REG-Biotech Grw Tst PLC: Half-year Report
12/11/2019 10:35
LONDON STOCK EXCHANGE ANNOUNCEMENT
The Biotech Growth Trust PLC (the “Company”)
Unaudited Half Year Results For The Six Months Ended
30 September 2019
This Announcement is not the Company’s Half Year Report & Accounts. It is an
abridged version of the Company’s full Half Year Report & Accounts for the
six months ended 30 September 2019. The full Half Year Report & Accounts,
together with a copy of this announcement, will shortly be available on the
Company’s website at www.biotechgt.com where up to date information on the
Company, including daily NAV, share prices and fact sheets, can also be found.
The Company's Half Year Report & Accounts for the six months ended 30
September 2019 has been submitted to the UK Listing Authority, and will
shortly be available for inspection on the National Storage Mechanism (NSM):
www.hemscott.com/nsm.do
For further information please contact: Mark Pope, Frostrow Capital LLP 020
3008 4913
Reviews / Chairman’s Statement
Company Performance
Though the Company outperformed its benchmark during the first half of the
current financial year, it is disappointing to report a negative absolute
return for the period. The Company’s net asset value per share fell by 5.6%
and the share price by 4.9%. This compares to a fall of 5.9% in the
Company’s benchmark, the NASDAQ Biotechnology Index, measured in sterling
terms. The negative return over the period as a whole reflects a strong first
four months, where the net asset value per share rose by 9.6% (outperforming
the benchmark by 9.0%) and a weak final two months where the net asset value
per share fell by 13.8% (underperforming the benchmark by 7.4%).
This latter period saw increased volatility in the sector together with a
shift by investors from growth to defensive stocks causing many hitherto high
performing companies to suffer share price declines even without any negative
stock specific news flow. The Company’s performance relative to the
benchmark over the period was driven mainly by asset allocation, in particular
the Company’s underweight position in major biotechnology stocks which
initially underperformed and then outperformed smaller capitalisation stocks
particularly during sector pull-back in September. This volatility in relative
performance is typical of the sector, and indeed subsequent to the period-end
relative performance has been very strong.
The Company’s absolute share price performance was helped during the period
by the continued weakness of sterling, particularly against the dollar, where
it depreciated by 5.4% over the period; the U.S. dollar being the currency in
which almost all of the Company’s holdings are denominated. It should also
be noted that the level of gearing employed over the period increased from
5.5% at 31 March 2019 to 8.8% as at 30 September 2019. The Company’s geared
position contributed negatively (-0.4%) to the Company’s overall return
during the period.
The biotechnology sector underperformed the broader market during the half
year, in large part due to fresh concerns over future healthcare policy in the
U.S. against the backdrop of the forthcoming US Presidential election in 2020.
A lot has been heard in the debate about the potential for drug pricing
regulation. Our Portfolio Manager, as set out in their report, are sceptical
that in practice there will be radical change, but sentiment has definitely
been affected. In addition, there appears in recent months to have been a
rotation by investors from growth to defensive stocks, reflecting concerns
about weaker global growth. Biotechnology being classified as a growth sector,
this has also impacted sector performance.
Such changes in sentiment are exacerbated by the shift towards passive
investing and the growth in factor investing. These mean that short-term
swings can be divorced from any fundamental analysis, although in the longer
term this will correct when sectors or underlying stocks become transparently
undervalued.
Discount Management
Despite continued market volatility, the discount of the Company’s share
price to the net asset value per share narrowed slightly during the period. As
at 30 September 2019 it was 6.1%, having been 6.7% at the beginning of the
period.
Shareholders will be aware that the Board has a discount control mechanism in
place intended to establish a target level of no more than a 6% discount of
share price to the net asset value per share. Shareholders should note,
however, that it remains possible for the share price discount to net asset
value per share to be wider than 6% due to the fact that the share price
continues to be influenced by overall supply and demand for the Company’s
shares in the secondary market. A total of 6,232,487 shares were repurchased
for cancellation by the Company during the period under review, at an average
discount of 7.9% to the Company’s net asset value per share and at a cost of
£46.6 million. The effect of buying these shares back at a discount was to
increase the net asset value per share for remaining shareholders by 1.1%.
Since the half-year end to 12 November, a further 1,005,949 shares have been
repurchased for cancellation at a cost of £7.1 million. Your Board remains
committed to defending the 6% discount level over the long term.
The Company’s Auditor
Ernst & Young LLP, the Company’s Auditor, have been in post for five years
having been appointed following a formal tender process in July 2014. While
the Company is not yet required to hold another tender process, the Audit
Committee recommended to the Board that in the interests of obtaining the best
value for shareholders a new tender process should be held. The tender process
will take place between November 2019 and January 2020 with the final decision
expected to be announced in late January 2020. The selected firm will be
appointed to audit the Company’s financial statements for the year ending 31
March 2020. Further details of the tender process will be described in the
Company’s next Annual Report.
Outlook
Despite continued market volatility due, in part, to the impact of
geopolitical events on market sentiment and also to the uncertainties
surrounding the 2020 U.S. Presidential election, your Board believes that
there remain significant positives for the biotechnology sector. The scale of
scientific advances means that there is every prospect of many new therapies,
particularly addressing cancer, but also other diseases. The regulatory
environment remains favourable. In the short term, political noise from the US
election campaign will have a significant impact, but in the longer term, the
sector’s prospects are strong.
