Intnl. Biotechnology - Half-year Report
08/05/2024 07:00
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RNS Number : 4971N Intl. Biotechnology Trust PLC 08 May 2024
International Biotechnology Trust plc
Half Year Report
International Biotechnology Trust plc (the "Company") hereby submits its Half
Year Report for the six months ended 29 February 2024 as required by the
Financial Conduct Authority's Disclosure Guidance and Transparency Rule 4.2.
Kate Cornish-Bowden, Chair of International Biotechnology Trust plc,
commented:
"Ailsa Craig and Marek Poszepczynski passed their three-year anniversary as
joint lead Fund Managers of the Company on 15 March 2024. Over this period,
the Company has delivered a total return of 4.9%, comfortably ahead of the
Reference Index which fell by 1.1% over the period. This is no mean feat
during a very volatile time for the sector. To have outperformed significantly
during a time of up to 30% swings in the Reference Index is a great
achievement and vindicates the investment philosophy of selectively
identifying exciting opportunities in the biotechnology sector with an active
risk management approach.
Following the Company's transition to Schroders as Alternative Investment Fund
Manager in November last year, I'm delighted to confirm that the integration
of the new Manager arrangements has gone well."
Key highlights
• 11.2% NAV total return per share, substantially outperforming the Reference
Index which rose by 8.2%.
• 13.1% NAV total return for the quoted portfolio, with particularly strong
contributions from:
• Vera Therapeutics, an autoimmune company which is a top 10 holding in the
portfolio. Vera's share price doubled following promising early clinical trial
results from its lead development drug, Atacicept for Immunoglobin A (IgA)
nephropathy, a chronic kidney disease.
• Two holdings became acquisition targets. Bristol Myers Squibb bid for both
Mirati, an oncology company with a lung cancer treatment and Karuna, a company
with a product to treat psychosis in Alzheimer's Disease.
• These acquisitions contributed 2.5% to NAV, reinforcing the importance of a
thriving mergers and acquisitions environment in biotechnology investing.
• The Board has continued to be active with its share buy-back programme, with a
total of 1,060,776 shares brought back during the period.
• The Company's dividend policy is to make dividend payments equivalent to 4% of
the Company's NAV through two semi-annual distributions. The first dividend
for the year of 13.9p per share was paid on 26 January 2024 and the Board
intends to make the declaration of the second dividend for the year in July
2024 for payment in August 2024.
Enquiries:
Schroder Investment Management Limited
Augustine Chipungu (Press) 020 7658 6000
Kerry Higgins 020 7658 6000
Half Year Report for the six months ended 29 February 2024
CHAIR'S STATEMENT
Dear Shareholders
I am pleased to report that the Company's NAV has again beaten the NASDAQ
Biotechnology Index (with dividends reinvested) sterling adjusted (the
"Reference Index") during the six-month period under review. The Company
delivered a NAV total return of 11.2% per share, while the Reference Index
rose by 8.2%. The share price total return per share was 8.7%, marginally
ahead of the Reference Index, reflecting widening discounts across the sector.
More muted inflation data globally and increased confidence that the interest
rate cycle has peaked, led to a change in investor appetite for risk towards
the end of the calendar year, 2023. This has continued into the first quarter
of 2024, and we have seen long awaited evidence of a nascent recovery in the
biotechnology sector.
This is my first report to you since the Company transitioned to Schroders as
Alternative Investment Fund Manager (the "Manager") in November last year, and
I'm delighted to confirm that the integration of the new Manager arrangements
has gone well. We received a positive endorsement of this strategic decision
at the Company's Annual General Meeting ("AGM") in December 2023, when
shareholders voted by over 99% in favour of continuation of the Company.
Ailsa Craig and Marek Poszepczynski have moved from SV Health to Schroders and
are continuing to manage the quoted portfolio with the same investment
philosophy, focused on offering access to the fast-growing biotechnology
sector through an actively managed, diversified portfolio. The team passed
their three-year anniversary as joint lead Fund Managers of the Company on
15 March 2024. Over this period, the Company has delivered a total return of
4.9%, comfortably ahead of the Reference Index which fell by 1.1% over the
period. This is no mean feat during a very volatile time for the sector, which
included the pandemic vaccine-related euphoria, the subsequent hangover, the
threat of recession as global inflation and interest rates rose and a
substantial increase in geopolitical risk. To have outperformed significantly
during a time of up to 30% swings in the Reference Index is a great
achievement and vindicates the investment philosophy of selectively
identifying exciting opportunities in the biotechnology sector with an active
risk management approach.
The Company also continues to maintain a relationship with SV Health, which
provides advice on the Company's unquoted exposure, principally through
investment in two SV Health funds.
