Morgan Stanley as ISDA
counterparties. To monitor counterparty risk, the Investment Manager monitors
fluctuations in share prices, percentage changes in daily, monthly, and annual
5-year CDS spreads and S&P credit ratings. If a counterparty group share
price moves up or down in excess of 20%, the trader at the Investment Manager
is alerted immediately. In case of an alert, the trader notifies RTW's Chief
Compliance Officer. There has been no disruption in operations with the
Group's counterparties to date. The Group's bankers are an offshore branch of
Barclays Bank PLC and are also included in the Investment Manager's CDS
monitoring program.
STABLE
STRATEGIC LINK
Identify
Engage
Build
Support
Governance/Reputational Risks
4. THE INVESTMENT MANAGER RELIES ON KEY PERSONNEL
RISK DESCRIPTION
The Investment Manager relies on the founder of RTW, Roderick Wong M.D.
Roderick Wong is a key figure at the Investment Manager and is extensively
involved in investment decisions.
RISK CONTROL MEASURES
In the event that Roderick Wong was to no longer work for the Investment
Manager or was incapacitated, the Board is able to terminate the Investment
Management Agreement within 180 days if a suitable replacement has not been
found and would consider whether it would be appropriate to wind up the Group
and return capital to shareholders, or to appoint a new Investment Manager.
STABLE
STRATEGIC LINK
Identify
Engage
Build
Support
5. PORTFOLIO COMPANIES MAY BE SUBJECT TO LITIGATION
RISK DESCRIPTION
Portfolio Companies may be subject to product liability claims. Such liability
claims would have a direct financial impact and may impact market acceptance
even if ultimately rebutted.
RISK CONTROL MEASURES
The Investment Manager's due diligence process includes considering the risk
that innovative therapies may have unforeseen side effects, based on the
Investment Manager's extensive sector knowledge and experience, published
research, and publicly available information.
STABLE
STRATEGIC LINK
Identify
Engage
Build
Support
External Risks
6. EXPOSURE TO GLOBAL POLITICAL AND ECONOMIC RISKS
RISK DESCRIPTION
It is anticipated that approximately 75% of investments will be in US
companies or licensing agreements with US institutions, and 25% of investments
will be made outside of the US. The Group's investments will be exposed to
foreign exchange, and global political, economic, and regulatory risks,
including those associated with current conflicts in Ukraine, Israel/Palestine
and the Middle East more broadly. The portfolio currently has approximately
77% exposure to the US and Canada, 12% to the UK and Europe, and 11% to the
rest of the world, including 3.7% to Israel and none to other Middle Eastern
countries, Ukraine or Russia. Israel exposure derives from Urogen Pharma,
which has R&D in Israel but is headquartered and maintains its broader
team in Princeton, New Jersey.
RISK CONTROL MEASURES
The Investment Manager has extensive experience transacting across the global
healthcare marketplace and will be responsible for identifying relevant events
and updating investment plans appropriately.
INCREASING
STRATEGIC LINK
Identify
Engage
Build
Support
7. CLINICAL DEVELOPMENT & REGULATORY RISKS
RISK DESCRIPTION
New drugs, medical devices and procedures are subject to extensive regulatory
scrutiny before approval, and approvals can be revoked.
RISK CONTROL MEASURES
The Investment Manager's due diligence process includes a rigorous process of
assessing preclinical and clinical assets and their probabilities of success,
utilising scientific, clinical, commercial and regulatory benchmarks.
Additionally, the Investment Manager's process includes assessing the likely
attitudes of regulators towards a potential new therapy. The due diligence
will also consider the unmet need of the disease and whether the therapy
offers advantages over the current standard of care.
STABLE
STRATEGIC LINK
Identify
Engage
Build
Support
8. IMPOSITION OF PRICING CONTROLS FOR CLINICAL PRODUCTS AND SERVICES
RISK DESCRIPTION
Portfolio company products may be subject to price controls, price gouging
claims, and other pricing regulation in the US and other major markets.
Government healthcare systems may be major purchasers of the products.
RISK CONTROL MEASURES
While future political developments cannot be reliably forecast, the
Investment Manager's due diligence process includes an assessment of political
risk and the likely acceptability of the investee's pricing intentions.
STABLE
STRATEGIC LINK
Build
Support
9. INFLATION
RISK DESCRIPTION
The unprecedented level of fiscal and monetary stimulus that has been applied
to the global economy has caused US inflation to surge to a 40-year high and
resulted in sharp declines in the share prices of technology firms without
current earnings as the cost of capital increased following a series of rapid
increases in interest rates by central banks.
RISK CONTROL MEASURES
The creation of value through innovation in the biotechnology sector outweighs
the singular and/or short-term adjustment to valuation levels arising from
changes in discount rates as a result of rising inflation. The Investment
Manager holds investments that have current earnings and cash-flows and has
significant exposure to Phase 3 products which have a high probability of
achieving cash-flows in the near-term. Whilst the pace of interest rate
increases has moderated in reaction to reductions in US inflation, it is not
possible to say that this risk is reducing yet, as inflationary pressures
remain.
STABLE
STRATEGIC LINK
Identify
Engage
Build
Support
Emerging Risks
10. AVAILABILITY OF CAPITAL
RISK DESCRIPTION
Funding for smaller public companies is scarce. The IPO market is at its
lowest level in a decade and follow-on offerings remain below average. With a
near record number of companies trading at less than 1x their cash balances,
the market appears to believe that not all companies will survive.
RISK CONTROL MEASURES
The Investment Manager is experienced in identifying potential in companies
that have strong fundamentals at attractive valuations that create an
asymmetric and attractive risk/reward profile. The Board reviews the financing
status of the Group's private portfolio with the Investment Manager at least
twice each year. Less than 3% of the Group's NAV is exposed to companies that
will need refinancing within the next 12 months and most of these companies
have re-financing plans in place. The acquisition of Arix and the successful
sale of Prometheus Biosciences has added significant working capital to the
Group, which has further mitigated this risk.
REDUCING
STRATEGIC LINK
Identify
Engage
Build
Support
11. SUSTAINABILITY REPORTING
RISK DESCRIPTION
Sustainability reporting standards are evolving rapidly and investors may
require more detailed sustainability disclosures to maintain or add new
positions in our shares.
RISK CONTROL MEASURES
The Board monitors sustainability reporting standards and is advised by the
Group's service providers, including an external sustainability consultant.
The Group has adopted a responsible investment policy in the current year to
formalise its long-standing social investment objective and approach and also
appointed a Sustainability Committee to provide oversight and advice in
relation to the Company's responsible investment strategy.
STABLE
STRATEGIC LINK
Identify
Engage
Build
Support
12. LIQUIDITY RISK
RISK DESCRIPTION
Many investees are not yet at the stage in their life cycle where they are
cash-generative and enjoy stable, predictable free cash-flow. They have
typically raised significant amounts of cash which are held in bank deposits
and liquid securities to meet operational requirements until their next
planned capital raising round or IPO. There have been several high-profile
bank failures, some of which, but not all, are to some extent attributable
directly or indirectly to rising policy interest rates and rising long-term
yields in response to sustained inflationary pressures. To the extent that
investees keep their cash on deposit at such banks, there is a risk that they
may suffer a partial or total loss of capital and suffer a consequent
liquidity crisis threatening their ability to continue planned development.
RISK CONTROL MEASURES
The Investment Manager closely monitors counterparty exposures in its
portfolio companies. Exposures to bank failures have been minimal.
Portfolio companies will typically manage their treasury functions on a
prudent basis, spreading exposure over several counterparties thereby avoiding
catastrophic losses from any single failure. Where the Investment Manager
becomes aware of significant risk concentration, it will engage with investees
to encourage more prudent diversification. The Board also notes that, to
date, regulators have ensured that no depositors have lost funds in such
banking failures although it recognises that this may not necessarily be
achieved in the future.
STABLE
Longer Term Viability Statement
Realising a robust and resilient company
ASSESSING THE PROSPECTS OF THE GROUP
The corporate planning process is underpinned by scenarios that encompass a
wide spectrum of potential outcomes. These scenarios are designed to explore
the resilience of the Group to the potential impact of significant risks set
out below.
The scenarios are designed to be severe but plausible and take full account of
the availability and likely effectiveness of the mitigating actions that could
be taken to avoid or reduce the impact or occurrence of the underlying risks
and which would realistically be open to management in the circumstances. In
considering the likely effectiveness of such actions, the conclusions of the
Board's regular monitoring and review of risk and the Investment Manager's
internal control systems is taken into account.
The Board reviewed the impact of stress testing the quantifiable risks to the
Group's cash flows as detailed in risk factors 1-5 and concluded that the
Group, would have sufficient working capital to fund its operations in the
following extreme scenario:
(1) The Group incurred NAV losses of 40% of NAV over a three-year period
ending 28 February 2027.
(2) No new capital was raised.
(3) US$154 million of private investments were funded from cash and by
selling public portfolio investments over the three-year period ending 28
February 2027.
To provide some context for this scenario the worst-case annual losses for the
NASDAQ Biotech Index (NBI) in the last 10 years were 8.9% in 2018 and 21.4% in
2016 respectively. The Group's three-year loss scenario exceeds the cumulative
impact of both of these worst-case years of 40.4% spread over three years. The
annualised volatility of the NBI index for the last 10 years is 25.3% and the
index has an annualised return of 6.9% for this period. An annual loss of 40%
or more would represent a 1.86 standard deviation loss and is only likely to
occur every thirty-two years if the index returns are normally distributed.
Considering this context, a cumulative loss of between 36% and 40% is
therefore assumed to be a reasonable stress test.
The Board considers that this stress testing-based assessment of the Group's
prospects is reasonable in the circumstances of the inherent uncertainty
involved.
THE PERIOD OVER WHICH WE CONFIRM LONGER TERM VIABILITY
Within the context of the corporate planning framework discussed above, the
Board has assessed the prospects of the Group over a three-year period ending
28 February 2027. Whilst the Board has no reason to believe the Group will not
be viable over a longer period, given the inherent uncertainty involved, the
period over which the Board considers it possible to form a reasonable
expectation as to the Group's longer-term viability, based on the stress
testing scenario planning discussed above, is the three-year period to March
2027. This period is used for the Investment Manager's business plans and has
been selected because it presents the Board and therefore readers of the
Annual Report with a reasonable degree of confidence whilst still providing an
appropriate longer-term outlook.
CONFIRMATION OF LONGER-TERM VIABILITY
The Board confirms that it has carried out a robust assessment of the emerging
and principal risks facing the Group, including those that would threaten its
business model, future performance, solvency or liquidity. Based upon the
robust assessment of the principal and emerging risks facing the Group and its
stress testing-based assessment of the Group's prospects, the Board confirms
that it has a reasonable expectation that the Group will be able to continue
in operation and meet its liabilities as they fall due over the period to
February 2027.
On behalf of the Board
William Simpson
Chair
27 March 2024
Engaging with Stakeholders (Section 172)
Close collaborators and committed partners
The AIC Code requires that the matters set out in Section 172 of the Companies
Act 2006 are reported on by all companies, irrespective of domicile, provided
this does not conflict with local company law.
Section 172 recognises that directors are responsible for acting in a way
that they consider, in good faith, to be most likely to promote the success of
the Group for the benefit of all shareholders. In doing so, they are also
required to consider the broader implications of their decisions and the
Group's operations on key stakeholders, the wider community, and the
environment. Key decisions are those that are either material to the Group or
are significant to any of the Group's key stakeholders. The Group's engagement
with key stakeholders and the key decisions that were made or approved by the
Directors during the year are described below.
Stakeholder group Methods of engagement Benefits of engagement
Shareholders
Continued access to capital is vital to the Group's longer term growth The Group engages with its shareholders through the issuance of regular The Group enjoys a supportive shareholder base that understands the investment
objectives, and therefore, in line with its objectives, the Group seeks to portfolio updates in the form of RNS announcements. strategy as a result of our active programme of events and meetings.
maintain shareholder satisfaction through:
The Investment Manager hosts mid-year and year end webinars and Q&A The Group has built a large pool of potential investors to support its future
- Positive risk-adjusted returns sessions and in 2023 hosted its inaugural Capital Markets Day in London. growth.
- Continuous communication of portfolio updates
- Regular access to Investment Manager commentary on portfolio The Group provides in-depth commentary on the investment portfolio, corporate
decisions and outlook governance and corporate outlook in its Annual and Interim Reports and
financial statements.
The Board receives quarterly feedback from its brokers and distribution
partner in respect of investor engagement and investor sentiment.
In 2023 the Group appointed distribution and investor relations company Cadarn
Capital to improve the flow of information to current and potential
shareholders.
Service providers
The Group works closely with a number of service providers (the Investment The Group has identified its key service providers and on an annual basis Feedback given by service providers is used to review the Group's policies and
Manager, Administrator, Sub-Administrator, Corporate Secretary, auditor, third undertakes a review of performance based on a questionnaire through which it procedures, to ensure open lines of communication, and operational efficiency.
party valuation agents, corporate brokers, distribution partner, and other also seeks feedback.
professional advisers).
Performance reviews ensure the Board's confidence that the Group is being
Furthermore, the Board and its sub-committees engage regularly with service serviced and advised by high quality service providers. In 2023, the Group
The independence, quality and timeliness of their service provision is providers on a formal and informal basis. appointed Numis as corporate joint broker and Cadarn Capital as distribution
critical to the success of the Group.
partner.
The Group regularly reviews all material contracts for service quality and
value.
Portfolio Companies
The Group is currently invested in 36 Core Portfolio Companies. The Investment Manager engages on a regular basis with its portfolio companies Honesty, fairness and integrity of the management teams of the portfolio
in order to conduct on-going due diligence and to meet obligations if the companies are vital to the long-term success of the Group's investments.
Investment Manager holds a board seat.
HM Government The Group funds assets developed in UK academic and private sector By supporting the local biotech ecosystem in the country where the Group is
laboratories, from conception to commercialisation. listed, UK government policy initiatives are supported and promoted.
Community & Environment
The Group does not have direct employees and does not anticipate any material The Group and the Directors minimise air travel by making maximum use of video
impact to its business model from climate change but aims to be a good
conferencing for Company related matters.
steward, in line with its socially-aligned investment objective.