During the recent six months, our Portfolio Manager has increased the active
share of the portfolio, that is to say, the extent to which it diverges from
the portfolio implied by the benchmark. In the longer-term, this should help
the portfolio to outperform. OrbiMed has unrivalled research capabilities and
these enable it to capitalise on under-researched smaller company
opportunities. Increased active share may mean short-term divergence from the
benchmark, up or down, becomes more pronounced, but it should benefit
long-term performance.
Andrew Joy
Chairman
12 November 2019
Company Summary / Company Performance
Key Statistics
As at 30 September 2019 As at 31 March 2019 % Change
Net asset value per share 743.1p 786.8p (5.6)
Share price 698.0p 734.0p (4.9)
Discount of share price to net asset value per share* 6.1% 6.7% –
Nasdaq Biotechnology Index – (sterling adjusted) “Benchmark” 2,544.90 2,703.20 (5.9)
Gearing* 8.8% 5.5% –
Ongoing charges* 1.0% 1.1% –
* Alternative Performance Measure (see glossary)
Reviews / Portfolio Manager’s Review
Performance
The Company’s net asset value per share declined by 5.6% during the
six-month period ended 30 September. This compares to a 5.9% decline in the
Company’s benchmark, the NASDAQ Biotechnology Index (measured on a sterling
adjusted basis).
The biotechnology sector underperformed the broader market during the review
period. We attribute sector weakness to general macro concerns about the
economic outlook and concerns about the potential for drug pricing regulation,
particularly in light of the upcoming 2020 U.S. presidential election. These
concerns resulted in a net outflow of approximately U.S.$7.5 billion from
biotechnology/healthcare funds during the review period (Source: Piper
Jaffray). Much of the underperformance was concentrated in small and
mid-capitalisation biotechnology companies, which previously had performed
strongly. We view this more as profit-taking rather than a deterioration in
fundamentals.
The broader economic backdrop has become more uncertain as U.S. investors have
become increasingly concerned about a potential recession in the U.S. These
concerns have increased as the retaliatory tariff war between the US and China
has escalated, which has slowed the pace of economic growth. Although the
biotechnology sector has low direct exposure to trade flows, the resulting
economic uncertainty has weighed on shares as we saw a general shift in funds
from growth to more defensive sectors in the latter part of the review period.
Biotechnology, which is considered a growth sector, fell in tandem with this
broader market shift.
More specific to the biotechnology sector, concerns over the direction of
healthcare policy in the U.S. have created some investor caution. Policies
have been proposed by both the Trump administration and Congress that could
adversely affect drug pricing, such as implementing international reference
pricing for Medicare drugs, permitting drug reimportation, instituting
inflation-based price caps on drugs, and allowing Medicare to negotiate prices
directly with biopharmaceutical companies. Thus far, these proposals have not
been implemented. We believe that the current Congress is unlikely to act in a
meaningful way. Nevertheless, drug pricing rhetoric from both President Trump
and the Democratic presidential nominees continues to be an overhang for the
sector. As of the time of this writing, Elizabeth Warren, one of the more
progressive Democratic presidential candidates, has been gaining in the polls
for the Democratic nomination versus former Vice President Joe Biden, who is
regarded as more centrist in his outlook. Warren is viewed as more
antagonistic to the drug industry compared to Biden, and her ascendance in the
polls led to increased share weakness in biotechnology towards the end of the
review period. Our view on the political situation remains the same. We do not
expect any dramatic changes to drug pricing policy even if a Democrat is
elected President in 2020 because we expect a split Congress, with Republicans
controlling the Senate and Democrats controlling the House. This would
effectively prevent any extreme legislation from passing after 2020. We view
Medicare for All, an idea espoused by Warren which would create a single-payer
government-run health system with no private insurance, to have virtually zero
chance of being enacted even in the case of a Democratic sweep in the 2020
election. Even moderate Democrats would likely oppose such a disruptive
proposal, not to mention the significant opposition it would face from
Republicans and industry stakeholders and the formidable political barriers to
raising the necessary taxes to pay for it. Ultimately, we expect any new
reform to be manageable for the industry, but the uncertainty during the
election season may continue to weigh on sentiment.
Notably, from a valuation perspective, the major biotechnology companies
continue to trade at historically low price to earnings ratios, many in the
single digits, with share prices already discounting fears over the macro drug
pricing environment. In previous instances when political headlines and
rhetoric about drug pricing have depressed share prices for the biotechnology
sector (e.g. Hillary Clinton’s tweet on drug prices in the fall of 2015, and
debates over Obamacare), the sector has staged a relief rally when the episode
has passed, and no material change to drug pricing policy has taken place. We
expect the same recovery once the current spate of drug pricing rhetoric
passes as well.
Re-emergence of Targeted Therapy
Despite the headline noise from the US election campaign, the fundamentals of
the biotechnology industry remain strong. The regulatory stance at the U.S.
Food and Drug Administration (FDA) remains proactive with regards to
expediting new drug approvals, even after the transition from former FDA head
Scott Gottlieb to acting head Ned Sharpless earlier this year. Innovation
remains strong, and new technologies such as gene therapy, cell therapy,
RNA-based therapeutics, and bispecific antibodies are still in the early
stages of reaching their full potential. These technologies are resulting in
marketed products that could unlock multi-billion-dollar revenue
opportunities.
One area of innovation we would like to highlight is the re-emergence of
targeted therapies for cancer as a focus area for biotechnology investors.
This precision medicine approach aims to personalise cancer therapy to treat
patients based on specific genes or pathways that are mutated.