Quoted portfolio
During the six months under review, the NAV per share of the quoted portfolio
produced a total return of 13.1%, substantially outperforming the Reference
Index, which returned 8.2%.
The biggest contributor to performance came from Vera Therapeutics, an
autoimmune company which is a top 10 holding in the portfolio. The share
price doubled following promising early clinical trial results from the
Company's lead development drug, Atacicept for Immunoglobin A (IgA)
nephropathy, a chronic kidney disease. Current treatments for this rare
disease focus on alleviating symptoms only. Late stage trial news will not be
available until 2025, but Atacicept may treat the inflammatory process.
Further contributions to performance came from another two holdings becoming
acquisition targets. Bristol Myers Squibb bid for both Mirati, an oncology
company with a lung cancer treatment and Karuna, a company with a product to
treat psychosis in Alzheimer's Disease. These two acquisitions, which together
contributed an increase of 2.5% to NAV, reinforce the importance of a thriving
mergers and acquisitions ("M&A") environment in biotechnology investing.
Following a dearth of M&A activity in 2022, a rebound in 2023 led to a
record number of biotechnology companies becoming takeover candidates. The
Company has benefited from being invested in 23 such candidates in the last
three years.
Disappointing sales of two newly launched products Lupkynis, an oral drug for
lupus from Aurinia; and Daxxify, an injectable for the treatment of glabellar
lines from Revance, detracted from performance during the last six months.
The share price of Uniqure which is developing a treatment for Huntington's
disease has fallen by over 25% after revealing disappointing clinical trial
data in December 2023.
Unquoted portfolio
The unquoted portfolio, which comprised 7.9% of the Company's total
investments at the period end, continued to be primarily invested in two
venture capital funds managed by SV Health, SV Fund VI and SV BCOF, as well as
a small number of direct investments in unquoted companies, most of which
have been exited with potential contingent milestone payments still remaining.
Early stage biotechnology companies have been significantly affected by
higher costs of capital and a deteriorating funding environment. Valuation
adjustments in unquoted investments inevitably lag those of the broader market
and the portfolio has seen some holdings within the venture capital funds
marked down since we last reported to shareholders. Over the longer term the
unquoted funds continue to deliver a strong rate of return.
SV Fund VI
During the six month period to 29 February 2024, a short period of time for a
long term venture fund, SV Fund VI, which represented 4.3% of the Company's
total investments fell slightly in value. Over the longer term the fund has
performed well, delivering a currency adjusted internal rate of return ("IRR")
of 16.5% per annum since the Company's first investment in 2016. SV Fund VI,
which includes a range of early-stage biotechnology, medical device and
healthcare services companies, is now a mature portfolio with most of the
capital committed drawn down. In November 2023, one of the investments in SV
Fund VI, Caraway, a pre-clinical company with a pipeline of small-molecule
therapeutics for the treatment of neurodegenerative diseases, was sold to
Merck, resulting in a further distribution to investors.
SV BCOF
SV BCOF, a newer fund which invests in later stage and/or pre-initial public
offering ("IPO") opportunities, represents 1.9% of the Company's total
investments. The $30 million commitment is only partially drawn down. As
reported previously, one of the first investments in SV BCOF, Nimbus
Therapeutics, sold its TYK2 Inhibitor, which had demonstrated promising Phase
2 results in psoriasis, to Takeda in February 2023, resulting in a very early
distribution back to investors. SV BCOF has recently made a new investment in
BioAge, a company which is developing an oral obesity drug, Azelaprag. This
brought the total number of holdings in the company to eight. Thus far, SV
BCOF has delivered a net IRR of 86.5%, an excellent performance, albeit very
early in the life of this venture capital fund.
Ikano Therapeutics
Of the small number of directly-held legacy assets, the most significant is
Ikano Therapeutics, which represents 1.5% of the Company's total investments.
Further comment on investment performance and the investment policy can be
found in the Fund Managers' review.
Dividends
The Company's dividend policy, which was last approved at the AGM in December
2023, is to make dividend payments equivalent to 4% of the Company's NAV, as
at the last day of the preceding financial year ending 31 August, through two
semi-annual distributions. The first dividend for the year of 13.9p per share
was paid on 26 January 2024. The Board intends to make the declaration of the
second dividend for the year in accordance with the above policy in July 2024
for payment in August 2024.
Discount management
The last six months has seen an increase in share prices trading at
a discount to NAV throughout the investment trust industry, and the
biotechnology and healthcare sector is no exception. The Board continues to
keep the Company's share price discount to NAV under close review and is
committed to buying back its shares to help manage the position. Although
1,060,776 shares were bought back to be held in treasury during the period,
the discount widened from 6.3% to 8.7%. This is frustrating when the Company's
performance is strong, delivering a peer group leading dividend yield.