RTW Charitable Foundation was created by the Investment Manager with the
vision to work towards a world free of ultra-rare disease. The foundation
funds research of rare conditions that do not attract significant outside
investment due to limited commercial opportunity.
Acting and investing responsibly provides the necessary foundation for the
long-term sustainability of investment success.
To research grant recipients, RTW Charitable Foundation offers financial
support and guidance gleaned from the Investment Manager's experience in drug
RTW Charitable Foundation represents an extension of the Investment Manager's development and company building. The Foundation also offers support to
mission. Its research process helps RTW identify important causes of human humanitarian causes, initiatives that raise disease awareness, and programmes
suffering and introduces the firm to individuals and organisations trying to with direct local community impact, including days of action and youth
make a difference. mentorship.
Responsible Investment
The Group aims to achieve positive absolute performance and superior long-term
capital appreciation, focusing on forming, building, and supporting
world-class life sciences, biopharmaceutical, and medical technology companies
supporting their pursuit of superior pharmacological or medical therapeutic
assets to enhance quality of life or extend patient life. The Investment
Manager's team of scientists and researchers work tirelessly to evaluate the
science behind thousands of treatments and potential cures for diseases and
conditions in order to improve quality of life across the globe. As a
guiding principle, they prioritise overall positive impact on patients and
long-term meaningful outcomes to society and believe this is the foundation of
the Group's success.
The Group's social investment objective directly aligns with Goal 3 of the UN
Sustainable Development Goals ("SDG") whilst having regard to broader
sustainability considerations.
As an investor in novel therapies, supporting biotech, medical device, and
diagnostics development, the implementation of the above objective occurs in
the context of environmental and social risks and opportunities specific to
the sector.
The Group has adopted a Responsible Investment policy outlining the Investment
Manager's approach to incorporating environmental and social characteristics
into the investment process, on behalf of the Group. It was designed in line
with guidance from the Principles of Responsible Investment and is built
around the pillars of Governance, Strategy, Risk Management, and Metrics,
which are the pillars of the Taskforce on Climate-related Financial
Disclosures and the International Sustainability Standards Board. The Board
has established a Sustainability Committee to oversee the Investment Manager's
implementation of the policy.
As a long-term investor, the Group (via the Investment Manager) seeks to meet
regularly with the management teams of portfolio companies. This approach
fosters long-term relationships with company management teams. This ongoing
dialogue enables open discussions on issues that could affect long-term
returns. Management may be engaged on a variety of issues, including
sustainability matters that present a potential material risk or an
opportunity for the Group.
The Group adopts a positive screening methodology, implemented by the
Investment Manager. At the origination stage, potential investments are
thematically screened to ensure they align with the sustainable investment
objective and adopted strategy.
Monitoring is also in place such that the Company can understand the core
portfolio's sustainability impact periodically and inform the engagement
strategy to address it.
The core portfolio of investments typically makes use of outsourced providers
(such as contract research organisations), as this reduces the scale of
physical presence (e.g., laboratory space). The direct use of natural
resources is therefore limited.
The Investment Manager's operations are highly concentrated in its primary
office space located in a building that is LEED Gold Certified based on, among
other things, the sustainability of its location, water efficiency, energy and
atmosphere characteristics, use of materials and resources, indoor
environmental quality, and innovation.
The Investment Manager espouses a strong culture of compliance, risk
management and ethical behaviour. It aims always to act in the best interests
of shareholders, employees and stakeholders. Its corporate code of ethics
addresses the largest areas of risk pertaining to the alternative asset
management industry, including but not limited to conflicts of interest,
anti-bribery, employee investing, insider trading and political contributions.
Furthermore, it seeks to ensure that investments do not lead to negative
impacts on public health or well-being or contribute to human or labour rights
violations, corruption, serious environmental harm or other actions which may
be perceived to be unethical. It seeks long-term investment partners that
evidence equivalent professional and ethical rigour.
Consolidated Statement of Assets and Liabilities
as at 31 December 2023 and 31 December 2022
(Expressed in United States Dollars)
2023 2022
ASSETS:
Investments in securities, at fair value (cost at 31 December 2023:
$244,056,637; 31 December 2022:
$259,472,596) 367,611,231 350,125,577
Derivative contracts, at fair value (cost at 31 December 2023: $6,271,193; 31
December 2022: $2,614,659)
15,463,820 21,467,649
Cash and cash equivalents 2,721,553 6,966,168
Due from brokers 57,887,214 22,195,456
Receivable from unsettled trades - 439,798
Other assets 2,550,609 345,750
TOTAL ASSETS 446,234,427 401,540,398
LIABILITIES:
Securities sold short, at fair value (proceeds at 12,438,334
31 December 2023: $1,399,242; 31 December 2022: $15,407,927) 1,197,921
Derivative contracts, at fair value (proceeds at 8,926,743
31 December 2023: $nil; 31 December 2022: $nil) 8,390,327
Due to brokers 5,329,681 25,823,016
Payable for unsettled trades - 5,561,560
Accrued expenses 2,293,541 866,756
TOTAL LIABILITIES 17,211,470 53,616,409
TOTAL NET ASSETS 429,022,957 347,923,989
NET ASSETS attributable to Ordinary Shares (shares at 399,283,811 326,079,521
31 December 2023: 210,635,347; 31 December 2022: 212,389,138)
NET ASSETS attributable to Non-Controlling Interest 29,739,146 21,844,468
1.8956 1.5353
NAV per Ordinary Share
The audited consolidated financial statements of the Group were approved and
authorised for issue by the Board of Directors on 27 March 2024 and signed on
its behalf by:
William Simpson
Paul Le Page
Chair
Director
See accompanying notes to the consolidated financial statements.
Consolidated Condensed Schedule of Investments
as at 31 December 2023
(Expressed in United States Dollars)
Descriptions Number of Shares Cost Fair Value Percentage of Net Assets
Investments in securities, at fair value
Common stocks
United States
Healthcare
Rocket Pharmaceuticals, Inc. 2,400,755 8,188,796 71,950,627 16.77
Others* 87,817,542 121,224,790 28.26
Total United States 96,006,338 193,175,417 45.03
Netherlands
Healthcare 5,570,915 6,878,343 1.60
Ireland
Healthcare 6,090,973 3,974,203 0.93
China
Healthcare
Ji Xing Pharmaceuticals Ltd. 541,205 216,482 798,382 0.19
Others* 402,213 677,342 0.16
Total China 618,695 1,475,724 0.35
Canada
Healthcare 2,953,012 646,323 0.15
British Virgin Islands
Healthcare 776,929 477,179 0.11
Cayman Islands
Financials 46,790 51,001 0.01
Total common stocks 112,063,652 206,678,190 48.18
Convertible preferred stocks
China
Healthcare
Ji Xing Pharmaceuticals Ltd. 14,177,776 25,664,114 33,052,656 7.70
Others* 4,110,584 4,168,056 0.97
Total China 29,774,698 37,220,712 8.67
United States
Healthcare* 40,654,612 36,321,860 8.47
Ireland
Healthcare 1,093,042 1,854,238 0.43
* No individual investment security or contract constitutes greater than 5 per
cent of net assets.
See accompanying notes to the consolidated financial statements.
Consolidated Condensed Schedule of Investments (continued)
as at 31 December 2023
(Expressed in United States Dollars)
Descriptions Number of Shares Cost Fair Value Percentage of Net Assets
Investments in securities, at fair value (continued)
Convertible preferred stocks
Switzerland
Healthcare 1,729,518 1,723,249 0.40
United Kingdom
Healthcare 774,317 760,071 0.18
Total convertible preferred stocks 74,026,187 77,880,130 18.15
Investment in private investment companies
Cayman Islands
Healthcare
4010 Royalty Offshore FNT Fund, LP 23,892,852 25,982,258 6.06
Ireland
Healthcare 11,814,933 15,873,635 3.70
Total investment in private investment companies 35,707,785 41,855,893 9.76
American depository receipts
United Kingdom
Healthcare
Immunocore Holdings plc 462,249 11,872,691 31,580,852 7.36
Netherlands
Healthcare 1,331,626 1,434,221 0.33
Ireland
Healthcare 161,953 198,555 0.05
Total American depository receipts 13,366,270 33,213,628 7.74
See accompanying notes to the consolidated financial statements.
Consolidated Condensed Schedule of Investments (continued)
as at 31 December 2023
(Expressed in United States Dollars)
Descriptions Number of Shares Cost Fair Value Percentage of Net Assets
Investments in securities, at fair value (continued)
Convertible notes
Canada
Healthcare 7,512,664 7,566,259 1.76
United States
Healthcare 1,380,079 417,131 0.10
Total convertible notes 8,892,743 7,983,390 1.86
Total investments in securities, at fair value 244,056,637 367,611,231 85.69
See accompanying notes to the consolidated financial statements.
Consolidated Condensed Schedule of Investments (continued)
as at 31 December 2023
(Expressed in United States Dollars)
Descriptions Number of contracts Cost Fair Value Percentage of Net Assets
Derivative contracts - assets, at fair value
Equity swaps
United States
Healthcare 7,185,030 1.67
United Kingdom
Healthcare
Immunocore Holdings plc 12,498 280,979 0.07
British Virgin Islands
Healthcare 9,793 0.00
Total equity swaps 7,475,802 1.74
Warrants
United States
Healthcare
Rocket Pharmaceuticals, Inc. 170,764 2,565,561 4,800,495 1.12
Others* 1,242,926 1,764,580 0.41
Total United States 3,808,487 6,565,075 1.53
Canada
Healthcare 2,462,706 881,237 0.21
Total warrants 6,271,193 7,446,312 1.74
Contingent value rights
United States
Healthcare 541,706 0.13
Total contingent value rights 541,706 0.13
Total derivative contracts - assets, at fair value 6,271,193 15,463,820 3.61
* No individual investment security or contract constitutes greater than 5 per
cent of net assets.
See accompanying notes to the consolidated financial statements.
Consolidated Condensed Schedule of Investments (continued)
as at 31 December 2023
(Expressed in United States Dollars)
Descriptions Proceeds Fair Value Percentage of Net Assets
Securities sold short, at fair value
Common stocks
United States
Healthcare 1,353,107 1,146,920 0.28
Cayman Islands
Financials 46,135 51,001 0.01
Total common stocks 1,399,242 1,197,921 0.29
Total securities sold short, at fair value 1,399,242 1,197,921 0.29
Descriptions Fair Value Percentage of Net Assets
Derivative contracts - liabilities, at fair value
Equity swaps
United States
Healthcare 8,390,327 1.96
Total United States 8,390,327 1.96
Total derivative contracts - liabilities, at fair value 8,390,327 1.96
See accompanying notes to the consolidated financial statements.
Consolidated Condensed Schedule of Investments
as at 31 December 2022
(Expressed in United States Dollars)
Descriptions Number of Shares Cost Fair Value Percentage of Net Assets
Investments in securities, at fair value
Common stocks
United States
Healthcare
Prometheus Biosciences, Inc. 670,916 6,802,058 52,946,904 15.22
Rocket Pharmaceuticals, Inc. 2,400,755 8,188,796 46,982,775 13.50
Others* 124,096,539 118,157,365 33.96
Total United States 139,087,393 218,087,044 62.68
Netherlands
Healthcare 4,368,486 5,345,551 1.54
Ireland
Healthcare 4,099,988 2,981,309 0.86
Canada
Healthcare 3,275,323 1,012,216 0.29
British Virgin Islands
Healthcare 547,564 997,552 0.29
China
Healthcare
Ji Xing Pharmaceuticals Ltd. 541,205 216,482 600,738 0.17
Cayman Islands
Financials 254,581 257,459 0.07
Healthcare 188,880 194,370 0.06
Total Cayman Islands 443,461 451,829 0.13
Bermuda
Healthcare 260,330 208,004 0.06
Belgium
Healthcare 165,629 32,919 0.01
Total common stocks 152,464,656 229,717,162 66.03
* No individual investment security or contract constitutes greater than 5 per
cent of net assets.
See accompanying notes to the consolidated financial statements.
Consolidated Condensed Schedule of Investments (continued)
as at 31 December 2022
(Expressed in United States Dollars)
Descriptions Number of Cost Fair Value Percentage of Net Assets
Shares
Investments in securities, at fair value (continued)
Convertible preferred stocks
United States
Healthcare* 44,011,844 38,108,351 10.95
China
Healthcare
Ji Xing Pharmaceuticals Ltd. 10,599,945 14,824,185 16,433,316 4.73
Others* 1,771,209 1,622,898 0.47
Total China 16,595,394 18,056,214 5.20
Switzerland
Healthcare 1,729,518 1,768,384 0.51
Ireland
Healthcare 116,545 117,696 0.03
Total convertible preferred stocks 62,453,301 58,050,645 16.69
American depository receipts
United Kingdom
Healthcare
Immunocore Holdings plc 453,985 11,440,789 25,908,924 7.45
Others* 1,064,820 813,170 0.23
Total United Kingdom 12,505,609 26,722,094 7.68
Netherlands
Healthcare 8,996,563 9,918,906 2.85
Ireland
Healthcare 893,338 961,567 0.28
Sweden
Healthcare 339,248 528,539 0.15
Israel
Healthcare 372,743 98,985 0.03
Total American depository receipts 23,107,501 38,230,091 10.99
* No individual investment security or contract constitutes greater than 5 per
cent of net assets.
See accompanying notes to the consolidated financial statements.
Consolidated Condensed Schedule of Investments (continued)
as at 31 December 2022
(Expressed in United States Dollars)
Descriptions Number of Shares Cost Fair Value Percentage of Net Assets
Investments in securities, at fair value (continued)
Investment in private investment companies
Ireland
Healthcare 11,814,933 14,074,846 4.04
Total investment in private investment companies 11,814,933 14,074,846 4.04
Convertible notes
China
Healthcare
Ji Xing Pharmaceuticals Ltd. 762,474 7,624,737 8,191,552 2.35
United States
Healthcare 2,007,468 1,861,281 0.53
Total convertible notes 9,632,205 10,052,833 2.88
Total investments in securities, at fair value 259,472,596 350,125,577 100.63
See accompanying notes to the consolidated financial statements.
