REG-The Biotech Growth Trust PLC: Annual Financial Report
04/06/2025 07:02
The Biotech Growth Trust PLC
(the Company)
Annual Results for the Year Ended 31 March 2025
The statements below are extracted from the Company’s annual report for the
year ended 31 March 2025 (the Annual Report). The Annual Report, which
includes the notice of the Company’s forthcoming annual general meeting,
will be posted to shareholders on 12 June 2025. Members of the public may
obtain copies from Frostrow Capital LLP, 25 Southampton Buildings, London WC2A
1AL or from the Company’s website at www.biotechgt.com where up to date
information on the Company, including daily NAV, share prices and fact sheets,
can also be found.
The Annual Report will be submitted to the Financial Conduct Authority and
will shortly be available in full, unedited text for inspection on the
National Storage Mechanism (NSM):
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
Frostrow Capital LLP
Company Secretary
0203 709 8734
FINANCIAL HIGHLIGHTS
as at 31 March 2025
815.9p 754.0p £221.2m
Net asset value per share* Share price Shareholders’ funds*
2024: 1,078.9p 2024: 995.0p 2024: £361.3m
(24.4%) (24.2%) (6.0%)
Net asset value per share Share price Benchmark †
(total return)^ (total return)^ 2024: 5.0%
2024: 26.5% 2024: 27.1%
7.6% 1.1% 73.0%
Discount of share price to net asset Ongoing Charges^ Active Share**^
value per share^ 2024: 1.2% 2024: 66.6%
2024: 7.8%
^ Alternative Performance Measure (see glossary)
† NASDAQ Biotechnology Index (total return, net of withholding tax,
sterling adjusted)
* IFRS Measure
** Source: Morningstar
CHAIR’S STATEMENT
INTRODUCTION AND RESULTS
During the year ended 31 March 2025, the Company’s net asset value (NAV) per
share declined by 24.4% (2024: +26.5%), underperforming the NASDAQ
Biotechnology Index (total return, net of withholding tax, sterling adjusted)
(the Benchmark), which fell by 6.0% (2024: +5.0%).
The first half of the year showed promising signs of recovery, supported by
favourable interest rate decisions in the U.S. and notable clinical
developments, leading to a modest outperformance against the Benchmark.
However, the latter half of the year was marked by unexpected market
disruptions, including political shifts following the U.S. presidential
election and regulatory concerns stemming from appointments within the U.S.
Department of Health and Human Services.
Investor sentiment weakened further due to inflationary pressures, uncertainty
around Federal Reserve policies, and proposed pharmaceutical tariffs. These
factors collectively drove biotech valuations to an all-time low,
disproportionately impacting the Company’s small and mid-capitalisation
holdings, and in particular the development stage biotech companies in the
portfolio.
In response to the heightened volatility and market uncertainty, our Portfolio
Manager reduced our gearing from 9.1% at the start of the year, so that the
Company was ungeared at the end of the year. Gearing detracted 1.6% from the
Company’s NAV total return during the year.
The Company has not invested in any new private companies during the year and
at the year end, private investments comprised only 1.0% of the portfolio.
The majority of the Company’s assets are denominated in U.S. dollars with
the result that the Company’s NAV performance in sterling was negatively
affected by the headwind of sterling strength during the year, particularly
against the U.S. dollar, with the average exchange over the period being
$1.28, some 1.6% stronger than the previous year’s average of $1.26.
The Company has maintained a small exposure to Chinese biotechnology
companies. The challenging macroeconomic, geopolitical, and regulatory
landscape has kept valuations of Chinese biotech companies subdued. However,
our Portfolio Manager sees China emerging as a key hub for biotech innovation
and productivity, with the Chinese government’s prioritisation of the sector
presenting a compelling investment opportunity. OrbiMed’s teams in Shanghai
and Hong Kong are well placed to discover, research and conduct due diligence
on Chinese companies. Chinese investments represented 9.0% (2024: 7.7%) of the
NAV at the year end.
It is frustrating that, after a difficult period, our Portfolio Manager’s
investment strategy had started to yield results, only for macroeconomic
developments to derail the recovery. The Board acknowledges that recent
performance has been disappointing and is committed to ensuring that
appropriate measures are taken to address the challenges we face. As part of
our ongoing oversight, we have engaged extensively with the Portfolio Manager
and will soon make our biennial visit to their offices in New York to gain
deeper insight into their strategic approach and to meet with a broader
cross-section of the investment team. While we continue to rigorously
challenge their strategy and execution, we ultimately maintain our confidence
in their expertise and believe that, with time, their approach will deliver
improved outcomes for shareholders.
Our confidence is reinforced by our portfolio which encompasses a diverse
selection of biotech companies developing groundbreaking and high-potential
technologies. I encourage you to read OrbiMed’s Review to find out more
about the key investment themes and the pioneering companies driving
innovation in each area.
CAPITAL STRUCTURE
The Company’s share price total return was -24.2% (2024: +27.1%). The share
price discount to the NAV per share narrowed marginally from 7.8% at the start
of the Company’s financial year to 7.6% at the year end. The Company’s
shares traded at a discount throughout the year, leading to the repurchase of
6,374,607 shares, at an average discount of 8.7% to the Company’s cum income
NAV per share at the time, at a total cost of £57.4 million. Buying back
these shares at a discount generated an uplift of 1.9% to the NAV over the
year, which is in excess of our annual operating expenses.
Shareholders will be aware that the Company pursues an active discount
management policy, buying back shares when the discount of the Company’s
share price to its NAV per share is higher than 6% (under normal market
conditions). In February 2025, reflecting both the overall quantum of buybacks
and the Board’s commitment to the policy, the Company held a General Meeting
to renew shareholder authority to buy back shares when it became clear that
the authority granted at the Annual General Meeting (AGM) in 2024 would be
exhausted before the 2025 AGM.
The proposal was approved by shareholders with over 99% of the votes received
in favour of the renewal. Therefore the Company has been able to continue the
operation of the discount management policy. Since the renewed authority will
expire at the conclusion of the Company’s forthcoming AGM, in line with
usual practice the Company will ask shareholders to renew the authority again
at the AGM in July.
At the year end there were 27,112,591 shares in issue and the share price
traded at a 7.6% discount to the cum income NAV per share. As we have
previously commented, the shares can trade at a discount wider than 6% for a
period, particularly in volatile or muted markets such as those we have
experienced recently. However, the Company remains committed to protecting a
6% share price discount over the longer term. Since the year end, a further
883,594 shares have been bought back for cancellation and at the time of
writing the share price discount stands at 8.5%.
CAPITAL REDUCTION
The Company has built up a substantial share premium account (£79.9 million)
owing to historic share issuance and a capital redemption reserve (£16.7
million) from share buybacks. These accounts are non-distributable. The
Companies Act 2006 permits the Company to cancel the share premium account and
the capital redemption reserve and transfer the amounts so cancelled to a
special distributable reserve following approval by shareholders and the High
Court of Justice in England and Wales. The creation of a special distributable
reserve will mean that it can be used in the future, if required, to fund
share buybacks or other distributions to shareholders/returns of capital in
accordance with applicable law. The cancellation will therefore provide the
Company with more flexibility in how capital may be returned in the future.
Accordingly, the Board is proposing Special Resolution 12 at the forthcoming
AGM, which seeks shareholder approval to cancel the amount standing to the
credit of the current share premium account and the capital redemption
reserve, following which the Company will make an application to the Court to
obtain its approval of the cancellation and the creation of an equivalent
distributable reserve.
RETURN AND DIVIDEND
The revenue return per share was 0.0p (2024: 0.3p). This reflects the low
yield generated from the biotechnology sector and, in particular, the small
and mid-capitalisation companies in this sector that comprise much of the
portfolio.
As a result, no dividend is recommended in respect of the year ended 31 March
2025 (2024: nil).
BOARD CHANGES
In September we were delighted to announce the appointment of Julie Tankard as
a non-executive director. Julie will succeed Julia Le Blan as Chair of the
Audit Committee following Julia’s retirement at the conclusion of the
forthcoming AGM. Lord Willetts has also come to the end of his tenure and will
retire at the AGM. In implementing its succession strategy, the Board is in
the advanced stages of recruiting a replacement. We will make the appointment
later this year in order to facilitate a smooth and staggered rotation of
Board members in the future.
On behalf of the Board, I would like to extend our sincere gratitude to Julia
for her outstanding service as Chair of the Audit Committee. Throughout her
tenure, Julia has demonstrated exceptional dedication, integrity, and
expertise, playing a vital role in maintaining the Board’s rigorous
financial oversight and governance. We also express our appreciation to David
for his invaluable contributions during his time on the Board. As a
distinguished political figure with a strong commitment to life sciences,
David has brought unique insights and understanding of policy and innovation
in the sector to the Board.
We extend our best wishes to Julia and David in their future endeavours and
thank them for their lasting impact on the Company.
PERFORMANCE FEE
There is currently no provision within the Company’s NAV for any performance
fee payable at a future calculation date. The arrangements for performance
fees are described in detail on page 51 of the Annual Report but I would
highlight that it is dependent on the long-term outperformance of the Company:
any outperformance has to be maintained for 12 months after the relevant
calculation date and only becomes payable to the extent that the
outperformance gives rise to a total fee greater than the total of all
performance fees paid to date. This ensures that a performance fee is not
payable for any outperformance that contributes to recovery of prior
performance.
CONTINUATION OF THE COMPANY
The Company’s articles of association provide that every five years there
will be a continuation vote at the AGM. Accordingly, a resolution seeking
shareholders’ approval for the Company to continue as an investment trust is
included in the Notice of AGM beginning on page 105 of the Annual Report.
The Board firmly believes that it is in the best long-term interests of
shareholders to vote in favour of the continuation of the Company, despite its
recent underperformance. While acknowledging the challenges faced by the
Company, we remain confident in the underlying fundamentals and long-term
prospects of the sector in which we invest. Recent market conditions have been
particularly challenging, but there are clear indications of recovery and
growth potential that we are well-positioned to capture.
As the Company's performance has been particularly volatile in the last year,
should shareholders vote in favour of the Company's continuation in July, the
Board will propose a one-off, interim continuation vote at the AGM in 2028,
two years before the next regular vote is scheduled. This additional vote will
provide an earlier opportunity for shareholders to reassess the Company's
progress and determine whether the Portfolio Manager's investment strategy –
based on the anticipated recovery in the biotech sector – is delivering the
expected results.
In the meantime, I would highlight that the Company's discount management
policy enables shareholders to realise their investment at a relatively small
discount to NAV at any time.
We encourage shareholders to support the continuation of the Company as we
navigate this challenging phase for the sector, upholding strong governance to
protect shareholder interests and pursuing improved returns as market
conditions evolve.
ANNUAL GENERAL MEETING
The Company’s AGM will be held at the Barber-Surgeons’ Hall, Monkwell
Square, Wood St, Barbican, London EC2Y 5BL on Thursday, 17 July 2025 at 12
noon. As well as the formal proceedings, there will be an opportunity for
shareholders to meet the Board and the Portfolio Manager, and to receive an
update on the Company’s strategy and its key investments.
I very much look forward to seeing as many shareholders as possible. For those
investors who are not able to attend the meeting in person, a video recording
of the Portfolio Manager’s presentation will be uploaded to the website
after the meeting. Shareholders can submit questions in advance by writing to
the Company Secretary at info@frostrow.com.
I encourage all shareholders to exercise their right to vote at the AGM. The
Board strongly encourages shareholders to register their votes online in
advance. Registering your vote in advance will not restrict you from attending
and voting at the meeting in person should you wish to do so, but ensures your
vote is registered if you are no longer able to attend on the day. The votes
on the resolutions to be proposed at the AGM will be conducted on a poll. The
results of the proxy votes will be published immediately following the
conclusion of the AGM by way of a stock exchange announcement and on the
Company’s website: www.biotechgt.com.
OUTLOOK
The biotech sector continues to be a dynamic and rapidly evolving space, with
developments in science and technology translating into groundbreaking
clinical advancements and innovations which are reshaping the future of
healthcare. The sector presents compelling investment opportunities,
reinforcing our confidence in its long-term growth potential.
In the short term, macroeconomic and geopolitical uncertainties, including
trade tensions, regulatory developments, and general market volatility, will
present challenges. In addition, these broader economic conditions may
adversely influence investors’ risk appetites. Despite these risks, we
remain optimistic about the sector’s ability to generate long-term value
through scientific and technological breakthroughs.
Roger Yates
Chair
3 June 2025
HISTORIC PERFORMANCE FOR THE FIVE YEARS ENDED 31 MARCH
2021 2022 2023 2024 2025
Net asset value per share total return*^ 55.1% (33.8%) (11.0%) 26.5% (24.4%)
Share price total return*^ 75.2% (37.0%) (12.8%) 27.1% (24.2%)
Benchmark return* 25.1% (7.4%) 5.4% 5.0% (6.0%)
Net asset value per share 1,446.4p 957.8p 852.6p 1,078.9p 815.9p
Share price 1,426.0p 898.0p 783.0p 995.0p 754.0p
Discount of share price to net asset value per share^ 1.4% 6.2% 8.2% 7.8% 7.6%
Ongoing charges (excluding performance fees)^ 1.1% 1.1% 1.1% 1.2% 1.1%
Gearing/(net cash)^ 6.8% 8.4% 7.8% 9.1% (3.8%)
* Source: Frostrow Capital LLP
^ Alternative Performance Measure (see glossary).
INVESTMENT PORTFOLIO
INVESTMENTS HELD AS AT 31 MARCH 2025
Fair value % of
Security Country/Region # £’000 investments
Argenx* Netherlands 17,602 8.1
Gilead Sciences USA 17,137 7.8
Neurocrine Biosciences USA 11,671 5.3
Amgen USA 10,666 4.9
CG oncology USA 9,612 4.4
Avidity Biosciences USA 9,312 4.3
Alnylam Pharmaceuticals USA 9,181 4.2
Akeso China 8,741 4.0
Tarsus Pharmaceuticals USA 8,674 4.0
Xenon Pharmaceuticals Canada 8,300 3.8
Ten largest investments 110,896 50.8
Amicus Therapeutics USA 7,266 3.3
Ionis Pharmaceuticals USA 6,550 3.0
Vertex Pharmaceuticals USA 6,120 2.8
Axsome Therapeutics USA 5,786 2.6
Cytokinetics USA 5,299 2.5
Compass Therapeutics USA 5,257 2.4
Vir Biotechnology USA 4,578 2.1
Edgewise Therapeutics USA 4,528 2.1
Rhythm Pharmaceuticals USA 4,404 2.0
Tyra Biosciences USA 4,171 1.9
Twenty largest investments 164,855 75.5
Scholar Rock Holding USA 3,788 1.7
Agios Pharmaceuticals USA 3,697 1.7
Dyne Therapeutics USA 3,501 1.6
Krystal Biotech USA 3,277 1.5
Forte Biosciences˜ USA 3,238 1.5
Immatics Germany 2,510 1.2
Cullinan Therapeutics USA 2,441 1.1
Exact Sciences USA 2,430 1.1
Structure Therapeutics USA 2,319 1.1
ADC Therapeutics Switzerland 2,312 1.1
Thirty largest investments 194,368 89.1
Akero Therapeutics USA 2,214 1.0
C4 Therapeutics USA 2,157 1.0
Insmed USA 1,692 0.8
Corbus Pharmaceuticals Holdings USA 1,623 0.7
Instil Bio USA 1,554 0.7
Trevi Therapeutics USA 1,288 0.6
Engene Holdings Canada 1,281 0.6
Nkarta USA 1,171 0.5
SpringWorks Therapeutics USA 1,033 0.5
Amylyx Pharmaceuticals USA 952 0.4
Forty largest investments 209,333 95.9
New Horizon Health** China 920 0.4
OrbiMed Asia Partners**† Asia 893 0.4
Vera Therapeutics USA 781 0.4
Suzhou Basecare Medical China 745 0.4
Kezar Life Sciences USA 706 0.3
Bicara Therapeutics USA 667 0.3
Enliven Therapeutics USA 631 0.3
Zai Lab China 596 0.3
Korro Bio USA 434 0.2
Fate Therapeutics USA 420 0.2
Fifty largest investments 216,126 99.1
Alto Neuroscience USA 418 0.2
Gracell Biotechnologies CVR**^ China 381 0.2
LakeShore Biopharma China 245 0.1
Prelude Therapeutics USA 206 0.1
Repare Therapeutics Canada 38 –
StemiRNA Therapeutics** China – –
Imara** USA – –
Total investments 217,414 99.7
OTC equity swaps – financed
Swaps China 8,286 3.8
Less: Gross exposure on financed swaps (7,541) (3.5)
Total OTC Swaps 745 0.3
Total investments including OTC Swaps 218,159 100.0
All of the above investments are equities unless otherwise stated. Please
refer to the glossary for a definition of financed swaps.
# Primary listing
* Includes Argenx ADR (see glossary) amounting to £11,180,000
˜ Includes Forte Warrants £2,704,000
** Unquoted
† Partnership interest
^ Contingent Value Right (see glossary)
PORTFOLIO BREAKDOWN
Fair value % of
Investments £’000 investments
Quoted
Equities 215,220 98.7
215,220 98.7
Unquoted
Equities 1,301 0.6
Partnership interest 893 0.4
2,194 1.0
Derivatives
OTC equity swaps 745 0.3
Total investments 218,159 100.0
PERFORMANCE ATTRIBUTION FOR THE YEAR ENDED 31 MARCH 2025
Contribution to total returns % %
Benchmark return (6.0)
Portfolio Manager’s contribution (17.6)
Portfolio total return (23.6)
Gearing (1.6)
Management fee and other expenses (1.1)
Share buybacks 1.9
Total (0.8)
Return on net assets (24.4)
PORTFOLIO MANAGER’S REVIEW
PORTFOLIO MANAGER’S REVIEW
The Company’s NAV per share declined 24.4% during the fiscal year ended 31
March 2025, compared to a 6.0% decrease for the Company’s benchmark, the
NASDAQ Biotechnology Index, measured on a total return, net of withholding
tax, sterling adjusted basis (the Benchmark, NBI or Index).
Despite this performance, our conviction in superior returns for the Company
going forward is as high as ever, based on unprecedented low valuations,
continued strong innovation in the sector, an even more constructive Food and
Drug Administration (FDA) regulatory environment, and an expected
reacceleration in merger and acquisition (M&A) activity.
Macro factors continued to have an outsized influence on the performance of
the Company during the fiscal year, despite these strong industry
fundamentals. The first half of the fiscal year witnessed a gradual recovery
in biotech valuations consistent with our expectations, but unexpected
turbulence in the aftermath of Donald Trump’s election in November cut the
recovery short and caused a significant drop in share prices in the second
half of the fiscal year.
The fiscal year began with a pullback in valuations in April 2024 due to
stronger-than-expected inflation reports that reduced investor expectations
for interest rate cuts by the Federal Reserve (the Fed). Bond yields continued
to rise in May, with several of the Company’s larger positions retracing
gains that month. However, the Company’s performance recovered in June as a
result of several high-profile clinical developments that buoyed investor
interest in the biotech sector. Sector outperformance continued in July as
investors began pricing in expectations for a near-term Fed interest rate cut.
August saw the biotech sector move sideways as a weaker-than-expected U.S.
jobs report increased the risk of a recession, offset by increasing
expectations of a Fed rate cut in September. In September, the Fed finally
announced a long-awaited interest rate cut of 50 basis points. Our expectation
at the time was that this represented the start of an interest rate cutting
cycle that would catalyse the long-awaited recovery in small and
mid-capitalisation (cap) biotech. The Company finished the first six months of
the fiscal year with the NAV up 2.7% versus a 1.4% increase in the Benchmark.
Unfortunately, the second half of the fiscal year brought a number of
surprises that derailed the nascent biotech recovery. In October, a strong
employment report and a higher-than-expected inflation reading sent 10-year
U.S. government yields higher as investors reduced their expectations for the
pace of future interest rate cuts by the Fed. Subsequently, in November,
President-elect Trump’s nomination of Robert F. Kennedy Jr to run the
Department of Health and Human Services (HHS) catalysed a widespread sell-off
across the healthcare sector, including biotech. Kennedy is a noted vaccine
sceptic and has embraced controversial views about certain drugs in the past.
Investors became concerned that the FDA would become less science-based and
that regulatory hurdles for the industry might increase. Those fears were
somewhat mitigated by the nomination of Dr. Martin Makary, a prominent
surgeon, as FDA Commissioner. He is generally regarded as a science-based
physician with less extreme views than Kennedy.
In December, the Fed cut interest rates by a quarter point but also said it
anticipated fewer rate cuts in 2025 than investors were expecting given the
continued strength of the U.S. economy. The hawkish Fed commentary, coupled
with expectations that Trump’s tariff policies would be pro-inflationary,
sent 10-year government yields upward in December, pressuring biotech share
price performance.