The Manager is working hard to introduce the Company's specialist mandate to
new shareholders. The Board believes that buying back shares at a discount to
NAV is not only accretive to shareholders but demonstrates confidence in the
underlying fundamental value of the portfolio investments.
Costs and fees
As previously explained, the Manager has waived its management fee for the
first six months of the appointment (from 20 November 2023), to offset the
costs associated with the mandate transition.
As expected, the ongoing charges ratio ("OCR") has decreased since the
transition to Schroders and is expected to fall further.
In accordance with the Company's Remuneration Policy to pay additional one off
fees in the event Directors have undertaken time-consuming work to deliver
projects in shareholders' interests, all Board members have been awarded a one
off increment following completion of the transition of the Company from SV
Health to Schroders. These are detailed in the related party transactions note
on page 24.
Due to the outperformance of the quoted portfolio since 20 November 2023, a
performance fee of £1,682,000 has accrued to the Manager. A fee has also
accrued to SV Health of £177,000 due to the performance of the unquoted
portfolio.
Environmental, social and governance ("ESG") matters
One of the advantages of moving to Schroders is that the Company can benefit
from Schroders' expertise in integrating ESG into the investment process.
Investing in innovative biotechnology companies, which are developing
treatments to extend and improve the lives of patients suffering from disease,
has an important social impact. The Board and Fund Managers understand that
including ESG factors in the analysis of investment ideas will contribute to
the sustainable success and performance of investee companies.
In accordance with the Company's ESG policy, this half year report includes
a summary of the ESG measures of the top holdings using data provided by
Morningstar's Sustainalytics. When reporting to you at the end of the
financial year, it is intended to use data provided by the Manager's in-house
dedicated sustainability team, which has developed its own proprietary tools,
to expand the ESG disclosures.
Board and succession
Caroline Gulliver, Chair of the Company's Audit Committee will have served on
the Board for nine years this year and has indicated her intention to step
down as a Director at this year's AGM.
During the period under review, the Board appointed Gillian Elcock to act as
Chair of the Company's Nomination Committee. Gillian is leading the
Committee's search for Caroline's successor. An independent search consultant
has been engaged to assist with this search, with the intention of making an
appointment prior to the Company's financial year end. This will enable
Caroline to lead the year end annual report process while allowing a smooth
transition for her successor.
Outlook
Mixed data on inflation globally, and conflicting reports on the state of the
employment market, particularly in the US, mean that it is undoubtedly too
early to claim a return to economic growth, but markets seem to be
increasingly confident that the next rate move will be downwards.
The volume of rhetoric around drug pricing and access to healthcare will
inevitably get louder in an election year in the US. However, the US Inflation
Reduction Act, enacted by Biden and the Democrats in 2022, should lessen
concerns with drug price negotiations, for the highest selling products,
already announced. It is the Fund Managers' view that a further round of
reform is unlikely to have a significant impact on the pharmaceutical
industry.
The science and innovation in the drug development sector is more exciting
than ever. The number of new clinical trials registered in 2023 reached a new
high, as novel techniques and technology including gene therapy, cell therapy
and RNA therapeutics gained momentum.
The M&A outlook remains bright, and the need for large pharmaceutical
companies to fill their pipelines is as great as ever. Relative valuations in
the small and mid-cap biotechnology companies are compelling.
The Board is confident the convergence of a more benign economic environment
and robust industry fundamentals will give investors greater confidence to
invest in the biotechnology sector.
Kate Cornish-Bowden
Chair
7 May 2024
FUND MANAGERS' REVIEW
We are pleased to present the Fund Managers' Review for the six months ended
29 February 2024. During the period under review, the Company completed the
transition of its AIFM to Schroders, in a move that had been announced in
August 2023, following SV Health's decision to relinquish the mandate.
Many shareholders expressed a strong desire for continuity through the
transition and we both joined Schroders on 20 November 2023 to continue to
manage the quoted portfolio with the same investment philosophy. Meanwhile,
Schroders brings significant investment trust expertise to the proposition,
and is strongly placed to support the Company from a regulatory and marketing
perspective.
Market overview
Overall, the biotechnology sector experienced a mixed performance during the
period under review, declining during the first couple of months before
staging a strong recovery through the last few weeks of 2023 and into the
start of this year. Underlying this have been some encouraging and potentially
significant developments.
Consolidation in the sector has continued, with many companies undergoing
restructuring or M&A. This has been driven by a desire among large
pharmaceutical companies to fill the revenue gap that stems from their
impending patent expiries and the impact of implementation of the US
Inflation Reduction Act. 2023 saw a record value of M&A transactions in
the industry. This has presented opportunities for active investors to add
value by capitalising on potential efficiencies, the gradual reshaping of the
industry landscape and raises the prospect of improved productivity going
forward.