Consolidated Condensed Schedule of Investments (continued)
as at 31 December 2022
(Expressed in United States Dollars)
Descriptions Cost Fair Value Percentage of Net Assets
Derivative contracts - assets, at fair value
Equity swaps
United States
Healthcare 16,781,963 4.83
British Virgin Islands
Healthcare 2,097,803 0.60
Ireland
Healthcare 206,563 0.06
Total equity swaps 19,086,329 5.49
Warrants
Canada
Healthcare 1,939,543 1,858,925 0.53
United States
Healthcare 674,517 522,337 0.15
Cayman Islands
Financials 599 58 0.00
Total warrants 2,614,659 2,381,320 0.68
Total derivative contracts - assets, at fair value 2,614,659 21,467,649 6.17
See accompanying notes to the consolidated financial statements.
Consolidated Condensed Schedule of Investments (continued)
as at 31 December 2022
(Expressed in United States Dollars)
Descriptions Proceeds Fair Value Percentage of Net Assets
Securities sold short, at fair value
Common stocks
United States
Healthcare 14,521,155 11,500,094 3.31
Netherlands
Healthcare 293,711 221,800 0.06
Cayman Islands
Financials 96,480 98,829 0.03
Healthcare 46,260 89,072 0.03
Total Cayman Islands 142,740 187,901 0.06
Total common stocks 14,957,606 11,909,795 3.43
American depository receipts
Sweden
Healthcare 450,321 528,539 0.15
Total American depository receipts 450,321 528,539 0.15
Total securities sold short, at fair value 15,407,927 12,438,334 3.58
Descriptions Fair Value Percentage of Net Assets
Derivative contracts - liabilities, at fair value
Equity swaps
United States
Healthcare 7,041,281 2.02
Index 1,860,052 0.54
Total United States 8,901,333 2.56
Israel
Healthcare 25,410 0.01
Total derivative contracts - liabilities, at fair value 8,926,743 2.57
See accompanying notes to the consolidated financial statements.
Consolidated Statement of Operations
For the year ended 31 December 2023 and 31 December 2022
(Expressed in United States Dollars)
2023 2022
Investment income
Interest 635,860
(net of withholding taxes of $nil; 31 December 2022: $nil)
2,419,117
Dividends (net of withholding taxes of $2,537; 332,103
31 December 2022: $123,149) 571,473
Other 1,179,964 1,199,296
Total investment income 4,170,554 2,167,259
Expenses
Management fees 4,269,757 3,751,464
Interest 1,560,429 779,988
Professional fees 749,328 1,008,629
Administrative fees 673,422 312,003
Research costs 474,511 742,738
Audit fees 341,500 329,557
Directors' fees 177,011 176,722
Other expenses 687,805 357,429
Total expenses 8,933,763 7,458,530
Net investment income/(loss) (4,763,209) (5,291,271)
Realised and change in unrealised gain/(loss) on investments, derivatives and
foreign currency transactions
Net realised gain/(loss) on securities and foreign currency transactions 8,357,014
69,546,080
Net change in unrealised gain/(loss) on securities and foreign currency (44,355,779)
translation
29,962,442
Net realised gain/(loss) on derivative contracts (2,428,987) (2,748,269)
Net change in unrealised gain/(loss) on derivative contracts 4,601,568
(9,123,947)
Net realised and unrealised gain/(loss) on investments, derivatives and 87,955,588 (34,145,466)
foreign currency transactions
Net increase/(decrease) in net assets resulting from operations 83,192,379 (39,436,737)
See accompanying notes to the consolidated financial statements.
Consolidated Statement of Changes in Net Assets
For the year ended 31 December 2023
(Expressed in United States Dollars)
Ordinary Non-Controlling Interest
Share Class
Net assets, beginning of year 326,079,521 21,844,468
Operations
Net investment income/(loss) (4,763,209) -
Net realised gain/(loss) on securities and foreign currency transactions 69,546,080 -
Net change in unrealised gain/(loss) on securities and foreign currency 29,962,442 -
translation
Net realised gain/(loss) on derivative contracts (2,428,987) -
Net change in unrealised gain/(loss) on derivative contracts (9,123,947) -
Income/(loss) attributable to Non-Controlling Interest (7,894,678) 7,894,678
Net change in net assets resulting from operations 75,297,701 7,894,678
Share buyback (Gross of $4,178 transaction costs; 31 December 2022: $nil) (2,093,411) -
(Note 9)
Net assets, end of year 399,283,811 29,739,146
See accompanying notes to the consolidated financial statements.
Consolidated Statement of Changes in Net Assets
For the year ended 31 December 2022
(Expressed in United States Dollars)
Ordinary Performance Allocation Share Class Total Shareholders' Funds Non-Controlling Interest
Share Class
Net assets, beginning of year 363,040,222 24,320,504 387,360,726 -
Operations
Net investment income/(loss) (5,291,271) - (5,291,271) -
Net realised gain/(loss) on securities and foreign currency transactions 8,357,014 - 8,357,014 -
Net change in unrealised gain/(loss) on securities and foreign currency (44,355,779) - (44,355,779) -
translation
Net realised gain/(loss) on derivative contracts (2,748,269) - (2,748,269) -
Net change in unrealised gain/(loss) on derivative contracts 4,601,568 - 4,601,568 -
Performance Allocation 4,359,551 (4,359,551) -
Income/(loss) attributable to Non-Controlling Interest (1,883,515) - (1,883,515) 1,883,515
Net change in net assets resulting from operations (36,960,701) (4,359,551) (41,320,252) 1,883,515
Capital transactions
In-kind transfer - (19,960,953) (19,960,953) 19,960,953
Net change in net assets resulting from capital transactions - (19,960,953) (19,960,953) 19,960,953
Net change in net assets (36,960,701) (24,320,504) (61,281,205) 21,844,468
Net assets, end of year 326,079,521 - 326,079,521 21,844,468
See accompanying notes to the consolidated financial statements.
Consolidated Statement of Cash Flows
For the year ended 31 December 2023 and 31 December 2022
(Expressed in United States Dollars)
2023 2022
Cash flows from operating activities
Net increase/(decrease) in net assets resulting from operations 83,192,379 (39,436,737)
Adjustments to reconcile net change in net assets resulting from operations to
net cash provided by/(used in) operating activities:
Net realised (gain)/loss on securities and foreign currency transactions (69,546,080) (8,357,014)
Net change in unrealised (gain)/loss on securities and foreign currency 44,355,779
translation
(29,962,442)
Net realised (gain)/loss on derivative contracts 2,428,987 2,748,269
Net change in unrealised (gain)/loss on derivative contracts 9,123,947 (4,601,568)
Effect of exchange rate changes on cash and cash equivalents (80,371) 149,875
Purchases of investments in securities (147,986,641) (116,361,329)
Proceeds from sales of investments in securities 203,554,346 127,814,762
Proceeds from securities sold short 27,233,184 27,488,465
Payments for securities sold short (11,938,063) (12,916,667)
Proceeds from derivative contracts 15,512,690 1,971,402
Payments for derivative contracts (21,598,211) (4,986,268)
Changes in operating assets and liabilities:
Other assets (2,204,859) (154,185)
(Receivable from)/payable for unsettled trades (5,121,762) 4,830,450
Due to brokers (20,493,335) (12,196,843)
Accrued expenses 1,426,785 5,211
Net cash provided by/(used in) operating activities 33,540,554 10,353,602
Cash flows from financing activities
Share buyback (2,093,411) -
Net cash provided by/(used in) financing activities (2,093,411) -
Net change in cash and cash equivalents 31,447,143 10,353,602
Cash, cash equivalents, and restricted cash, beginning of the year 29,161,624 18,808,022
Cash, cash equivalents, and restricted cash, end of the year 60,608,767 29,161,624
At 31 December, the amounts categorised in cash, cash equivalents, and
restricted cash include the following:
Cash and cash equivalents 2,721,553 6,966,168
Due from brokers 57,887,214 22,195,456
Total 60,608,767 29,161,624
Supplemental disclosure of cash flow information
Cash paid during the year for interest 1,620,709 724,317
See accompanying notes to the consolidated financial statements.
Notes to the Consolidated Financial Statements
For the year ended 31 December 2022
(Expressed in United States Dollars)
1. Nature of operations and summary of significant accounting policies
RTW Biotech Opportunities Ltd, formerly known as RTW Venture Fund Limited (the
"Company"), is a publicly listed Guernsey non-cellular company limited by
shares. The Company was originally incorporated in the State of Delaware,
United States of America, and re-domiciled into Guernsey under the Companies
Law on 2 October 2019 with registration number 66847 on the Guernsey Register
of Companies. On 30 October 2019, all of the issued Ordinary Shares of the
Company were listed and admitted to trading on the Specialist Fund Segment of
the London Stock Exchange under the ticker symbol: RTW. Subsequently, on 6
August 2021, the Company's Ordinary Shares were admitted to trading on the
Premium Segment of the London Stock Exchange with the additional ticker
symbol: RTWG denoting the Sterling price. The original ticker, RTW, continues
to denote the US Dollar price.
On 22 June 2023, the Company changed its name from "RTW Venture Fund Limited"
to "RTW Biotech Opportunities Ltd."
In 2022, the Company has transferred its right to the profits and losses
attributable to the Group's portfolio of assets to its wholly owned
subsidiary, RTW Venture Fund Operating Limited (the "Subsidiary"). All the
income and expenses of the Subsidiary are consolidated with the income and
expenses of the Group. On 14 July 2023, the Subsidiary changed its name from
"RTW Venture Fund Operating Limited" to "RTW Biotech Opportunities Operating
Ltd."
The Group seeks to use equity capital (from the net proceeds of any share
issuance or, where appropriate, from the net proceeds of investment
divestments or other related profits) to provide seed and additional growth
capital to the private investments. To mitigate cash-drag, the uninvested
portion is invested across public stocks largely replicating the public stock
portfolios of RTW's existing US-based funds. The Group focuses on creating,
building, and supporting world-class life sciences, biopharmaceutical and
medical technology companies. The Group's investment objective is to generate
attractive risk-adjusted returns through investments in securities, both
equity and debt, long and short, of companies with a focus on the
pharmaceutical sector.
Pursuant to an investment management agreement, the Group is managed by RTW
Investments, LP, a Delaware limited partnership, to provide the Group with
discretionary portfolio management, risk management services and certain other
services. The Investment Manager is an investment adviser registered with the
U.S. Securities and Exchange Commission under the Investment Advisers Act of
1940.
Basis of presentation
The consolidated financial statements are expressed in United States Dollars.
The consolidated financial statements which give a true and fair view and have
been prepared in accordance with US generally accepted accounting principles
("US GAAP") and are in compliance with the Companies (Guernsey) Law, 2008. The
entities comprised within the Group are investment companies and follow the
accounting and reporting guidance in Financial Accounting Standards Board's
("FASB") Accounting Standards Codification Topic 946, Financial Services -
Investment Companies.
The Directors consider that it is appropriate to adopt a going concern basis
of accounting in preparing the consolidated financial statements. In reaching
this assessment, the Directors have considered a wide range of information
relating to present and future conditions including the balance sheets, future
projections, cash flows and the longer-term strategy of the business.
Principles of consolidation
The consolidated financial statements include accounts of the Company
consolidated with the accounts of the Subsidiary. All inter-group balances
have been eliminated upon consolidation. The Subsidiary is incorporated in
Guernsey.
Non-Controlling Interest
An affiliate of the Investment Manager, RTW Venture Performance LLC, holds an
interest in the Subsidiary. The Non-Controlling Interest captures both
Performance Allocation and mark to market movements on the New Performance
Allocation Share held by RTW Venture Performance LLC in the Subsidiary. For
the year ended 31 December 2023, $5,137,836 of the income attributable to the
Non-Controlling Interest was comprised of mark to market movements of Notional
Ordinary Shares (31 December 2022: $1,883,515), with $2,756,842 of the income
related to an allocation of uncrystallized performance allocation from
Ordinary Shareholders to the Performance Allocation Share Class (31 December
2022: $nil).
Cash, cash equivalents, and restricted cash
Cash represents cash deposits held at financial institutions. Cash equivalents
include short-term highly liquid investments of sufficient credit quality that
are readily convertible to known amounts of cash and have original maturities
of three months or less. Cash equivalents are carried at cost plus accrued
interest, which approximates fair value. Cash equivalents are held for the
purpose of meeting short-term liquidity requirements, rather than for
investment purposes. As at 31 December 2023 and 31 December 2022, the Group
had no cash equivalents.
Restricted cash is subject to a legal or contractual restriction by third
parties as well as a restriction as to withdrawal or use, including
restrictions that require the funds to be used for a specified purpose and
restrictions that limit the purpose for which the funds can be used. The Group
considers cash pledged as collateral for securities sold short, cash
collateral posted with counterparties for derivative contracts and further
amounts due from brokers to be restricted cash, as outlined in Note 3.
Fair value - definition and hierarchy
Fair value is defined as the price that would be received to sell an asset or
paid to transfer a liability (i.e. the 'exit price') in an orderly transaction
between market participants at the measurement date.
In determining fair value, the Group uses various valuation techniques. A fair
value hierarchy for inputs is used in measuring fair value that maximizes the
use of observable inputs and minimizes the use of unobservable inputs by
requiring that the most observable inputs are to be used when available.
Observable inputs are those that market participants would use in pricing the
asset or liability based on market data obtained from sources independent of
the Group.
Unobservable inputs reflect the Group's assumptions about the inputs market
participants would use in pricing the asset or liability based on the best
information available in the circumstances. The fair value hierarchy is
categorised into three levels based on the inputs as follows:
Level 1 - Valuations based on unadjusted quoted prices in active markets for
identical assets or liabilities that the Group has the ability to access.
Valuation adjustments are not applied to Level 1 investments. Since valuations
are based on quoted prices that are readily and regularly available in an
active market, valuation of these investments does not entail a significant
degree of judgement.
Level 2 - Valuations based on inputs, other than quoted prices included in
Level 1, that are observable, either directly or indirectly.