First-generation tyrosine kinase inhibitors (TKIs), such as Gleevec, have
produced dramatic clinical results across a variety of tumour types in subsets
of patients defined by the genetics found in their tumours, though broadening
the applicability of such targeted approaches to additional patients has
remained dependent on a better understanding of tumour biology and the
development of specific drugs. Improvements in genetic sequencing capabilities
over the past decade has enabled better identification of the mutations
driving cancer growth, and genetic information for a patient’s specific
cancer is now becoming better integrated into patient care. This has led to a
profound improvement in patient outcomes, which we expect to continue to
advance in the coming years.
Targeted therapy for cancer remains an important area of investment for the
fund. Portfolio company Deciphera is an important emerging player in TKIs. The
company recently reported strong clinical data from its late stage clinical
trial in gastrointestinal stromal tumours, which will form the basis for
regulatory approval in 2020. We also view portfolio company Turning Point
Therapeutics as a well-positioned targeted oncology company focusing on
resistance mutations. While TKIs have shown unprecedented activity, many
patients will eventually acquire additional mutations that render the drug
ineffective. Turning Point’s drugs can potentially address these resistant
patients, and eventually become the first-line treatment of choice by
preventing the emergence of resistance in the first place. We have also
initiated a new position in Mirati Therapeutics, which is developing a drug to
treat cancers harbouring a specific mutation in the KRAS gene known as G12C.
KRAS is one of the most frequently mutated genes in lung, pancreatic and
colorectal cancers, but previous attempts to target this gene have been
unsuccessful. Specific KRAS G12C inhibitors are becoming some of the highest
profile drugs in oncology drug development, and Mirati recently reported
positive results of their inhibitor MRTX849 in lung cancer and colorectal
cancer.
We see the targeted therapies for cancer as a clear success for precision
medicine approaches and believe that this field will continue to generate
therapies that are increasingly personalised and tailored to the specific
disease characteristics of the patient. Large pharmaceutical companies
continue to be interested in this field, as evidenced by the recent
acquisition of targeted therapy company Array Biopharma by Pfizer for
approximately U.S.$11 billion.
Contributors to Performance
The principal contributors to performance during the review period were
Deciphera Pharmaceuticals, Hansoh Pharmaceutical, Apellis, Karyopharm
Therapeutics, and Acadia Pharmaceuticals.
* Deciphera Pharmaceuticals is an emerging biotechnology company developing
targeted therapies for cancer. The stock moved sharply higher in August after
the company reported positive results from the phase III INVICTUS study of
lead asset ripretinib for gastrointestinal stromal tumors (GIST). Results
showed that ripretinib reduced the risk of disease progression by ~85%
compared to placebo in heavily pretreated fourth-line GIST patients. The drug
is expected to be approved in 2020.
* Hansoh Pharmaceuticals is a leading biopharmaceutical company based in China
selling drugs in the areas of neurology, oncology, infectious disease,
diabetes, and gastrointestinal disorders. We participated in the company’s
Hong Kong initial public offering (IPO) as a cornerstone investor and the
shares performed strongly after the IPO.
* Apellis Pharmaceuticals is a biotechnology company developing APL-2, a
complement inhibitor, for a variety of conditions including paroxysmal
nocturnal haemoglobinuria (PNH), a rare form of anemia, and geographic
atrophy, an eye condition leading to blindness. The company’s shares
appreciated over the review period as investors became more confident in the
probability of success of the company’s Phase III clinical trial in PNH, due
to report results by the end of 2019.
* Karyopharm Therapeutics is an emerging biotechnology company developing
therapies for hematologic malignancies. The shares appreciated following the
accelerated FDA approval of its lead asset selinexor in refractory multiple
myeloma. Phase III data are expected shortly in earlier line multiple myeloma,
which, if positive, would significantly expand the revenue potential of the
drug.
* ACADIA Pharmaceuticals is an emerging biotechnology company developing
Nuplazid for various psychiatric indications beyond the approved indication of
Parkinson’s Disease Psychosis. Shares in Acadia transiently sold off
following a trial failure for Nuplazid as an adjunctive therapy for
schizophrenia. We subsequently bought shares in anticipation of an interim
analysis from their pivotal, phase 3 study in Dementia-related Psychosis
(DRP). The stock sharply appreciated in September as the DRP trial was stopped
early due to overwhelming efficacy at the interim analysis.
Detractors from Performance
The principal detractors from performance were Sarepta Therapeutics, Regeneron
Pharmaceuticals, Alexion, Adverum Biotechnologies, and Mirati Therapeutics.
* Sarepta Therapeutics shares were weak after the unexpected rejection of its
Duchenne Muscular Dystrophy treatment golodirsen by the FDA. We believe the
issues raised by the FDA are addressable and anticipate a resolution by early
2020; we also continue to see value in Sarepta’s robust gene therapy
pipeline, with multiple data readouts in 2020.
* Regeneron Pharmaceuticals is a large-capitalisation biotechnology company
specialising in antibody-based therapeutics. The company’s lead drug is
Eylea, an antibody injected directly into patients’ eyes to treat wet
age-related macular degeneration, a leading cause of blindness in the elderly.
Shares pulled back over the period due to increasing concerns about
competition to Regeneron’s lead product Eylea. In addition, investor fears
have persisted about potential implementation of an International Pricing
Index (IPI) proposal from the Trump administration, which would link prices
paid for certain Medicare drugs to a basket of prices for the same drugs found
in European countries. Such a proposal, if implemented, would have a negative
impact on Eylea pricing in the U.S. We believe the stock’s valuation already
discounts much of the competitive and pricing risks to the company.