The Company benefited from two acquisition bids during the period. Both were
from Bristol Myers Squibb which acquired our portfolio holding Mirati, an
oncology company with an approved product addressing a specific population of
lung cancer patients, and another of our portfolio holdings, Karuna, a company
focusing on schizophrenia and psychosis in Alzheimer's Disease. These
acquisitions demonstrate the attractiveness of our portfolio companies and the
potential for value realisation in the Company through M&A.
Meanwhile, innovation in the biotechnology industry has continued at a rapid
pace. This is reflected in the record number of new clinical trials being
initiated and in the number of novel drug approvals, which rose to 55 in 2023,
the highest level since 2018.
The accelerating pace of innovation is gradually being acknowledged by the
stock market, which is starting to reward smaller, earlier-stage biotechnology
companies with higher valuations. This is a sign of renewed investor appetite
for the sector after a period in which "safer haven", large established
biotechnology companies with slower growth but stable cash flows, had been
more in favour. With smaller cap biotechnology valuations closely correlated
to US interest rates, this may also reflect the anticipated change in
direction of US monetary policy signalled by the Federal Reserve.
Additionally, after a long period of subdued equity fundraising, we are seeing
evidence of a recovery in financing activity in the biotechnology sector,
particularly in the first months of 2024. There has been a nascent recovery in
IPOs, as companies take advantage of the increasingly favourable market
conditions to access public capital. Investors have also backed companies that
have delivered positive clinical data, providing equity through successful
secondary fundraising, which provides the funding these businesses need to
take their drugs to the next stage of development. Access to capital underpins
more investment in research going forward, fuelling innovation over the year
ahead.
Performance review
The Company has delivered a solid performance during the six-month period,
generating positive returns for its shareholders. The NAV per share generated
a return of 11.2%, outperforming the Reference Index, which generated a total
return of 8.2%. The share price also performed well, generating a total
return of 8.7%(1). The Company's discount widened from 6.3% to 8.7%.
Quoted portfolio
The NAV of the quoted portfolio rose by 13.1% (gross of management and
performance fees), for the six-month period, outperforming the Reference Index
which returned 8.2%. The performance of the quoted portfolio reflects the
strength of our investment selection and active management strategies.
M&A
During 2022, the sector witnessed a normalisation of M&A deals after a
period of drought driven by the toppy valuations during the pandemic. However,
2023 saw a record high number of acquisitions, with 38 deals in our sector.
The average premium paid was 61% with a median of 43%. In terms of value of
deals, Evercore ISI reported that 2023 was the second highest in history.
The Company benefited from two acquisition deals during the period under
review. In October 2023, Bristol Myers Squibb agreed to acquire oncology
company Mirati for $5.8 billion, a 52% premium to the 30-day average of
Mirati's share price prior to news breaking that the company was in
discussions to be acquired. Mirati had recently received approval for its
targeted cancer therapy Krazati, in December 2022. Krazati (adagrasib) treats
a specific type of lung cancer with the KRAS G12C mutation. As part of the
agreed transaction, Bristol Myers Squibb included a non-tradable contingent
value right where the company agreed to pay Mirati shareholders a further $1
billion should the US regulator, the FDA, accept an application for the
company's pipeline drug MRTX1719 for lung cancer.
In December 2023, Bristol Myers Squibb came back to the table to acquire
another of our portfolio companies, Karuna Therapeutics for $14 billion.
Recent reports show that the deal was highly competitive, underscoring the
appeal of high-quality companies. Karuna submitted its investigational
schizophrenia treatment KarXT to the US regulator, the FDA, in the autumn of
2023 and expects to hear if the drug will be approved in the autumn of this
year. Bristol Myers Squibb's offer of $330/share was a 53% premium to the
share price close prior to announcement.
Contributors to NAV
Vera Therapeutics (gain of £18.5 million(2)) is a biotechnology company with
an interesting asset in late-stage development for IgA nephropathy with its
drug Atacicept. Atacicept's disease modifying approach may be the first
product on the market to treat the underlying cause of the disease rather than
the existing treatments that focus on symptom alleviation. In January 2024,
Atacicept showed a stabilisation of eGFR (a measurement of kidney function)
over 72 weeks. Later stage trials are beginning this year and are expected to
read out in early 2025. IgA nephropathy is an autoimmune disease of the
kidneys which causes damage that may lead to end-stage renal disease and
eventually transplant.
Mirati (gain of £3.6 million(2)) was acquired by Bristol Myers Squibb for
$5.8 billion, announced in October 2023. Bristol Myers Squibb has acquired
multiple biotechnology companies in recent years as the company approaches
patent expiries which will see generic competition erode much of their topline
sales. The acquisition of Mirati will add future oncology revenues to their
existing franchise, including Revlimid, which treats multiple myeloma.