In January, the biotech sector had a strong month as three biotech M&A
transactions were announced, including Johnson & Johnson’s $14.6 billion
acquisition of Intra-Cellular Therapies at a 39% premium. Intra-Cellular
Therapies was held in the portfolio at the time of the acquisition
announcement. That exuberance was short-lived, as February and March were
especially difficult months for the biotech sector. In February, continued
inflation concerns, heightened anxiety over tariffs, and a decline in consumer
confidence led to a pull-back in the general markets. Investor risk aversion
towards biotech increased with the confirmation of Robert F. Kennedy, Jr. as
the new Secretary of HHS. In addition, job cuts at HHS precipitated by the
Trump administration’s cost-cutting Department Of Government Efficiency
(DOGE) initiative increased investor worries that potential FDA staffing cuts
could lead to delays in drug approvals. These fears had an outsized negative
impact on pre-revenue biotech companies that have yet to have their lead drugs
approved by the FDA. Additionally, the Trump administration warned drugmakers
that he intended to institute tariffs on pharmaceuticals manufactured overseas
in order to incentivise them to move their manufacturing to the U.S.
While biotech is largely insulated from the impact of tariffs, the prospect of
potential tariffs still diminished investor enthusiasm for the
biopharmaceutical sector generally. The month of March brought further
weakness in the broader markets due to concerns about President Trump’s
tariff policies and a possible economic slowdown in the U.S. FDA staffing cuts
and the departure of some senior agency officials caused investor fears about
potential drug approval delays to persist.
A constellation of macro factors—persistently elevated 10-year interest
rates, a slower-than-expected pace of Fed interest rate cuts, and concerns
about U.S. economic growth given Trump’s tariff policies—coupled with some
healthcare-specific macro factors—staff cuts at the FDA, the prospect of
pharmaceutical tariffs, and the appointment of an HHS head that some regard as
not science-based—has collectively driven biotech valuations once again to
record lows.
The portfolio, which is overweight small and mid-cap companies relative to the
Benchmark, was hit especially hard by these recent developments. We cut our
leverage down to close to zero in February and March to help manage through
the general market volatility. Figure 1 (on page 11 of the Annual Report)
shows the average performance of stocks in the Benchmark classified into three
market cap categories: large-cap, mid-cap, and small-cap. Mid-cap and
small-cap stocks significantly underperformed large-cap stocks during the
fiscal year. As shown in Figure 1, the Company was overweight small and
mid-cap stocks at the beginning of the review period. That positioning was
largely maintained throughout the fiscal year, with a mild shift from
small-caps to large and mid-caps as macro conditions worsened. The significant
decline in small-cap performance, in particular during the final three months
of the year, significantly impaired the portfolio’s relative performance
versus the Index.
Additionally, we witnessed a significant disparity in performance between
biotech companies that already have product revenue (commercial stage) versus
those that are pre-revenue (development stage). Figure 2 (on page 12 of the
Annual Report) is a graph showing the relative performance of two baskets of
stocks put together by Morgan Stanley: a commercial biotech basket consisting
of 60 biotech companies with product revenue, and a clinical stage basket
consisting of 163 pre-revenue biotech names. We note the dramatic
underperformance of the pre-revenue names, especially in the latter half of
the fiscal year, which contributed to an almost 40% relative underperformance
of the clinical stage basket versus the commercial basket over the course of
the fiscal year. Because the Company has more exposure to pre-revenue names
than the Benchmark (46% vs 28%), as shown in the tables in Figure 2, this
also acted as a significant headwind to relative performance.
ABSOLUTE VALUATIONS OF EMERGING BIOTECH RETEST UNPRECEDENTED LOWS
The dramatic drawdown in biotech performance in the second half of the fiscal
year caused absolute valuations for the sector to hit new record lows. We view
this recent dip as an excellent buying opportunity for emerging biotech in
particular.
One objective measure we use to evaluate valuations of biotech companies is
simply to compare the market caps of these companies with the net cash on
their balance sheets. On this simple metric, a significant number of biotech
companies are still trading at negative enterprise values (i.e. market caps
below the net cash on their balance sheets).
As shown in Figure 3 (on page 13 of the Annual Report), we estimate close to
30% of the biotech universe, representing approximately 120 companies, are now
trading at negative enterprise values as at 31 March 2025. The graphs show how
unprecedented these valuations are in a historical context.
Plotting the median ratio of market cap to net cash on the balance sheet for
the industry since 2001 also shows we are at the absolute bottom of historical
valuations for the sector on this metric.
With many companies with active drugs trading below their cash value, we
continue to believe that the small and mid-cap pre-revenue companies are the
most undervalued in the biotech universe and have the most opportunity for
upside. In a worst-case scenario, even if some of these companies choose to
shut down operations and return cash to shareholders, this would actually
deliver a positive return from current share prices in many cases. In fact, we
are beginning to see more activist investors get involved in companies with
negative enterprise values in order to unlock the value of their balance sheet
cash.
As we have stated in previous years, the biotech sector drawdown since 2021
has been the most protracted and severe pullback we have ever seen for the
sector. Ultimately, the innovation in research and development (R&D) that
drives value remains intact, which underpins our confidence that a valuation
recovery will occur eventually. Most of the innovation in the industry is
still being driven by emerging biotech. According to IQVIA (a provider of
biopharmaceutical development and data analytics services), 85% of the novel
drugs launched in 2024 were initially developed by an emerging biotech
company. As such, we currently plan to continue to hold a majority of our
portfolio in the small and mid-cap segment, which accounts for the majority of
innovation in the sector and has seen the greatest valuation contraction in
the past four years.
We note that when valuations previously reached these levels, the biotech
sector staged significant upward recoveries, as was the case in late
2023/early 2024.
TOP AND BOTTOM FIVE CONTRIBUTORS TO NET ASSET VALUE PERFORMANCE FOR THE YEAR
TO 31 MARCH 2025
Contribution
Contribution per share
Top Five Contributors £’000 (pence)*
Gilead Sciences 8,802 27.9
Argenx SE 6,499 20.6
CytomX Therapeutics 5,380 17.1
Intra-Cellular Therapeutics 4,727 15.0
Morphic Holding 3,803 12.1
29,211 92.7
Top Five Detractors
Sarepta Therapeutics (8,890) (28.2)
Dyne Therapeutics (7,314) (23.2)
Apellis Pharmaceuticals (5,161) (16.4)
Nkarta (5,104) (16.2)
Ionis Pharmaceuticals (5,035) (16.0)
(31,504) (100.0)
* Based on 31,514,115 shares being the weighted average number of shares in
issue during the year ended 31 March 2025. Source: Frostrow Capital LLP
CONTRIBUTORS AND DETRACTORS
Gilead Sciences, Argenx, CytomX Therapeutics, Intra-Cellular Therapies, and
Morphic Holding were the leading positive contributors to performance in the
portfolio during the year.
· Gilead Sciences is a diversified biopharmaceutical company developing
medicines to prevent and treat life-threatening diseases, including HIV, viral
hepatitis, COVID-19, and cancer. Gilead stock appreciated during the year due
to strong revenue growth for its commercial HIV franchise. Additionally,
Gilead announced breakthrough data from registrational studies of lenacapavir,
a treatment for HIV prevention, which, if approved, has the potential to
change the treatment paradigm for HIV prevention as a twice-yearly injection
and drive continued growth of Gilead’s HIV franchise.
· Argenx is a commercial-stage, global biotech company specialising in the
development and commercialisation of therapies for autoimmune diseases. The
stock’s outperformance was driven by exceptional commercial execution, with
global product sales reaching $2.2 billion in 2024, an 84% year-on-year
increase. This growth was largely fuelled by the success of its drug Vyvgart,
which surpassed 10,000 patients treated for generalized myasthenia gravis,
chronic inflammatory demyelinating polyneuropathy, and primary immune
thrombocytopenia. The company’s Vision 2030 plan set some ambitious
long-term goals, including treating 50,000 patients globally in 10 labelled
indications and advancing five pipeline candidates into Phase 3 development by
2030.
· CytomX Therapeutics is a clinical-stage company that is developing novel
immuno-oncology therapies across a broad array of cancer types. Shares spiked
in May after the company released a clinical update from an early-stage drug
which suggested that it may be active in pancreatic cancer. We took advantage
of the strength in the shares and exited the position with a significant gain.
· Intra-Cellular Therapies markets Caplyta, a drug approved in the U.S. to
treat schizophrenia and bipolar depression. In April 2024, a Phase 3 study
showed that adjunctive treatment with Caplyta significantly reduced depressive
symptoms in patients with major depressive disorder (MDD). The trial’s
success was replicated in a second Phase 3 study in June 2024 and the company
submitted a supplemental new drug application to the FDA in December 2024,
aiming to expand the use of Caplyta to treat MDD adults. In January 2025, the
company announced a legal settlement with generic competitor Sandoz that would
prevent Sandoz from launching a generic Caplyta until 2040. Shortly
thereafter, Johnson & Johnson agreed to acquire the company for $14.6 billion,
a roughly 40% premium to the stock’s last trading price.
· Morphic Holding is a clinical stage biotechnology company developing a
selective oral α4β7 integrin small molecule inhibitor for the treatment of
inflammatory bowel disease that has the potential to improve outcomes and
expand treatment options for patients. In July 2024, Eli Lilly announced its
intention to acquire Morphic for approximately $3.2 billion, a 79% premium to
Morphic’s last closing price.
Sarepta Therapeutics, Dyne Therapeutics, Apellis Pharmaceuticals, Nkarta, and
Ionis Pharmaceuticals were the principal detractors for the year.
· Sarepta Therapeutics is a commercial stage biotechnology company
developing and marketing a portfolio of therapies targeting neuromuscular
diseases, including the gene therapy Elevidys for Duchenne muscular dystrophy.
In March, Sarepta disclosed that a young man with Duchenne muscular dystrophy
had passed away from acute liver failure shortly after receiving Elevidys. We
exited the entire Sarepta position on the day of the news due to the
uncertainty of Elevidys’ commercial outlook.
· Dyne Therapeutics is a clinical stage biotechnology company developing a
pipeline in multiple neuromuscular diseases. In January, updated Phase 1 data
showed its drug DYNE-101 was efficacious in myotonic dystrophy, though the
level of efficacy was below investor expectations. Uncertainty around the
drug’s regulatory path led to pressure on the stock.
· Apellis Pharmaceuticals is a commercial stage biopharmaceutical company
developing treatments for diseases driven by overactivation of the complement
system. The company’s primary revenue driver is a drug called Syfovre, a
treatment for an eye disease called geographic atrophy that can cause
blindness. Shares declined in the review period due to slowing market growth
and competitive pressure on Syfovre sales.
· Nkarta is a clinical-stage biopharmaceutical company developing engineered
natural killer cell therapies to treat autoimmune diseases and cancer. Shares
declined due to a lack of catalysts in the near term, slow clinical program
progression, and increasing competition from alternative modalities being
developed for autoimmune diseases.
· Ionis Pharmaceuticals is a commercial stage company developing RNA
therapeutics across a variety of disease areas. In January, partner Novartis
announced a delay of its Phase 3 trial of pelacarsen, a lipoprotein(a)
inhibitor to treat cardiovascular disease, from 2025 to the first half of
2026. The lack of other meaningful catalysts in 2025 led to continued weakness
in the shares.
INNOVATION REMAINS ROBUST WITH IMPORTANT NEW FDA DRUG APPROVALS
We believe the valuation contraction we have seen in biotech over the past few
years is not justified given the strong innovation that continues in the
sector.
The FDA approved 59 new drugs in 2024, including a large number of
first-in-class drugs. These new therapies generally provide benefit to
patients who have little or no therapeutic options or are superior to
previously available therapies. Some examples of drugs approved in 2024 that
were either the first-ever drug approved to treat a particular disease or the
first with a novel mechanism of action are listed below. We favour investing
in companies developing first-in-class agents with limited competition.
· Ojemda is the first therapy to treat relapsed or refractory paediatric
low-grade glioma harbouring a BRAF fusion or rearrangement, a rare form of
brain cancer in children. In clinical studies, Ojemda was able to shrink
tumours in over 50% of children with this form of glioma. The drug was
developed and is marketed by Day One Biopharmaceuticals.
· Anktiva was approved as the first immunotherapy to be used in combination
with standard of care to treat high risk non-muscle invasive bladder cancer.
Anktiva, developed by ImmunityBio, provides a therapeutic alternative to the
traditional surgical option of removing the bladder.
· Xolremdi was the first therapy approved to treat WHIM syndrome, a rare
immunodeficiency disorder. While the market potential for this indication is
small, X4 Pharmaceuticals intends to develop the therapy in other more
prevalent immunodeficiencies.
· Rytelo, developed by Geron, is the first and only oligonucleotide
telomerase inhibitor approved for myelodysplastic syndrome, a type of cancer
where the blood marrow produces abnormal cells.
· Yorvipath is currently the only drug to treat hypoparathyroidism on the
market. Ascendis Pharma developed the therapy to address this rare
endocrinology disorder after a previous treatment had been permanently
withdrawn from the market.
· Niktimvo was developed by Syndax Pharmaceuticals and is co-marketed with
Incyte Pharmaceuticals for the treatment of relapsed chronic graft-versus-host
disease, a life-threatening complication that can occur after a bone marrow or
stem cell transplant. While Niktimvo is not the first approved therapy for
chronic graft-versus-host disease, it is the first biologic therapy for the
condition and has shown a benefit in patients that did not respond to other
drugs.
· Revuforj, also developed by Syndax Pharmaceuticals, is the first therapy
for relapsed or refractory acute leukemia with KMT2A translocations. This
specific type of leukemia has a poor prognosis when treated with traditional
chemotherapy.
· Crenessity, developed by Neurocrine Biosciences, is the first and only
therapy approved to treat classic congenital adrenal hyperplasia (CAH), a rare
endocrine disorder associated with dysregulated hormone production from the
adrenal glands. The treatment addresses both cortisol deficiency as well as
excess androgen production, the classic hallmarks of CAH.
· Tryngolza, developed by Ionis Pharmaceuticals, is the first therapy to
treat familial chylomicronaemia syndrome, a rare disease where patients suffer
from ultra-high triglyceride levels.
SIGNIFICANT SCIENTIFIC AND MEDICAL BREAKTHROUGHS DURING THE REVIEW PERIOD
New drugs like the ones listed above do not make it to market without years of
clinical testing and scientific investigation. We focus on assets with
best-in-class efficacy and safety for an unmet medical need with a financially
large addressable market. Below are a few of the significant scientific and
medical breakthroughs during the year for some companies held in the portfolio
as at 31 March 2025.
· Akeso, a Chinese biotech company partnered with US company Summit
Therapeutics, presented its HARMONI-2 trial results at the 2024 World
Conference on Lung Cancer for ivonescimab, its novel PD1/VEGF bispecific
antibody. Ivonescimab showed a 49% reduction in disease progression relative
to the standard of care Keytruda in first-line PD-L1 positive advanced
non-small cell lung cancer. Summit is currently studying the drug in a Western
population and if the HARMONI-2 results are replicated, ivonescimab could
displace Keytruda as the standard of care.
· Gilead Sciences released data from two groundbreaking studies with its
twice-a-year injection lenacapavir for the pre-exposure prevention of HIV
infections. In the trials, lenacapavir prevented 100% and 99.9% of HIV
infections in individuals engaging in high-risk behaviour. The drug is under
review at global health agencies, and we expect it to be approved and
available later in 2025.
· Insmed released positive ASPEN trial results for its drug brensocatib, the
first-ever successful Phase 3 trial for the treatment of non-cystic fibrosis
bronchiectasis. Brensocatib, over the course of a 52-week trial, showed a 20%
reduction in exacerbations requiring medical intervention relative to the
control arm. This drug is currently under review at the FDA and we expect
approval in the summer of 2025.
· Scholar Rock released its Phase 3 SAPPHIRE data in patients with spinal
muscular atrophy (SMA) for its monoclonal antibody, apitegromab. This was the
first drug to show a benefit in SMA patients on top of standard of care
therapies. Apitegromab is under regulatory review and should be approved later
in 2025.
· Akero Therapeutics announced its 96-week Phase 2b SYMMETRY trial for
efruxifermin which showed a reversal of compensated cirrhosis due to MASH, a
condition characterised by accumulation of excess fat in the liver. No other
drug tested to date has been able to show an improvement in fibrosis in this
late-stage liver disease. Akero is currently enrolling patients in a Phase 3
study for efruxifermin.
· Avidity Biosciences released Phase 1/2 data for del-brax, a novel siRNA
bound to a monoclonal antibody for the treatment of facioscapulohumeral
muscular dystrophy (FSHD), a genetic disorder characterised by progressive
muscle weakness. Del-brax was the first drug to demonstrate muscle function
improvement in FSHD, a condition that currently has no approved therapies.
Avidity has begun a Phase 3 trial for del-brax and if successful, it could
become the first approved therapy to treat FSHD.
· Axsome Therapeutics released Phase 3 data for its drug AXS-05 showing
efficacy in the treatment of Alzheimer’s disease agitation, a condition of
restlessness and anxiety found in Alzheimer’s patients. This is the first
non-antipsychotic to show a benefit in this hard-to-treat patient population.
Axsome plans to file the drug for approval in the second half of 2025, and we
would expect it to be available to patients in 2026.
We look at all therapeutic areas and we are seeing promising advancements
across multiple therapeutic categories.
Some of the areas we currently find particularly attractive for investment
include:
Orphan/Rare Disease
Under the FDA Orphan Drug Act of 1983, a disease affecting fewer than 200,000
Americans is considered an orphan disease. Companies developing therapies for
these diseases have both regulatory and commercial advantages relative to
those developing therapies for more prevalent diseases. The FDA awards orphan
drugs seven years of regulatory exclusivity upon approval, during which time
the FDA is prohibited from approving another marketing application for the
same drug for the same disease, regardless of the orphan drug’s intellectual
property. The FDA will also offer economic incentives to orphan drug
developers, often waiving the fee for filing a new drug application.
Commercial advantages of orphan drugs include the fact that a relatively small
salesforce is typically required to promote such drugs given that these
diseases are generally treated by a concentrated number of specialists.
Insurance plans and government payors also tend not to heavily negotiate
pricing for orphan drugs given the small number of patients affected, allowing
companies to charge a significant price per patient. Lastly, patient groups
for orphan diseases tend to be well organised, so patients are well-educated
about upcoming treatments and will actively seek them once they are approved.
Several of the drugs we highlighted above that were approved or had
significant data in the year are for rare orphan diseases. Given the
regulatory and commercial advantages of orphan disease companies, we have
found many of them to be attractive investment opportunities. Some examples of
biotech companies focused on orphan diseases held in the portfolio as at
31 March 2025 include:
· Vertex Pharmaceuticals – Vertex is a large profitable biotech company
that is the leader in developing and commercialising drugs for the treatment
of cystic fibrosis. The company has commercialised five therapies which have
revolutionised the lives of people suffering from cystic fibrosis, generating
over $11 billion in sales from cystic fibrosis treatments in 2024.
· Argenx – Argenx developed and commercialised Vyvgart, an antibody
therapy, for the treatment of two rare immune-mediated neurological disorders:
generalized myasthenia gravis and chronic inflammatory demyelinating
polyneuropathy. Success of the product drove Argenx to profitability in 2024.
Argenx is also conducting multiple pivotal trials in other rare diseases.
· Rhythm Pharmaceuticals – Rhythm has developed and launched Imcivree for
Bardet-Biedl syndrome, a rare genetically driven severe obesity disorder.
Recently, the company announced positive Phase 3 data for Imcivree for the
treatment of acquired hypothalamic obesity, a larger but still orphan
indication.
· Agios Pharmaceuticals – Agios has developed and commercialised Pyrukynd,
a first-in-class oral pyruvate kinase activator, for rare hematologic
diseases. Pyrukynd is currently approved for the treatment of haemolytic
anaemia in adults with pyruvate kinase deficiency. Over the course of 2024,
Agios released two positive Phase 3 studies for Pyrukynd for the treatment of
thalassemia, a more common but still rare disorder. Agios is also studying
Pyrukynd in a Phase 3 trial for the treatment of sickle cell disease, an even
larger but still rare disease.
Cardiovascular Disease
Cardiovascular disease is the leading cause of death in the United States.
Some examples of biotech companies that have cardiovascular programs in the
portfolio as at 31 March 2025 include:
· Alnylam Pharmaceuticals – Alnylam has developed and marketed four
products based on its RNA interference technology. In early 2025, Alnylam’s
drug Amvuttra received a label expansion for the treatment of cardiomyopathy
due to transthyretin-mediated amyloidosis. The drug had been shown in clinical
studies to reduce the frequency of heart-related deaths, hospital stays, and
urgent heart failure visits.
· Cytokinetics has a pipeline of late-stage cardiovascular drugs. Its lead
asset aficamten had positive Phase 3 data for the treatment of symptomatic
obstructive hypertrophic cardiomyopathy. The drug is currently under review by
global regulatory authorities with an expected approval in the second half of
2025.