Level 3 - Valuations based on inputs that are unobservable and significant to
the overall fair value measurement.
Investments in private investment companies measured using net asset value as
a practical expedient are not categorised in the fair value hierarchy.
The availability of valuation techniques and observable inputs can vary from
investment to investment and is affected by a wide variety of factors,
including the type of investment, whether the investment is new and not yet
established in the marketplace, and other characteristics particular to the
transaction. To the extent that valuation is based on models or inputs that
are less observable or unobservable in the market, the determination of fair
value requires more judgement. Those estimated values do not necessarily
represent the amounts that may be ultimately realised due to the occurrence of
future circumstances that cannot be reasonably determined. Because of the
inherent uncertainty of valuation, those estimated values may be materially
higher or lower than the values that would have been used had a ready market
for the investments existed. Accordingly, the degree of judgement exercised by
the Group in determining fair value is greatest for investments categorised in
Level 3. In certain cases, the inputs used to measure fair value may fall into
different levels of the fair value hierarchy. In such cases, for disclosure
purposes, the level in the fair value hierarchy within which the fair value
measurement falls in its entirety is determined based on the lowest level
input that is significant to the fair value measurement.
Fair value is a market-based measure considered from the perspective of a
market participant rather than an entity-specific measure. Therefore, even
when market assumptions are not readily available, the Group's own assumptions
are set to reflect those that market participants would use in pricing the
asset or liability at the measurement date. The Group uses prices and inputs
that are current as of the measurement date, including periods of market
dislocation. In periods of market dislocation, the observability of prices and
inputs may be reduced for many investments. This condition could cause an
investment to be reclassified to a lower level within the fair value
hierarchy.
Fair value - valuation techniques and inputs
Investments in securities and securities sold short
Listed investments
The Group values investments in securities including exchange traded funds and
securities sold short that are freely tradable and are listed on a national
securities exchange or reported on the NASDAQ national market at their closing
sales price as of the valuation date. To the extent these securities are
actively traded and valuation adjustments are not applied, they are
categorised in Level 1 of the fair value hierarchy. Securities traded on
inactive markets or valued by reference to similar instruments or where a
discount may be applied are categorised in Level 2 or 3 of the fair value
hierarchy.
Unlisted investments
Unlisted investments are valued at fair value by the Directors following a
detailed review and appropriate challenge of the valuations proposed by the
Investment Manager. As part of their valuation process, the Investment Manager
engages Independent Valuers to challenge their assessed fair value on certain
unlisted investments. The Investment Manager's unlisted investment valuation
policy applies techniques consistent with the IPEV Guidelines.
The valuation techniques applied are either a market-based approach, an income
approach such as discounted cash flows, or where available, a net asset value
practical expedient approach. A combination of the valuation techniques
mentioned may also be utilised. The IPEV Guidelines recognise that the price
of a recent transaction, if resulting from an orderly transaction, generally
represents fair value as at the transaction date and may be an appropriate
starting point for estimating fair value at subsequent measurement dates.
Consideration is given to the facts and circumstances as at the subsequent
measurement date including changes in the market and/or performance of the
investee company. Milestone analysis is used where appropriate to incorporate
operational progress at the investee company level. In addition, a trigger
event such as a subsequent round of financing by the investee company would
influence the market technique used to calibrate fair value at the measurement
date. Where appropriate, a probability-weighted expected return method
("PWERM") may be employed when different potential outcomes (e.g. IPO, round
of financing, stay private, dissolution, etc.) are utilised to derive the
value of investments held.
The market approach utilises guideline public companies relying on projected
revenues to derive an indicative enterprise value. Due to the nature of the
investments, being in the early stages of development, the projected revenues
are used as a proxy for stable state revenue. A selected multiple is then
applied based on the observed market multiples of the guideline public
companies. To reflect the risk associated with the achievement of the
projected revenues and the early development stage of each of the investments,
the indicative enterprise value is discounted at an appropriate rate.
The income approach utilises the discounted cash flow method. Projected cash
flows for each investment are discounted to determine an assumed enterprise
value.
Where applicable, the indicative enterprise value has been determined using a
back-solve model based on the pricing of the most recent round of financing.
The internal rate of return for each investment is compared to the selected
venture capital rate applied in the market approach to assess the
reasonableness of the indicated value implied by each financing round. The
derived enterprise value is allocated to the equity class on either a fully
diluted basis or using an option pricing model. The resulting indicative value
on a per share basis is then multiplied by the number of shares to derive the
fair market value.
American depository receipts
The Group values investments in American depositary receipts that are freely
tradable and are listed on a national securities exchange or reported on the
NASDAQ national market at their last reported sales price as of the valuation
date. These investments are categorised in Level 1 of the fair value
hierarchy.
Convertible bonds
Convertible bonds are recorded at fair value using valuation techniques based
on observable inputs. These instruments are generally categorised in Level 2
of the fair value hierarchy. In instances where significant inputs are
unobservable, convertible bonds are categorised in Level 3 of the fair value
hierarchy.
Convertible notes
The Group values investments in convertible notes in accordance with the
unlisted investments section above. As of 31 December 2023, these investments
are all categorised in Level 3 of the fair value hierarchy.
Convertible preferred stock
The Group values Level 1 investments in convertible preferred stock that are
listed on a national securities exchange at their closing sales price as of
the valuation date. Level 3 investments in convertible preferred stock are
valued in accordance with the unlisted investments section above. As of 31
December 2023, these investments are categorised in Level 1 and Level 3 of the
fair value hierarchy.
Investment in private investment companies
The Group values investment in private investment companies using the net
asset values provided by the underlying private investment companies as a
practical expedient. The Group applies the practical expedient to its private
investment companies on an investment-by-investment basis and consistently
with the Group's entire position in a particular investment, unless it is
probable that the Group will sell a portion of an investment at an amount
different from the net asset value of the investment.
Private investment in public equity
Private investment in public equity ("PIPE") cannot be offered for sale to the
public until the issuer complies with certain statutory or contractual
requirements. Such securities traded on inactive markets or valued by
reference to similar instruments or where a discount may be applied are
generally categorised in Level 2. However, to the extent that significant
inputs used to determine liquidity discounts are unobservable, PIPE may be
categorized in Level 3 of the fair value hierarchy.
Derivative contracts
Equity swaps
Equity swaps may be centrally cleared or traded on the over-the-counter
market. The fair value of equity swaps is calculated based on the terms of the
contract and current market data, such as changes in fair value of the
reference asset. The fair value of equity swaps is generally categorised in
Level 2 of the fair value hierarchy.
Warrants
Warrants that are listed on major securities exchanges are valued at their
last reported sales price as of the valuation date. The fair value of
over-the-counter ("OTC") warrants is determined using the Black-Scholes option
pricing model, a valuation technique that follows the income approach. This
pricing model takes into account the contract terms (including maturity) as
well as multiple inputs, including time value, implied volatility, equity
prices, interest rates and currency rates. Warrants are categorised in all
levels of the fair value hierarchy.
Contingent value rights
Contingent value rights that are not traded on an organized facility are
valued using a market approach or such other analysis and information as the
Group may determine.
Fair value - valuation processes
The Group establishes valuation processes and procedures to ensure that the
valuation techniques are fair and consistent, and valuation inputs are
supportable. The Group designates the Investment Manager's Valuation Committee
to oversee the entire valuation process of the Group's investments. The
Valuation Committee comprises various members of the Investment Manager,
including those separate from the Group's portfolio management and trading
functions, and reports to the Board.
The Valuation Committee is responsible for developing the Group's written
valuation processes and procedures, conducting periodic reviews of the
valuation policies, and evaluating the overall fairness and consistent
application of the valuation policies.
The Investment Manager's Valuation Committee meets on a monthly basis or more
frequently, as needed, to determine the valuations of the Group's Level 3
investments. Valuations determined by the Valuation Committee are required to
be supported by market data, third-party pricing sources, industry-accepted
pricing models, counterparty prices or other methods they deem to be
appropriate, including the use of internal proprietary pricing models.
The Group periodically tests its valuations of Level 3 investments by
performing back-testing. Back-testing involves the comparison of sales
proceeds of those investments to the most recent fair values reported and, if
necessary, uses the findings to recalibrate its valuation procedures.
On a regular basis, the Group engages the services of third-party valuation
firms, the Independent Valuers, to perform an independent review of the
valuation of the Group's Level 3 investments and the Group may adjust its
valuations based on the recommendations from the Investment Manager's
Valuation Committee.
Translation of foreign currency
Assets and liabilities denominated in foreign currencies are translated into
United States Dollar amounts at the year end exchange rates. Transactions
denominated in foreign currencies, including purchases and sales of
investments, and income and expenses, are translated into United States Dollar
amounts on the transaction date. Adjustments arising from foreign currency
transactions are reflected in the consolidated statement of operations.
The Group does not isolate that portion of the results of operations arising
from the effect of changes in foreign exchange rates on investments from
fluctuations arising from changes in market prices of investments held. Such
fluctuations are included in net realised and change in unrealised gain/(loss)
on securities, derivatives and foreign currency transactions in the
consolidated statement of operations.
Reported net realised gain/(loss) from foreign currency transactions arise
from sales of foreign currencies; currency gains or losses realised between
the trade and settlement dates on securities transactions; and the difference
between the amounts of dividends, interest, and foreign withholding taxes
recorded on the Group's books and the United States Dollar equivalent of the
amounts actually received or paid.
Net change in unrealised gain/(loss) from foreign currency translation of
assets and liabilities arises from changes in the fair values of assets and
liabilities, other than investments in securities at the end of the period,
resulting from changes in exchange rates.
Investment transactions and related investment income
Investment transactions are accounted for on a trade date basis. Realised
gains and losses on investment transactions have been calculated on a specific
identification method.
Dividends are recorded on the ex-dividend date and interest is recognised on
the accrual basis.
Withholding taxes on foreign dividends have been provided for in accordance
with the Group's understanding of the applicable country's rules and rates.
Offsetting of amounts related to certain contracts
Amounts due from and to brokers are presented on a net basis, by counterparty,
to the extent the Group has the legal right to offset the recognised amounts
and intends to settle on a net basis.
The Group has elected not to offset fair value amounts recognised for cash
collateral receivables and payables against fair value amounts recognised for
derivative positions executed with the same counterparty under the same master
netting arrangement. At 31 December 2023, the Group had cash collateral
receivables of $23,793,429 (31 December 2022: $16,384,706) (see Note 3) with
derivative counterparties under the same master netting arrangement.
Income taxes
The Company and Subsidiary are exempt from taxation in Guernsey and were each
charged an annual exemption fee of GBP1,200, which has increased to GBP1,600
per annum with effect from 1 January 2024. The Group will only be liable to
tax in Guernsey in respect of income arising or accruing from a Guernsey
source, other than from a relevant bank deposit. It is not anticipated that
such Guernsey source taxable income will arise. The Group is managed so as not
to be resident in the UK for UK tax purposes.
The Group recognises tax benefits of uncertain tax positions only where the
position is more likely than not to be sustained assuming examination by a tax
authority based on the technical merits of the position. In evaluating whether
a tax position has met the recognition threshold, the Group must presume the
position will be examined by the appropriate taxing authority and that taxing
authority has full knowledge of all relevant information. A tax position
meeting the more likely than not recognition threshold is measured to
determine the amount of benefit to recognise in the Group's consolidated
financial statements. Income tax and related interest and penalties would be
recognised as a tax expense in the consolidated statement of operations if the
tax position was deemed to meet the more likely than not threshold.
The Investment Manager has analysed the Group's tax positions and has
concluded no liability for unrecognised tax benefits should be recorded
related to uncertain tax positions. Further, management is not aware of any
tax positions for which it is reasonably possible the total amounts of
unrecognised tax benefits will significantly change in the next twelve months.
The Company and the Subsidiary each file income tax returns in the US federal
jurisdiction and, as applicable, in US state or local jurisdictions, or non-US
jurisdictions. Generally, the Group was subject to income tax examinations by
major taxing authorities for each tax period since inception. Based on its
analysis, the Group determined that it had not incurred any liability for
unrecognised tax benefits as of 31 December 2023 or 31 December 2022.
Use of estimates
Preparing consolidated financial statements in accordance with US GAAP
requires management to make estimates and assumptions in determining the
reported amounts of assets and liabilities, including the fair value of
investments, and disclosure of contingent assets and liabilities as of the
date of the consolidated financial statements and the reported amounts of
income and expenses during the reporting period. Actual results could differ
from those estimates.
New accounting pronouncements
In June 2022, the FASB issued ASU 2022-03, ASC Topic 820, "Fair Value
Measurement of Equity Securities Subject to Contractual Sale Restrictions".
The amendment clarifies that contractual sale restrictions should not be
considered when measuring the equity security's fair value and prohibits an
entity from recognizing a contractual sale restriction as a separate unit of
account. The amendments in this ASU are effective for the Group beginning
after 15 December 2024. Early adoption is permitted for both interim and
annual financial statements that have not yet been issued or made available
for issuance. The Group has chosen to early adopt ASU 2022-03 as of 1 January
2023.
At 31 December 2023, the fair value of the equity securities subject to
contractual sale restrictions is $30,232,777. In accordance with ASU 2022-03,
the fair value of these securities was not adjusted to reflect the contractual
sale restrictions.
2. Fair value measurements
The Group's assets and liabilities recorded at fair value have been
categorised based upon a fair value hierarchy as described in the Group's
significant accounting policies in Note 1.