Mirati's lung cancer drug Krazati, which was approved in December 2022, is
currently on the market. Behind Krazati, Mirati has multiple other oncology
assets in the pipeline, one of which could generate an additional payment by
Bristol Myers Squibb of $1 billion should its programme successfully file with
the FDA.
Karuna's (gain of £3.1 million(2)) acquisition by Bristol Myers Squibb should
help complement their existing neurology franchise. Karuna's drug KarXT has a
novel mechanism of action to treat neurological disorders such as
schizophrenia in adults which is not associated with the side effects of the
current commonly used antipsychotic drugs such as weight gain and
extrapyramidal symptoms or sedation. Analysts have predicted the drug's
expected peak sales to reach c.$10 billion.
Detractors from NAV
Aurinia (loss of £3.4 million(2)) launched Lupkynis for lupus nephritis in
September 2022. The drug has a dual mechanism of action and is the first oral
drug to receive approval in lupus in the US. The management team announced its
intention to sell the company in July 2023. However, after several months the
company announced it was no longer actively pursuing a sale, causing
disappointment among investors and an associated negative market performance.
Uniqure (loss of £2.8 million(2)) has continued to trade down after mixed
data from its Huntington's disease programme announced in December 2023. The
Dutch company has announced a restructuring, cutting 114 jobs and more than
half of its research and development programmes.
Revance (loss of £2.4 million(2)) has been suffering from a disappointing
launch of its glabella lines product, Daxxify. Sales have not managed to
capture share from rival Abbvie which sells botox. Management has expanded the
label for Daxxify to include cervical dystonia and cut the price of the
treatment, hoping to boost sales of the drug.
(1)Source: Morningstar, on a sterling-adjusted total return basis, with
dividends reinvested. Past performance is not a guide to future performance
and may not be repeated.
(2)Source: Schroders as at 29 February 2024.
Unquoted portfolio
With the recent recovery in the biotechnology market, things are looking up
for earlier stage venture companies. The exit opportunities are trending
higher as the IPO window opens, and pharmaceutical companies continue with
their acquisition spree.
In November 2023, SV Fund VI received upfront proceeds of $4.0 million
related to the acquisition of Caraway by Merck. SV Fund VI is entitled to
additional proceeds upon the achievement of clinical milestones as well as the
release of holdback escrow proceeds. SV Fund VI made two follow-on investments
in the quarter in MyOrthos and Endotronix.
With its focus on later stage assets, a number of SV BCOF portfolio companies
have had positive clinical data readouts and/or are expected to generate
positive data this year with the potential to deliver value accretion events
for the Company.
Of note, EyeBio, SV Health's third company creation with experienced
ophthalmologist, David Guyer, has had a very strong 2023, with promising data
from Part 2 of its Phase 1b trial from its lead programme in diabetic macular
edema. Initial patient data are promising with major improvements in vision
(+11.2 letters on a standard eye test) and 80% reduction in retinal thickness
seen in patients. As a result, the company is attracting significant interest
from both pharma and venture capitalists. 2024 will see the company advance
towards Phase 3 pivotal trials with the first patient enrolment due by the end
of the year.
Prilenia has invested significant efforts with the European Medicines Agency
during 2023 following its Phase 3 study which missed the primary endpoint but
delivered positive results in pre-specified secondary analyses, showing
clinically meaningful benefits in Huntingdon's Disease, a rare
neurodegenerative disease currently without disease-modifying treatment
options. It has received strong encouragement from the EU regulator to apply
for a marketing authorisation for final approval which the Company is due to
submit in mid-2024.
Following the closing of the Nimbus-Takeda acquisition in the first quarter
of 2023 which involved a $4 billion upfront payment with a further potential
$2 billion in milestone payments, SV BCOF continues to invest in Nimbus,
having joined the company's Series 2023 fundraising round. Nimbus' clinical
trial of HPK1i in solid tumours has generated positive preliminary data,
demonstrating clinical benefit as a monotherapy in patients.
While the market remains very active for crossover rounds in both the US and
Europe, it is increasingly competitive with many of the larger funds
participating in size. With the recent signs of market recovery, we are also
seeing a revival of the crossover market. BioAge, SV BCOF's latest investment
and its first in the obesity field, is a great example of how SV BCOF can
invest meaningfully alongside much larger crossover funds in oversubscribed
"hot" deals by leveraging SV Health's relationships and value-added expertise.
Portfolio positioning
Our investment strategy remains focused on identifying companies with
innovative technologies, strong intellectual property and solid growth
potential. This is a constant feature of our investment approach, but within
the biotechnology industry we find these businesses can change over time, as
can our appetite for risk.