· Edgewise Therapeutics develops novel therapeutics for muscle disease,
including the heart, the most important muscle in the body. Edgewise recently
released Phase 2 data for its drug EDG-7500 for the treatment of hypertrophic
cardiomyopathy, a genetic condition where the heart muscle becomes abnormally
thickened, making it harder for the heart to pump blood effectively.
Bispecific Antibody Therapies for Cancer
Bispecific antibodies are an emerging technology that is being utilised for
the treatment of cancer. Bispecific antibodies are capable of binding to two
different antigens simultaneously (in contrast to monoclonal antibodies, which
can only bind to one antigen). One of the arms of the antibody targets an
antigen which is specific to a cancer cell while the other arm activates an
immune cell to target the tumour and kill it. To date, a handful of bispecific
antibodies have been developed and marketed using this approach. Some examples
of biotech companies held in the portfolio as at 31 March 2025 that are
developing or have commercialised bispecific antibodies for cancer include:
· Amgen, a large cap biotech company that develops and commercialises drugs
across a wide range of therapeutic categories. Amgen has two bispecifics to
treat cancer and a third in late-stage clinical development. Blincyto was the
first bispecific antibody on the market and is approved for the treatment of
acute lymphoblastic leukemia. Imdelltra was the first bispecific approved to
treat a solid tumour and is approved for the treatment of late-stage small
cell lung cancer. Amgen’s third bispecific antibody, xaluritamig is in
multiple Phase 3 trials to treat prostate cancer.
· Akeso, a Chinese biotechnology company developing ivonescimab, a
bispecific targeting VEGF/PD1, across multiple solid tumours. In 2024, the
company shared multiple data sets where ivonescimab showed superiority over
Merck’s Keytruda in non-small cell lung cancer. Akeso has licensed the
ex-Chinese rights to the molecule to US based Summit Therapeutics. Ivonescimab
has an initial approval to treat a specific type of lung cancer in China and
we expect a broader approval in China in 2025.
· Immatics, which is focused on developing drugs that target the T cell
receptor to generate a specific response against solid tumours. Immatics has
two bispecifics in early-stage development against various solid tumours,
including head & neck cancer and melanoma. We expect Immatics to share an
update on both programs in 2025.
· Vir Biotechnology is developing T cell engager bispecifics for cancer
utilizing its PRO-XTEN double masking technology, which reduces the risk of
side effects of the drugs. Vir has shared exciting early data for two
compounds, one targeting breast and colon cancer and a second targeting
prostate cancer. The XTEN mask technology hides the active component of the
bispecific and activates the bispecific only when it is in the tumour
microenvironment, limiting toxicity while enabling a higher and more potent
dose of drug to be delivered to the tumour.
As shown in Figure 5 (on page 19 of the Annual Report), the Company has
exposure to a wide range of cutting-edge technologies in biotech.
DECLINE IN BIOTECH FINANCINGS CREATES NEW OPPORTUNITIES FOR INVESTORS TO
GENERATE OUTSIZED RETURNS
The sharp contraction in valuations over the past six months has curtailed
financing activity in the sector, as shown in Figure 6 (on page 20 of the
Annual Report). Quality companies that have shown good proof-of-concept for
their drugs have still seen healthy investor demand for their follow-on
offerings. In contrast, earlier stage companies that have not yet demonstrated
proof-of-concept for their drug candidates have had a much more challenging
time securing financing on attractive terms.
IPO activity, shown in blue, remains minimal given the current valuations in
the marketplace. Many private companies are opting to raise funds through
additional private rounds rather than go public at record low valuations. As
at 31 March 2025, the Company did not have any material private investments
and we do not intend to make any new investments in private companies until
the IPO market has opened to a greater extent.
One positive consequence of the diminished financing environment is that
investors have more leverage in securing attractive deal terms when financing
a biotech company that is close to running out of cash. We will continue to
selectively take advantage of these financing opportunities.
CHINESE BIOTECH EMERGING AS A SIGNIFICANT SOURCE OF INNOVATION
Ever since the Chinese government made developing a domestic biotechnology
industry a national priority in 2015 as part of its 10-year “Made in
China” plan, the Chinese biotech industry has significantly advanced its
ability to develop innovative biotech therapeutics.
Chinese biotech companies have shown their ability to develop drugs faster and
cheaper than their Western counterparts, and they are rapidly approaching the
drug development productivity of the United States.
As shown in Figure 7 (on page 21 of the Annual Report), the Chinese
biopharmaceutical industry now accounts for 30% of Phase 1-3 clinical trial
starts worldwide, exceeding all of Europe and approaching the 35% share held
by the U.S.
Five to ten years ago, many of the biotech drug candidates produced by Chinese
biotech were “me-too” versions of Western drugs that did not offer any
efficacy or safety advantage. Now, Chinese companies are increasingly
developing completely novel drugs and first-in-class molecules that have never
been seen in the West. The most telling sign of this advance in innovation is
the fact that many large pharmaceutical companies have in-licensed innovative
molecules from Chinese biotech companies in the recent past (see Figure 8
below). Western biopharmaceutical companies licensing innovative assets from
China would have been unheard of ten years ago, yet now, those same large
pharma companies are aggressively hunting for novel molecules sourced from
Chinese biotech.
Upfront Milestones
Date Asset Target Licensor Licensee ($mm) ($mm)
7-Jan-24 RNAi multiple Argo Biopharma Novartis 185 3,980
3-Apr-24 Acquisition ProfoundBio Genmab 1,800 –
23-May-24 Molecular glues N/A Degron Therapeutics Takeda NA 1,200
27-May-24 ADCs multiple MediLink BioNTech 25 1,800
14-Jun-24 FG-M701 TL1A FutureGen AbbVie 150 1,560
14-Jun-24 Olverembatinib BCR-ABL1 Ascentage Pharma Takeda 100 1,200
13-Aug-24 CN201 CD3/CD19 TCE Curon Biopharmaceutical Merck 700 600
30-Sep-24 RGT-419B CDK2/4 Regor Therapeutics Roche 850 –
7-Oct-24 YS2302018 Lp(a) CSPC Pharmaceuticals AstraZeneca 100 1,920
17-Oct-24 Botanical cancer SM N/A Chengdu Baiyu Novartis 70 1,100
30-Oct-24 CBM1A46 CD3/CD19/CD20 Chimagen Biosciences GlaxoSmithKline 300 550
12-Nov-24 Acquisition Biotheus BioNTech 800 150
15-Nov-24 LM-299 PD-1/VEGF LaNova Medicines Merck 588 2,700
18-Dec-24 HS-10535 Oral GLP-1R agonist Hansoh Pharma Merck 112 1,900
2-Jan-25 IBI3009 DLL3 ADC Innovent Biologics Roche 80 1,000
13-Jan-25 SIM0500 GPRC5D/BCMA/CD3 Simcere Zaiming AbbVie – 1,055
21-Mar-25 Biospecifics strategic collaboration Harbour BioMed AstraZeneca 175 4,400
24-Mar-25 UBT251 GLP-1/GIP/ GCGR United Laboratories Novo Nordisk 200 1,800
25-Mar-25 HRS-5346 Lp(a) Jiangsu Hengrui Merck 200 1,770
Figure 8
The Biotech Growth Trust has a global mandate to identify the best biotech
investment opportunities worldwide. Because OrbiMed has three analysts based
in our Shanghai and Hong Kong offices who can conduct on-the-ground due
diligence on Chinese companies, we have maintained some exposure to Chinese
biotech companies in the portfolio for many years. The Shanghai and Hong Kong
stock markets entered a protracted bear market starting in 2021, which
overshadowed much of the innovation occurring in Chinese biotech. However, we
believe there are now clear signs of stock market stabilisation which should
allow our Chinese biotech investments to perform better moving forward. As at
31 March 2025, our China investments represented 9.0% of the Company’s NAV.
China’s ascendance in biotechnology has not gone unnoticed by the US
government. In early April, the National Security Commission on Emerging
Biotechnology of the US Senate released a report urging swift Congressional
action to maintain the United States’ global leadership in biotechnology.
The report noted the recent rapid rise in China’s biotechnology capabilities
which threatened to overtake those of the United States, with potential
negative consequences for national security. The report’s recommendations
included accelerating biotech innovation in the US, investing at least $15
billion over five years to support the US biotechnology sector, and making
biotech industry development a national priority. As biotechnology
increasingly becomes a field for geopolitical rivalry between the US and
China, we believe this will lead to even greater government support for the
industry in both countries. The biotech industry should benefit from that
increased support.
REGULATORY ENVIRONMENT MAY BECOME EVEN MORE FAVOURABLE THAN BEFORE
The biotech sector was weak in the latter part of the fiscal year in part due
to growing investor concerns that staff cuts at the FDA could lead to delays
in the approvals of new drugs. We believe the concerns over potential
regulatory delays are exaggerated. The HHS has expressly stated that any staff
cuts will not affect the drug review process, which is largely paid for by
industry user fees rather than by the government. Thus far, most of the
expected approvals since Kennedy’s appointment as head of HHS have occurred
on time. Conversations with biotech management teams have also not indicated
any detrimental impact on regulatory timelines.
We believe the Trump administration is pro-innovation and would like to speed
up new drug approvals rather than delay them. Figure 9 (on page 22 of the
Annual Report) is a graph showing new drug approvals at the FDA since 2016. We
would note that in 2017, when Trump took office during his first term as
President, he expressly stated that he wanted to speed up the approval of new
drugs and reduce the regulatory burden on companies. That policy resulted in
over a doubling in new drug approvals in 2017 compared to 2016. That elevated
pace of drug approvals continued through his first term and into the Biden
administration. We see no evidence that Trump has changed his view on having a
constructive FDA regulatory process that speeds up the introduction of new
drugs to the market.
Supporting this view is the announcement in April by the new FDA Commissioner
Martin Makary that the agency would no longer require animal testing for
monoclonal antibodies and other drugs prior to approval. Instead, companies
can rely on AI-based computational modelling, human organ model-based lab
testing, and real-world human data to satisfy the testing requirements
currently done with animals. After a transition period of three years, the FDA
will aim to make animal studies the exception rather than the norm for
pre-clinical safety and toxicity testing. The express purpose of the policy is
to accelerate the drug evaluation process and lower R&D costs for companies.
We believe this is an important early indication that the Trump administration
wants to further enhance the constructive and favourable regulatory
environment for biotech and pharmaceutical companies. Biotech companies would
clearly benefit from any reduction in the cost and time to secure a new drug
approval.
M&A ACTIVITY EXPECTED TO ACCELERATE
One of the longstanding drivers of biotech sector performance has been M&A
activity. Emerging biotech companies rarely stay independent over the long
term; at some point, they are acquired by a larger strategic player. Figure 10
(on page 23 of the Annual Report) shows the company announced M&A transactions
for publicly traded biotech companies since the beginning of 2018. M&A was
generally strong throughout 2023 and the early part of 2024 before tapering
off for the balance of 2024. We attribute the reduced M&A activity in the
latter part of 2024 to four factors: 1) acquirors were still digesting the
acquisitions they had already made so were not prepared to make new ones; 2)
acquirors were waiting for the results of the Presidential election, which
would impact the tax implications for companies contemplating acquisitions as
well as Federal Trade Commission (FTC) views on potential transactions; 3)
target companies were waiting for share prices to recover before agreeing to a
sale; and 4) some acquisition dollars have actually been spent on acquiring
private biotech companies that have been unable to go public given the tepid
state of the IPO market.
Our conversations with investment bankers indicate that strategic interest in
acquiring biotech companies remains strong among large pharmaceutical
companies, in large part due to the expected loss of exclusivity for many of
their blockbuster products by the end of this decade (as shown in Figure 11 on
page 24 of the Annual Report). Pharmaceutical companies have an urgent need to
make acquisitions that can replace the lost revenue from the patent
expirations of those blockbuster products.
However, Trump’s recent tariff announcements, including an upcoming
pharmaceutical tariff that has yet to be announced, have increased uncertainty
among large pharmaceutical companies about what their financial situation may
be in the near future. Trump has also discussed closing the tax advantages for
pharmaceutical companies that choose to domicile their manufacturing and
intellectual property in ex-US locations like Ireland in order to take
advantage of lower tax rates in those jurisdictions.
Uncertainty about these policies has likely contributed to a temporary pause
in biotech M&A activity. Because the cost of goods sold for pharmaceuticals is
generally very low (less than 10% in many cases), any tariff on drugs should
theoretically not have a dramatic impact on pharmaceutical margins. Any
tariffs that are enacted should also have a minimal impact on biotech
companies. Pre-revenue companies will have time to structure their commercial
manufacturing operations in an optimal way to minimise the impact of tariffs
prior to generating product revenue. If Trump succeeds in lowering the US
corporate tax rate from 21% to 15%, the benefits of offshoring pharmaceutical
manufacturing become less compelling regardless.
Once there is greater clarity on Trump’s pharmaceutical tariffs and economic
policies, we believe M&A activity will resume for the balance of this calendar
year.
While most of the M&A activity will be larger pharmaceutical companies
acquiring smaller biotech, we also expect an uptick in large-scale M&A
activity by pharmaceutical companies. During the Biden Administration, FTC
Commissioner Lina Khan took a very aggressive stance in blocking large scale
mergers across industries. This effectively discouraged large pharmaceutical
companies from making large (>$15 billion) acquisitions, as the prevailing
expectation was that any large merger would be stopped by the FTC. Now that
Lina Khan is no longer head of the FTC, investors believe this should pave the
way for increased large-scale merger activity in the biopharmaceutical sector.
BIG PHARMA PATENT CLIFF DRIVES BIOTECH M&A
Over $270 billion in branded sales are at risk (2024-2030)
Company Drug US Loss of Exclusivity (Projected) 2024 Global Sales
($bn)
Merck Keytruda 2028 $29.4
Bristol Myers Squibb & Pfizer Eliquis 2026 $13.3
Johnson & Johnson Stelara 2025 $10.3
Johnson & Johnson Darzalex 2029 $11.6
Bristol Myers Squibb Opdivo 2028 $9.3
AbbVie Humira 2023 $8.9
Abbvie & Johnson & Johnson Imbruvica 2027 $4.4
Pfizer Ibrance 2027 $4.3
Figure 11
Source: S&P Global report, Company Reports.
The Company did benefit directly from three M&A transactions during the fiscal
year because of holdings in the target companies at the time of the
acquisition announcement:
· Eli Lilly’s acquisition of Morphic Holdings for $3.2 billion
· Lundbeck’s acquisition of Longboard Pharmaceuticals for $2.6 billion
· Johnson & Johnson’s acquisition of Intra-Cellular Therapies for $14.6
billion
Several of the holdings in the portfolio would make attractive acquisition
candidates, so we expect to continue to benefit directly from M&A activity.
STRATEGY AND OUTLOOK
With the recent downturn, our conviction in the prospects for biotech remains
as bullish as ever. Innovation and scientific progress in the industry remain
robust, and we believe the regulatory environment is poised to become even
more constructive for the biotech industry as Trump executes his pro-business
agenda. Contrary to investor fears, we believe the Trump administration is
pro-innovation and ultimately wants more drugs approved as expeditiously as
possible.
Merger and acquisition activity, which has been on a temporary pause as
potential acquirors await greater clarity on Trump’s tax and tariff
policies, should resume robustly for the balance of this year. Even in an
environment of slowing economic growth, biotech has historically outperformed
other sectors of the economy, as drug demand is less sensitive to economic
conditions. We believe the impact of pharmaceutical tariffs and inflation
should have minimal impact on the biotech sector. Commercial biotech companies
have typically been able to increase their prices in line with inflation each
year.
We expect a majority of the portfolio will continue to be invested in small
and mid-cap biotech companies, since they are the most undervalued (trading at
record lows) and are most likely to benefit from M&A activity. Additionally,
we will maintain some exposure to China as the biotech industry in that
country increasingly becomes a source of drug innovation. For the past four
years, the biotech sector has been buffeted by macro dynamics that have masked
the industry’s strong fundamentals. While the wait for a sector recovery has
been much longer than we would ever have anticipated, we remain confident that
a recovery will eventually occur that will reward long-term investors with
superior returns. The Company's overweight exposure to smaller companies with
promising assets – the segment that offers the most upside potential –
positions the portfolio well to fully capture that recovery.
OrbiMed Advisors LLC
Portfolio Manager
3 June 2025
BUSINESS REVIEW
The Strategic Report contains a review of the Company’s business model and
strategy, an analysis of its performance during the financial year and its
future developments, as well as details of the principal risks and challenges
it faces.
Its purpose is to inform shareholders and help them to assess how the
Directors have performed their duty to promote the success of the Company. The
Strategic Report contains certain forward-looking statements. These statements
are made by the Directors in good faith based on the information available to
them up to the date of this report. Such statements should be treated with
caution due to the inherent uncertainties, including both economic and
business risk factors, underlying such forward-looking information.
BUSINESS MODEL
The Biotech Growth Trust PLC is an externally managed investment trust and its
shares are admitted to the closed-ended investment funds category of the
FCA’s Official List and to trading on the main market of the London Stock
Exchange.
The purpose of the Company is to achieve long-term growth in its shareholders'
wealth by providing a vehicle for investors to gain exposure to a portfolio of
worldwide biotechnology companies, through a single investment.
The Company’s strategy is to create value for shareholders by addressing its
investment objective. As an externally managed investment trust, all of the
Company's day-to-day management and administrative functions are outsourced to
service providers. As a result, the Company has no executive directors,
employees or internal operations.
The Company employs Frostrow Capital LLP (Frostrow) as its Alternative
Investment Fund Manager (AIFM), OrbiMed Capital LLC (OrbiMed) as its Portfolio
Manager, J.P. Morgan Europe Limited as its Depositary and J.P. Morgan
Securities LLC as its Custodian and Prime Broker. Further details about their
appointments can be found in the Report of the Directors.
The Board is responsible for all aspects of the Company’s affairs, including
setting the parameters for and monitoring the investment strategy as well as
the review of investment performance and policy.
The Company is an investment company within the meaning of Section 833 of the
Companies Act 2006 and has been approved by HM Revenue & Customs as an
investment trust (for the purposes of Section 1158 of the Corporation Tax Act
2010). As a result, the Company is not liable for taxation on capital gains.
The Directors believe that approval will continue to be retained. The Company
is not a close company for taxation purposes.
INVESTMENT OBJECTIVE AND POLICY
The Company seeks capital appreciation through investment in the worldwide
biotechnology industry.
In order to achieve its investment objective, the Company invests in a
diversified portfolio of shares and related securities in biotechnology
companies on a worldwide basis.
In connection with the investment policy, the following guidelines apply:
· The Company will not invest more than 10%, in aggregate, of the value of
its gross assets in other closed ended investment companies (including
investment trusts) listed on the London Stock Exchange, except where the
investment companies themselves have stated investment policies to invest no
more than 15% of their gross assets in other closed ended investment companies
(including investment trusts) listed on the London Stock Exchange.
* The Company will not invest more than 15%, in aggregate, of the value of its
gross assets in other closed ended investment companies (including investment
trusts) listed on the London Stock Exchange.
* The Company will not invest more than 15% of the value of its gross assets
in any one individual stock at the time of acquisition.
* The Company will not invest more than 10% of the value of its gross assets
in unquoted investments at the time of acquisition. This limit includes any
investment in private equity funds managed by the Portfolio Manager or any
affiliates of such entity.
* The Company may invest or commit for investment a maximum of U.S.$15
million, after the deduction of proceeds of disposal and other returns of
capital, in private equity funds managed by the Portfolio Manager, or any
affiliates thereof.
* The Company’s borrowing policy is that borrowings will not exceed 20% of
the value of the Company’s net assets. Any loan facility in place from time
to time may be drawn by the Portfolio Manager overseen by the AIFM.
* The Company may be unable either to invest directly or invest efficiently in
certain countries or share classes. In these circumstances, the Company may
gain exposure by investing indirectly through swaps or other derivative
instruments where it is more efficient to do so. Exposure to underlying
investments thus obtained will count towards and be subject to the investment
limits set out above. Further, where the Company invests via swaps or
derivatives for such a purpose, exposure to these financial instruments will
count towards and be subject to the limits on the use of derivatives and
equity swaps set out below.
* In line with the Investment Objective, derivatives are employed, when
appropriate, in an effort to enhance returns and to improve the risk-return
profile of the Company’s portfolio. The Board has set the following limits
within which derivative exposures are managed:
* Derivative transactions (excluding equity swaps) can be used to mitigate
risk and/or enhance return and will be restricted to an aggregate net exposure
of 5 per cent. of the value of the gross assets measured at the time of the
relevant transaction;
* Equity swaps may be used for efficient portfolio management purposes and
aggregate net counterparty exposure through a combination of derivatives (as
set out in the previous bullet point) and equity swap transactions is
restricted to 12 per cent. of the value of the gross assets of the Company at
the time of the transaction.
In accordance with the requirements of the Financial Conduct Authority, any
material change to the investment policy will only be made with the approval
of shareholders by ordinary resolution.