* Alexion Pharmaceuticals is a major biotechnology company specialising in the
discovery and development of drugs used to treat rare diseases. The
company’s lead product Soliris (eculizumab) is a monoclonal antibody
approved to treat paroxysmal nocturnal haemoglobinuria (PNH), haemolytic
anaemia, neuromyelitis optica (NMO), and myasthenia gravis (MG). Shares of the
company pulled back over the period due to investor fears over the strength of
the company’s U.S. and European patents protecting Soliris. Emerging
competition from other biotechnology companies developing therapies in PNH,
NMO, and MG have also weighed on the shares. The company is in the process of
launching Ultomiris, a second-generation complement inhibitor with a much
better dosing profile (every 8 weeks rather than every 2 weeks for Soliris)
that has much longer patent protection. Like many of the other large
biotechnology companies, Alexion’s valuation has contracted due to
uncertainty about the drug pricing climate generally as well as concerns about
the sustainability of the company’s growth. We think that these risks are
overly discounted in the current share price.
* Adverum Biotechnologies shares were weak after the company presented initial
data from an early-stage trial of gene therapy candidate ADVM-022 in wet
age-related macular degeneration (AMD), where investors focused on a small
average loss of visual acuity in the trial, as well as mild-to-moderate
inflammation as seen in many gene therapy trials. We think concern over the
programme is misplaced, as visual acuity is historically highly variable in
this heavily pretreated population, and inflammation was well-managed with
topical steroids; we also see the early efficacy signals of ADVM-022 as very
encouraging.
* Shares in Mirati Therapeutics underperformed after competitor AMGN updated
Phase I data in KRAS mutated colorectal cancer. The data fell short of
expectations, though previous data have shown robust efficacy of the compound
in lung cancer. Subsequent to the review period, Mirati announced positive
Phase 1/2 data for their KRAS inhibitor with responses in lung cancer and
colorectal cancer, sending the shares upward. We continue to believe the KRAS
inhibitor class will represent a multi-billion dollar peak sales opportunity.
Gearing remained in the target 5-10% range over the review period. While we
see attractive investment opportunities in both major biotechnology and
emerging biotechnology, we are seeing more opportunities in the emerging
biotechnology space in recent months, so close to three quarters of the
portfolio was invested in that segment of the biotechnology universe at the
end of the review period.
Since the end of the half year to 7 November 2019, the biotechnology sector
has staged a recovery and in addition the Company has delivered approximately
4.3% of excess performance compared to the benchmark.
Outlook
As we have previously highlighted, the biotechnology industry is at an
important inflection point as new platform technologies spur innovation and
make more diseases amenable to treatment. Although the backdrop of election
year politics may continue to hurt sentiment for biotechnology and healthcare
stocks in general, we believe over the longer term, the fundamental strength
of the biotechnology industry will drive strong returns.
Geoff Hsu and Richard Klemm
OrbiMed Capital LLC
Portfolio Manager
12 November 2019
Reviews / Investment Portfolio
Investments held as at 30 September 2019
Fair value % of
Security Country/Region £’000 investments
Vertex Pharmaceuticals United States 36,756 9.9
Neurocrine Biosciences United States 28,590 7.7
Amgen United States 19,174 5.2
Deciphera Pharmaceuticals United States 17,976 4.9
Gilead Sciences United States 16,772 4.5
Alexion Pharmaceuticals United States 14,350 3.9
Exelixis United States 14,095 3.8
Regeneron Pharmaceuticals United States 13,755 3.7
Hansoh Pharmaceutical China 13,239 3.6
MeiraGTx Holdings United States 12,743 3.5
Ten largest investments 187,450 50.7
Sarepta Therapeutics United States 12,579 3.4
CRISPR Therapeutics Switzerland 12,365 3.3
Mirati Therapeutics United States 12,087 3.3
Athenex United States 11,248 3.0
Turning Point Therapeutics United States 9,040 2.5
Karyopharm Therapeutics United States 8,304 2.3
Insmed United States 8,045 2.2
Argenx Netherlands 7,901 2.1
Aurinia Pharmaceuticals Canada 7,166 1.9
CanSino Biologics China 6,898 1.9
Twenty largest investments 283,083 76.6
Biogen United States 6,840 1.9
Krystal Biotech United States 6,817 1.8
MyoKardia United States 6,732 1.8
Avrobio United States 6,562 1.8
Apellis Pharmaceuticals United States 5,618 1.5
PTC Therapeutics United States 5,596 1.5
Puma Biotechnology United States 5,559 1.5
Ultragenyx Pharmaceutical United States 4,388 1.2
Adverum Biotechnologies United States 4,083 1.1
Arena Pharmaceuticals United States 4,082 1.1
Thirty largest investments 339,360 91.8
Shanghai Junshi Biosciences China 3,504 0.9
OrbiMed Asia Partners L.P. (unquoted)* Asia 3,323 0.9
Foamix Pharmaceuticals Israel 3,030 0.8
ArQule United States 2,994 0.8
ACADIA Pharmaceuticals United States 2,806 0.8
Amarin United Kingdom 2,720 0.7
Menlo Therapeutics United States 2,409 0.7
Curis United States 2,216 0.6
Ra Pharmaceuticals United States 2,148 0.6
Intercept Pharmaceuticals United States 1,731 0.5
Forty largest investments 366,241 99.1
All of the above investments are equities unless otherwise stated.
* Partnership interest.
Fair value % of
Security Country/Region £’000 investments
Spero Therapeutics United States 1,210 0.3
Alector United States 1,030 0.3
Prothena Ireland 822 0.2
KalVista Pharmaceuticals United States 365 0.1
Total investments 369,668 100.0
All of the above investments are equities unless otherwise stated.