During the period under review, having seen early signs of renewed vitality in
earlier-stage small-cap biotechnology, we elected to increase the portfolio's
gearing from 9% to a peak of 16% in October 2023, confident that this recovery
would continue to gather momentum. This stood the portfolio in good stead
through the biotechnology rally of late 2023. We have subsequently reduced
gearing to 4% but the portfolio remains well exposed to small and mid-cap
biotechnology, where we are finding very attractive opportunities with
substantial scope for value creation. Our increased investment into carefully
selected smaller earlier-stage companies has intentionally increased the
volatility profile of the portfolio, as we believe a higher beta positioning
will prove beneficial to shareholders in the period ahead.
By subsector, 33.4% of the portfolio is currently invested in early-stage
biotechnology, 25.1% in mid-stage revenue growth companies, and 41.5% in
later-stage, profitable businesses. With 66.6% of the portfolio invested in
companies that have successfully negotiated the high risk approval process and
already have commercial product on the market, we believe we have an
appropriately balanced and diversified portfolio for the current environment.
The presence of late-stage, profitable businesses helps to mitigate risk while
providing us with sufficient opportunity to capture the higher growth
potential that exists further down the biotechnology market cap spectrum.
Outlook
We believe the biotechnology sector shows considerable promise for 2024.
Despite the recent rally, the Reference Index remains below its peak of 2021
and valuations are generally reasonable, suggesting significant future upside
potential, given the sector's accelerating pace of innovation and improved
competitiveness following consolidation. The number of new drug approvals is
high and on a clear upward trend, particularly for medical conditions
previously considered untreatable.
The potential for further M&A activity is another positive feature of the
outlook, as large, cash-rich pharmaceutical companies seek to fill gaps in
their pipelines and replace expiring patents by buying smaller biotechnology
businesses. The implementation of the US Inflation Reduction Act, which may
negatively impact the pricing of key established drugs sold by large
pharmaceutical companies, could increase the demand for innovative
biotechnology still further.
The renewed appetite for IPOs and secondary fundraisings is also encouraging,
with positive implications for investors and - the ultimate beneficiary of
medical innovation - society as a whole. As always, there are reasons for
near-term caution, particularly at this stage in the US election cycle.
Meanwhile, geopolitical tensions and key monetary policy decisions could
negatively impact investor sentiment in general.
Nevertheless, we believe the macro positives outweigh the negatives and see
many additional reasons for optimism within the portfolio. A notable product
launch to watch in 2024 is Biogen and Eisai's Leqembi for Alzheimer's disease,
which will be closely monitored for market acceptance and efficacy.
Clinical data releases should also be significant in 2024. Alnylam
Pharmaceuticals' TTR franchise study results could impact the treatment of
diseases associated with transthyretin protein mutations, thought to be an
underlying issue for several deadly genetic diseases. Vera Therapeutics'
Atacicept in IgA nephropathy and Vertex Pharmaceuticals' non-addictive
treatments for acute and chronic pain are also of interest. Meanwhile,
Intra-Cellular's Caplyta and Argenx's Vyvgart, both "pipeline in a product"
opportunities, offer substantial potential for growth across multiple health
indications.
Conclusion
The Company delivered a solid performance during the period under review and,
with the biotechnology sector poised for positive performance in 2024, we are
confident this will continue. Valuations are reasonable, innovation is
ongoing, consolidation has improved investment opportunities and we are seeing
evidence of renewed support of the sector by investors.
Selective investment in attractively valued biotechnology companies with
outstanding technology and future earnings potential is key to unlocking
long-term value in the sector. Our rigorous investment process and active
management strategies have delivered positive results for our shareholders
over the three years since we took over as lead Fund Managers of the Company.
We remain committed to our investment approach and, by continuing to deploy
the same disciplined process, we believe we will continue to successfully
identify attractive investment opportunities in the biotechnology sector. We
appreciate your continued support and confidence in our management of the
Company.