The following table presents information about the Group's assets and
liabilities measured at fair value as of 31 December 2023:
Level 1 Level 2 Level 3 Investments measured at net asset value* Total
Assets (at fair value)
Investments in securities
Common stocks 204,773,131 1,000,720 904,339 - 206,678,190
Convertible preferred stocks 1,854,238 2,836,628 73,189,264 - 77,880,130
Investment in private - 41,855,893 41,855,893
investment companies - -
American depository receipts 33,213,628 - - - 33,213,628
Convertible notes - - 7,983,390 - 7,983,390
Total investments in securities 239,840,997 3,837,348 82,076,993 41,855,893
367,611,231
Derivative contracts
Equity swaps - 7,475,802 - - 7,475,802
Warrants 5,247 6,743,593 697,472 - 7,446,312
Contingent value rights - - 541,706 - 541,706
Total derivative contracts 5,247 14,219,395 1,239,178 - 15,463,820
239,846,244 18,056,743 83,316,171 41,855,893 383,075,051
Liabilities (at fair value)
Securities sold short
Common stocks 1,146,920 51,001 - - 1,197,921
Total securities sold short 1,146,920 51,001 - - 1,197,921
Derivative contracts
Equity swaps - 8,390,327 - - 8,390,327
Total derivative contracts - 8,390,327 - - 8,390,327
1,146,920 8,441,328 - - 9,588,248
* The Group's investment in private investment companies that are valued at
their net asset value are not categorised within the fair value hierarchy.
The following table presents information about the Group's assets and
liabilities measured at fair value as of 31 December 2022:
Level 1 Level 2 Level 3 Investments measured at net asset value* Total
Assets (at fair value)
Investments in securities
Common stocks 225,817,734 534,871 3,364,557 - 229,717,162
Convertible preferred stocks 117,696 - 57,932,949 - 58,050,645
American depository
receipts
38,230,091 - - - 38,230,091
Investment in private - - - 14,074,846 14,074,846
investment companies
Convertible notes - - 10,052,833 - 10,052,833
Total investments in securities 14,074,846 350,125,577
264,165,521 534,871 71,350,339
Derivative contracts
Equity swaps - 19,086,329 - - 19,086,329
Warrants - 1,904,409 476,911 - 2,381,320
Total derivative contracts - 20,990,738 476,911 21,467,649
264,165,521 21,525,609 71,827,250 14,074,846 371,593,226
Liabilities (at fair value)
Securities sold short
Common stocks 11,810,966 98,829 - - 11,909,795
American depository receipts 528,539 - - - 528,539
Total securities sold short 12,339,505 98,829 - 12,438,334
Derivative contracts
Equity swaps - 8,926,743 - - 8,926,743
Total derivative contracts - 8,926,743 - - 8,926,743
12,339,505 9,025,572 - - 21,365,077
* The Group's investment in private investment companies that are valued at
their net asset value are not categorised within the fair value hierarchy.
Transfers between Levels 2 and 3 generally relate to whether significant
relevant observable inputs are available for the fair value measurements in
their entirety. See Note 1 for additional information related to the fair
value hierarchy and valuation techniques and inputs. For the year ended 31
December 2023, the Group had net transfers into Level 2 of $161,322 from Level
3 (for the year ended 31 December 2022: $4,555,194) and transfers into Level 1
of $12,846,527 from Level 3 due to conversion into publicly traded common
stocks (for the year ended 31 December 2022: $nil). Transfers between levels
are deemed to occur at year end.
The following tables summarise the valuation techniques and significant
unobservable inputs used for the Group's investments that are categorised
within Level 3 of the fair value hierarchy as of 31 December 2023 and 31
December 2022:
Fair value at 31 December 2023 Valuation techniques Significant unobservable inputs Range of inputs
Assets (at fair value)
Investments in securities
Convertible preferred stocks 44,732,084 Recent transaction price n/a n/a
19,614,346 Discounted cash flow WACC 13% - 30%
and/or market approach Revenue multiples 2.8x - 4.0x
Market rate of returns (18%) - 10%
8,727,481 Probability-weighted expected return method ("PWERM") WACC 12% - 20%
Revenue multiples 4.0x
Market step-up multiple 0.7x - 1.8x
Market rate of returns (23)% - 10%
Recovery rate 50%
115,353 Liquidation value n/a n/a
Convertible notes 7,566,258 PWERM Discount rate 5% -7%
Expected volatility 60%
352,904 Discounted cash flow WACC 26%
and/or market approach Revenue multiples 4.0x
Market rate of returns (3%)
64,228 Recent transaction price n/a n/a
Common stocks 798,531 Recent transaction price n/a n/a
105,808 Market approach Revenue multiples 0.5x -0.6x
Total investments in securities 82,076,993
Derivative contracts
Warrants 697,472 Recent transaction price Expected volatility 38% - 43%
and option pricing model
Contingent value rights 541,706 Recent transaction price n/a n/a
Total derivative contracts 1,239,178
Fair value at 31 December 2022 Valuation techniques Significant unobservable inputs Range of inputs
Assets (at fair value)
Investments in securities
Convertible preferred stocks 50,023,996 Discounted cash flow WACC 13% - 33%
and/or market approach Revenue multiples 2.8x - 4.0x
Market step-up multiple 0.7x - 1.5x
Market rate of returns -30% - 20%
7,908,953 Price of most recent
funding round n/a n/a
Convertible notes 8,772,349 Discounted cash flow WACC 13%
and/or market approach Revenue multiples 4.0x
Market step-up multiple 0.7x - 1.1x
Market rate of returns 0%
1,280,484 PWERM Market rate of returns -30%
Recovery rate 0% - 50%
Common stocks 1,208,299 Discounted cash flow WACC 13%
and/or market approach Revenue multiples 0.2x - 4.0x
Market step-up 0.7x - 1.1x
multiple
Market rate of returns -10%
2,156,109 PWERM Probability of business 95%
combination
149 Price of most recent
funding round n/a n/a
Total investments in securities 71,350,339
Derivative contracts
Warrants 315,589 Discounted cash flow WACC 33%
Market approach Revenue multiple 4.0x
and/or option pricing Market rate of returns Expected volatility 10%
model 53%
161,322 PWERM Expected volatility 25%
Total derivative contracts 476,911
The significant unobservable inputs used in the fair value measurements of
Level 3 common stock, convertible preferred stocks, convertible notes, and
warrants include, but are not limited to, WACC, revenue and/or earnings
multiple, market rate of return, and expected volatility. Increases in the
WACC in isolation would result in a lower fair value for the security, and
vice versa. Increases in multiples and/or market rate of returns in isolation
would result in a higher fair value of the security, and vice versa. A change
in volatility in isolation could result in a higher or lower fair value for
the security.
The below table presents additional information about Level 3 assets and
liabilities measured at fair value. Both observable and unobservable inputs
may be used to determine the fair value of positions that the Group has
classified within the Level 3 category. As a result, the unrealised gains and
losses for assets and liabilities within the Level 3 category may include
changes in fair value that were attributable to both observable and
unobservable inputs.
Changes in Level 3 assets and liabilities measured at fair value for the year
ended 31 December 2023 were as follows:
Balance beginning 1 January 2023 Realised gains/ (losses)((a)) Change in Unrealised gains/ (losses)((a)) Purchases Sales Transfers into/(from) Level 3* Ending balance 31 December 2023
Assets (at fair value)
Investments in securities
Common stocks 3,364,557 - (304,109) - - (2,156,109) 904,339
Convertible preferred stocks 57,932,949 - -
6,114,014 7,595,169 1,547,132 73,189,264
Convertible notes 10,052,833 - (1,329,981) 11,536,901 - (12,276,363) 7,983,390
Total investments in securities 71,350,339 - -
4,479,924 19,132,070 (12,885,340) 82,076,993
Derivative contracts
Warrants 476,911 - 21,813 321,257 - (122,509) 697,472
Contingent value rights - -
541,706 - - - 541,706
Total derivative contracts 476,911 -
563,519 321,257 - (122,509) 1,239,178
* Includes conversion of convertible bonds into convertible preferred stock
and convertible notes.
Changes in Level 3 assets and liabilities measured at fair value for the year
ended 31 December 2022 were as follows:
Balance beginning 1 January 2022 Realised gains/ (losses)((a)) Change in Unrealised gains/ (losses)((a)) Purchases Sales Transfers into/(from) Level 3((b)) Ending balance 31 December 2022
Assets (at fair value)
Investments in securities
Convertible preferred stocks 67,177,270 - (17,555,053) 12,142,203 - (3,831,471) 57,932,949
Common stocks 1,943,967 - (664,647) 2,085,237 - - 3,364,557
Convertible notes - - 420,628 8,195,772 - 1,436,433 10,052,833
Convertible bonds 723,723 - - 1,436,433 - (2,160,156) -
Total investments in securities 69,844,960 - (17,799,072) 23,859,645 - (4,555,194) 71,350,339
Derivative contracts
Warrants 134,008 - 76,306 266,597 - - 476,911
Total derivative contracts 134,008 - 76,306 266,597 - - 476,911
((a)) Realised and unrealised gains and losses are included in net realised
and change in unrealised gain/(loss) on investments, derivatives and foreign
currency transactions in the consolidated statement of operations.
((b)) Conversions of preferred stock into common stock.
Changes in Level 3 unrealised gains and losses during the year for assets
still held at year end were as follows:
2023 2022
Common stocks 116,949 (664,647)
Convertible notes (919,115) 420,628
Convertible preferred stocks 6,199,338 (13,404,700)
Contingent value rights 541,706 -
Warrants 21,813 76,306
Change in unrealised gains and losses during the year for assets still held at 5,960,691 (13,572,413)
year end
Total realised gains and losses and unrealised gains and losses in the Group's
investment in securities, derivative contracts and securities sold short are
made up of the following gain and loss elements:
2023 2022
Realised gains 127,739,248 47,604,728
Realised losses (60,622,155) (41,995,983)
Net realised gain on securities, derivative contracts and securities sold 67,117,093 5,608,745
short
2023 2022
Change in unrealised gains 132,672,225 112,585,347
Change in unrealised losses (111,833,730) (152,339,558)
Net change in unrealised gain/(loss) on securities, derivative contracts and 20,838,495 (39,754,211)
securities sold short
As at 31 December 2023 the Group had commitments (subject to completion of
certain parameters) to certain investments totalling $59,732,160 (31 December
2022: $2,544,486), which was mainly comprised of a $58,078,670 commitment to
Acacia Research Corporation for a stake of Arix and a $1,107,148 uncalled
commitment related to the Group's investment in 4010 Royalty Fund.
3. Due to/from brokers
Due to/from brokers includes cash balances held with brokers and collateral on
derivative transactions. Amounts due from brokers may be restricted to the
extent that they serve as deposits for securities sold short or cash posted as
collateral for derivative contracts.
As at 31 December 2023, due from brokers totalled $57,887,214 (31 December
2022: $22,195,456). Included within due from brokers is $34,093,785 (31
December 2022: $5,810,750) which can be used for investment. The Group pledged
cash collateral to counterparties to over-the-counter derivative contracts of
$23,793,429 (31 December 2022: $16,384,706) which is included in due from
brokers.
In the normal course of business, substantially all of the Group's securities
transactions, money balances, and security positions are transacted with the
Group's prime brokers and counterparties, Goldman Sachs & Co. LLC, Cowen
Financial Products, LLC, UBS AG, Bank of America Merrill Lynch, Morgan Stanley
& Co. LLC, Jefferies & Co. and J.P. Morgan Securities, LLC. The Group
is subject to credit risk to the extent any broker with which it conducts
business is unable to fulfil contractual obligations on its behalf. The
Group's management monitors the financial condition of such brokers and does
not anticipate any losses from these counterparties.
4. Derivative contracts
In the normal course of business, the Group utilises derivative contracts in
connection with its proprietary trading activities. Investments in derivative
contracts are subject to additional risks that can result in a loss of all or
part of an investment. The Group's derivative activities and exposure to
derivative contracts are classified by the primary underlying risk, equity
price risk and foreign currency exchange rate risk. In addition to its primary
underlying risk, the Group is also subject to additional counterparty risk due
to the inability of its counterparties to meet the terms of their contracts.
Warrants
The Group may receive warrants from its portfolio companies upon an investment
in the debt or equity of a portfolio company. The warrants provide the Group
with exposure and potential gains upon equity appreciation of the portfolio
company's share price.
The value of a warrant has two components: time value and intrinsic value. A
warrant has a limited life and expires on a certain date. As time to the
expiration date of a warrant approaches, the time value of a warrant will
decline. In addition, if the stock underlying the warrant declines in price,
the intrinsic value of an "in the money" warrant will decline. Further, if the
price of the stock underlying the warrant does not exceed the strike price of
the warrant on the expiration date, the warrant will expire worthless. As a
result, there is the potential for the Group to lose its entire investment in
a warrant.
The Group is exposed to counterparty risk from the potential failure of an
issuer of warrants to settle its exercised warrants. The maximum risk of loss
from counterparty risk to the Group is the fair value of the contracts and the
purchase price of the warrants. The Group considers the effects of
counterparty risk when determining the fair value of its investments in
warrants.
Equity swap contracts
The Group is subject to equity price risk in the normal course of pursuing its
investment objectives. The Group may enter into equity swap contracts either
to manage its exposure to the market or certain sectors of the market, or to
create exposure to certain equities to which it is otherwise not exposed.
Equity swap contracts involve the exchange by the Group and a counterparty of
their respective commitments to pay or receive a net amount based on the
change in the fair value of a particular security or index and a specified
notional amount.
Contingent value rights
The Group may receive contingent value rights during mergers, acquisitions, or
divestitures. Contingent value rights are designed to provide the Group with
additional compensation or benefits contingent upon the occurrence of specific
future events, such as regulatory approvals, milestones related to product
development or commercialization, or the achievement of certain financial
targets. Contingent value rights are subject to the uncertainty of payout, as
their value hinges on the occurrence of specific events. The Group considers
the uncertainty when determining the fair value of its investments in
contingent value rights.
Volume of derivative activities
The Group considers the average month-end notional amounts during the year,
categorised by primary underlying risk, to be representative of the volume of
its derivative activities during the year ended 31 December 2023:
2023 2022
Long exposure Short exposure Long exposure Short exposure
Primary underlying risk Notional amounts Notional amounts Notional amounts Notional amounts
Equity price
Equity swaps 64,032,939 56,046,951 48,774,292 56,273,944
Warrants((a)) 3,963,562 - 4,024,470 -
Contingent value rights 541,706 - - -
68,538,207 56,046,951 52,798,762 56,273,944
((a)) Notional amounts presented for warrants are based on the fair value of
the underlying shares as if the warrants were exercised at each respective
month end date.