Portfolio Breakdown
Fair value % of
Investments £’000 investments
Equities 366,345 99.1
Partnership interest (unquoted) 3,323 0.9
Total investments 369,668 100.0
Reviews / Principal Contributors to and Detractors from Net Asset Value
Performance
For the Six Months ended 30 September 2019
Top Five Contributors
Contribution for the Six months ended 30 September 2019 £’000 Contribution per share (pence)*
Deciphera Pharamceuticals 10,218 21.3
Hansoh Pharmaceutical 5,522 11.5
Apellis Pharmaceuticals 5,325 11.1
Karyopharm Therapeutics 3,387 7.0
ACADIA Pharmaceuticals 3,274 6.8
27,726 57.7
Top Five Detractors
Contribution for the Six months ended 30 September 2019 £’000 Contribution per share (pence)*
Sarepta Therapeutics (5,606) (11.6)
Regeneron Pharmaceuticals (4,951) (10.3)
Alexion Pharmaceuticals (4,945) (10.3)
Adverum Biotechnologies (4,896) (10.2)
Mirati Therapeutics (3,661) (7.6)
(24,059) (50.0)
* based on 48,085,930 Shares being the weighted average number of
shares in issue for the six months ended 30 September 2019
Source: Frostrow Capital LLP
Financial Statements / Condensed Income Statement
for the six months ended 30 September 2019
(Unaudited) (Unaudited) (Audited)
Six months ended Six months ended Year ended
30 September 2019 30 September 2018 31 March 2019
Revenue Capital Total Revenue Capital Total Revenue Capital Total
Note £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000
Investment income
Investment income 2 649 – 649 571 – 571 1,246 – 1,246
Total income (Losses)/gains on investments 649 – 649 571 – 571 1,246 – 1,246
(Losses)/gains on investments held at fair value through profit or loss – (18,897) (18,897) – 86,485 86,485 – 27,798 27,798
Exchange losses on currency balances – (1,697) (1,697) – (2,282) (2,282) – (2,380) (2,380)
Expenses
AIFM, Portfolio management and performance fees 3 – (1,752) (1,752) – (2,212) (2,212) – (4,013) (4,013)
Other expenses (307) – (307) (289) – (289) (545) – (545)
Profit/(loss) before finance costs and taxation 342 (22,346) (22,004) 282 81,991 82,273 701 21,405 22,106
Finance costs – (317) (317) – (404) (404) – (820) (820)
Profit/(loss) before taxation 342 (22,663) (22,321) 282 81,587 81,869 701 20,585 21,286
Taxation (97) – (97) (85) – (85) (186) – (186)
Profit/(loss) for the period/year 245 (22,663) (22,418) 197 81,587 81,784 515 20,585 21,100
Basic and diluted earnings/(loss) per share 4 0.5p (47.1)p (46.6)p 0.4p 147.0p 147.4p 1.0p 37.8p 38.8p
The Company does not have any income or expenses which are not included in the
profit or loss for the period. Accordingly the “profit for the period” is
also the “Total Comprehensive Income for the period”, as defined in IAS 1
(revised) and no separate Statement of Comprehensive Income has been
presented.
All of the profit and total comprehensive income for the period is
attributable to the owners of the Company.
The “Total” column of the statement is the Company’s Income Statement,
prepared in accordance with International Financial Reporting Standards
(“IFRS”) as adopted by the EU.
The “Revenue” and “Capital” columns are supplementary to this and are
prepared under guidelines published by the Association of Investment
Companies.
All items in the above statement derive from continuing operations. No
operations were acquired or discontinued in the period.
The financial statements for the six months ended 30 September 2019 have not
been audited by the Company’s auditors.
Financial Statements / Condensed Statement of Changes in Equity
(Unaudited) Six months ended 30 September 2019
Ordinary Share Capital
Share Premium Redemption Capital Revenue
Capital Account Reserve Reserve Reserve Total
£’000 £’000 £’000 £’000 £’000 £’000
At 31 March 2019 12,992 43,021 9,807 343,868 (812) 408,876
Net (loss)/profit for the period – – – (22,663) 245 (22,418)
Repurchase of own shares for cancellation (1,558) – 1,558 (46,598) – (46,598)
At 30 September 2019 11,434 43,021 11,365 274,607 (567) 339,860
(Unaudited) Six months ended 30 September 2018
Ordinary Share Capital
Share Premium Redemption Capital Revenue
Capital Account Reserve Reserve Reserve Total
£’000 £’000 £’000 £’000 £’000 £’000
At 31 March 2018 13,960 43,021 8,839 352,903 (1,327) 417,396
Net profit for the period – – – 81,587 197 81,784
Repurchase of own shares for cancellation (349) – 349 (11,430) – (11,430)
At 30 September 2018 13,611 43,021 9,188 423,060 (1,130) 487,750
(Audited) Year ended 31 March 2019
Ordinary Share Capital
Share Premium Redemption Capital Revenue
Capital Account Reserve Reserve Reserve Total
£’000 £’000 £’000 £’000 £’000 £’000
At 31 March 2018 13,960 43,021 8,839 352,903 (1,327) 417,396
Net profit for the year – – – 20,585 515 21,100
Repurchase of own shares for cancellation (968) – 968 (29,620) – (29,620)
At 31 March 2019 12,992 43,021 9,807 343,868 (812) 408,876
Financial Statements / Condensed Statement of Financial Position
as at 30 September 2019
(Unaudited) (Unaudited) (Audited)
30 September 30 September 31 March
2019 2018 2019
Note £’000 £’000 £’000
N on current assets
Investments held at fair value through profit or loss 369,668 538,218 431,172
Current assets
Other receivables 7,118 659 60
7,118 659 60
Total assets 376,786 538,877 431,232
Current liabilities
Other payables 10,484 8,885 11,515
Loan facility 26,442 42,242 10,841
36,926 51,127 22,356
Net assets 339,860 487,750 408,876
Equity attributable to equity holders
Ordinary share capital 11,434 13,611 12,992