Ailsa Craig and Marek Poszepczynski
Fund Managers
7 May 2024
INVESTMENT PORTFOLIO
as at 29 February 2024
Quoted investments
Equities
As at 29 February 2024
Investment Therapeutic area Geographic location £'000 %
Cytokinetics Other United States 14,474 4.7
Supernus Pharmaceuticals Central nervous system United States 12,721 4.2
Gilead Sciences Infectious Diseases United States 11,960 3.9
BioMarin Pharmaceutical Rare diseases United States 11,786 3.9
Vera Therapeutics Auto-immune United States 11,731 3.8
United Therapeutics Rare diseases United States 10,729 3.5
Incyte Genomics Oncology United States 10,398 3.4
Amgen Oncology United States 9,793 3.2
BeiGene Oncology United States 9,672 3.2
Alnylam Pharmaceuticals Rare diseases United States 9,640 3.2
Jazz Pharmaceuticals Rare diseases Europe 8,778 2.9
Ultragenyx Pharmaceutical Rare diseases United States 7,201 2.4
Astrazeneca Oncology United Kingdom 6,778 2.2
Regeneron Pharmaceutical Ophthalmology United States 6,750 2.2
Iovance Biotherapeutics Oncology United States 6,712 2.2
Harmony Biosciences Rare diseases United States 5,755 1.9
Biogen Inc Central nervous system United States 5,745 1.9
Uniqure Haematology Europe 5,624 1.8
Illumina Inc Oncology United States 5,580 1.8
Genmab Oncology Europe 5,321 1.7
Halozyme Oncology United States 5,206 1.7
Amicus Rare diseases United States 5,165 1.7
ArgenX Auto-immune Europe 5,021 1.6
Krystal Biotech Rare diseases United States 4,978 1.6
Aurinia Pharmaceuticals Auto-immune United States 4,705 1.5
Intra-Cellular Therapies Central nervous system United States 4,594 1.5
EyePoint Pharmaceuticals Ophthalmology United States 3,873 1.3
Axsome Therapeutics Central nervous system United States 3,749 1.2
Erasca Oncology United States 3,624 1.2
BioNTech Other Europe 3,615 1.2
Xenon Pharmaceuticals Other Canada 3,409 1.1
Madrigal Pharmaceuticals Liver United States 3,406 1.1
Neurocrine Biosciences Central nervous system United States 2,973 1.0
Dyne Therapeutics Rare diseases United States 2,919 1.0
Structure Therapeutics Other United States 2,918 1.0
Zai Lab Ltd Oncology United States 2,396 0.8
Pharming Rare diseases Europe 2,203 0.7
Rocket Pharmaceuticals Rare diseases United States 2,193 0.7
Marinus Pharmaceuticals Central nervous system United States 2,178 0.7
Apellis Pharmaceuticals Rare diseases United States 1,978 0.6
Legend Biotech Oncology United States 1,957 0.6
Celldex Auto-immune United States 1,827 0.6
Blueprint Medicines Oncology United States 1,739 0.6
Sarepta Therapeutics Rare diseases United States 1,737 0.6
Revance Therapeutic Other United States 1,630 0.5
Bridgebio Rare diseases United States 1,584 0.5
Ionis Pharmaceuticals Rare diseases United States 1,536 0.5
CRISPR Therapeutics Rare diseases Europe 1,531 0.5
Mirum Pharmaceuticals Oncology United States 1,530 0.5
Bio-Techne Other United States 1,379 0.5
Immatics Oncology Europe 1,359 0.4
Camurus Rare diseases Europe 1,338 0.4
Kalvista Pharmaceuticals Rare diseases United States 1,270 0.4
Relay Therapeutics Oncology United States 1,216 0.4
Acadia Pharmaceuticals Central nervous system United States 1,132 0.4
Akero Other United States 1,108 0.4
Novocure Oncology Europe 896 0.3
Insmed Inc Rare diseases United States 878 0.3
Immunocore Oncology United Kingdom 743 0.2
Beam Therapeutics Rare diseases United States 733 0.2
Travere Therapeutics Auto-immune United States 622 0.2
Arvinas Oncology United States 617 0.2
Agios Pharmaceuticals Rare diseases United States 613 0.2
Intellia Therapeutics Rare diseases United States 609 0.2
Guardant Health Other United States 548 0.2
Protagonist Therapeutics Haematology United States 477 0.2
I Mab Oncology United States 432 0.1
Vir Biotechnology Infectious Diseases United States 418 0.1
Amylyx Central nervous system United States 389 0.1
Prothena Central nervous system Europe 327 0.1
Kezar Life Sciences Oncology United States 288 0.1
Ventyx Biosciences Auto-immune United States 84 0.0
Relmada Therapeutics Central nervous system United States 48 0.0
Total equities 280,846 92.1
UNQUOTED INVESTMENTS
Investments held through a venture fund
As at 29 February 2024
Investment Sector Classification Geographic location £'000 %
SV Fund VI Venture Fund United States 13,230 4.3
SV BCOF Venture Fund United Kingdom 5,770 1.9
Total investments held through a venture fund 19,000 6.2
Exited investments with contingent milestones
Exited unquoted companies for which the Company retains rights to receive
future contingent performance-based payments are shown below:
As at 29 February 2024
Investment Therapeutic area Geographic location £'000 %
Ikano Therapeutics Auto-immune United States 4,520 1.5
Convergence Auto-immune United States 321 0.1
Topivert Other United Kingdom 40 0.0
Total exited investments with contingent milestones 4,881 1.6
Directly-held unquoted investments
Directly-held unquoted investments held by the Company are shown below:
As at 29 February 2024
Investment Therapeutic area Geographic location £'000 %
Autifony Therapeutics Other United Kingdom 341 0.1
Total directly-held unquoted investments 341 0.1
Investments in unquoted companies that have previously been written down to
nil net book value, but where ownership in the company is retained, are not
disclosed in this table.