Impact of derivatives on the consolidated statement of assets and liabilities
and consolidated statement of operations
The following tables identify the fair value amounts of derivative instruments
included in the consolidated statement of assets and liabilities as derivative
contracts, categorised by primary underlying risk, at 31 December 2023 and 31
December 2022. The following table also identifies the gain and loss amounts
included in the consolidated statement of operations as net realised
gain/(loss) on derivative contracts and net change in unrealised gain/(loss)
on derivative contracts, categorised by primary underlying risk, for the year
ended 31 December 2023 and 31 December 2022.
Impact of derivatives on the consolidated statement of assets and liabilities
and consolidated statement of operations (continued)
2023
Primary underlying risk Derivative assets Derivative liabilities Realised gain/(loss) Change in unrealised gain/(loss)
Equity price
Equity swaps 7,475,802 8,390,327 (2,428,614) (11,074,111)
Warrants 7,446,312 - (373) 1,408,458
Contingent value rights 541,706 - - 541,706
15,463,820 8,390,327 (2,428,987) (9,123,947)
2022
Primary underlying risk Derivative assets Derivative liabilities Realised gain/(loss) Change in unrealised gain/(loss)
Equity price
Equity swaps 19,086,329 8,926,743 (2,748,269) 5,894,995
Warrants 2,381,320 - - (1,293,427)
21,467,649 8,926,743 (2,748,269) 4,601,568
5. Securities lending agreements
The Group has entered into securities lending agreements with its prime
brokers. From time to time, the prime brokers lend securities on the Group's
behalf. As of 31 December 2023 and 31 December 2022, no securities were loaned
and no collateral was received.
6. Offsetting assets and liabilities
The Group is required to disclose the impact of offsetting assets and
liabilities represented in the consolidated statement of assets and
liabilities to enable users of the consolidated financial statements to
evaluate the effect or potential effect of netting arrangements on its
financial position for recognised assets and liabilities. These recognised
assets and liabilities are financial instruments and derivative instruments
that are either subject to an enforceable master netting arrangement or
similar agreement or meet the following right of setoff criteria: the amounts
owed by the Group to another party are determinable, the Group has the right
to offset the amounts owed with the amounts owed by the other party, the Group
intends to offset and the Group's right of setoff is enforceable by law.
As of 31 December 2023 and 31 December 2022, the Group held financial
instruments and derivative instruments that were eligible for offset in the
consolidated statement of assets and liabilities and are subject to a master
netting arrangement. The master netting arrangement allows the counterparty to
net applicable collateral held on behalf of the Group against applicable
liabilities or payment obligations of the Group to the counterparty. These
arrangements also allow the counterparty to net any of its applicable
liabilities or payment obligations they have to the Group against any
collateral sent to the Group.
As discussed in Note 1, the Group has elected not to offset assets and
liabilities in the consolidated statement of assets and liabilities. The
following table presents the potential effect of netting arrangements for
asset derivative contracts presented in the consolidated statement of assets
and liabilities:
Gross amounts of recognised assets Gross amounts offset in the consolidated statement of assets and liabilities Gross amounts of recognised assets and liabilities 31 December 2023
Gross amounts not offset in the consolidated statement of
assets and liabilities
Description
Financial instruments((a)) Cash collateral received((b)) Net amount
Equity swaps
Cowen Financial Products, LLC - 6,235,319 (286,396) - 5,948,923
6,235,319
Jefferies & Co. 1,058,293 - 1,058,293 (758,677) - 299,616
Morgan Stanley & Co. LLC 129,527 - 129,527 (129,527) - -
Bank of America Merrill Lynch 52,663 - 52,663 (52,663) - -
7,475,802 - 7,475,802 (1,227,263) - 6,248,539
Gross amounts of recognised assets Gross amounts offset in the consolidated statement of assets and liabilities Gross amounts of recognised assets and liabilities 31 December 2022
Gross amounts not offset in the consolidated statement of
assets and liabilities
Description
Financial instruments((a)) Cash collateral received((b)) Net amount
Equity swaps
Bank of America Merrill Lynch 12,929,367 - 12,929,367 (3,983,939) - 8,945,428
Cowen Financial Products, LLC 3,239,591 - 3,239,591 (1,224,200) - 2,015,391
Morgan Stanley & Co. LLC 2,797,503 - 2,797,503 (2,797,503) - -
Jefferies & Co. 119,868 - 119,868 (119,868) - -
19,086,329 - 19,086,329 (8,125,510) - 10,960,819
((a)) Amounts related to master netting agreements (e.g. ISDA), determined by
the Group to be legally enforceable in the event of default and if certain
other criteria are met in accordance with applicable offsetting accounting
guidance but were not offset due to management's accounting policy election.
( )
((b)) Amounts related to master netting agreements and collateral agreements
determined by the Group to be legally enforceable in the event of default, but
certain other criteria are not met in accordance with applicable offsetting
accounting guidance. The collateral amounts may exceed the related net amounts
of financial assets and liabilities presented in the consolidated statement of
assets and liabilities. If this is the case, the total amount reported is
limited to the net amounts of financial assets and liabilities with that
counterparty.
The following tables present the potential effect of netting arrangements for
liability derivative contracts presented in the consolidated statement of
assets and liabilities as of 31 December 2023 and audited consolidated
statement of assets and liabilities 31 December 2022:
Gross amounts of recognised liabilities Gross amounts offset in the consolidated statement of assets and liabilities Gross amounts of recognised liabilities 31 December 2023 Net amount
Gross amounts not offset in the consolidated statement of
assets and liabilities
Description
Financial instruments((a)) Cash collateral pledged((b))
Equity swaps
Bank of America Merrill Lynch 4,382,764 - 4,382,764 (52,663) (4,320,957) 9,144
Morgan Stanley & Co. LLC 2,962,490 - 2,962,490 (129,527) (2,832,963) -
Jefferies & Co. 758,677 - 758,677 (758,677) - -
Cowen Financial Products, LLC 286,396 - 286,396 (286,396) - -
8,390,327 - 8,390,327 (1,227,263) (7,153,920) 9,144
Gross amounts of recognised liabilities Gross amounts offset in the consolidated statement of assets and liabilities Gross amounts of recognised liabilities 31 December 2022 Net amount
Gross amounts not offset in the consolidated statement of
assets and liabilities
Description
Financial instruments((a)) Cash collateral pledged((b))
Equity swaps
Bank of America Merrill Lynch 3,983,939 - 3,983,939 (3,983,939) - -
Morgan Stanley & Co. LLC 3,372,143 - 3,372,143 (2,797,503) (574,640) -
Cowen Financial Products, LLC 1,224,200 - 1,224,200 (1,224,200) - -
Jefferies & Co. 336,931 - 336,931 (119,868) (217,063) -
UBS AG 9,530 - 9,530 - (9,530) -
8,926,743 - 8,926,743 (8,125,510) (801,233) -
((a)) Amounts related to master netting agreements (e.g. ISDA), determined by
the Group to be legally enforceable in the event of default and if certain
other criteria are met in accordance with applicable offsetting accounting
guidance but were not offset due to management's accounting policy election.
((b)) Amounts related to master netting agreements and collateral agreements
determined by the Group to be legally enforceable in the event of default, but
certain other criteria are not met in accordance with applicable offsetting
accounting guidance. The collateral amounts may exceed the related net amounts
of financial assets and liabilities presented in the consolidated statement of
assets and liabilities. If this is the case, the total amount reported is
limited to the net amounts of financial assets and liabilities with that
counterparty.
7. Securities sold short
The Group is subject to certain inherent risks arising from its investing
activities of selling securities short. The ultimate cost to the Group to
acquire these securities may exceed the liability reflected in these
consolidated financial statements.
8. Risk factors
Some underlying investments may be deemed to be highly speculative investments
and are not intended as a complete investment programme. The Group is designed
only for sophisticated persons who are able to bear the economic risk of the
loss of their entire investment in the Group and who have a limited need for
liquidity in their investment. The following risks are applicable to the
Group:
Market risk
Certain events particular to each market in which Portfolio Companies conduct
operations, as well as general economic and political conditions, may have a
significant negative impact on the operations and profitability of the Group's
investments and/or on the fair value of the Group's investments. Such events
are beyond the Group's control, and the likelihood they may occur and the
effect on the Group cannot be predicted. The Group intends to mitigate market
risk generally by investing in Medtech and Biotech Companies in various
geographies.
Portfolio Company products are subject to regulatory approvals and actions
with new drugs, medical devices and procedures being subject to extensive
regulatory scrutiny before approval, and approvals can be revoked.
The market value of the Group's holdings in public Portfolio Companies could
be affected by a number of factors, including, but not limited to: a change in
sentiment in the market regarding the public Portfolio Companies, the market's
appetite for specific asset classes; and the financial or operational
performance of the public Portfolio Companies.
The size of investments in public Portfolio Companies or involvement in
management may trigger restrictions on buying or selling securities. Laws and
regulations relating to takeovers and inside information may restrict the
ability of the Group to carry out transactions, or there may be delays or
disclosure requirements before transactions can be completed.
Equity prices and returns from investing in equity markets are sensitive to
various factors, including but not limited to: expectations of future
dividends and profits; economic growth; exchange rates; interest rates; and
inflation.
Biotech/healthcare companies
The Portfolio Companies are biotechnology and medical technology companies,
which are generally subject to greater governmental regulation than other
industries at both the state and federal levels. Changes in governmental
policies may have a material effect on the demand for or costs of certain
products and services.
Any failure by a Portfolio Company to develop new technologies or to
accurately evaluate the technical or commercial prospects of new technologies
could result in it failing to achieve a growth in value and this could have a
material adverse effect on the Group's financial condition.
Portfolio Companies may not successfully translate promising scientific theory
into a commercially viable business opportunity. Further, the Portfolio
Companies' therapies in development may fail clinical trials and therefore no
longer be viable.
Portfolio Company products are subject to intense competition and there are
many factors that will affect whether the new therapies released by the
Portfolio Companies gain market share against competitors and existing
therapies.
Portfolio Companies may be newer small and mid-size Medtech and Biotech
Companies. These companies may be more volatile and have less experience and
fewer resources than more established companies.
Concentration risk
The Group may not make an investment or a series of investments in a Portfolio
Company that result in the Group's aggregate investment in such Portfolio
Company exceeding 15 per cent of the Group's gross assets, save for Rocket for
which the limit is 25 per cent as stated in the Group's Prospectus. Each of
these investment restrictions will be calculated as at the time of investment.
As such, it is possible that the Group's portfolio may be concentrated at any
given point in time, potentially with more than 15 per cent of gross assets
held in one Portfolio Company as Portfolio Companies increase or decrease in
value following such initial investment. The Group's portfolio of investments
may also lack diversification among Medtech and Biotech Companies and related
investments.
Concentration of credit risk
In the normal course of business, the Group maintains its cash balances in
financial institutions, which at times may exceed US federal or UK insured
limits, as applicable. The Group is subject to credit risk to the extent any
financial institution with which it conducts business is unable to fulfil
contractual obligations on its behalf. Management monitors the financial
condition of such financial institutions and does not anticipate any losses
from these counterparties.
Counterparty risk
The Group invests in equity swaps and takes the risk of non-performance by the
other party to the contract. This risk may include credit risk of the
counterparty, the risk of settlement default, and generally, the risk of the
inability of counterparties to perform with respect to transactions, whether
due to insolvency, bankruptcy or other causes.
In an effort to mitigate such risks, the Group will attempt to limit its
transactions to counterparties which are established, well capitalised and
creditworthy.
Liquidity risk
Liquidity risk is the risk that the Group cannot meet its financial
commitments as they fall due. The Group's unquoted investments may have
limited or no secondary market liquidity so the Investment Manager maintains a
sufficient balance of cash and market quoted securities which can be sold if
needed to meet its commitments.
The Group's investments in quoted securities may also be subject to sale
restrictions on listing and when the Investment Manager is subject to close
periods or privy to confidential information by virtue of their active
involvement in the management of portfolio companies.
Derivative transactions may not be liquid in all circumstances, such that in
volatile markets it may not be possible to close out a position without
incurring a loss. The illiquidity of the derivatives markets may be due to
various factors, including congestion, disorderly markets, limitations on
deliverable supplies, the participation of speculators, government regulation
and intervention, and technical and operational or system failures.
Foreign exchange risk
The Group will make investments in various jurisdictions in a number of
currencies and will be exposed to the risk of currency fluctuations that may
materially adversely affect, amongst other things, the value of the Portfolio
Company or the Group's investment in such Portfolio Company, or any
distributions received from the Portfolio Company. Under its investment
policy, the Group does not intend to enter into any securities or financially
engineered products designed to hedge portfolio exposure or mitigate portfolio
risk as a core part of its investment strategy.
9. Share capital
During the year ended 31 December 2023 the Company did not issue any Ordinary
Shares:
2023 2023 2022 2022
Number of Number of
Number of Number of Ordinary Shares Treasury Shares
Ordinary Shares Treasury Shares
As at 1 January 212,389,138 - 212,389,138 -
Share buyback (1,753,791) 1,753,791 - -
As at 31 December 210,635,347 1,753,791 212,389,138 -
During the year ended 31 December 2023, the Company bought back 1,753,791
Ordinary Shares at an average price of US$1.19 for a total cost of
US$2,093,411, including transaction costs of $4,178. At the date of approval
of these consolidated financial statements, all 1,753,791 of the Ordinary
Shares were held as treasury shares (31 December 2022: nil).
Ordinary Shares carry the right to receive all income of the Company
attributable to the Ordinary Shares and to participate in any distribution of
such income made by the Company. Such income shall be divided pari passu among
the holders of Ordinary Shares in proportion to the number of Ordinary Shares
held by them.
Ordinary Shares shall carry the right to receive notice of and attend and vote
at any general meeting of the Company, and at any such meeting on a show of
hands, every holder of Ordinary Shares present in person (includes present by
attorney or by proxy or, in the case of a corporate member, by duly authorised
corporate representative) and entitled to vote shall have one vote, and on a
poll, subject to any special voting powers or restrictions, every holder of
Ordinary Shares present in person or by proxy shall be entitled to one vote
for each Ordinary Share, or fraction of an Ordinary Share, held.