Share premium account 43,021 43,021 43,021
Capital redemption reserve 11,365 9,188 9,807
Capital reserve 274,607 423,060 343,868
Revenue reserve (567) (1,130) (812)
Total equity 339,860 487,750 408,876
Net asset value per share 5 743.1p 895.9p 786.8p
Financial Statements / Condensed Statement of Cash Flows
for the six months ended 30 September 2019
(Unaudited) (Unaudited) (Audited)
Six months ended Six months ended Year ended
30 September 30 September 31 March
2019 2018 2019
£’000 £’000 £’000
Operating activities
(Losses)/profit before taxation (22,321) 81,869 21,286
Add back interest expense 317 404 820
Losses/(gains) on investments held at fair value through profit & loss 18,897 (86,485) (27,798)
Exchange losses on currency balances 1,697 2,282 2,380
(Increase)/decrease in other receivables (18) 16 –
(Decrease)/increase in other payables (112) 187 (81)
Net cash outflow from operating activities before interest payable and taxation (1,540) (1,727) (3,393)
Interest expense (317) (404) (820)
Tax paid (97) (85) (186)
Net cash outflow from operating activities (1,954) (2,216) (4,399)
Investing Activities
Purchases of investments (222,483) (228,517) (395,525)
Sales of investments 258,671 221,620 441,324
Net cash inflow/(outflow) from investing activities 36,188 (6,897) 45,799
Financing activities
Repurchase of shares for cancellation (48,138) (8,729) (27,743)
Drawdown/(repayment) from the loan facility 13,904 17,842 (13,657)
Net cash (outflow)/inflow from financing activities (34,234) 9,113 (41,400)
Changes in liabilities arising from financing activities
(Unaudited) (Unaudited) (Audited)
Six months ended Six months ended Year ended
30 September 30 September 31 March
2019 2018 2019
£’000 £’000 £’000
Balance as at 31 March 2019 10,841 22,118 22,118
Net cash flow 13,904 17,842 (13,657)
Exchange losses on currency balances 1,697 2,282 2,380
26,442 42,242 10,841
Financial Statements / Notes to the Financial Statements
1.a) General Information
The Biotech Growth Trust PLC is a company incorporated and registered in
England and Wales. The Company operates as an investment trust company within
the meaning of Section 833 of the Companies Act 2006 and has made a successful
application under Regulation 5 of the Investment Trust (Approved Company)
(Tax) Regulations 2011 for investment trust status to apply to all accounting
periods commencing on 1 April 2012.
1.b) Basis of Preparation
The Company’s half year condensed financial statements for the six months
ended 30 September 2019 have been prepared in accordance with IAS 34
“Interim Financial Reporting”. They do not include all the financial
information required for the full annual financial statements and have been
prepared using accounting policies adopted in the audited financial statements
for the year ended 31 March 2019.
Those financial statements have been prepared in accordance with International
Financial Reporting Standards (“IFRS”) as adopted by the EU.
1.c) Segmental Reporting
IFRS 8 requires entities to define operating segments and segment performance
in the financial statements based on information used by the Board of
Directors. The Directors are of the opinion that the Company is engaged in a
single segment of business, being investment business.
In line with IFRS 8, a disclosure by geographical segment has been provided in
note 10 of this report.
1.d) Going Concern
The Directors believe that it is appropriate to adopt the going concern basis
in preparing the accounts as the assets of the Company consists mainly of
securities that are readily realisable and, accordingly, the Company has
adequate financial resources to continue in operational existence for the
foreseeable future. The next continuation vote of the Company will be held at
the Annual General Meeting in 2020, and further opportunities to vote on the
continuation of the Company will be given to shareholders every five years
thereafter.
2. Income
(Unaudited) (Unaudited) (Audited)
Six months ended Six months ended Year ended
30 September 30 September 31 March
2019 2018 2019
£’000 £’000 £’000
Investment income
Overseas dividend income 649 571 1,246
Total income 649 571 1,246
3. AIFM, Portfolio Management and Performance Fees
(Unaudited) (Unaudited) (Audited)
Six months ended Six months ended Year ended
30 September 30 September 31 March
2019 2018 2019
£’000 £’000 £’000
AIFM fee 528 669 1,214
Portfolio management fee 1,224 1,543 2,799
1,752 2,212 4,013
4. Basic and Diluted Earnings/(Loss) per Share
(Unaudited) (Unaudited) (Audited)
Six months ended Six months ended Year ended
30 September 30 September 31 March
2019 2018 2019
£’000 £’000 £’000
The earnings/(loss) per share is based on the following figures:
Net revenue gain 245 197 515
Net capital (loss)/gain (22,663) 81,587 20,585
Net total (loss)/gain (22,418) 81,784 21,100
Weighted average number of shares in issue during the period/year 48,085,930 55,520,183 54,430,259
Pence Pence Pence
Revenue earnings per share 0.5 0.4 1.0
Capital (loss)/earnings per share (47.1) 147.0 37.8
Total (loss)/earnings per share (46.6) 147.4 38.8
5. Net Asset Value per Share
The Net Asset Value per share is based on the net assets attributable to
equity shareholders of £339,860,000 (30 September 2018: £487,750,000; 31
March 2019: £408,876,000) and on 45,735,075 shares (30 September 2017:
54,444,317; 31 March 2019: 51,967,562) being the number of shares in issue at
the period end.