INVESTMENT STRATEGY
The achievement of the Investment Objective has been delegated to OrbiMed by
Frostrow (as AIFM) under the Board’s and Frostrow’s supervision and
guidance.
Details of OrbiMed’s investment strategy and approach are set out in the
Portfolio Manager’s Review. While performance is measured against the
Benchmark, the Board encourages OrbiMed to manage the portfolio without regard
to the Benchmark and its make-up.
While the Board’s strategy is to allow flexibility in managing the
investments, in order to manage investment risk it has imposed various
investment, gearing and derivative guidelines and limits, within which
Frostrow and OrbiMed are required to manage the investments, as set out in the
Investment Policy.
PERFORMANCE MEASUREMENT
The Board measures OrbiMed's performance against the NASDAQ Biotechnology
Index (total return, net of withholding tax, sterling adjusted). The Board
also monitors the Company's performance against its peer group.
DIVIDEND POLICY
The Company invests with the objective of achieving capital growth and it is
expected that dividends, if any, are likely to be small. The Board intends
only to pay dividends on the Company’s shares to the extent required in
order to maintain the Company’s investment trust status.
No dividends were paid or declared during the year (2024: None).
CONTINUATION OF THE COMPANY
An opportunity to vote on the continuation of the Company is given to
shareholders every five years. The next such continuation vote will be
proposed at the AGM to be held in July. Please see the Chair's Statement and
the Notice of AGM for further information.
COMPANY PROMOTION
The Company has appointed Frostrow to provide marketing and investor relations
services, in the belief that a well-marketed investment company is more likely
to grow over time, have a more diverse, stable list of shareholders and its
shares will trade closer to the net asset value per share over the long term.
Frostrow actively promotes the Company in the following ways:
Engaging regularly with institutional investors, discretionary wealth managers
and a range of execution-only platforms: Frostrow regularly meets with
institutional investors, discretionary wealth managers and execution-only
platform providers to discuss the Company’s strategy and to understand any
issues and concerns, covering both investment and corporate governance
matters;
Making Company information more accessible: Frostrow works to raise the
profile of the Company by targeting key groups within the investment
community, holding periodic investment seminars, commissioning and overseeing
PR output and managing the Company’s website and wider digital offering,
including Portfolio Manager videos and social media;
Disseminating key Company information: Frostrow performs the Investor
Relations function on behalf of the Company and manages the investor database.
Frostrow produces all key corporate documents, distributes monthly fact
sheets, annual and half yearly reports and updates from OrbiMed on the
portfolio and market developments; and
Monitoring market activity, acting as a link between the Company, shareholders
and other stakeholders: Frostrow maintains regular contact with sector broker
analysts and other research and data providers, and conducts periodic investor
perception surveys, liaising with the Board to provide up-to-date and accurate
information on the latest shareholder and market developments.
KEY PERFORMANCE INDICATORS (KPIs)
The Board assesses the Company’s performance in meeting its objective
against the following KPIs:
* net asset value total return;
* share price total return;
* share price discount to net asset value per share; and
* ongoing charges.
A full description of the Company’s performance is provided in the Chair’s
Statement and the Portfolio Manager’s Review. The KPIs have not changed
from the prior year:
NET ASSET VALUE PER SHARE TOTAL RETURN^
The Directors regard the Company’s net asset value per share total return as
being the overall measure of value generated by the Portfolio Manager over the
long term. The Board considers the principal comparator to be the NASDAQ
Biotechnology Index (total return, net of withholding tax, sterling adjusted).
OrbiMed’s investment style is such that performance is likely to deviate
from that of the Benchmark.
During the year under review, the Company’s net asset value per share total
return was (24.4%), underperforming the Benchmark by 18.4% (2024: 26.5%,
outperforming the Benchmark by 21.5%). Since OrbiMed’s date of appointment
(19 May 2005) to 31 March 2025, the Company’s net asset value per share
total return is 719.2% compared with 874.0% for the Benchmark.
SHARE PRICE TOTAL RETURN^
The Directors also regard the Company’s share price total return to be a key
indicator of performance. This reflects the Company's share price growth which
the Board recognises is important to investors.
During the year under review the Company’s share price total return was
(24.2%) (2024: 27.1%). Since OrbiMed’s date of appointment (19 May 2005) to
31 March 2024, the Company’s share price total return is 700.0% compared
with Benchmark performance of 874.0%.
SHARE PRICE (DISCOUNT)/PREMIUM TO NET ASSET VALUE PER SHARE^
The Board regularly reviews the level of the discount/ premium of the
Company’s share price to the net asset value per share and considers ways in
which share price performance may be enhanced, including the effectiveness of
marketing, share issuance and buybacks, where appropriate. The Board has a
discount control policy in place, the aim of which is to prevent the level of
the share price discount to the net asset value per share exceeding 6%.
Shareholders should note, however, that it remains possible for the discount
to be greater than 6% for a period of days or indeed longer, particularly in
volatile or muted markets. However, the Company remains committed to
protecting a 6% share price discount over the longer term. 6,374,607 shares
were repurchased by the Company during the year (2024: 5,205,221).
^ Alternative Performance Measure (See glossary).
When the Company's shares trade at a premium to the net asset value per share,
new shares can be issued at a premium to the net asset value per share.
The Board believes that the benefits of issuing new shares in such conditions
are as follows:
* to fulfil excess demand in the market in order to help manage the premium at
which the Company’s shares trade to net asset value per share;
* to provide a small enhancement to the net asset value per share of existing
shares through new share issuance at a premium to the estimated net asset
value per share;
* to grow the Company, thereby spreading operating costs over a larger capital
base, which should reduce the ongoing charges ratio; and
* to improve liquidity in the market for the Company’s shares.
As the Company's shares traded at a discount to the net asset value per share
throughout the year, no new shares were issued during the year (2024: Nil).
The volatility of the net asset value per share in an asset class such as
biotechnology is a factor over which the Board has no control. The making and
timing of any share buybacks or share issuance is at the absolute discretion
of the Board.
ONGOING CHARGES^
Ongoing charges represent the costs that the Company can reasonably expect to
pay from one year to the next, under normal conditions. The Board continues to
be conscious of expenses and seeks to maintain a sensible balance between high
quality service and costs. The Board therefore considers the ongoing charges
ratio to be a KPI and reviews the figure on a regular basis.
As at 31 March 2025 the ongoing charges figure was 1.1% (2024: 1.2%).
^ Alternative Performance Measure (see glossary).
RISK MANAGEMENT
The Board is responsible for managing the risks faced by the Company. Through
delegation to the Audit Committee, the Board has established procedures to
manage risk, to review the Company’s internal control framework and to
establish the level and nature of the principal risks the Company is prepared
to accept in order to achieve its long-term strategic objective. The Audit
Committee has carried out a robust assessment of the principal and emerging
risks with the assistance of Frostrow (the AIFM). A risk management process
has been established to identify and assess risks, their likelihood and the
possible severity of their impact. Further information is provided in the
Audit Committee Report. These principal risks are set out below with a high
level summary of their management through mitigation.
PRINCIPAL RISKS AND UNCERTAINTIES MANAGEMENT/MITIGATION
MARKET RISK (Increased)
The Company’s portfolio is exposed to fluctuations in market prices (changes in broad market measures, individual security prices and foreign exchange rates) in the biotechnology sector and the regions in which it invests, which may result in a reduction in assets due to market falls and higher volatility. The biotechnology sector has historically been more volatile than other equity sectors, reflecting factors inherent in biotech companies, including emerging technologies, uncertainty of drug approval outcomes, regulatory and pricing policy. More generally, geopolitical and economic uncertainties have affected markets globally and are likely to continue to do so. These include the instability caused by the new administration in the USA, including the consequences of trade wars and tariffs, the continued impact of the war in Ukraine and the effect of sanctions against Russia, tensions between the US/West and China, and conflicts in the Middle East. Broad economic risks include prolonged inflation and elevated interest rates, slowing global economic growth and the fear or presence of recession. New regulations designed to combat climate change and uncertainties associated with shifts in population and resource availability/ demand may also have an impact on global markets. In addition, climate change events could have an impact on the business models of the portfolio companies and their operations. To an extent, this risk is accepted as being inherent to the Company's activities. However, the Board has set limits in the investment policy which ensure the portfolio
is diversified. Compliance with the limits and guidelines contained in the Company’s investment policy is monitored daily by Frostrow and OrbiMed and reported monthly to
the Board. OrbiMed report at each Board meeting on the Company’s performance including the impact of wider market trends and events. The Portfolio Manager spreads
investment risk over a wide portfolio of investments. At the year end the Company’s portfolio comprised investments in 57 companies. As part of its review of the going
concern and long-term viability of the Company, the Board considers the sensitivity of the portfolio to changes in market prices and foreign exchange rates (see note 15
to the financial statements) and the ability of the Company to liquidate its portfolio if the need arose. Further details are included in the Going Concern and Viability
Statements. The Board monitors and challenges the Portfolio Manager's awareness of emerging climate change risks and the resources they have devoted to assessing climate
risks. The Board is conscious that climate change poses a general risk to the investment environment and, through discussions with the Portfolio Manager, has noted that
the biotechnology industry is not a major contributor to greenhouse gas emissions. For this reason, the Portfolio Manager does not consider climate change to be a
material ESG consideration when engaging with investee companies. However energy management is noted as a material concern in the wider healthcare and pharmaceutical
sectors, and this forms part of OrbiMed’s ESG monitoring. In light of the significant market volatility experienced during the year, both in general and in the
biotechnology sector in particular, the Directors consider that this risk has increased.
PORTFOLIO PERFORMANCE (Increased)
Investment performance may not achieve the Investment Objective and the value of the investments held in the portfolio may fall materially out of line with the sector. The Portfolio Manager’s approach is expected to lead to performance that will deviate from comparators, including both market indices and other investment companies investing in the biotechnology sector. The Portfolio Manager has responsibility for selecting investments in accordance with the Investment Objective and Policy and seeks to ensure that investments in
individual stocks fall within acceptable risk levels. To manage this risk, the Board: * reviews and challenges, at each Board meeting, reports from OrbiMed which cover
portfolio composition, asset allocation, concentration and performance;
* reviews investment performance over the long term against the Benchmark and the Company's peer group; and * formally reviews OrbiMed's appointment, including their
performance, service levels and contractual arrangements, each year.
In view of the Company's volatile performance during the year, the Board considers that this risk has increased.
SHARE PRICE PERFORMANCE (Increased)
The Company’s share price fluctuates in accordance with supply and demand and may not reflect the underlying net asset value of the shares; where the share price is less than the underlying NAV per share, the difference is known as the 'discount'. Poor share price performance may attract activist shareholders and/or result in increasing buybacks which over time may significantly reduce the Company's assets. To manage this risk, the Board: * regularly reviews the level of the share price discount/premium to the net asset value per share and considers ways in which share price
performance may be enhanced, including the effectiveness of marketing and investor relations services, new share issuance and share buybacks, as appropriate;
* has implemented a discount management policy, buying back the Company’s shares when the level of the share price discount to the net asset value per share exceeds 6%
(in normal market conditions);
* may issue shares at a premium to the net asset value per share to help prevent a share price premium reaching too high a level;
* engages with shareholders at the AGM, investor meetings and seminars, and other events;
* reviews an analysis of the shareholder register at each Board meeting and is kept informed of shareholder sentiment by the AIFM and the Company's corporate stockbroker;
and
* regularly discusses the Company’s future development and strategy with the Portfolio Manager and the AIFM.
Given the Company's share price performance and the rate of share buybacks over the past year, the Directors believe this risk has increased.
CYBER RISK (Increased)
Cyber crime may lead to the disruption or failure of systems covering dealing, trade processing, administrative services, financial and other operational functions. The Board relies on controls in place at OrbiMed, Frostrow, J.P. Morgan, MUFG Corporate Markets and other third-party service providers. The Audit Committee reviews the
internal controls reports of the principal service providers, as well as their data storage and information security arrangements. The Board noted that new cyber threats
are constantly emerging, as described in the Emerging Risks section. Accordingly, the Directors consider that this risk has increased.
KEY PERSON RISK (No change)
The risk that the individuals responsible for managing the Company’s portfolio may leave their employment or may be prevented from undertaking their duties. The Board manages this risk by: * appointing OrbiMed, who in turn have appointed Geoff Hsu and Josh Golomb to manage the Company’s portfolio. Mr Hsu and Mr Golomb are
supported by a team of researchers and analysts dedicated to the biotechnology sector;
* receiving reports from OrbiMed at each Board meeting, which include any significant changes in the make-up of the team supporting the Company;
* meeting the wider team at OrbiMed’s offices and encouraging the participation of the wider OrbiMed team in investor updates; and
* delegating to the Management Engagement Committee the responsibility to perform an annual review of the service received from OrbiMed, including, inter alia, the team
supporting the portfolio managers and their succession plans.
VALUATION RISK (Decreased)
Pursuant to the Investment Policy, the Company may invest up to 10% of its gross assets in unquoted investments at the time of acquisition. The valuation of unquoted assets involves a degree of subjectivity and there is a risk that proceeds received on the disposal of unquoted holdings may prove to be significantly lower than the value at which the investment is held in the Company’s portfolio. Unquoted investments comprised 1.0% of the Company's portfolio at the year end. Any directly held unquoted investments are valued by an independent, third-party valuation
agent. The Board has established a Valuation Committee to review the valuations of the unquoted investments and the methodologies used in the valuations. The valuations
are recommended to the Committee by Frostrow, the Company's AIFM, following review by its own valuations committee. The Valuation Committee makes recommendations to the
Board, as appropriate. Further information can be found in the Audit Committee Report and note 1 to the financial statements. As the proportion of unquoted investments
reduced significantly during the year, the Board considers that this risk has decreased.
COUNTERPARTY RISK (No change)
The Company is exposed to credit risk arising from the use of counterparties. If a counterparty were to fail, the Company could be adversely affected through either a delay in settlement or a loss of assets. The most significant counterparty to which the Company is exposed is J.P. Morgan Securities LLC (J.P. Morgan), the Custodian and Prime Broker, which is responsible for
the safekeeping of the Company’s assets and provides the loan facility to the Company. As part of the arrangements with J.P. Morgan they may take assets as collateral up
to 140% of the value of the loan drawn down. The assets taken as collateral by J.P. Morgan may be used, loaned, sold, rehypothecated or transferred. The level of the
Company's gearing is at the discretion of the AIFM and the Board and the loan can be repaid at any time, at which point the assets taken as collateral will be released
back to the Company. Any of the Company’s assets taken as collateral are not covered by the custody arrangements provided by J.P. Morgan. J.P. Morgan is a registered
broker-dealer and is accordingly subject to limits on rehypothecation imposed by the U.S. Securities and Exchange Commission (SEC). In the event of J.P. Morgan’s
insolvency, the Company may be unable to recover in full assets held by it as Custodian or held as collateral. The risk is managed through the selection of a financially
stable counterparty, limitations on the use of gearing and reliance on the SEC's robust regulatory regime. In addition, the Board monitors the credit rating of J.P.
Morgan. J.P. Morgan is also subject to regular monitoring by J.P. Morgan Europe Limited, the Depositary, and the Board receives regular reports from the Depositary.
During the year the Company entered into swap transactions with Goldman Sachs International. Further information can be found in note 15 to the financial statements.
OPERATIONAL DISRUPTION (No change)
As an externally managed investment trust, the Company is reliant on the systems of its service providers for dealing, trade processing, administration, financial and other functions. If such systems were to fail or be disrupted (including, for example, as a result of a pandemic, war, network disruption or simply poor performance/ controls) this could prevent accurate reporting of the Company’s financial position or lead to a failure to comply with applicable laws, regulations and governance requirements and/or to a financial loss. To manage these risks, the Board (in some cases the Audit Committee): * periodically meets representatives from the Company's key service providers to gain a better
understanding of their control environment, and the processes in place to mitigate any disruptive events;
* receives a monthly report from Frostrow, which includes, inter alia, confirmation of compliance with applicable laws and regulations;
* reviews the internal control reports and key policies (including disaster recovery procedures and business continuity plans) of its service providers;
* maintains a risk matrix with details of risks to which the Company is exposed, the approach to managing those risks, the key controls and the frequency of the controls
operation;
* receives updates on pending changes to the regulatory and legal environment and progress towards the Company’s compliance with such changes; and
* has considered the increased risk of cyber-attacks and received reports and assurance from its service providers regarding the information security controls in place.
* See glossary.
EMERGING RISKS
The Directors have carried out a robust assessment of the Company’s emerging
risks and the procedures in place to identify emerging risks are described
below. The International Risk Governance Council definition of an
‘emerging’ risk is one that is new, or is a familiar risk in a new or
unfamiliar context or under new context conditions (re-emerging).
The Audit Committee reviews a risk schedule at each of its three meetings
during the year. Emerging risks are discussed in detail as part of this
process and also throughout the year to try to ensure that emerging (as well
as established) risks are identified and, so far as practicable, mitigated.
NEW MARKET RISKS
During the year, the Audit Committee identified and discussed emerging
elements of market risk such as the instability caused by the new
administration in the USA, including the consequences of trade wars, tariffs,
constraints on pharmaceutical pricing and the possible rise of the
anti-vaccine movement which may affect the biotechnology sector in general.
NEW CYBER RISKS
The Committee observed that cyber risks continue to evolve, with new threats
emerging at an accelerated pace, as demonstrated by a series of high-profile
cyber attacks in the retail sector.
These risks will continue to be monitored and managed as set out in the Market
Risk and Cyber Risk descriptions above.
GOING CONCERN
The financial statements have been prepared on a going concern basis. The
Directors consider this is the appropriate basis as the Company has adequate
resources to continue in operational existence until at least 3 June 2026,
being 12 months from the date this report was approved. The Company’s
portfolio, trading activity, cash balances, revenue and expense forecasts, and
the trends and factors likely to affect the Company’s performance are
reviewed and discussed at each Board meeting. The Board has considered a
detailed assessment of the Company’s ability to meet its liabilities as they
fall due, including stress tests which modelled the effects of substantial
falls in portfolio valuations and liquidity constraints on the Company’s
financial position. Further information is provided in the Audit Committee
report.
The Company's shareholders are asked every five years to vote for the
continuation of the Company and this will be put to shareholders at this
year's AGM. The Board has recommended that shareholders vote in favour of the
continuation of the Company and believes it is reasonable to expect that the
vote will pass. Furthermore, the result of the continuation vote will not
affect the Company's ability to meet its liabilities as they fall due.
Based on the information available to the Directors at the date of this
report, including the results of these stress tests, the conclusions drawn in
the Viability Statement below, the Company’s current cash balances, and the
liquidity of the Company’s investments, the Directors are satisfied that the
Company has adequate financial resources to continue in operation until at
least 3 June 2026, being 12 months from the date this report was approved.
Accordingly, the Directors are satisfied that it is appropriate to continue to
adopt the going concern basis in preparing the financial statements.
VIABILITY STATEMENT
The Directors have carefully assessed the Company’s position and prospects
as well as the principal risks and have formed a reasonable expectation that
the Company will be able to continue in operation and meet its liabilities as
they fall due over the next five financial years.
To make this assessment and in reaching this conclusion, the Audit Committee
has considered the Company’s financial position, its ability to liquidate
its portfolio and meet its liabilities as they fall due and, in particular,
notes the following:
* The portfolio is principally comprised of investments traded on major
international stock exchanges. Based on recent market volumes 97.4% of the
current portfolio could be liquidated within 30 trading days and 97.0% in
seven trading days. There is no expectation that the nature of the investments
held within the portfolio will be materially different in future.
* The Board has considered the viability of the Company under various
scenarios, including periods of acute stock market and economic volatility,
and concluded that it would expect to be able to ensure the financial
stability of the Company through the benefits of having a diversified
portfolio of (mostly) listed and realisable assets. As illustrated in note 15
to the financial statements, the Board has considered other price risk (the
sensitivity of the value of shareholders' funds to changes in the fair value
of the Company's investments), foreign currency sensitivity (the sensitivity
to changes in key exchange rates to which the portfolio is exposed) and
interest rate sensitivity (the sensitivity to changes in market interest
rates).
* With an ongoing charges ratio of 1.1%, the expenses of the Company are
predictable and modest in comparison with the assets and there are no capital
commitments foreseen which would alter that position.
* The Company has a short-term bank facility which can be used to meet its
liabilities. Details of the Company’s current liabilities are set out in
note 12 to the financial statements.
* The Company has no employees. Consequently it does not have redundancy or
other employment related liabilities or responsibilities.
The Audit Committee, as well as considering the potential impact of the
Company’s principal risks and various severe but plausible downside
scenarios, has made the following assumptions in considering the Company’s
longer-term viability:
* There will continue to be demand for investment trusts;
* The Company invests principally in the securities of listed companies traded
on international stock exchanges to which investors will wish to continue to
have exposure;
* Shareholders will vote for the continuation of the Company at the Annual
General Meeting to be held in July. The Company's shareholders are asked every
five years to vote for the continuation of the Company. At the current time,
the Directors believe they have a reasonable expectation that the next vote
will be passed;
* The closed-ended nature of the Company means that, unlike open-ended funds,
it does not need to realise investments when shareholders wish to sell their
shares;
* The Company will continue to be able to fund share buybacks when required.