On 1 December 2022, the Performance Allocation Share held by RTW Venture
Performance LLC was surrendered in exchange for a New Performance Allocation
Share issued by the Subsidiary. The New Performance Allocation Share issued by
the Subsidiary has identical terms to the original Performance Allocation
Share issued by the Company. From 1 December 2022, the Performance Allocation
Amount has been allocated at the Subsidiary level, and presented in the
Group's financial statements as part of the Non-Controlling Interest. The sole
New Performance Allocation Share is held by RTW Venture Performance LLC. As at
31 December 2023, there were no Performance Allocation Shares of the Company
in issue (31 December 2022: nil) and one New Performance Allocation Share of
the Subsidiary in issue (31 December 2022: one).
New Performance Allocation Shares of the Subsidiary carry the right to
receive, and participate in, any dividends or other distributions of the
Subsidiary available for dividend or distribution. New Performance Allocation
Shares are not entitled to receive notice of, to attend or to vote at general
meetings of the Company or the Subsidiary.
For all share classes, subject to compliance with the solvency test set out in
the Companies Law, the Board may declare and pay such annual or interim
dividends and distributions as appear to be justified by the position of the
Group. The Board may, in relation to any dividend or distribution, direct that
the dividend or distribution shall be satisfied wholly or partly by the
distribution of assets, and in particular of paid-up shares or reserves of any
nature as approved by the Group.
10. Related party transactions
Management Fee
The Investment Manager receives a monthly management fee, in advance, as of
the beginning of each month in an amount equal to 0.104% (1.25% per annum) of
the net assets of the Group (the "Management Fee"). For purposes of
determining the Management Fee, private investments will be valued at the fair
value. The Management Fee will be prorated for any period that is less than a
full month. The Management Fees charged for the year ended 31 December 2023
amounted to $4,269,757 (year ended 31 December 2022: $3,751,464) of which $nil
(31 December 2022: $nil) was outstanding at the year end.
Performance Allocation
The Performance Allocation Share held by RTW Venture Performance LLC was
surrendered in exchange for a New Performance Allocation Share issued by the
Subsidiary. The New Performance Allocation Share issued by the Subsidiary has
identical terms to the original Performance Allocation Share issued by the
Company.
In respect of each Performance Allocation Period, the Performance Allocation
Amount shall be allocated at the Subsidiary level and disclosed on the Group's
financial statements within the Non-Controlling Interest, subject to the
satisfaction of a hurdle condition.
The Performance Allocation Amount relating to the Performance Allocation
Period, which is calculated solely at the Subsidiary, is an amount equal to:
((A-B) x C) x 20 per cent
where:
A is the Adjusted Net Asset Value per Ordinary Share on
the Calculation Date, adjusted by:
adding back (i) the total net Distributions (if any) per Ordinary Share
(whether paid, or declared but not yet paid) during the Performance Allocation
Period; and (ii) any accrual for the Performance Allocation for the current
Performance Allocation Period reflected in the Net Asset Value per Ordinary
Share; and deducting any accretion in the Net Asset Value per Ordinary Share
resulting from either the issuance of Ordinary Shares at a premium or the
repurchase or redemption of Ordinary Shares at a discount during the
Performance Allocation Period;
B is the Adjusted Net Asset Value per Ordinary Share at
the start of the Performance Allocation Period; and
C is the time weighted average number of Ordinary
Shares in issue during the Performance Allocation Period.
The Hurdle Amount represents an 8 per cent annualised compounded rate of
return in respect of the Adjusted Net Asset Value per Ordinary Share from the
start of the initial Performance Allocation Period through the then current
Performance Allocation Period.
The Performance Allocation Share Class can elect to receive the Performance
Allocation Amount in Ordinary Shares, cash, or a mixture of the two, subject
to a minimum 50% as Ordinary Shares. The Performance Allocation Share Class
entered into a letter agreement dated 21 April 2020, pursuant to which the
Performance Allocation Share Class agreed to defer distributions of Ordinary
Shares that would otherwise be distributed to the Performance Allocation Share
Class no later than 30 business days after the publication of the Group's
audited annual consolidated financial statements. Under that letter agreement,
such Ordinary Shares shall be distributed to the Performance Allocation Share
Class at such time or times as determined by the Boards of Directors of the
Group.
The Group will increase or decrease the amount owed to the Performance
Allocation Share Class based on its investment exposure to the Group's
performance had such Performance Ordinary Shares been so issued. The
Performance Allocation Amount for the year ended 31 December 2023 includes the
residual, undistributed Performance Allocation Amounts from prior years that
were previously converted into a total of 14,228,208 Notional Ordinary Shares.
These Notional Ordinary Shares are subject to market risk alongside the
Ordinary Shares and incurred a mark to market gain of $5,137,836 in 2023 (31
December 2022: mark to market loss of $2,476,036), which is included in
Performance Allocation within the consolidated statement of changes in net
assets. There was an allocation of uncrystallized performance allocation from
Ordinary Shareholders to the Performance Allocation Share Class of $2,756,842
related to the Group's performance in the period (31 December 2022: $nil).
Until the Group makes a distribution of Ordinary Shares to the Performance
Allocation Share Class, the Group will have an unsecured discretionary
obligation to make such distribution at such time or times as the Board of
Directors of the Group determines. RTW Venture Performance LLC has agreed to
the deferral of the distributions of the Subsidiary's Ordinary Shares in
connection with its own tax planning. The Group does not believe that the
deferral of such distributions to the Performance Allocation Share Class will
have any negative effects on holders of the Company's Ordinary Shares.
RTW Venture Performance LLC, an affiliate of the Investment Manager, is a
member of the Performance Allocation Share Class and will therefore receive a
proportion of the Performance Allocation Amount. For the year ended 31
December 2023, the Board did not approve a cash distribution to the
Performance Allocation Share Class (year ended 31 December 2022: $nil). At the
year end the Performance Allocation Share Class of the Subsidiary is reflected
within the Non-Controlling Interest balance of $29,739,146 (31 December 2022:
$21,844,468).
The Investment Manager is also refunded any research costs incurred on behalf
of the Group.
On 6 July 2023 the Group signed a $25,000,000 commitment to 4010 Royalty Fund
a private fund created and managed by RTW Investments, LP. The Group
subsequently funded $23,892,852 of this commitment on 20 July 2023 and had a
remaining commitment of $1,107,148 at 31 December 2023. No management or
performance fees are charged to the Group at the 4010 Royalty Fund.
One of the Directors of the Group, Stephanie Sirota, is also a partner and the
Chief Business Officer of the Investment Manager.
As at 31 December 2023, the number of Ordinary Shares held by each Director
was as follows:
2023 2022
Number of Ordinary Shares Number of Ordinary Shares
William Simpson 200,000 200,000
Paul Le Page 128,000 128,000
William Scott 350,000 305,003
Stephanie Sirota 1,010,000 1,010,000
Roderick Wong is a major shareholder and a member of the Investment Manager.
Roderick Wong serves on the boards of the following investments: Rocket, Ji
Xing, and Yarrow Biotechnology. As at 31 December 2023, he held 29,693,872
Ordinary Shares in the Group (14.10% of the Ordinary Shares in issue) (31
December 2022: 29,593,872, 13.93% of the Ordinary Shares in issue).
The total Directors' fees expense for the year amounted to $177,011 (31
December 2022: $176,722) of which $50,369 was outstanding at 31 December 2023
(31 December 2022: $48,281) and is included within accrued expenses.
All of the Directors of the Company are also directors of the Subsidiary and
each has served since the Subsidiary's incorporation on 23 November 2022.
11. Administrative services
Elysium Fund Management Limited ("EFML") serves as Administrator to the Group,
providing administration, corporate secretarial, corporate governance and
compliance services. Morgan Stanley Fund Services USA LLC ("MSFS") serves as
the Group's Sub-Administrator.
During the year ended 31 December 2023, EFML and MSFS charged administration
fees of $421,468 (including $212,000 (GBP165,000) in respect of one-off work
and compensation for work performed in prior years) and $251,954 respectively
(31 December 2022: EFML charged $93,469 and MSFS charged $218,534), of which
$18,465 and $94,250 (31 December 2022: EFML $6,484, MSFS $91,099) were
outstanding at 31 December 2023, and were included within accrued expenses.
12. Financial highlights
Financial highlights for the year ended 31 December 2023 and 31 December 2022
are as follows:
2023 2022
Per Ordinary Share operating performance
Net Asset Value, beginning of year $ 1.54 $ 1.71
Share buybacks - -
Income from investments
Net investment income/(loss) (0.02) (0.02)
Net realised and unrealised gain/(loss) on securities, derivatives and foreign 0.42 (0.15)
currency transactions
Income/(loss) attributable to Non-Controlling Interest (0.04) -
Total from investment operations 0.36 (0.17)
Net Asset Value, end of year $1.90 $ 1.54
Total return
Total return before Performance Allocation 24.27 % (10.18)%
Performance Allocation (excluding mark to market) (0.80) % - %
Total return after Performance Allocation 23.47 % (10.18)%
Ratios to average net assets*
Expenses 2.58 % 2.47%
Performance Allocation (including mark to market) 2.28 % (1.44)%
Expenses and Performance Allocation 4.86 % 1.03%
Net investment income/(loss) (1.38) % (1.75)%
NAV total return for the year 23.47 % (10.18)%
* Ratios are not annualised.
Financial highlights are calculated for Ordinary Shares. An individual
shareholder's financial highlights may vary based on the timing of capital
share transactions. Net investment income/loss does not reflect the effects of
the Performance Allocation.
13. Subsequent events
On 13 February 2024, the Group completed the acquisition of Arix's assets. The
transaction was announced on 1 November 2023 and was effected through a scheme
of reconstruction and the voluntary winding-up of Arix under section 110 of
the Insolvency Act 1986.
On 1 February 2024, RTW Biotech UK Limited, a wholly owned subsidiary of RTW
Biotech Opportunities Operating Limited, was incorporated in the United
Kingdom, and has been used to hold Arix's assets.
From 31 December 2023 to the date of approval of these consolidated financial
statements, the Company bought back 5,550,000 Ordinary Shares at an average
price of $1.33 for a total cost of $7,405,181, including transaction costs of
$14,806. At the point of signing these consolidated financial statements, all
5,550,000 of the Ordinary Shares were held as treasury shares.
These consolidated financial statements were approved by the Board of
Directors on 27 March 2024. Subsequent events have been evaluated through this
date.
General Company Information
Structure Closed-end Investment Fund
Domicile Guernsey
Listing London Stock Exchange, Premium Segment
Launch date 30 October 2019
Dividend policy To be reinvested
Management fee 1.25%
Performance fee 20% with an 8.0% annualised and compounded- since-inception hurdle
ISIN GG00BKTRRM22
SEDOLs BKTRRM2 and BNNXVW5
Tickers RTW (USD) and RTWG (GBP)
LEI 549300Q7EXQQH6KF7Z84
Website www.rtwfunds.com/rtw-biotech-opportunities-ltd
Glossary (unaudited)
Listing of portfolio company abbreviations used throughout this report
Shorthand Company Name Legal Company Name
Abdera Abdera Therapeutics, Inc.
Acelyrin Acelyrin, Inc.
Alcyone Alcyone Therapeutics, Inc.
Allurion Allurion Technologies, Inc.
Ancora Ancora Heart, Inc.
Apogee Apogee Therapeutics, Inc.
Artios Artios Pharma, Inc.
Artiva Artiva Biotherapeutics, Inc.
Athira Athira Pharma, Inc.
Avidity Avidity Biosciences, Inc.
Basking Basking Biosciences, Inc.
Biomea Biomea Fusion, Inc.
C4 Therapeutics C4 Therapeutics, Inc.
Cargo Cargo Therapeutics, Inc.
CinCor CinCor Pharma, Inc.
Encoded Encoded Therapeutics, Inc.
Frequency Frequency Therapeutics, Inc.
GH Research GH Research PLC
HSAC2 Health Sciences Acquisition Corporation 2
Immunocore Immunocore Limited
Iteos iTeos Therapeutics, Inc.
Ji Xing or JIXING Ji Xing Pharmaceuticals Limited
Kyverna Kyverna Therapeutics, Inc.
Landos Landos Biopharma, Inc.
Lenz Lenz Therapeutics
Lycia Lycia Therapeutics, Inc.
Magnolia Magnolida Medical Technologies, Inc.
Milestone Milestone Pharmaceuticals, Inc.
Mineralys Mineralys Therapeutics, LLC
Monte Rosa Monte Rosa Therapeutics, Inc.
Neurogastrx Neurogastrx, Inc.
Nikang Nikang Therapeutics, Inc.
Nuance Nuance Pharma
Numab Numab Therapeutics, Inc.
Orchestra Orchestra BioMed, Inc.
OriCell OriCell Therapeutics (Shangha) Co., Ltd
Prometheus Prometheus Biosciences, Inc.
Prometheus Labs Prometheus Laboratories, Inc.
Pulmonx Pulmonx Corporation
Pyxis Pyxis Oncology, Inc.
Rocket Rocket Pharmaceuticals, Inc.
RTW Royalty 1 RTW Royalty Holdings LLC (royalty deal for Mavacamten)
RTW Royalty 2 RTW Fund 2 (royalty deal for Jelmyto)
RTW Royalty Fund 4010 Royalty Fund, a private fund created and managed by RTW Investments,
LP.
InBrace Swift Health, Inc.
Tarsus Tarsus, Pharmaceuticals, Inc.
Tenaya Tenaya Therapeutics, Inc.
Third Harmonic Third Harmonic Bio, Inc.
Tourmaline Tourmaline Bio, Inc.
Umoja Umoja Biopharma, Inc.
Ventyx Ventyx Biosciences, Inc.
Visus Visus Therapeutics, Inc.