6. Transaction Costs
Purchase and sale transaction costs for the six months ended 30 September 2019
amounted to £546,000 (six months ended 30 September 2018: £286,000; year
ended 31 March 2019: £685,000), broken down as follows: purchase transactions
for the six months ended 30 September 2019 amounted to £320,000 (six months
ended 30 September 2018: £164,000; year ended 31 March 2019: £379,000). Sale
transactions amounted to £226,000 (six months ended 30 September 2018:
£122,000; year ended 31 March 2019 £306,000). These costs comprise mainly
commission.
7. Investments
IFRS 13 requires the Company to classify fair value measurements using the
fair value hierarchy that reflects the significance of the inputs used in
making the measurements. The fair value hierarchy consists of the following
three levels
* Level 1 – quoted prices (unadjusted) in active markets for identical
assets or liabilities;
* Level 2 – inputs other than quoted prices included with Level 1 that are
observable for the asset or liability, either directly (i.e. as prices) or
indirectly (i.e. derived from prices), and
* Level 3 – inputs for the asset or liability that are not based on
observable market data (unobservable inputs)
At 30 September 2019 the investment in OrbiMed Asia Partners LP Fund (the LP
Fund) has been classified as level 3. The fund is valued quarterly by OrbiMed
Advisors LLC and is audited annually by KPMG LLP. As the 30 September 2019
valuation is not yet available, the fund has been valued at its net asset
value as at 30 June 2019 (see level 3 reconciliation). It is believed that the
value of the fund as at 30 September 2019 will not be materially different.
If the value of the fund was to increase or decrease by 10%, while other
variables had remained constant, the return and net assets attributable to
shareholders for the period ended 30 September 2019 would have
increased/decreased by £332,000 (2018: £250,000).
The table below sets out fair value measurements of financial assets in
accordance with IFRS13 fair value hierarchy system:
(Unaudited)
Six months ended 30 September 2019
Level 1 Level 2 Level 3 Total
£’000 £’000 £’000 £’000
Equity investments 366,345 – – 366,345
Partnership interest in LP Fund – – 3,323 3,323
Total 366,345 – 3,323 369,668
(Unaudited)
Six months ended 30 September 2018
Level 1 Level 2 Level 3 Total
£’000 £’000 £’000 £’000
Equity investments 535,715 – – 535,715
Partnership interest in LP Fund – – 2,503 2,503
Total 535,715 – 2,503 538,218
(Audited)
Year ended 31 March 2019
Level 1 Level 2 Level 3 Total
£’000 £’000 £’000 £’000
Equity investments 428,133 – – 428,133
Partnership interest in LP Fund – – 3,039 3,039
Total 428,133 – 3,039 431,172
Level 3 reconciliation
Please see below a reconciliation disclosing the changes during the six months
for the financial assets and liabilities designated at fair value through
profit or loss classified as being Level 3.
(Unaudited) (Unaudited) (Audited)
Six months ended Six months ended Year ended
30 September 30 September 31 March
2019 2018 2019
£’000 £’000 £’000
Assets as at beginning of period 3,039 3,491 3,491
(Return of capital)/Capital contribution – (1,533) 166
Net movement in investment holding gains during the period 284 545 (618)
Assets as at 30 September/31 March 3,323 2,503 3,039
There were no cash distributions during the period (September 2018:
£1,533,000; March 2019: £nil). There were no capital contributions made
during the period (September 2018: £nil; March 2019: £166,000).
8. Principal Risks Profile
The principal risks which the Company faces from its financial instruments
are:
1. market price risk, including currency risk, interest rate risk and other
price risk;
2. liquidity risk; and
3. credit risk
Market price risk – is the risk that the fair value or future cash flows of
a financial instrument held by the Company may fluctuate because of changes in
market prices. This market risk comprises three elements – currency risk,
interest rate risk and other price risk.
Liquidity risk – This is the risk that the Company will encounter difficulty
in meeting obligations associated with financial liabilities.
Credit risk – This is the risk of the failure of the counterparty to a
transaction to discharge its obligations under that transaction which could
result in the Company suffering a loss. (see note 11).
Further details of the Company’s management of these risks can be found in
note 13 of the Company’s 2019 Annual Report.
There have been no changes to the management of or the exposure to these risks
since the date of the Annual Report.
9. Related Party Transactions
There have been no changes to the related party arrangements or transactions
as reported in the Annual Report for the year ended 31 March 2019.
10. Segmental Reporting
Geographical Segments
(Unaudited) (Unaudited) (Audited)
Six months ended Six months ended Year ended
30 September 2019 30 September 2018 31 March 2019
Value of Investments Value of Investments Value of Investments
£’000 £’000 £’000
North America 315,866 472,937 388,577
Asia 29,994 8,350 18,591
Europe 23,808 56,931 24,004
Total 369,668 538,218 431,172
11. Credit Risk
J.P. Morgan Securities LLC (J.P. Morgan) may take assets with a value of up to
140% of the loan as collateral. Such assets held by J.P. Morgan are available
for rehypothecation*.
As at 30 September 2019, the maximum value of assets available for
rehypothecation was £37.0 million being 140% of the loan balance (£26.4
million) (30 September 2018: £59.1 million), (31 March 2019: £15.2 million).
* See glossary.
12. Comparative Information
The financial information contained in this half year report does not
constitute statutory accounts as defined in sections 434 to 436 of the
Companies Act 2006. The financial information for the six months ended 30
September 2019 and 2018 has not been audited by the auditors.