The Company bought back 6,374,607 ordinary shares in the year under review at
a total cost of £57.4 million and experienced no problem with liquidity in
doing so. It had shareholders’ funds in excess of £221 million at the year
end; and
* The long-term performance of the Company will continue to be satisfactory.
STAKEHOLDER INTERESTS AND BOARD DECISION-MAKING (SECTION 172 OF THE COMPANIES
ACT 2006)
The following disclosure, which is required by the Companies Act 2006 and the
AIC Code of Corporate Governance, describes how the Directors have had regard
to the views of the Company’s stakeholders in their decision-making.
As an externally managed investment trust, the Company has no employees,
customers, operations or premises. Therefore, the Company’s key stakeholders
(other than its shareholders) are considered to be its service providers. The
need to foster good business relationships with the service providers and
maintain a reputation for high standards of business conduct are central to
the Directors’ decision-making as the Board of an externally managed
investment trust.
STAKEHOLDER GROUP HOW THE BOARD HAS ENGAGED WITH THE COMPANY’S STAKEHOLDERS
Investors The Board’s key mechanisms of engagement with investors include: · The Annual and Half-yearly Reports · The Annual General Meeting · The Company’s website which hosts reports, articles and insights, monthly fact sheets and video interviews with the
Portfolio Manager · The Company’s distribution list which is maintained by Frostrow and is used to communicate with shareholders on a regular basis · Online and in person seminars with presentations from the Portfolio Manager · One-to-one investor meetings
The AIFM and the Portfolio Manager, on behalf of the Board, completed a programme of investor relations throughout the year, reporting to the Board on the feedback received. This includes meetings with wealth managers and independent financial advisers, as
well as preparing the documents and organising the events listed above. The Board aims for at least one Director to attend the in person and online events at which the Portfolio Manager presents to investors. In addition, the Chair met with a number of the
Company’s shareholders.
Portfolio Manager The Board met regularly with the Portfolio Manager throughout the year, both formally at quarterly Board meetings and informally, as required. The Board engaged primarily with key members of the portfolio management team, discussing the Company’s overall
performance as well as developments at individual portfolio companies and wider macroeconomic developments. The Management Engagement Committee reviewed the performance of the Portfolio Manager and the terms and conditions on which they are engaged.
Other Service Providers The Board met regularly with the AIFM, representatives of which attend every quarterly Board meeting to provide updates on risk management, accounting, administration, corporate governance and marketing matters. The Management Engagement Committee reviewed
the performance of all the Company’s service providers, receiving feedback from Frostrow in their capacity as AIFM and Company Secretary. The AIFM, which is responsible for the day-to-day operational management of the Company, meets and interacts with the
other service providers including the Depositary, Custodian and Registrar, on behalf of the Board, on a daily basis. This can be through email, one-to-one meetings and/or regular written reporting. The Audit Committee reviewed the quality and effectiveness
of the audit and recommended to the Board that it be proposed to shareholders that BDO LLP (BDO) be re-appointed as Auditor. The Audit Committee also met with BDO to review the audit plan and set their remuneration for the year.
KEY AREAS OF ENGAGEMENT MAIN DECISIONS AND ACTIONS TAKEN
Investors * Ongoing dialogue with shareholders concerning the strategy of the Company, performance and the portfolio. * Share price performance. The Board and the Portfolio Manager provided updates via RNS, the Company’s website, the distribution list and the usual financial reports and monthly fact sheets. The
Board continued to monitor share price movements closely. When the discount of the share price to the net asset value per share exceeded 6%, the Company sought to buy
* Operation of the discount management policy * Portfolio performance measurement back shares in the market. As a result, 6,374,607 shares were bought back during the year. Having nearly exhausted the authority granted at the 2024 AGM, the Board asked
shareholders to renew the Company's authority to buy back shares in the market at a General Meeting held on 27 February 2025. Shareholders approved the proposal. The
* The continuation of the Company Board proposed that the Company's benchmark should change from the capital return to the total return version of the NASDAQ Biotechnology Index. Shareholders approved the
proposal at a General Meeting held on 18 July 2024. The Chair spoke to a number of shareholders regarding the proposed continuation of the Company ahead of the vote to be
held at the 2025 Annual General Meeting. The Board recommends that shareholders vote in favour of the continuation of the Company.
Portfolio Manager · Portfolio composition, performance, outlook and business updates. · The Portfolio Manager’s system of internal controls and investment risk management. The Board agreed that high standards of research had been maintained and the Portfolio Manager’s strategy had been implemented consistently. It was noted that short-term
performance had suffered largely as a result of macro-economic reasons, however the Board agreed that the Portfolio Manager's investment process remained robust.
Therefore, the Board concluded that it was in the interests of shareholders for OrbiMed to continue in their role as Portfolio Manager. The Audit Committee concluded that
the Portfolio Manager’s internal controls were satisfactory. Please refer to the Audit Committee Report for further information.
Other Service Providers * The promotion and marketing strategy of the Company. The Board concluded that it was in the interests of shareholders for Frostrow to continue in their role as AIFM. The Board agreed that the Company’s other service
* Service providers’ internal controls. providers continued to perform satisfactorily and should continue in their roles. The Board approved the Audit Committee’s recommendation to propose to shareholders that
* The effectiveness of the audit and the Auditor’s reappointment. BDO LLP be re-appointed as the Company’s auditor for a further year. Please refer to the Audit Committee Report and the Notice of AGM for further information.
* The terms and conditions under which the Auditor is engaged.
ENVIRONMENTAL, SOCIAL, COMMUNITY AND HUMAN RIGHTS MATTERS
As an externally managed investment trust, the Company does not have any
employees or maintain any premises, nor does it undertake any manufacturing or
other physical operations itself. All its operational functions are outsourced
to third party service providers. Therefore, the Company has no material,
direct impact on the environment or any particular community and, as a result,
the Company itself has no environmental, human rights, social or community
policies.
Under the UK Listing Rules, the Company is exempt from reporting against the
Taskforce for Climate-Related Financial Disclosures (TCFD) framework. However,
the Board recognises that climate change poses a general risk to the
investment environment and has discussed with the Portfolio Manager the
potential impact of climate change risk on the Company's investments.
The Board believes that consideration of environmental, social and governance
(ESG) factors is important and has the potential to protect and enhance
investment returns. The Portfolio Manager’s investment criteria ensure that
ESG factors are integrated into their investment process and best practice in
this area is encouraged by the Board. The Portfolio Manager engages with the
Company’s underlying investee companies in relation to their corporate
governance practices and the development of their policies on social,
community and environmental matters.
The Board is committed to carrying out the Company’s business in an honest
and fair manner with a zero-tolerance approach to bribery, corruption, and tax
evasion. As such, policies and procedures are in place to prevent this. In
carrying out the Company’s activities, the Board aims to conduct itself
responsibly, ethically and fairly. The Board’s expectations are that the
Company’s principal service providers have appropriate governance policies
in place.
PERFORMANCE AND FUTURE DEVELOPMENTS
A review of the Company’s year, its performance and the outlook for the
Company can be found in the Chair’s Statement and in the Portfolio
Manager’s Review.
The Company’s overall strategy remains unchanged.
By order of the Board
Frostrow Capital LLP
Company Secretary
3 June 2025
REPORT OF THE DIRECTORS
The Directors present this Annual Report on the affairs of the Company
together with the audited financial statements and the Independent Auditor’s
Report for the year ended 31 March 2025. Disclosures relating to performance,
future developments and risk management can be found in the Strategic Report.
COMPANY MANAGEMENT
ALTERNATIVE INVESTMENT FUND MANAGER
Frostrow, under the terms of its AIFM agreement with the Company (the AIFM
Agreement) provides, inter alia, the following services:
· delegation (subject to the oversight of Frostrow and the Board) of the
portfolio management function to OrbiMed;
· investment portfolio administration and valuation;
· risk management services;
· marketing and shareholder services;
· share price discount and premium management services;
· administrative and secretarial services;
· advice and guidance in respect of corporate governance requirements;
· maintenance of the Company’s accounting records;
· preparation and dispatch of annual and half yearly reports and monthly
fact sheets;
· ensuring compliance with applicable legal and regulatory requirements; and
· maintenance of the Company’s website.
Under the terms of the AIFM Agreement, Frostrow is entitled to receive a
periodic fee equal to 0.30% per annum on the Company’s market capitalisation
up to £500m, 0.20% on market capitalisation above £500m to £1bn and 0.10%
on market capitalisation over £1bn.
Either party may terminate the AIFM Agreement on not less than 12 months’
notice.
PORTFOLIO MANAGER
OrbiMed, under the terms of its portfolio management agreement with the AIFM
and the Company (the Portfolio Management Agreement) provides, inter alia, the
following services:
· the seeking out and evaluating of investment opportunities;
· recommending the manner by which monies should be invested, disinvested,
retained or realised;
· advising on how rights conferred by the investments should be exercised;
· analysing the performance of investments made; and
· advising the Company in relation to trends, market movements and other
matters which may affect the investment objective and policy of the Company.
OrbiMed receives a periodic fee equal to 0.65% per annum of the Company’s
net asset value. The proportion of the Company’s assets committed for
investment in OrbiMed Asia Partners L.P., a limited partnership managed by
OrbiMed Asia G.P., L.P., an affiliate of the Portfolio Manager, is excluded
from the fee calculation.
The Portfolio Management Agreement may be terminated by the Company, Frostrow
or the Portfolio Manager giving notice of not less than 12 months.
PERFORMANCE FEE
The Portfolio Manager is entitled to the payment of a performance fee which is
dependent on the long-term performance of the Company. The performance fee is
calculated by reference to the amount by which the Company’s NAV has
outperformed the NASDAQ Biotechnology Index (total return, net of withholding
tax, sterling adjusted), the Company’s benchmark index.
The fee is calculated quarterly by comparing the cumulative performance of the
Company’s NAV with the cumulative performance of the Benchmark since the
commencement of the performance fee arrangement on 30 June 2005. The
performance fee amounts to 15% of any outperformance over the Benchmark.
Provision is also made within the daily NAV per share calculation as required
and in accordance with generally accepted accounting standards.
In order to ensure that only sustained outperformance is rewarded, at each
quarterly calculation date any performance fee is based on the lower of:
(i) the cumulative outperformance of the NAV over the Benchmark as at the
quarter end date; and
(ii) the cumulative outperformance of the NAV over the Benchmark as at the
corresponding quarter end date in the previous year.
In addition, a performance fee only becomes payable to the extent that the
cumulative outperformance gives rise to a total fee greater than the total of
all performance fees paid to date. No performance fees were paid during the
year and as at the date of this report, there is no provision for future
payments (see note 3 to the financial statements for further details).
The proportion of the Company’s assets invested in OrbiMed Asia Partners
L.P. is excluded from the performance fee calculation.
DEPOSITARY, CUSTODIAN AND PRIME BROKER
The Company has appointed J.P. Morgan Europe Limited (the Depositary) as its
depositary. Under the terms of the Depositary Agreement, the Company has
agreed to pay the Depositary a fee calculated at 1.75 bps on net assets up to
£150 million, 1.50 bps on net assets between £150 million and £300 million,
1.00 bps on net assets between £300 million and £500 million and 0.50 bps on
net assets above £500 million.
The Depositary has delegated the custody and safekeeping of the Company’s
assets to J.P. Morgan Securities LLC which acts as the Company’s Custodian
and Prime Broker.
Under the terms of a Delegation Agreement, liability for the loss of the
Company’s financial instruments held in custody by J.P. Morgan Securities
LLC has been transferred from the Depositary to J.P. Morgan Securities LLC in
accordance with the AIFMD. While the Depositary Agreement prohibits the re-use
of the Company’s assets by the Depositary or the Custodian and Prime Broker
without the prior consent of the Company or Frostrow, the Company has
consented to the transfer and re-use of its assets by the Custodian and Prime
Broker (known as rehypothecation) in accordance with the terms of an
institutional account agreement between the Company, J.P. Morgan Securities
LLC and certain other J.P. Morgan entities (as defined therein). This
activity is undertaken in order to take advantage of lower financing costs on
the Company’s loan borrowings as well as lower custody charges.
J.P. Morgan Securities LLC is a registered broker-dealer and is accordingly
subject to limits on rehypothecation, in accordance with SEC rules. In the
event of J.P. Morgan’s insolvency, the Company may be unable to recover in
full all assets held by J.P. Morgan as collateral for the loan or as Custodian
(see note 15 to the financial statements for further details).
AIFM AND PORTFOLIO MANAGER EVALUATION AND RE-APPOINTMENT
The performance of the AIFM and the Portfolio Manager is reviewed by the Board
with a formal evaluation being undertaken by the Management Engagement
Committee (the MEC) each year. As part of this process, the Board monitors the
services provided by the AIFM and the Portfolio Manager and receives regular
reports and views from them. The Board also receives comprehensive performance
measurement reports to enable it to determine whether or not the performance
objectives set by the Board have been met. The MEC reviewed the appointment of
the AIFM and the Portfolio Manager in February 2025 with a recommendation
being made to the Board. Geoff Hsu is a General Partner of the Portfolio
Manager and so recused himself from the Board’s decision on OrbiMed's
re-appointment.
The Board believes the continuing appointment of the AIFM and the Portfolio
Manager is in the interests of shareholders as a whole. In coming to this
decision, the Board took into consideration the following reasons:
– the quality and depth of experience allocated by the Portfolio Manager
to the management of the portfolio and the level of performance over the long
term, both in absolute terms and relative to the Benchmark. The Board
recognises that performance has been challenging in the shorter term, but
retains its confidence in the investment process, which it believes is robust;
– the quality and depth of experience of the company management, company
secretarial, administrative and marketing team that the AIFM allocates to the
management of the Company; and
– the terms of the AIFM and Portfolio Management Agreements, in particular
the level and method of remuneration and the notice period, and the comparable
arrangements of a group of the Company's peers.
On the recommendation of the MEC, the Board resolved that both the AIFM and
the Portfolio Manager should continue to be appointed on the same terms and
conditions set out above.
LOAN FACILITY
The Company’s borrowing requirements are met through the utilisation of a
loan facility, repayable on demand, provided by J.P. Morgan Securities LLC.
The potential draw down of the Company’s loan facility with J.P. Morgan is
limited to 50% of the Company’s Marginable Securities*; however under the
Company's investment policy, the maximum amount of gearing permitted is 20% of
net assets (further details can be found in note 1 and note 15 to the
financial statements). The Company was ungeared at the year end.
* See glossary.
SHARE CAPITAL
At 31 March 2025, there were 27,112,591 ordinary shares of 25p each (shares)
in issue (2024: 33,487,198). All shares rank equally for dividends and
distributions. Each shareholder is entitled to one vote on a show of hands
and, on a poll, to one vote for every share held.
At the start of the year under review, the Directors had shareholder authority
to issue up to 3,724,702 shares on a non-pre-emptive basis and, having
utilised a proportion of the authority granted at the 2023 AGM, to buy back up
to 3,399,019 shares in the market. At the Company’s AGM held on 18 July
2024, these authorities expired and new authorities to allot up to 3,228,719
shares (representing 10% of the Company’s issued share capital at the time)
on a non-pre-emptive basis and to buy back up to 4,929,790 shares
(representing 14.99% of the Company’s issued share capital at the time) were
granted. After utilising the majority of the buyback authority granted at the
AGM, a renewed authority to buy back up to 4,255,299 shares was granted at a
general meeting held on 27 February 2025.
No new shares were issued during the year. In total, 6,374,607 shares were
repurchased during the year and cancelled; there are no shares held in
Treasury.
The giving of powers to issue or buy back the Company’s shares requires the
relevant resolution to be passed by shareholders. Proposals for the renewal of
the Board’s authorities to issue and buy back shares are detailed in the
Notice of AGM.
There are no restrictions concerning the transfer of securities in the
Company; no special rights with regard to control attached to the securities;
no restrictions on voting rights; no agreements between holders of securities
regarding their transfer known to the Company; and no agreements which the
Company is party to that might affect its control following a successful
takeover bid.
ANNUAL GENERAL MEETING
THE FOLLOWING INFORMATION TO BE CONSIDERED AT THE FORTHCOMING ANNUAL GENERAL
MEETING IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION.
If you are in any doubt about the action you should take, you should seek
advice from your stockbroker, bank manager, solicitor, accountant or other
financial adviser authorised under the Financial Services and Markets Act 2000
(as amended). If you have sold or transferred all of your ordinary shares in
the Company, you should pass this document, together with any other
accompanying documents, including the form of proxy, at once to the purchaser
or transferee, or to the Stock broker, bank or other agent through whom the
sale or transfer was effected, for onward transmission to the purchaser or
transferee.
The Company’s AGM will be held at the Barber-Surgeons' Hall, Monkwell
Square, Wood St, Barbican, London EC2Y 5BL on Thursday, 17 July 2025 at 12
noon.
In particular, resolutions relating to the following items of business will be
proposed at the forthcoming AGM.
Resolution 9 Authority to allot shares
Resolution 10 Authority to disapply pre-emption rights
Resolution 11 Authority to buy back shares
Resolution 12 Authority to apply to the court to cancel the Company's share
premium account and capital redemption reserve in order to increase the
Company's distributable reserves
Resolution 13 Authority to hold General Meetings (other than the AGM) on at
least 14 clear days’ notice
Resolution 14 Authority for the Company to continue as an investment trust for
a further five years
The full text of the resolutions can be found in the Notice of AGM.
DIRECTORS
DIRECTORS’ FEES
A report on Directors’ Remuneration and the Directors’ Remuneration Policy
are set out on pages 63 to 67 of the Annual Report.
DIRECTORS’ & OFFICERS’ LIABILITY INSURANCE COVER
Directors’ & Officers’ liability insurance cover was maintained by the
Board during the year ended 31 March 2025. It will continue in effect for the
year ending 31 March 2026 and subsequent years.
DIRECTORS’ INDEMNITIES
As at the date of this report, indemnities are in force between the Company
and each of its Directors under which the Company has agreed to indemnify each
Director, to the extent permitted by law, in respect of certain liabilities
incurred as a result of carrying out his/her role as a Director of the
Company. The Directors are also indemnified against the costs of defending any
criminal or civil proceedings or any claim by the Company or a regulator as
they are incurred provided that where the defence is unsuccessful the Director
must repay those defence costs to the Company. The indemnities are qualifying
third party indemnity provisions for the purposes of the Companies Act 2006.
A copy of each deed of indemnity is available for inspection at the
Company’s registered office during normal business hours and will be
available for inspection at the Annual General Meeting.
SUBSTANTIAL INTERESTS IN SHARE CAPITAL
As at 31 March 2025, the Company had been notified of the following
substantial interests in the Company's voting rights.
Number of
shares held % held
Rathbones 2,061,139 5.0%
Brewin Dolphin 1,779,234 4.6%
This table reflects those shareholders who have notified the Company of a
substantial interest in its shares when they have crossed certain thresholds
and may not reflect their current holding. The table does not reflect the full
range of investors in the Company. The shareholder register is principally
comprised of private wealth managers and retail investors owning their shares
through a variety of online platforms.
After the year end, on 7 May 2025, City of Bradford - West Yorkshire Pension
Fund notified the Company that it held 1,070,689 shares (4.0%) in the Company.
At the date of this report, there had been no other substantial interests or
changes to substantial interests notified to the Company.
FINANCIAL INSTRUMENTS
The Company’s financial instruments comprise its portfolio, including
derivative instruments, cash balances, debtors and creditors that arise
directly from its operations, such as sales and purchases awaiting settlement,
accrued income and the loan facility. The financial risk management and
policies arising from its financial instruments are disclosed in note 15 to
the financial statements.
RESULTS AND DIVIDEND
The results attributable to shareholders for the year and the transfer from
reserves are shown in the financial statements. No dividend is proposed in
respect of the year ended 31 March 2025 (2024: nil).
ALTERNATIVE PERFORMANCE MEASURES
The financial statements set out the required statutory reporting measures of
the Company’s financial performance. In addition, the Board assesses the
Company’s performance against a range of criteria which are viewed as
particularly relevant for investment trusts, which are summarised above and
explained in greater detail in the Strategic Report, under the heading ‘Key
Performance Indicators’. The Directors believe that these measures enhance
the comparability of information between reporting periods and aid investors
in understanding the Company's performance.
The measures used for the year under review are consistent with the prior
year.
Definitions of the terms used and the basis of their calculation are set out
in the glossary.
AWARENESS AND DISCLOSURE OF RELEVANT AUDIT INFORMATION
So far as each of the Directors is aware, there is no relevant audit
information (as defined in the Companies Act) of which the Company’s
auditors are unaware.