Yarrow RTW Holdings LLC
Defined Terms
"Adjusted Net Asset Value" the NAV adjusted by deducting the unrealised gains and unrealised losses in
respect of private Portfolio Companies;
"Administrator" means Elysium Fund Management Limited;
"Admission" means admission of the Ordinary Shares to trading on the Main Market of the
London Stock Exchange on 30 October 2019;
"AIC" the Association of Investment Companies;
"AIC Code" the AIC Code of Corporate Governance dated February 2019;
"AIFM" means Alternative Investment Fund Manager;
"AIFMD" the Alternative Investment Fund Managers Directive;
the Annual Report and audited financial statements;
"Annual Report"
"Antibody" a large Y-shaped blood protein that can stick to the surface of a virus,
bacteria, or receptor on a cell;
"Antibody-Oligonucleotide Conjugates" or "AOC" molecules that combine structures of an antibody and an oligo;
"Autoimmune diseases" conditions, where the immune system mistakenly attacks a body tissue;
31 December or, if such date is not a business day, the previous business day;
"Calculation date"
"Cardiovascular disease" conditions affecting heart and vascular system;
"Clinical stage" or "clinical trial" a therapy in development goes through a number of clinical trials to ensure
its safety and efficacy. The trials in human subjects range from Phase 1 to
Phase 3. All studies done prior to clinical testing in human subjects are
considered preclinical;
"CNS" Central Nervous System
"Companies Law" the Companies (Guernsey) Law, 2008 (as amended);
"the Company" or "RTW Bio" RTW Biotech Opportunities Ltd, a company incorporated in Guernsey as a
close-ended Investment Company. The Company has an unlimited life and is
registered with the GFSC as a Registered Closed-ended Collective Investment
Scheme. The registered office of the Company is 1(st) Floor, Royal Chambers,
St Julian's Avenue, St Peter Port, Guernsey, GY1 3JX;
"Core portfolio" Private companies and public companies that were initially added to the
portfolio as private investments;
"Corporate Brokers" Bank of America and Numis;
"Crohn's Disease" a condition, in which a part(s) of digestive tract is inflamed;
"CRS" Common Reporting Standard;
"Danon Disease" a rare genetic heart condition in children, predominantly boys;
"Directors" or "Board" the Directors of the Company as at the date of this document, or who served
during the reporting period, and "Director" means any one of them;
"DTR" Disclosure Guidance and Transparency Rules of the UK's FCA;
"EU" or "European Union" the European Union first established by the treaty made at Maastricht on 7
February 1992;
"Fanconi Anaemia" a rare genetic blood condition in young children;
"FATCA" the Foreign Account Tax Compliance Act;
"FCA" the Financial Conduct Authority;
"FDA" the United States Food and Drug Administration;
"FRC" the Financial Reporting Council;
"FTC" the Federal Trade Commission;
"Gene therapy" a biotechnology that uses gene delivery systems to treat or prevent a disease;
"Genetic Medicine" an approach to treat or prevent a disease using gene therapy or RNA medicines;
"GFSC" the Guernsey Financial Services Commission;
"GFSC Code" the GFSC Finance Sector Code of Corporate Governance as amended in June 2021;
"Greater China" Encompasses mainland China, Macau, Hong Kong and Taiwan;
"the Group" the Company and the Subsidiary;
"HCM" or "Hypertrophic cardiomyopathy" a cardiovascular disease characterised by an abnormally thick heart muscle;
"ImmTAC®" bi-specific biologic molecules designed to fight cancer or viral infections;
"Independent Valuers" Alvarez & Marsal Valuation Services, LLC and Houlihan Lokey, Inc.;
"Infantile Malignant Osteopetrosis" or "IMO" a rare genetic bone disease in young children, manifesting in an increased
bone density;
"Investigational New Drug" or "IND" the FDA's investigational New Drug programme is the means by which a
pharmaceutical company obtains permission to start human clinical trials;
"Investment Manager" RTW Investments, LP;
"IPEV" the International Private Equity and Venture Capital Valuation Guidelines that
set out recommendations, intended to represent current best practice, on the
valuation of private capital investments;
"IPO" an initial public offering;
Inflation Reduction Act of 2022;
"IRA"
"IRR" internal rate of return;
"ISDA" International Swaps and Derivatives Association;
"Latest Practicable Date" 31 December 2022, being the latest practicable date for valuing an asset for
inclusion in this report;
"Lentiviral vector or "LVV" based gene therapy - a type of viral vector used to deliver a gene;
"Leukocyte adhesion deficiency" or "LAD-I" a rare genetic disorder of immunodeficiency in young children;
"LifeSci Companies" companies operating in the life sciences, biopharmaceutical, or medical
technology industries;
"Listing Rules" the listing rules made under section 73A of the Financial Services and Markets
Act 2000 (as set out in the FCA Handbook), as amended;
"London Stock Exchange" London Stock Exchange plc;
"LSE" London Stock Exchange's main market for listed securities;
"MAGE-A4" a protein expressed on certain types of tumours;
"Medtech" medical technology sector within healthcare;
"Menin" a target for the treatment development in oncology;
Merck & Co., Inc.;
"Merck"
"MOC" multiple on capital is the ratio of realised and unrealised gains divided by
the acquisition cost of an investment;
"Myotonic Dystrophy" a genetic condition that affects muscle function;
"Nasdaq Biotech" or "NBI" a stock market index made up of securities of NASDAQ-listed companies
classified according to the Industry Classification Benchmark as either the
Biotechnology or the Pharmaceutical industry;
"Net Asset Value" or "NAV" the value of the assets of the Company less its liabilities, calculated in
accordance with the valuation guidelines laid down by the Board;
"New Performance Allocation Shares" performance allocation shares of no-par value in the capital of the
Subsidiary;
"NewCo" a company incubated by RTW Investments, LP;
"Notional Ordinary Shares" Performance Ordinary Shares, in which receipt of such shares has been
deferred;
"Official List" the official list of the UK Listing Authority;
"Oligonucleotides" or "Oligos" short DNA or RNA molecules that have a wide range of applications in genetic
testing and research;
"Oncology" a therapeutic area focused on diagnosis, prevention and treatment of cancer;
"Ophthalmic conditions" conditions affecting the eye;
"Ordinary Shares" the Ordinary Shares of the Company;
"Other public portfolio" an invested liquidity pool, selected to match, on a pro-rated basis, the long
investments held in the Investment Manager's private funds and designed to
mitigate the drag of setting aside cash for future deployment into core
positions;
"Performance Allocation Amount" an allocation connected with the performance of the Company to be allocated to
the Performance Allocation Share Class Fund in such amounts and as such times
as shall be determined by the Board;
"Performance Allocation Period" the First Performance Allocation Period and/or a subsequent Performance
Allocation Period, as the context so requires;
"Performance Allocation Share Class Fund" a class fund for the Performance Allocation Shares or New Performance
Allocation Shares to which the Performance Allocation will be allocated;
"Performance Allocation Shares" performance allocation shares of no-par value in the capital of the Company
(prior to the 1 December 2022 reorganisation), or performance allocation
shares of no-par value in the capital of the Subsidiary (with effect from the
1 December 2022 reorganisation);
"Performance Allocation Shareholder" the holder of Performance Allocation Shares or New Performance Allocation
Shares;
"PFIC" Passive Foreign Investment Company;
"Pilot study" a small-scale study;
"PIPE" Stands for private investment in public equity, when an institutional or an
accredited investor buys stock directly from a public company below market
price;
"POI Law" The Protection of Investors (Bailiwick of Guernsey) Law, 2020, as amended;
"PRAME" a cancer-testis antigen (CTA) that is highly expressed in a broad range of
solid and hematologic malignancies;
"Premium Segment" Premium Segment of the Main Market of the LSE;
"PRIority MEdicines" or "PRIME" to be accepted for PRIME, a medicine has to show its potential to benefit
patients with unmet medical needs based on early clinical data;
"Prospectus" the prospectus of the Company, most recently updated in January 2024 and
available on the Company's website
(www.rtwfunds.com/rtw-biotech-opportunities-ltd/documents/
(http://www.rtwfunds.com/rtw-biotech-opportunities-ltd/documents/) );
"Pulmonary conditions" pathologic conditions that affect lungs;
"Pyruvate Kinase Deficiency" or "PKD" a rare genetic disorder affecting red blood cells;
"Radiopharmaceuticals" Pharmaceuticals consisting of a radioactive compound used in radiation
therapy;
"Rare disease" a disease that affects a small percentage of the population;
"Registrar" Link Market Services (Guernsey) Limited;
Regenerative Medicine Advanced Therapy, an FDA-granted designation for a drug,
designed to expedite development and review processes for promising pipeline
"RMAT" products;
"RNA medicines" a type of biotechnology that uses RNA to treat a disease;
"RTW" RTW Investments, LP, also referred to as the Investment Manager;
"RTWCF" RTW Charitable Foundation;
"Russell 2000 Biotechnology Index" a stock index of small cap biotechnology and pharmaceutical companies;
"SEC Rule 144" selling restricted and control securities;
"SFS" Specialist Fund Segment of the London Stock Exchange;
"Small molecule" a compound that can regulate a biologic activity;
"Sensorineural hearing loss" a type of hearing loss caused by damage to the inner ear;
"SPAC" Special Purpose Acquisition Company;
"Sub-Administrator" Morgan Stanley Fund Services USA LLC;
"the Subsidiary" or "OpCo" RTW Biotech Opportunities Operating Ltd;
"Tachycardia" a heart rhythm disorder;
"TIGIT" a target for a checkpoint antibody development in immune-oncology;
"TL1A" a target for the treatment of inflammation associated with inflammatory bowel
disease (IBD);
"Type 1 Diabetes" or "TD1" a type of insulin resistance;
"Total shareholder return" a measure of shareholders' investment in a company with reference to movements
in share price and dividends paid over time;
refers to a domestic regime of laws regulating the management and marketing of
alternative investment funds and fund managers in the UK, which generally
"UK AIFMD" maintains the rules set out in the European Union's AIFMD as implemented at
the end of the transition period following Brexit;
"UK Code" the UK Corporate Governance Code 2018 published by the Financial Reporting
Council in July 2018;
"UK-Guernsey IGA" The UK-Guernsey Intergovernmental Agreement for the Automatic Exchange of
Information;
"Ulcerative Colitis" an inflammatory bowel disease that causes sores in the digestive tract;
"US GAAP" US Generally Accepted Accounting Principles;
"Uveal melanoma" a type of eye cancer;
"Valuation Committee" Valuation Committee of the Investment Manager;
"WACC" weighted average cost of capital;
"XBI" the SPDR S&P Biotech ETF;
Alternative Performance Measures (unaudited)
( )
APM Definition Purpose Calculation
Available Cash Cash held by the Group's Bankers, Prime Brokers and an ISDA counterparties. A measure of the Group's liquidity, working capital and investment level. Cash and cash equivalents, Due from brokers, Receivable from unsettled trades
and other miscellaneous current assets, less Due to brokers, Payable for
unsettled trades and other miscellaneous current liabilities on the Statement
of Assets & Liabilities.
NAV per Ordinary Share The Group's NAV divided by the number of Ordinary Shares. A measure of the value of one Ordinary Share. The net assets attributable to Ordinary Shares on the statement of financial
position (US$399.3 million) divided by the number of Ordinary Shares in issue
(210,635,347) as at the calculation date.
Price per share The Company's closing share price on the London Stock Exchange for a specified A measure of the supply and demand for the Company's shares. Extracted from the official list of the London Stock Exchange.
date.
NAV Growth The percentage increase/decrease in the NAV per Ordinary share during the A key measure of the success of the Investment Manager's investment The quotient of the NAV per share at the end of the period (US$1.90) and the
reporting period. strategy. NAV per share at the beginning of the period (US$1.54) minus one expressed as
a percentage.
Share price growth/Total Shareholder Return The percentage increase(decrease) in the price per share during the reporting A measure of the return that could have been obtained by holding a share over The quotient of the price per share at the end of the period (US$1.40) and the
period. the reporting period. price per share at the beginning of the period (US$1.21) minus 1.00 expressed
as a percentage. The measure excludes transaction costs.
Share Price Premium (Discount) The amount by which the ordinary share price is higher/lower than the NAV per A key measure of supply and demand for the Company's shares. A premium The quotient of the price per share at the end of the period (US$1.40) and the
ordinary share, expressed as a percentage of the NAV per ordinary share. implies excess demand versus supply and vice versa. NAV per share at the end of the period (US$1.90) minus one expressed as a
percentage.
Multiple on Invested Capital (MOIC or MOC) The multiple that measures value that an investment has generated. A measure to evaluate performance of the realised and unrealised The ratio between initial capital invested in a portfolio company and current
investments. (as of 31 December 2023) value of the investment. It is a gross metric and
calculation is performed before fees and incentive.
Extended Internal Rate of Return (XIRR) The percentage or single rate of return when applied to all transactions in a A measure of return which is used when multiple investments have been made The rate also expressed as a percentage that calculates the returns on the
portfolio company. over time into a portfolio company. total investment made with increments through a given period (from initial
investment date to 31 December 2023).
Ongoing charges ratio The recurring costs that the Group has incurred during the period excluding A measure of the minimum gross profit that the Group needs to produce to make Calculated in accordance with the AIC methodology detailed on the web link
performance fees and one off legal and professional fees expressed as a a positive return for shareholders. below:
percentage of the Group's average NAV for the period. https://www.theaic.co.uk/sites/default/files/documents/AICOngoingChargescalculation.pdf
(https://www.theaic.co.uk/sites/default/files/documents/AICOngoingChargescalculation.pdf)
Ongoing Charges 2023 2022
US$ US$
Fees to Investment Manager 4,269,757 3,751,464
Legal and professional fees 749,328 1,008,629
Administration fees ( 1 ) 673,422 312,003
Research costs 474,511 742,738
Audit fees 341,500 329,557
Directors' remuneration 177,011 176,722
Other expenses 687,805 357,429
Total expenses 7,373,334 6,678,542
Non-recurring expenses (453,231) (487,786)
Total ongoing expenses 6,920,103 6,190,756
Average NAV 369,419,055 322,418,512
Annualised ongoing charges (using AIC methodology) 1.87% 1.92%
( 1 ) The Administration fees include US$212,000 (GBP165,000) in respect of one-off
work and compensation for work performed in prior years (see note 11), which
is included in the non-recurring expenses.
-- ENDS --
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