The information for the year ended 31 March 2019 has been extracted from the
latest published audited financial statements. The audited financial
statements for the year ended 31 March 2019 have been filed with the Registrar
of the Companies. The report of the auditors on those accounts was
unqualified, did not include a reference to any matters to which the auditors
drew attention by way of emphasis without qualifying the report and did not
contain statements under section 498(2) or 498(3) of the Companies Act 2006.
Governance / Interim Management Report
Principal Risks and Uncertainties
A review of the half year, including reference to the risks and uncertainties
that existed during the period and the outlook for the Company can be found in
the Chairman’s Statement and in the Portfolio Manager’s Review. The
principal risks faced by the Company fall into the following broad categories:
objective and strategy; volatility and the level of discount/premium;
portfolio performance; Investment Management key person risk; operational and
regulatory (including cyber risk); market price risks; liquidity risk;
shareholder profile; currency risk; the risk associated with the Company’s
loan facility; and credit risk. Information on each of these areas is given in
the Strategic Report/ Business Review within the Annual Report and Accounts
for the year ended 31 March 2019. In the view of the Board these principal
risks and uncertainties are applicable to the remaining six months of the
financial year as they were to the six months under review.
Additionally, the Company acknowledges the continued uncertainty surrounding
the UK’s decision to leave the EU.
Related Party Transactions
During the first six months of the current financial year, no transactions
with related parties have taken place which have materially affected the
financial position or the performance of the Company.
Going Concern
The Directors believe, having considered the Company’s investment
objectives, risk management policies, capital management policies and
procedures, nature of the portfolio and expenditure projections, that the
Company has adequate resources, an appropriate financial structure and
suitable management arrangements in place to continue in operational existence
for the foreseeable future and, more specifically, that there are no material
uncertainties relating to the Company that would prevent its ability to
continue in such operational existence for at least twelve months from the
date of the approval of this half yearly financial report. For these reasons,
they consider there is reasonable evidence to continue to adopt the going
concern basis in preparing the accounts.
Directors’ Responsibilities
The Board of Directors confirms that, to the best of its knowledge:
1. the condensed set of financial statements contained within the Half Year
Report has been prepared in accordance with applicable International
Accounting Standards, (IAS) 34; and
2. the interim management report includes a fair review of the information
required by: 1. DTR 4.2.7R of the Disclosure Guidance and Transparency Rules,
being an indication of important events that have occurred during the first
six months of the financial year and their impact on the condensed set of
financial statements; and a description of the principal risks and
uncertainties for the remaining six months of the year; and
2. DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being related
party transactions that have taken place in the first six months of the
current financial year and that have materially affected the financial
position or performance of the entity during that period; and any changes in
the related party transactions described in the last annual report that could
do so.
The Half Year Report has not been audited by the Company’s auditors.
The Half Year Report was approved by the Board on 12 November 2019 and the
above responsibility statement was signed on its behalf by:
Andrew Joy
Chairman
Further Information / Glossary of Terms and Alternative Performance Measures
(‘APMs’)
AIFMD
The Alternative Investment Fund Managers Directive (the “Directive”) is a
European Union Directive that entered into force on 22 July 2013. The
Directive regulates EU fund managers that manage alternative investment funds
(this includes investment trusts).
Discount or Premium(^)
A description of the difference between the share price and the net asset
value per share. The size of the discount or premium is calculated by
subtracting the share price from the net asset value per share and is usually
expressed as a percentage (%) of the net asset value per share. If the share
price is higher than the net asset value per share the result is a premium. If
the share price is lower than the net asset value per share, the shares are
trading at a discount.
As at As at
30 September 31 March
2019 2019
p p
Share Price 698.0 734.0
Net Asset value per share (see note 5 for further information) 743.1 786.8
Discount of share price to net asset value per share 6.1% 6.7%
Gearing(^)
Gearing represents prior charges, adjusted for net current liabilities,
expressed as a percentage of net assets. Prior charges includes all loans for
investment purposes.
30 September 31 March
2019 2019
£’000 £’000
Prior Charges 26,442 10,841
Net Current Liabilities 3,366 11,455
29,808 22,296
Net Assets 339,860 408,876
Gearing 8.8% 5.5%
Net Asset Value (NAV)
The value of the Company’s assets, principally investments made in other
companies and cash being held, minus any liabilities. The NAV is also
described as ‘shareholders’ funds’. The NAV is often expressed in pence
per share after being divided by the number of shares which have been issued.
The NAV per share is unlikely to be the same as the share price which is the
price at which the Company’s shares can be bought or sold by an investor.
The share price is determined by the relationship between the demand and
supply of the shares in the secondary market.
^ Alternative Performance Measure.
Ongoing Charges(^)
Ongoing charges are calculated by taking the Company’s annualised operating
expenses expressed as a proportion of the average daily net asset value of the
Company over the year/period. The costs of buying and selling investments are
excluded, as are interest costs, taxation, performance fees, cost of buying
back or issuing ordinary shares and other non-recurring costs.
30 September 31 March
2019 2019
£’000 £’000
AIFM and Portfolio Management fees 3,375 4,013
Operating Expenses 633 545
Total expenses 4,008* 4,558
Average Assets for the period/year 387,494 432,314
Ongoing charges 1.0% 1.1%
* Estimated expenses for the year ending 31 March 2020, as at 30
September 2019.
^ Alternative Performance Measure.
Rehypothecation
Rehypothecation is the practice by banks and brokers of using, for their own
purposes, assets that have been posted as collateral by clients.
12 November 2019
Frostrow Capital LLP
Company Secretary
END
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