Each of the Directors has taken all the steps that he or she ought to have
taken as a Director in order to make himself or herself aware of any relevant
audit information (as defined) and to establish that the Company’s auditors
are aware of that information.
The above confirmation is given and should be interpreted in accordance with
the provision of Section 418(2) of the Companies Act 2006.
POLITICAL AND CHARITABLE DONATIONS
The Company has not made in the past and does not intend in the future to make
political or charitable donations.
MODERN SLAVERY ACT 2015
The Company does not provide goods or services in the normal course of
business, and as a financial investment vehicle, does not have customers.
Therefore, the Directors do not consider that the Company is required to make
a statement under the Modern Slavery Act 2015 in relation to slavery or human
trafficking. The Company’s suppliers are typically professional advisers and
the Company’s supply chains are considered to be low risk in this regard.
ANTI-BRIBERY AND CORRUPTION POLICY
The Board has a zero-tolerance approach to instances of bribery and
corruption. Accordingly, it expressly prohibits any Director or associated
persons, when acting on behalf of the Company, from accepting, soliciting,
paying, offering or promising to pay or authorise any payment, public or
private, in the United Kingdom or abroad to secure any improper benefit for
themselves or for the Company.
A copy of the Company’s anti-bribery and corruption policy can be found on
its website at www.biotechgt.com. The policy is reviewed annually by the Audit
Committee.
CRIMINAL FINANCES ACT 2017
The Board has a zero-tolerance approach to the criminal facilitation of tax
evasion. A copy of the Company’s policy on preventing the facilitation of
tax evasion can be found on the Company’s website www.biotechgt.com. The
policy is reviewed annually by the Audit Committee.
GLOBAL GREENHOUSE GAS EMISSIONS
The Company is an investment trust, with neither employees nor premises, nor
has it any financial or operational control of the assets it owns. It has no
greenhouse gas emissions to report from its operations, nor does it have
responsibility for any other emissions producing sources under the Companies
Act 2006 (Strategic Reports and Directors’ Reports) Regulations 2013 or the
Companies (Directors’ Report) and Limited Liability Partnerships (Energy and
Carbon Report) Regulations 2018, including those within the Company’s
underlying investment portfolio. The Company consumed less than 40,000 kWh of
energy during the year and therefore is exempt from the disclosures required
under the Streamlined Energy and Carbon Reporting criteria.
COMMON REPORTING STANDARD (CRS)
CRS is a global standard for the automatic exchange of information
commissioned by the Organisation for Economic Cooperation and Development and
incorporated into UK law by the International Tax Compliance Regulations 2015.
CRS requires the Company to provide certain additional details to HMRC in
relation to certain shareholders. The Registrars, MUFG Corporate Markets, have
been engaged to collate such information and file the reports with HMRC on
behalf of the Company.
CORPORATE GOVERNANCE
The Corporate Governance Report forms part of the Report of the Directors.
NOMINEE SHARE CODE
Where shares are held in a nominee company name and where the beneficial owner
of the shares is unable to vote in person, the Company nevertheless
undertakes:
· to provide the nominee company with multiple copies of shareholder
communications, so long as an indication of quantities has been provided in
advance; and
· to allow investors holding shares through a nominee company to attend
general meetings, provided the correct authority from the nominee company is
available.
Nominee companies are encouraged to provide the necessary authority to
underlying shareholders to attend the Company’s general meetings.
BENEFICIAL OWNERS OF SHARES – INFORMATION RIGHTS
Beneficial owners of shares who have been nominated by the registered holder
of those shares to receive information rights under section 146 of the
Companies Act 2006 are required to direct all communications to the registered
holder of their shares rather than to the Company’s registrar, MUFG
Corporate Markets, or to the Company directly.
SECURITIES FINANCIAL TRANSACTIONS REGULATION (SFTR) DISCLOSURE
Securities financing transactions (SFTs) include repurchase transactions,
securities or commodities lending and securities or commodities borrowing,
buy-sell back transactions or sell-buy back transactions and margin lending
transactions. Whilst the Company does not engage in such SFTs it does engage
in Total Return Swaps (TRS). The Company’s exposure to TRS can be found on
the Company’s website www.biotechgt.com.
UK SANCTIONS
The Board has made due diligence enquiries of the service providers that
process the Company's shareholder data, to ensure the Company's compliance
with the UK sanctions regime. The relevant service providers have confirmed
that they check the Company's shareholder data against the UK sanctions list
on a daily basis. At the date of this report, no sanctioned individuals had
been identified on the Company's shareholder register. The Board notes that
stockbrokers and execution-only platforms also carry out their own due
diligence.
ARTICLES OF ASSOCIATION
Amendment of the Company’s Articles of Association requires a special
resolution to be passed by shareholders.
There are no changes proposed this year.
By order of the Board
Frostrow Capital LLP
Company Secretary
3 June 2025
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report and the
financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each
financial year. Under that law, the Directors are required to prepare the
financial statements in accordance with UK-adopted international accounting
standards. Under company law, the Directors must not approve the financial
statements unless they are satisfied that they give a true and fair view of
the state of affairs of the Company and of the profit or loss for the Company
for that period.
In preparing these financial statements, the Directors are required to:
· select suitable accounting policies and then apply them consistently;
· make judgements and accounting estimates that are reasonable and prudent;
· state whether they have been prepared in accordance with UK-adopted
international accounting standards, subject to any material departures
disclosed and explained in the financial statements;
· prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the Company will continue in business; and
· prepare a directors’ report, a strategic report and directors’
remuneration report which comply with the requirements of the Companies Act
2006.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company’s transactions and disclose with
reasonable accuracy at any time the financial position of the Company and
enable them to ensure that the financial statements comply with the Companies
Act 2006.
They are also responsible for safeguarding the assets of the Company and hence
for taking reasonable steps for the prevention and detection of fraud and
other irregularities. The Directors are responsible for ensuring that the
Annual Report and financial statements, taken as a whole, are fair, balanced,
and understandable and provide the information necessary for shareholders to
assess the Company's position, performance, business model and strategy.
WEBSITE PUBLICATION
The Directors are responsible for ensuring the Annual Report and the financial
statements are made available on a website. Financial statements are published
on the Company’s website in accordance with legislation in the United
Kingdom governing the preparation and dissemination of financial statements,
which may vary from legislation in other jurisdictions. The maintenance and
integrity of the Company’s website is the responsibility of the Directors.
The Directors’ responsibility also extends to the ongoing integrity of the
financial statements contained therein.
RESPONSIBILITY STATEMENT OF THE DIRECTORS IN RESPECT OF THE ANNUAL REPORT
We confirm that to the best of our knowledge:
· the financial statements have been prepared in accordance with the
applicable set of accounting standards and give a true and fair view of the
assets, liabilities, financial position and the return of the Company for the
year ended 31 March 2025; and
· the Annual Report includes a fair review of the development and
performance of the business and the financial position of the Company,
together with a description of the principal risks and uncertainties that they
face.
The Directors consider the Annual Report, taken as a whole, is fair, balanced
and understandable and provides the information necessary for shareholders to
assess the Company’s position and performance, business model and strategy.
On behalf of the Board
Roger Yates
Chair
3 June 2025
INCOME STATEMENT
FOR THE YEAR ENDED 31 MARCH 2025
2025 2024
Revenue Capital Total Revenue Capital Total
Notes £’000 £’000 £’000 £’000 £’000 £’000
Income 2 1,111 – 1,111 1,203 – 1,203
(Losses)/gains on investments held at fair value through profit or loss 8 – (77,090) (77,090) – 79,143 79,143
Foreign exchange losses – (1,553) (1,553) – (621) (621)
AIFM and Portfolio management fees 3 (143) (2,729) (2,872) (153) (2,917) (3,070)
Other expenses 4 (771) (16) (787) (742) (39) (781)
Profit/(loss) before finance costs and taxation 197 (81,388) (81,191) 308 75,566 75,874
Finance costs 5 (66) (1,259) (1,325) (56) (1,059) (1,115)
Profit/(loss) before taxation 131 (82,647) (82,516) 252 74,507 74,759
Taxation 6 (145) – (145) (159) – (159)
(Loss)/profit for the year (14) (82,647) (82,661) 93 74,507 74,600
Basic and diluted earnings/(loss) per share 7 0.0p (262.3)p (262.3)p 0.3p 206.7p 207.0p
The Company does not have any income or expenses which are not included in the
(loss)/profit for the year. Accordingly the “(loss)/profit for the year”
is also the “total comprehensive (loss)/profit for the year”, as defined
in IAS 1 (revised) and no separate Statement of Other Comprehensive Income has
been presented.
The “Total” column of this statement represents the Company’s Income
Statement, prepared in accordance with UK-adopted International Accounting
Standards and with the requirements of the Companies Act 2006 as applicable to
companies reporting under those standards The “Revenue” and “Capital”
columns are supplementary to this and are prepared under guidance published by
the Association of Investment Companies.
The accompanying notes are an integral part of this statement.
STATEMENT OF FINANCIAL POSITION
AS AT 31 MARCH 2025
2025 2024
Notes £’000 £’000
Non current assets
Investments held at fair value through profit or loss 8 217,414 394,712
Derivative – OTC equity swaps 8, 9 745 42
218,159 394,754
Current assets
Other receivables 10 17 14,535
Cash and cash equivalents 11 8,453 2,131
8,470 16,666
Total assets 226,629 411,420
Current liabilities
Other payables 12 5,423 2,575
Loan 15 – 47,078
Derivative – OTC equity swaps 8, 9 – 460
5,423 50,113
Net assets 221,206 361,307
Equity attributable to equity holders
Ordinary share capital 13 6,778 8,371
Share premium account 79,951 79,951
Capital redemption reserve 16,652 15,059
Capital reserve 17 118,804 258,891
Revenue reserve (979) (965)
Total equity 221,206 361,307
Net asset value per share 14 815.9p 1,078.9p
The financial statements were approved by the Board on 3 June 2025 and were
signed on its behalf by:
Roger Yates
Chair
The accompanying notes are an integral part of this statement.
The Biotech Growth Trust PLC – Company Registration Number 03376377
(Registered in England and Wales)
STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 MARCH 2025
Ordinary Share Capital
Share premium redemption Capital Revenue
capital account reserve reserve reserve Total
Notes £’000 £’000 £’000 £’000 £’000 £’000
At 1 April 2024 8,371 79,951 15,059 258,891 (965) 361,307
Net loss for the year – – – (82,647) (14) (82,661)
Repurchase of own shares for cancellation (1,593) – 1,593 (57,440) – (57,440)
At 31 March 2025 13, 14 6,778 79,951 16,652 118,804 (979) 221,206
FOR THE YEAR ENDED 31 MARCH 2024
Ordinary Share Capital
Share premium redemption Capital Revenue
capital account reserve reserve reserve Total
Notes £’000 £’000 £’000 £’000 £’000 £’000
At 1 April 2023 9,684 79,951 13,746 227,968 (1,058) 330,291
Net profit for the year – – – 74,507 93 74,600
Repurchase of own shares for cancellation (1,313) – 1,313 (43,584) – (43,584)
At 31 March 2024 13, 14 8,371 79,951 15,059 258,891 (965) 361,307
The accompanying notes are an integral part of this statement.
See note 17 for details of the amounts of reserves available for distribution.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 MARCH 2025
2025 2024
Notes £’000 £’000
Operating activities
(Loss)/profit before taxation* (82,516) 74,759
Finance costs 1,325 1,115
Losses/(gains) on investments held at fair value through profit or loss 8 75,033 (80,669)
Foreign exchange losses 1,553 621
Decrease/(increase) in other receivables 10 (6)
(Decrease)/increase in other payables (347) 98
Taxation paid 6 (145) (159)
Net cash outflow from operating activities (5,087) (4,241)
Investing activities
Purchases of investments and derivatives (429,202) (350,835)
Sales of investments and derivatives 545,050 373,176
Net cash inflow from investing activities 115,848 22,341
Financing activities
Repurchase of own shares for cancellation (54,483) (43,913)
Finance costs – interest paid (1,325) (1,115)
(Repayment)/drawdown of the loan facility (48,484) 26,287
Net cash outflow from financing activities (104,292) (18,741)
Net increase/(decrease) in cash and cash equivalents 6,469 (641)
Cash and cash equivalents at start of year 2,131 2,772
Effect of movement in foreign exchange rates on cash and cash equivalents (147) –**
Cash and cash equivalents at end of year † 11 8,453 2,131
* Includes dividends received during the year of £964,000 (2024:
£1,080,000) and deposit interest of £147,000 (2024: £123,000).
† Collateral cash held at Goldman Sachs £1,553,000 (2024: £2,131,000)
and cash held in a liquidity fund £6,913,000 (2024: nil).
** 2024: impact immaterial.
CHANGES IN NET DEBT ARISING FROM FINANCING ACTIVITIES
2025 2024
£’000 £’000
Balance as at 1 April 47,078 20,170
(Repayment)/drawdown of the loan facility (48,484) 26,287
Foreign exchange losses 1,406 621
Loan balance at 31 March – 47,078
The accompanying notes are an integral part of this statement.
NOTES TO THE FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
(A) BASIS OF PREPARATION
The financial statements of the Company have been prepared in accordance with
UK-adopted International Accounting Standards and with the requirements of the
Companies Act 2006 as applicable to companies reporting under those standards.
The material accounting policies adopted are set out below.
The financial statements have been prepared under the historical cost
convention, except for the measurement at fair value of investments. Where
presentational guidance is set out in the Statement of Recommended Practice
(the SORP) for Investment Trust Companies and Venture Capital Trusts produced
by the Association of Investment Companies (AIC) issued in July 2022, the
Directors have sought to prepare the financial statements on a basis compliant
with the recommendations of the SORP.
Going concern
The Directors are required to make an assessment of the Company’s ability to
continue as a going concern and have concluded that the Company has adequate
resources to continue in operational existence until at least 3 June 2026,
being 12 months from the date these financial statements were approved.
In making this assessment, the Directors have considered a wide variety of
emerging and current risks to the Company, as well as the mitigation
strategies that are in place. The Board has also reviewed stress-testing and
scenario analyses prepared by the AIFM. The stress tests and scenario analyses
considered the effect of various downturns, based on historic bear markets, on
the asset value and expenses of the Company. The tests modelled the impact of
decreases of up to 50% on the value of the investment portfolio.
These tests are carried out as an arithmetic exercise, which can apply equally
to any set of circumstances in which asset value and income are significantly
impaired. It was concluded that even in an extreme downside scenario, the
Company would be able to continue to meet its liabilities as they fell due.
Whilst the economic future is uncertain, the opinion of the Directors is that
there is no foreseeable downside scenario that would threaten the Company’s
ability to continue to meet its liabilities as they fall due. The Company’s
shareholders are asked every five years to vote for the continuation of the
Company and this will be put to shareholders at this year’s AGM. The Board
has recommended that shareholders vote in favour of the continuation of the
Company and believes it is reasonable to expect that the vote will pass.
Furthermore the result of the continuation vote will not affect the
Company’s ability to pay its liabilities as they fall due.
Based on the information available to the Directors at the time of this
report, including the results of the stress tests and scenario analyses, and
having taken account of the liquidity of the investment portfolio, the
Company’s cash flow and borrowing position, the Directors are satisfied that
the Company has adequate financial resources to continue in operation until at
least 3 June 2026, being 12 months from the date of signing these financial
statements and that, accordingly, it is appropriate to adopt the going concern
basis.
The Company’s financial statements are presented in sterling and all values
are rounded to the nearest thousand pounds (£’000) except when otherwise
indicated.
Judgements and key sources of estimation and uncertainty
The preparation of the financial statements requires the Directors to make
judgements, estimates and assumptions that affect the amounts reported for
assets and liabilities as at the Statement of Financial Position date and the
amounts reported for revenues and expenses during the year. However, the
nature of estimation means that actual outcomes could differ from those
estimates. In the process of applying the Company’s accounting policies, the
Directors have made the following estimate which are immaterial in the current
year:
Fair value of the unquoted investments estimate
The Board has established a Valuation Committee to review the valuations and
the valuation methodologies of the Company’s unquoted investments. The Board
has approved the valuations of the unquoted investments on the recommendation
of the Valuation Committee.
The unquoted investment in OrbiMed Asia Partners L.P. has been valued using
the Net Asset Value presented in the Statement of Partner’s Capital Activity
as at 31 December 2024, as permitted under the IPEV guidelines. The Statement
of Partner’s Capital Activity as at 31 March 2025 was received in May 2025
and was not materially different from the valuation at 31 December 2024. The
Consolidated Financial Statements of the partnership for the year ended
31 December 2024 were audited by KPMG LLP (New Jersey Headquarters) and were
approved on 28 March 2025.
The investment in New Horizon Health has been classed as unquoted due to the
suspension of trading activity following the delay in the issuance of the
company’s Annual Report for 2023. It has been valued by Kroll, an
independent valuer, using the probability-weighted expected returns
methodology (PWERM). Under the PWERM, fair value is determined through
consideration of the values of the investment under a range of scenarios. Each
scenario is assigned a probability, with the value of the investment
reflecting the sum of each scenario’s valuation weighted by the probability
of its occurrence. The valuations have been approved by the Board on the
recommendation of the Valuation Committee.
The investment in Gracell Biotechnologies Contingent Value Rights (CVR) has
also been valued by Kroll. Gracell’s CVRs have been valued using the PWERM,
discounted for the lack of marketability.
(B) INVESTMENTS
Investments are recognised and de-recognised on the trade date.
As the Company’s business is investing in financial assets with a view to
profiting from their total return in the form of dividends or increases in
fair value, investments are classified as fair value through profit or loss
(FVTPL) and are initially recognised at fair value. The Company manages and
evaluates the performance of these investments on a fair value basis in
accordance with its investment strategy, and information about the investments
is provided internally on this basis to the Board.
Investments classified at fair value through profit or loss, which are quoted
investments, are measured at subsequent reporting dates at fair value which is
either the bid or the last trade price, depending on the convention of the
exchange on which it is quoted.
In respect of unquoted investments, or where the market for a financial
instrument is not active, fair value is established by using valuation
techniques which may include using weighted expected returns, reference to the
current fair value of another instrument that is substantially the same,
discounted cash flow analysis and option pricing models, inline with IPEV
guidelines. Where there is a valuation technique commonly used by market
participants to price the instrument and that technique has been demonstrated
to provide reliable estimates of prices obtained in actual market
transactions, that technique is utilised.
Transfers between levels of fair value hierarchy are deemed to have occurred
at the date of the event or change in circumstances that caused the transfer.
Gains and losses on disposal and fair value changes are also recognised in the
Income Statement.
(C) PRESENTATION OF INCOME STATEMENT
In order to better reflect the activities of an investment trust company, and
in accordance with guidance issued by the AIC, supplementary information which
analyses the Income Statement between items of a revenue and capital nature
has been presented alongside the Income Statement. Net revenue is the measure
the Directors believe appropriate in assessing the Company’s compliance with
certain requirements set out in section 1158 of the Corporation Tax Act 2010.
The requirements are to distribute net revenue but only so far as there are
positive revenue reserves.
(D) INVESTMENT INCOME
Dividends receivable on equity shares are recognised on the ex-dividend date.
Where no ex-dividend date is quoted, dividends are recognised when the
Company’s right to receive payment is established. Foreign dividends are
grossed up at the appropriate rate of withholding tax, with the withholding
tax recognised in the taxation charge.
Dividends from investments in unquoted shares and securities are also
recognised when the Company’s right to receive payment is established.
Income from fixed interest securities is recognised on a time appointment
basis so as to reflect the effective interest rate.
In deciding whether a dividend should be regarded as a capital or revenue
receipt, the Company reviews all relevant information as to the reasons for
and sources of the dividend on a case by case basis depending upon the nature
of the receipt.
Special dividends of a revenue nature are recognised through the revenue
column of the Income Statement. Special dividends of a capital nature are
recognised through the capital column of the Income Statement.
(E) EXPENSES AND FINANCE COSTS
All expenses are accounted for on an accruals basis. Expenses are charged
through the Income Statement as follows:
* transaction costs on the acquisition or disposal of an investment are
charged to the capital column of the Income Statement;
* expenses are charged to the capital column of the Income Statement where a
connection with the maintenance or enhancement of the value of the investment
can be demonstrated, and accordingly:
* during the year, AIFM and Portfolio Management fees are charged 95% to the
capital column of the Income Statement as the Directors expect that in the
long term virtually all of the Company’s returns will come from capital;
* during the year, loan interest is charged 95% to the capital column of the
Income Statement as the Directors expect that in the long term virtually all
of the Company’s returns will come from capital.
* performance fees are charged 100% to the capital column of the Income
Statement. Performance fees are recognised as a liability of the Company when
they crystallise and become due for payment. Details of the performance fee
are set out on pages 51 and 52 of the Annual Report; and
* all other expenses are charged to revenue column of the Income Statement.
(F) TAXATION
In line with the recommendations of the SORP, the allocation method used to
calculate tax relief on expenses presented against capital returns in the
supplementary information in the Income Statement is the “marginal basis”.
Under this basis, if taxable income is capable of being offset entirely by
expenses presented in the revenue column of the Income Statement, then no tax
relief is transferred to the capital column.
Investment trusts which have approval under Section 1158 Corporation Tax Act
2010 are not liable for taxation on capital gains.
Current tax is provided at the amounts expected to be paid or recovered.
Deferred tax is the tax expected to be payable or recoverable on differences
between the carrying amounts of assets and liabilities in the financial
statements and the corresponding tax bases used in the computation of taxable
profit, and is accounted for using the Balance Sheet liability method.
Deferred tax liabilities are recognised for all taxable temporary differences
and deferred tax assets are recognised to the extent that it is probable that
taxable profits will be available against which deductible temporary
differences can be utilised.
Deferred tax is calculated at the tax rates that are expected to apply in the
period when the liability is settled or the asset is realised. Deferred tax is
charged or credited in the Income Statement, except when it relates to items
charged or credited directly to equity, or Other Comprehensive Income (OCI),
in which case the deferred tax is also dealt with in equity or OCI
respectively.
(G) FUNCTIONAL AND PRESENTATION CURRENCY
The financial information is shown in sterling, being the Company’s
presentation currency. In arriving at the functional currency the Directors
have considered the following:
(i) the primary economic environment of the Company;
(ii) the currency in which the original capital was raised;
(iii) the currency in which distributions would be made;
(iv) the currency in which performance is evaluated; and
(v) the currency in which the capital would be returned to
shareholders on a break up basis.
The Directors have also considered the currency to which the underlying
investments are exposed and liquidity is managed.
The Directors are of the opinion that sterling best represents the functional
currency.
(H) RESERVES
Ordinary share capital
* represents the nominal value of the issued share capital.
Share premium account
* represents the surplus of net proceeds received from the issue of new shares
over the nominal value of such shares. The Share premium account is
non-distributable.
Capital redemption reserve
* a transfer will be made to this reserve on cancellation of the Company’s
own shares purchased, equal to the nominal value of the shares. This reserve
is non-distributable.
Capital reserves
The following are credited or charged to the capital column of the Income
Statement and then transferred to the Capital Reserve:
* gains or losses on disposal of investments;
* exchange differences of a capital nature;
* expenses allocated to this reserve in accordance with the above policies;
* increases and decreases in the valuation of investments held at year-end;
and
* shares which have been bought back by the Company for cancellation.
Realised Capital Reserves, including the unrealised gains/losses from
investments readily convertible to cash, are distributable by way of a
dividend.
Revenue reserve
* reflects all income and expenditure recognised in the revenue column of the
Income Statement. Amounts standing to the credit of the Revenue Reserve are
distributable by way of dividend.
(I) OPERATING SEGMENTS
IFRS 8 requires entities to define operating segments and segment performance
in the financial statements based on information used by the Board of
Directors. The Directors are of the opinion that the Company is engaged in a
single segment of business, being the investment business. The results
published in this report therefore correspond to this sole operating segment.
(J) FINANCIAL INSTRUMENTS INCLUDING DERIVATIVE FINANCIAL INSTRUMENTS
Financial assets and financial liabilities are recognised on the Statement of
Financial Position when the Company becomes a party to the contractual
provisions of the instrument. Financial assets are derecognised when the
Company’s contractual right to the cash flows from the asset expires or
substantially all the risks and rewards of ownership are transferred.
Financial liabilities are derecognised when the contractual obligation is
discharged, with gains and losses recognised in the income statement.
The Company uses derivative financial instruments, namely equity swaps. All
derivative instruments are valued initially, and at subsequent reporting
dates, at fair value in the Statement of Financial Position.
The equity swaps are accounted for as non-current assets or current
liabilities.
(K) CASH AND CASH EQUIVALENTS
Cash and cash equivalents are defined as cash in hand, demand deposits and
short-term deposits with a maturity of three months or less, highly liquid
investments readily convertible to known amounts of cash and subject to
insignificant risk of changes in value.
(L) ADOPTION OF NEW AND REVISED STANDARDS
Standards and amendments to existing standards effective 1 January 2024
The Company has applied the following standards and amendments for the first
time for its annual reporting period commencing 1 April 2024:
* Classification of Liabilities as current or non-current – Amendments to
IAS 1 presentation of Financial Statements.
This amendment did not have any impact on the amounts recognised in either
current or prior years.
New standards, amendments and interpretations effective after 1 January 2025
which have not been early adopted
The below new amendment and interpretations will become effective for annual
periods beginning after 1 January 2025:
* IAS 21 – Lack of exchangeability (effective 1 January 2025). The IASB
issued amendments to IAS 21 The Effects of Changes in Foreign Exchange Rates
to specify how an entity should assess whether a currency is exchangeable and
how it should determine a spot exchange rate when exchangeability is lacking.
The amendments also require disclosure of information that enables users of
its financial statements to understand how the currency not being exchangeable
into the other currency affects, or is expected to affect, the entity’s
financial performance, financial position and cash flows.
* IFRS 18 – Presentation and disclosure in financial statements (effective 1
January 2027). The IASB issued IFRS 18, which replaces IAS 1 Presentation of
Financial Statements. IFRS 18 introduces new requirements for presentation
within the statement of profit or loss, including specified totals and
subtotals. Furthermore, entities are required to classify all income and
expenses within the statement of profit or loss into one of five categories:
operating, investing, financing, income taxes and discontinued operations,
whereof the first three are new. It also requires disclosure of newly defined
management-defined performance measures, subtotals of income and expenses, and
includes new requirements for aggregation and disaggregation of financial
information based on the identified ‘roles’ of the primary financial
statements and the notes.
* IFRS 9 and IFRS 7 – Classification and measurement of financial
instruments (effective 1 January 2026). The Amendments address the following:
* The classification of financial assets.
* Provide guidance on the assessment of whether contractual cash flows are
consistent with a basic lending arrangement. It is primarily to address
stakeholder concerns on the classification of financial assets with
environmental, social and corporate governance (ESG) and similar features.
* Financial assets with non-recourse features: Clarify for a financial asset
has non-recourse features if an entity’s ultimate right to receive cash
flows is contractually limited to the cash flows generated by specified
assets.
* Contractually linked instruments: Clarify the characteristics of
contractually linked instruments and some transactions that may contain
multiple debt instruments and appear to have the characteristics of
contractually linked instruments are in fact lending arrangements structured
to provide enhanced credit protection to the creditor.
* Derecognition of liabilities settled through electronic payment systems:
When settling a financial liability in cash using an electronic payment
system, it is permitted that an entity to deem the financial liability to be
discharged before the settlement date if it meets certain specified criteria.
* Disclosures:
Amend IFRS 7 Financial Instruments: Disclosures to introduce disclosure
requirements related to investments in equity instruments designated at fair
value through other comprehensive income and contractual terms that could
change the amount of contractual cash flows.
These amendments are not expected to have a material effect on the financial
statements of the Company, but the Board will continue to assess the impact.
2. INCOME
2025 2024
£’000 £’000
Investment income
Overseas dividend income 964 1,080
Other income
Deposit interest 147 123
Total income 1,111 1,203
3. AIFM AND PORTFOLIO MANAGEMENT FEES
2025 2024
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
AIFM fee – Frostrow Capital LLP 43 820 863 47 886 933
Portfolio management fee – 100 1,909 2,009 106 2,031 2,137
OrbiMed Capital LLC
143 2,729 2,872 153 2,917 3,070
During the financial year ended 31 March 2025, in accordance with the
performance fee arrangements in place, no performance fee was earned (2024:
nil).
As at 31 March 2025, no performance fees were accrued or payable (31 March
2024: £nil).
Further details of the AIFM, portfolio management fee and the performance fee
basis can be found in the Report of the Directors.
4. OTHER EXPENSES
2025 2024
Total Total
£’000 £’000
Directors’ emoluments 199 177
Fees payable to the Company’s auditor for the audit of the Company’s financial statements 52 52
Registrar fees 45 36
Depositary fees 52 48
Marketing and PR costs 86 71
Legal and professional fees^ 32 61
Broker fees 63 43
Listing fees 35 39
Printing costs 30 33
Other costs 177 182
Total expenses charged to Revenue 771 742
Professional fees charged to Capital* 16 39
Total expenses 787 781
^ Includes quarterly valuation fees in relation to the valuation of the
unquoted investments.
* Professional fees in respect of acquisition of unquoted and pre-IPO
investments.
Details of the amounts paid to Directors are included in the Directors’
Remuneration Report.
5. FINANCE COSTS
2025 2024
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Loan interest 66 1,259 1,325 56 1059 1,115
66 1,259 1,325 56 1,059 1,115
6. TAXATION
(A) FACTORS AFFECTING TOTAL TAX CHARGE FOR YEAR
Approved investment trusts are exempt from tax on capital gains made within
the company.
The tax assessed for the year is higher than the standard rate of corporation
tax in the UK of 25% (2024: 25%). The differences are explained below:
2025 2024
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Net profit/(loss) before taxation 131 (82,647) (82,516) 252 74,507 74,759
Corporation tax at 25% (2024:25%) 33 (20,662) (20,629) 63 18,627 18,690
Effects of:
Non-taxable loss/(gains) on investments – 19,661 19,661 – (19,631) (19,631)
Non-taxable overseas dividends (241) – (241) (270) – (270)
Overseas tax suffered 145 – 145 159 – 159
Expenses charged to capital available to be utilised (17) – (17) (14) – (14)
Excess expenses unused 225 1,001 1,226 221 1,004 1,225
Total taxation for the year (see note 6(b)) 145 – 145 159 – 159
(B) ANALYSIS OF CHARGE IN THE YEAR:
2025 2024
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Overseas tax suffered 145 – 145 159 – 159
Total taxation for the year 145 – 145 159 – 159
(C) PROVISION FOR DEFERRED TAX
No provision for deferred taxation has been made in the current or prior year.
The Company has not provided for deferred tax on capital profit or losses
arising on the revaluation or disposal of investments, as it is exempt from
tax on these items because of its status as an investment trust company.
At 31 March 2025, the Company had unutilised management expenses and other
losses of £93,248,000 (2024: £88,442,000) that are available to offset
future taxable revenue.
A deferred tax asset of £23,312,000 (25% tax rate) (2024: £22,111,000 (25%
tax rate)) arising as a result of these excess management expenses and other
losses has not been recognised because the Company is not expected to generate
sufficient taxable income in future periods in excess of the available
deductible expenses. Given the composition of the Company’s portfolio, it is
not likely that this asset will be used in the foreseeable future and
therefore no asset has been recognised in the financial statements.
7. BASIC AND DILUTED EARNINGS/(LOSS) PER SHARE
2025 2024
Revenue Capital Total Revenue Capital Total
pence pence pence pence pence pence
Earnings/(loss) per share 0.0p (262.3)p (262.3)p 0.3p 206.7p 207.0p
The total loss per share of 262.3p (2024: profit of 207.0p) is based on the
total loss attributable to equity shareholders of £82,661,000 (2024: earning
of £74,600,000).
The revenue loss per share 0.0p (2024: profit of 0.3p) is based on the revenue
loss attributable to equity shareholders of £14,000 (2024: earnings of
£93,000). The capital loss per share of 262.3p (2024: earnings of 206.7p) is
based on the capital loss attributable to equity shareholders of £82,647,000
(2024: profit of £74,507,000).
The total loss per share is based on the weighted average number of shares in
issue during the year of 31,514,115 (2024: 36,041,496).
There are no dilutive instruments issued by the Company (2024: none).
8. INVESTMENTS
As at 31 March 2025, all investments with the exception of the unquoted
investments and derivatives have been classified as level 1. The unquoted
investments have been classified as either level 2 or level 3. See note 15 for
further details.
2025 2024
Derivative Derivative
Financial Financial
Quoted Instruments Quoted Instruments
Investments Unquoted – Net Total Investments Unquoted – Net Total
£’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000
Opening book cost 354,597 16,268 – 370,865 392,482 14,341 – 406,823
Opening investment holding gains/(losses) 24,977 (1,130) (418) 23,429 (55,520) 5,926 (1,202) (50,796)
Valuation at 1 April 379,574 15,138 (418) 394,294 336,962 20,267 (1,202) 356,027
Movement in the year
Purchases at cost 429,394 46 – 429,440 342,843 1,952 – 344,795
Sales proceeds (533,092) – 2,550 * (530,542) (388,521) (71) 1,395* (387,197)
Transfer from (859) (13,408) – (14,267) – – – –
Transfer into 13,408 859 – 14,267 – – – –
Net movement in
investment holding (73,205) (441) (1,387) (75,033) 88,290 (7,010) (611) 80,669
(losses)/gains
Valuation at 31 March 215,220 2,194 745 218,159 379,574 15,138 (418) 394,294
Closing book cost at 31 March 292,352 5,001 – 297,353 354,597 16,268 – 370,865
Investment holding (losses)/gains at 31 March (77,132) (2,807) 745 (79,194) 24,977 (1,130) (418) 23,429
Valuation at 31 March 215,220 2,194 745 218,159 379,574 15,138 (418) 394,294
* Sale of financed equity swaps.
The sales proceeds of £530,542,000 (2024: £387,197,000) includes transaction
costs of £1,240,000 (2024: £814,000). The book cost of these investments
when they were purchased was £502,952,000 (2024: £380,753,000).
These investments have been revalued over time and until they were sold any
unrealised gains/loss were included in the fair value of these investments.
Fair Value Measurement – Transfers Between Levels of the Fair Value
Hierarchy
During the year ended 31 March 2025, the Company recognised the following
transfers between levels of the fair value hierarchy in accordance with IFRS
13:
Transfers from Level 1 to Level 3
* An investment in New Horizon Health with a fair value of £859,000 was
transferred from Level 1 to Level 3.
Transfers from Level 3 to Level 1
* An investment in Lexicon Pharmaceuticals with a fair value of £1,948,000
was transferred from Level 3 to Level 1.
* An investment in XtalPi with a fair value of £11,460,000 was transferred
from Level 3 to Level 1.
Reasons for Transfers
* New Horizon Health was transferred from Level 1 to Level 3 following the
delisting of its shares from the public stock exchange. As a result, quoted
market prices were no longer available, and the investment valuation became
reliant on significant unobservable inputs.
* Lexicon Pharmaceuticals was transferred from Level 3 to Level 1 due to the
conversion of Series A convertible preference shares into ordinary shares. The
resulting ordinary shares are actively traded on a recognised stock exchange,
providing observable market prices.
* XtalPi was transferred from Level 3 and Level 1 following its initial public
offering on the Hong Kong Stock Exchange in June 2024. The listing provided
readily available quoted prices in an active market, justifying its
reclassification to Level 1.
Policy for Determining the Timing of Transfers
Transfers between levels of the fair value hierarchy are recognised at the
beginning of the reporting period during which the change in circumstances or
market conditions occurred. This policy is applied consistently to all
transfers, in accordance with the requirements of IFRS 13.95.
(LOSSES)/GAINS ON INVESTMENTS
2025 2024
£’000 £’000
(Losses)/gains on investments (75,033) 80,669
Transaction costs (2,057) (1,526)
(Losses)/gains on investments held at fair value through profit or loss (77,090) 79,143
The total transaction costs for the year were £2,057,000 (31 March 2024:
£1,526,000) broken down as follows: purchase transaction costs for the year
to 31 March 2025 were £817,000 (31 March 2024 £712,000), sale transaction
costs were £1,240,000 (31 March 2024: £814,000). These costs consist mainly
of commission. Transaction costs are recorded in the capital column of the
Income Statement.
9. DERIVATIVE FINANCIAL INSTRUMENTS
2025 2024
£’000 £’000
Fair value of OTC equity swaps (assets) 745 42
Fair value of OTC equity swaps (liabilities) – (460)
745 (418)
(See note 1(J) for further details).
10. OTHER RECEIVABLES
2025 2024
£’000 £’000
Future settlements – sales – 14,508
Prepayments and accrued income 17 27
17 14,535
11. CASH AND CASH EQUIVALENTS
2025 2024
£’000 £’000
Money market funds 6,913 –
Current asset investments 6,913 –
Cash at bank 1,540 2,131
Cash and cash equivalents 8,453 2,131
12. OTHER PAYABLES
2025 2024
£’000 £’000
Future settlements – purchases 405 167
Amounts due to brokers in respect of shares repurchased by the Company for cancellation 4,336 1,379
Other creditors and accruals 682 1,029
5,423 2,575
13. ORDINARY SHARE CAPITAL
2025 2024
Number of Number of
Shares Shares
Allotted, issued and fully paid at 1 April 2024 33,487,198 38,737,419
Shares bought back for cancellation during the year (6,374,607) (5,250,221)
At 31 March 2025 27,112,591 33,487,198
2025 2024
£’000 £’000
Allotted, issued and fully paid shares of 25p 6,778 8,371
During the year 6,374,607 shares were bought back for cancellation for a
consideration of £57,440,000 (2024: 5,250,221 shares were bought back for a
consideration of £43,584,000).
14. NET ASSET VALUE PER SHARE
2025 2024
Net asset value per share 815.9p 1,078.9p
The net asset value per share is based on the net assets attributable to
equity shareholders of £221,206,000 (2024: £361,307,000) and on 27,112,591
(2024: 33,487,198) shares in issue at 31 March 2025.
15. RISK MANAGEMENT POLICIES AND PROCEDURES
As an investment trust, the Company invests in equities and other investments
for the long term in order to achieve its investment objective. In pursuing
its investment objective, the Company is exposed to a variety of risks that
could result in either a reduction or increase in the Company’s net assets
or profits.
The Company’s financial instruments comprise securities and other
investments, cash balances, debtors and creditors and a loan facility that
arise directly from its operations (for example, in respect of sales and
purchases awaiting settlement).
The main risks the Company faces from its financial instruments are (i) market
price risk (comprising currency risk, interest rate risk and other price risk
(i.e. changes in market prices other than those arising from interest rate or
currency risk)), (ii) liquidity risk and (iii) credit risk. The Board also
considers (iv) fair value measurement and (v) capital management.
The Board reviews and agrees policies regularly for managing and monitoring
each of these risks.
OTC EQUITY SWAPS
The Company uses OTC equity swap positions to gain access to Chinese markets
where the Company is not locally registered to trade directly. These swaps are
revalued daily reflecting changes in the market value of the underlying
equity. At the year end the Company held OTC equity swap contracts in
InventisBio and Jiangsu Hengrui Pharmaceutical, these contracts were held with
Goldman Sachs as the counterparty. See glossary for further details.
1. MARKET PRICE RISK:
The Company’s portfolio is exposed to fluctuations in market prices in the
biotechnology sector and the regions in which it invests. Market-wide
uncertainties which have recently caused increased volatility in the markets
include the war in Ukraine, increasing political, military and commercial
tensions between the US/West and China, and increased inflationary pressures.
The Company’s portfolio is exposed to market price fluctuations which are
monitored by the AIFM and the Portfolio Manager in pursuance of the investment
objective. Further information on the composition of the portfolio is set out
on page 8 and 9 of the Annual Report.
This market risk comprises three elements – foreign currency risk, interest
rate risk and other price risk.
(a) Foreign currency risk:
The Company’s portfolio is denominated in currencies other than sterling
(the Company’s functional currency, and in which it reports its results). As
a result, movements in exchange rates can significantly affect the sterling
value of those items.
Management of the risk
The AIFM and the Portfolio Manager monitor the Company’s exposure to foreign
currencies on a continuous basis and report to the Board regularly. The
Company does not hedge against foreign currency movements to manage market
price risk.
The Company does not use financial instruments to mitigate the currency
exposure in the period between the time that the income is included in the
financial statements and its receipt.
Foreign currency exposure
At the date of the Statement of Financial Position the Company held
£200,735,000 (2024: £379,359,000) of investments denominated in U.S. dollars
and £17,424,000 (2024: £14,935,000) in other non-sterling currencies.
Foreign currency sensitivity
The fair value of the Company’s monetary items that have foreign currency
exposure at 31 March 2025 is shown below.
Where the Company’s equity investments (which are not monetary items) are
priced in a foreign currency they are shown separately in the analysis as to
show the overall level of exposure.
2025 2024
£’000 £’000
Sterling equivalent of U.S.$ and other non-sterling exposure
Current assets 8,475 16,640
Creditors (405) (167)
Spot currency contracts (4,358) (1,406)
Loan (non-sterling) – (47,063)
Foreign currency exposure on net monetary items 3,712 (31,996)
Investments held at fair value through profit or loss including derivative equity swap 218,159 394,294
Total net foreign currency exposure 221,871 362,298
The tables below detail the sensitivity of the Company’s profit or loss
after taxation for the year (investment values) to a 10% increase and decrease
in the value of sterling compared with the U.S. dollar and other non-sterling
currencies (2024: 10% increase and decrease).
The above percentages have been determined based on market volatility in
exchange rates over the previous twelve months. The analysis is based on the
Company’s foreign currency financial instruments held at each Statement of
Financial Position date, after adjusting for an increase/decrease in the AIFM
and portfolio management fees.
If sterling had weakened against the U.S. dollar and other non-sterling
currencies, as stated above, this would have had the following effect:
2025 2024
£’000 £’000
Impact on revenue return – –
Impact on capital return 32,717 46,816
Total return after tax/effect on shareholders’ funds 32,717 46,816
If sterling had strengthened against the U.S. dollar and other non-sterling
currencies, as stated above, this would have had the following effect:
2025 2024
£’000 £’000
Impact on revenue return – –
Impact on capital return (13,189) (26,943)
Total return after tax/effect on shareholders’ funds (13,189) (26,943)
(b) Interest rate risk:
Interest rate risk is the risk that the fair value of a financial instrument
will fluctuate because of changes in market interest rates.
Interest rate exposure
The Company’s main exposure to interest rate risk is through its loan
facility with J.P. Morgan Securities LLC which is repayable on demand.
Interest is charged at the US overnight bank funding rate plus 45 basis
points.
At the year end, financial assets and liabilities subject to interest rate
risk were as follows:
Floating Floating
rate rate
2025 2024
£’000 £’000
Loan facility with J.P. Morgan Securities LLC – 47,078
Gross exposure on OTC equity swaps 7,540 6,308
Total liabilities subject to interest rate risk 7,540 53,386
Less cash held at Goldman Sachs and in a liquidity fund 8,453 2,131
Total net liabilities subject to interest rate risk (913) 51,255
Management of the risk
The level of borrowings is approved and monitored by the Board and the AIFM on
a regular basis.
Interest rate sensitivity
The majority of the Company’s financial assets are equity shares and other
investments which neither pay interest nor have a maturity date. The amount
subject to interest rate risk as at 31 March 2025 was £913,000 (2024:
£51,255,000). If the rate increased or decreased by 1%, the impact on the
profit or loss and net assets would be expected to be £9,130 or (£9,130)
(2024: £513,000) or (£513,000).
(c) Other price risk
Other price risk may affect the value of the quoted investments.
If market prices at the date of the Statement of Financial Position had been
20% higher or lower (2024: 20% higher or lower) while all other variables had
remained constant, the return and net assets attributable to shareholders for
the year ended 31 March 2025 would have increased/decreased by £44,711,000
(2024: £78,110,000) after adjusting for an increase or decrease in the AIFM
and the Portfolio management fees. The calculations are based on the portfolio
valuations as at the respective Statement of Financial Position dates.
Other price risk exposure
2025 2024
Net Net
Assets Liabilities Fair Value Assets Liabilities Fair Value
£’000 £’000 £’000 £’000 £’000 £’000
Investments 217,414 – 217,414 394,712 – 394,712
OTC equity swaps 745 – 745 42 (460) (418)
218,159 – 218,159 394,754 (460) 394,294
The notional exposure of the OTC equity swaps calculated in accordance with
AIFMD requirements, is £8,286,000 (2024: £5,890,000) see glossary for
further details.
2. LIQUIDITY RISK:
This is the risk that the Company will encounter difficulty in meeting
obligations associated with financial liabilities.
Management of the risk
Liquidity risk is not significant as the majority of the Company’s assets
are investments in quoted equities that are readily realisable within one
week, in normal market conditions. Stress tests have been performed to
understand how long the portfolio would take to realise in such situations.
The Board is comfortable that in such situations the Company would be able to
meet its liabilities as they fall due. Short-term funding flexibility can be
achieved through the use of the bank loan facility. The maximum amount of
gearing permitted by the Board is 20% of net assets which equated to
£44,241,000 at the year end (2024: £72,261,000).
The Board gives guidance to the Portfolio Manager as to the maximum amount of
the Company’s resources that should be invested in any one company.
Liquidity exposure and maturity
Contractual maturities of the financial liabilities as at 31 March 2025, based
on the earliest date on which payment can be required, are as follows:
2025 2025 2024 2024
3 months 3 to 3 months 3 to
or less 12 months or less 12 months
£’000 £’000 £’000 £’000
Loan facility (repayable on demand) – – 47,078 –
Future settlements 405 – 167 –
Derivative – OTC equity swaps – – – 460
Other creditors and accruals 5,018 – 2,408 –
5,423 – 49,653 460
3. CREDIT RISK:
Credit risk is the risk of failure of a counterparty to discharge its
obligations resulting in the Company suffering a loss.
J.P. Morgan Securities LLC (J.P. Morgan) may take assets with a value of up to
140% of the loan as collateral. Such assets held by J.P. Morgan are available
for rehypothecation†.
As at 31 March 2025, the maximum value of assets available for rehypothecation
was £nil being 140% of the loan balance of £nil (31 March 2024: £65,909,000
being 140% of the loan balance of £47,078,000).
† See glossary.
Management of the risk
The risk is not significant and is managed as follows:
J.P. Morgan
* by receiving and reviewing regular updates from the Custodian and Prime
Broker and Depository.
* by reviewing their Internal Control reports and regularly monitor J.P.
Morgan’s credit rating. J.P. Morgan has a credit rating of Aa3 (Moody’s),
A+ (S&P) and AA (Fitch).
* by reviewing on a monthly basis assets which are available for
rehypothecation.
Other counterparties
* by only dealing with brokers which have been approved by OrbiMed Capital LLC
and banks with high credit ratings such as Goldman Sachs International who
have a credit rating of A1 (Moody’s), A+ (S&P) and A+ (Fitch);
* by investing in markets that mainly operate DVP (delivery versus payment)
settlement.
* all cash balances are held with approved counterparties. J.P. Morgan is the
Custodian of the Company’s assets and all assets are segregated from J.P.
Morgan’s own assets.
At 31 March 2025 the Company’s exposure to credit risk amounted to
£8,453,000 and was in respect of cash held as collateral and held in a
liquidity fund (2024: £16,639,000).
4. FAIR VALUE MEASUREMENT
Hierarchy of investments
As required under IFRS 13 “Fair Value Measurement”, the Company has
classified its financial assets designated at fair value through profit or
loss using a fair value hierarchy that reflects the significance of the inputs
used in making the fair value measurements. The hierarchy has the following
levels:
* Level 1 – quoted prices (unadjusted) in active markets for identical
assets or liabilities;
* Level 2 – inputs other than quoted prices included with Level 1 that are
observable for the asset or liability, either directly (i.e. as prices) or
indirectly (i.e. derived from prices); and
* Level 3 – inputs for the asset or liability that are not based on
observable market data (unobservable inputs).
As of 31 March 2025 Level 1 Level 2 Level 3 Total
£’000 £’000 £’000 £’000
Assets 215,220 – 2,194 217,414
Derivatives: equity swap (assets) – 745 – 745
Financial investments held at fair value through profit or loss 215,220 745 2,194 218,159
As of 31 March 2024 Level 1 Level 2 Level 3 Total
£’000 £’000 £’000 £’000
Assets 379,574 – 15,138 394,712
Derivatives: equity swap (assets) – 42 – 42
Derivatives: equity swap (liabilities) – (460) – (460)
Financial investments held at fair value through profit or loss 379,574 (418) 15,138 394,294
As at 31 March 2025, the investment in OrbiMed Asia Partners LP Fund has been
classified as Level 3. The OrbiMed Asia Partners Fund LP has been valued at
the net asset value presented in its Statement of Partners Capital Activity as
at 31 December 2024, as permitted under the IPEV guidelines. The Statement of
Partner’s Capital Activity as at 31 March 2025 was received in May 2025 and
was not materially different from the valuation at 31 December 2024. If the
value of the OrbiMed Asia Partners LP Fund were to increase or decrease by
10%, while all other variables remain constant, the return and net assets
attributable to shareholders for the year ended 31 March 2025 would have
increased/decreased by £89,000 (2024: £112,000).
At 31 March 2025, the Company held three level 3 investments in addition to
the OrbiMed Asia Fund:
* New Horizon Health;
* Gracell Biotechnology CVR; and
* StemiRNA.
New Horizon Health has been valued by Kroll, an independent valuer, using the
probability-weighted expected returns methodology (PWERM). See note 1 for
further details.
Gracell Biotechnology CVR has also been valued by Kroll using the PWERM.
StemiRNA entered into liquidation during the year and is valued at zero at the
year end.
Level 3 Reconciliation
Please see below a reconciliation disclosing the changes during the year for
the financial assets and liabilities designated at fair value through profit
or loss classified as being Level 3. There has been no transfer between fair
value hierarchy levels.
2025 2024
£’000 £’000
Assets
As at 1 April 15,138 20,267
Purchase of unquoted investments 46 1,952
Sale of unquoted investment – (71)
Transfer to level 1 (13,408) –
Transfer to level 3 859 –
Net movement in investment holding gains during the year (441) (7,010)
Assets as at 31 March 2,194 15,138
FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES:
Financial assets and financial liabilities are either carried in the Statement
of Financial Position at their fair value or at a reasonable approximation of
fair value.
5. CAPITAL MANAGEMENT
The Company’s capital management objectives are:
* to ensure that it will be able to continue as a going concern; and
* to maximise the total return to its equity shareholders.
The Board’s policy is to limit gearing to a maximum of 20% of the
Company’s net assets.
The capital structure of the Company consists of the equity share capital,
retained earnings and other reserves shown in the Statement of Financial
Position.
Shares may be repurchased by the Company as explained on pages 29 and 30 of
the Annual Report.
The Company’s objectives, policies and processes for managing capital are
unchanged from the preceding accounting period.
16. TRANSACTIONS WITH RELATED PARTIES AND THE MANAGERS
Related Parties
The Directors of the Company are considered to be related parties.
Details of the remuneration of the Directors of the Company can be found on
page 64 of the Annual Report. Geoff Hsu has waived his Directors’ fees.
Details of the Directors’ interests in the capital of the Company can be
found on page 66 of the Annual Report.
Transactions with the Managers
* Frostrow Capital LLP
* OrbiMed Capital LLC
Details of the relationship between the Company and Frostrow Capital LLP, the
Company’s AIFM, and OrbiMed Capital LLC, the Company’s Portfolio Manager,
are disclosed on page 51 of the Annual Report. Geoff Hsu, who joined the Board
on 16 May 2018, is a General Partner at OrbiMed. Details of fees paid to
OrbiMed by the Company can be found in note 3. All material related party
transactions have been disclosed in notes 3 and 4.
The Company holds an interest in OrbiMed Asia Partners Fund which equates to
0.4% of the investments held at 31 March 2025. Further details can be found
in note 1.
Three current and two former partners at OrbiMed Capital LLC have a minority
financial interest totalling 20% in Frostrow Capital LLP, the Company’s
AIFM. Details of the fees paid to Frostrow Capital LLP by the Company can be
found in note 3.
17. CAPITAL RESERVE
2025 2024
Capital Reserves Capital Reserves
Investment Investment
holdings holdings
gains/ gains/
Other (losses) Total Other (losses) Total
£’000 £’000 £’000 £’000 £’000 £’000
At 1 April 235,358 23,533 258,891 278,564 (50,596) 227,968
Net gains/(losses) on investments 25,637 (102,727) (77,090) 5,014 74,129 79,143
Foreign exchange losses (1,553) – (1,553) (621) – (621)
Expenses charged to capital (4,004) – (4,004) (4,015) – (4,015)
Repurchase of own shares for cancellation (57,440) – (57,440) (43,584) – (43,584)
At 31 March 197,998 (79,194) 118,804 235,358 23,533 258,891
Sums within the Total Capital Reserve less unrealised gains (those on
investments not readily convertible to cash) are available for distribution.
Investment holding gains in the table above are unrealised. The value of
investments not readily convertible to cash amount to £2,194,000 (2024:
£15,138,000).
18. SUBSEQUENT EVENTS
Subsequent to the Company’s year end, the net asset value per share of the
Company had fallen by 3.9% from 815.9p to 784.3p and the Company’s share
price had fallen by 4.8% from 754.0p to 718.0p as at 30 May 2025.
The figures and financial information for 2024 are extracted from the
published Annual Report for the year ended 31 March 2024 and do not constitute
the statutory accounts for that year. The Annual Report for the year ended 31
March 2024 has been delivered to the Registrar of Companies and included the
Independent Auditor’s Report which was unqualified and did not contain a
statement under either section 498(2) or section 498(3) of the Companies Act
2006.
The figures and financial information for 2025 are extracted from the Annual
Report for the year ended 31 March 2025 and do not constitute the statutory
accounts for the year. The Annual Report for the year ended 31 March 2025
includes the Independent Auditor’s Report which is unqualified and does not
contain a statement under either section 498(2) or section 498(3) of the
Companies Act 2006. The Annual Report and financial statements have not yet
been delivered to the Registrar of Companies.
GLOSSARY OF TERMS AND ALTERNATIVE PERFORMANCE MEASURES
ACTIVE SHARE^
Active Share is expressed as a percentage and shows the extent to which a
fund’s holdings and their weightings differ from those of the fund’s
benchmark index. A fund that closely tracks its index might have a low Active
Share of less than 20% and be considered passive, while a fund with an Active
Share of 60% or higher is generally considered to be actively managed. As at
31 March 2025, the Company’s active share was 71.7% (2024: 66.6%).
ADR
An American depositary receipt (ADR) is a negotiable security that represents
securities of a foreign company and allows that company’s shares to trade in
the U.S. financial markets. Shares of many non-U.S. companies trade on U.S.
stock exchanges through ADRs, which are denominated and pay dividends in U.S.
dollars, and may be traded like regular shares of stock.
AIC
Association of Investment Companies.
ALTERNATIVE INVESTMENT FUND MANAGERS DIRECTIVE (AIFMD)
Agreed by the European Parliament and the Council of the European Union and
transposed into UK legislation, the AIFMD classifies certain investment
vehicles, including investment companies, as Alternative Investment Funds
(AIFs) and requires them to appoint an Alternative Investment Fund Manager
(AIFM) and depositary to manage and oversee the operations of the investment
vehicle. The Board of the Company retains responsibility for strategy,
operations and compliance and the Directors retain a fiduciary duty to
shareholders.
ALTERNATIVE PERFORMANCE MEASURE (APM)
An APM is a numerical measure of the Company’s current, historical or future
financial performance, financial position or cash flows, other than a
financial measure defined or specified in the applicable financial framework.
In selecting these Alternative Performance Measures, the Directors considered
the key objectives and expectations of typical investors in an investment
trust such as the Company.
DISCOUNT OR PREMIUM^
A description of the difference between the share price and the net asset
value per share. The size of the discount or premium is calculated by
subtracting the share price from the net asset value per share and is usually
expressed as a percentage (%) of the net asset value per share. If the share
price is higher than the net asset value per share the result is a premium. If
the share price is lower than the net asset value per share, the shares are
trading at a discount.
As at As at
31 March 2025 31 March 2024
(pence) (pence)
Share price 754.0 995.0
Net asset value per share (see note 14 for further information) 815.9 1,078.9
Discount of share price to net asset value per share 7.6% 7.8%
IPO
An Initial Public Offering (IPO) is the process by which the shares of a
previously private company are listed on a stock exchange for the first time.
Through this process a company can raise new capital, offer an exit
opportunity for private investors and founders, and enable the trading of its
shares.
IPO LOCK-IN
When a company offers shares in an IPO, investors sometimes enter into a
lock-in agreement preventing them from selling their shares for a specified
period after the IPO.
LEVERAGE
The AIFMD leverage definition is slightly different from the Association of
Investment Companies’ method of calculating gearing and is defined as
follows: any method by which the AIFM increases the exposure of an AIF it
manages whether through borrowing of cash or securities, or leverage embedded
in derivative positions.
For the purposes of the AIFMD, leverage is any method which increases the
Company’s exposure, including the borrowing of cash and the use of
derivatives. It is expressed as a ratio between the Company’s exposure and
its net asset value and can be calculated on a gross and a commitment method.
Under the gross method, exposure represents the sum of the Company’s
positions after the deduction of sterling cash balances, without taking into
account any hedging and netting arrangements. Under the commitment method,
exposure is calculated without the deduction of sterling cash balances and
after certain hedging and netting positions are offset against each other.
Gross Method Commitment Method
Maximum limit 130.0% 130.0%
Actual as at 31 March 2025 105.9% 102.0%
MARGINABLE SECURITIES
Marginable securities are stocks, bonds, futures or other securities capable
of being traded on a Margin Account and are available for rehypothecation.
NET ASSET VALUE (NAV)
The net asset value of the Company’s assets, principally investments made in
other companies and cash held, less any liabilities. The NAV is also described
as “shareholders’ funds”. The NAV is often expressed in pence per share
after being divided by the number of shares which have been issued. The NAV
per share is unlikely to be the same as the share price, which is the price at
which the Company’s shares can be bought or sold by an investor. The share
price is determined by the relationship between the demand and supply of the
shares in the secondary market.
(NET CASH)/GEARING^
Net cash is a measure of how much cash the Company holds, after offsetting
gearing. It is expressed as a percentage of net assets (shareholders’
funds). Net cash is only shown if the Company has more cash than gearing.
Gearing represents prior charges, adjusted for net current liabilities,
expressed as a percentage of net assets. Prior charges includes all loans and
overdrafts for investment purposes.
31 March 31 March
2025 2024
£’000 £’000
Loan – 47,078
Cash and cash equivalents (8,453) –
Net current (assets)/liabilities (excluding loan and derivatives)* - (14,091)
Total (8,453) 32,987
Net assets 221,206 361,307
(Net cash)/gearing (3.8%) 9.1%
* Current liabilities less current assets
NAV PER SHARE TOTAL RETURN^
A measure of how an investment company’s portfolio has performed, taking
into account how the NAV per share has changed as well as any dividends that
have been paid. The NAV per share return for the year ended 31 March 2025 is
calculated by taking the percentage movement from the net asset value per
share as at 31 March 2024 of 1,078.9p (2023: 852.6p) to the net asset value
per share at 31 March 2025 of 815.9p (2024: 1,078.9p). The Company has not
paid any dividends to shareholders in respect of the above mentioned years.
ONGOING CHARGES^
Ongoing charges are calculated by taking the Company’s annualised operating
expenses expressed as a proportion of the average daily net asset value of the
Company over the year.
The costs of buying and selling investments are excluded, as are interest
costs, taxation, performance fees, cost of buying back or issuing ordinary
shares and other non-recurring costs.
31 March 31 March
2025 2024
£’000 £’000
AIFM & portfolio management fees (note 3) 2,872 3,070
Other re-occurring expenses (note 4) 771 742
Total operating expenses 3,643 3,812
Average daily net assets for the year 326,317 323,811
Ongoing charges 1.1% 1.2%
OTC EQUITY SWAPS
Over-the-Counter (OTC) refers to the process of how securities are traded via
a broker - dealer network, as opposed to on a centralised exchange.
An equity swap is an agreement where one party (counterparty) transfers the
total return of an underlying equity position to the other party (swap holder)
in exchange for a payment of the principal, and interest for financed swaps,
at a set date. Total return includes dividend income and gains or losses from
market movements. The exposure of the holder is the market value of the
underlying equity position.
There are two main types of equity swaps:
· Funded – where payment is made on acquisition. They are equivalent to
holding the underlying equity position with the exception of additional
counterparty risk and not possessing voting rights in the underlying security;
and
· Financed – where payment is made on maturity. As there is no initial
outlay, financed swaps increase exposure by the value of the underlying equity
position with no initial increase in the investments value – there is
therefore embedded leverage within a financed swap due to the deferral of
payment to maturity.
REHYPOTHECATION
Rehypothecation is the practice by banks and brokers of using, for their own
purposes, assets that have been posted by clients as collateral for loans. The
practice is regulated by the U.S. Securities Exchange Commission.
SUSTAINABILITY ACCOUNTING STANDARDS BOARD (SASB)
The Sustainability Accounting Standards Board (SASB) is a non-profit
organisation, founded in 2011 to develop sustainability accounting standards.
Its stated mission is “to establish industry-specific disclosure standards
across ESG topics that facilitate communication between companies and
investors about financially material, decision-useful information. Such
information should be relevant, reliable and comparable across companies on a
global basis.”
SHARE PRICE TOTAL RETURN^
The standard measure of performance for an investment company, taking into
account the change in share price over a period of time as well as all the
dividends paid during that period. Share price total return takes into account
the change in value of the underlying portfolio of the investment company and
any dividends paid, as well as the discount or premium at which the shares
trade, and any change in discount or premium over the period. The share price
total return is calculated by taking the percentage movement from the share
price as at 31 March 2024 of 995.0p (2023: 783.0p) to the share price as at 31
March 2025 of 754p (2024: 995.0p). The Company has not paid dividends to
shareholders in respect of the above mentioned years.
VARIABLE INTEREST ENTITY (VIE)
A corporate structure through which an investor can own the economic interests
of shares in a company through a contractual relationship. This structure is
common in China, including in the biotechnology sector.
^ Alternative Performance Measure
ANNOUNCEMENT ENDS
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incorporated into, or forms part of, this announcement.
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