Summary of investments
As at 29 February 2024
£'000
Equities 280,846 92.1
Investments held through a venture fund 19,000 6.2
Exited investments with contingent milestones 4,881 1.6
Directly-held unquoted investments 341 0.1
Total investments 305,068 100.0
PORTFOLIO COMPOSITION
Therapeutic area %
Rare disease 27.9
Oncology 25.0
Other 12.2
CNS 9.5
Auto-immune 9.5
Unquoted funds 6.2
Infectious diseases 4.2
Ophthalmology 3.5
Haematology 2.0
Geography %
US and Canada 84.7
EU and UK 11.2
Rest of world 4.1
Development stage %
Early stage 33.4
Profitable 41.5
Revenue growth 25.1
Size %
Mega cap >USD 30bn 11.6
Large cap USD 10bn - 30bn 23.4
Mid cap USD 2bn - 10bn 32.9
Small cap < USD 2bn 24.2
Unquoted funds 6.2
Directly-held unquoted 1.7
ENVIRONMENTAL, SOCIAL AND GOVERNANCE REPORT
As at 29 February 2024, the Company's top 10 quoted portfolio companies, as
rated by Morningstar's Sustainalytics platform, contained nine Medium risk
companies and one High risk company. The top 10 quoted portfolio companies
currently account for c.40% of NAV. This compares favourably to the ESG review
at the Company's year end in August 2023 at which point 40% of the top 10 were
High risk companies. For context, in the healthcare sector as a whole,
Sustainalytics ranks the universe as 9% Low risk, 43% Medium risk, 34% High
risk and 14% Severe risk, and in the biotechnology sector alone, 4% are Low
risk, 82% are Medium risk, 14% are High risk and none are Severe risk. It is
interesting to note that Sustainalytics judges the biotechnology sector's ESG
risk more favourably than that of the pharmaceutical sector.
Looking deeper than the headline Sustainalytics rating, the top 10 quoted
holdings all have "Medium" Exposure to different material ESG issues while 90%
have an "Average" management score and 10% a "Strong" management score. The
management score quantifies the extent to which the company is managing ESG
risk and issues. This is a significant improvement since August 2023 when two
of the top 10 companies were judged to have "Weak" management scores.
In the annual report for the year ended August 2023, Vera Therapeutics was
singled out as one that the managers would be engaging with over the coming
months to address their then "Weak" management score. We are pleased to note
that the company has significantly improved its rating and management is now
ranked as "Average" in terms of its ability to manage the company's ESG risk
exposure. Vera's overall ESG rating is the most improved of our top 10 over
the past six months and it now ranks in the 43rd percentile of biotechnology
companies, up from the 98th percentile last August. In fact, all bar one of
the top 10 are in the top half of the biotechnology companies when ranked by
Sustainalytics' ESG risk ratings.
The Supernus Pharma overall rating as High risk stands out in the top 10.
Sustainalytics describes its ESG disclosure as "Very poor" or "Weak" in areas
such as whistleblower policy, bribery and corruption policy and diversity
policy. The Company's managers will raise this with Supernus' management in
their regular engagement with them. The Company invests in Supernus because it
is one of the leading companies working in the central nervous system space,
which is seeking to address neurological conditions including some that are at
the heart of the growing mental health crisis.
The Alnylam Pharmaceuticals score puts it in the 70th percentile with the main
issues identified centreing on "Product Governance", which refers to how
companies manage responsibilities to their clients, focusing on quality
management systems, marketing practices, fair billing and post-sales
responsibility. The Company owns Alnylam because it is a leading player in the
cutting-edge development of RNA interference therapeutics to address high
unmet medical need in the rare disease space. The Company's Fund Managers
regularly meet Alnylam's management team and will engage with them on the
issues raised by Sustainalytics.
During the period under review, there have been very few voting events given
that most of our companies, as is common in the US, have December year ends
and hence hold their general meetings in the second half of the Company's
financial year.
As a global investment manager and signatory to the UN Global Compact,
Schroders is committed to sustainability recognising it has an important part
to play in shaping the future for all its stakeholders. Its corporate
sustainability strategy is embedded into its business, applying the same
values and high standards to its own business that it asks of the companies in
which it invests.
In its role as an investment manager, Schroders integrates ESG factors
alongside traditional financial analysis into investment decision making
across its managed assets on the belief that this is fundamental to its goal
of delivering attractive long-term returns for its clients. To this end,
investment teams, including the Company's Fund Managers, can leverage a
centralised sustainable investment platform that includes active ownership
expertise, integration support as well as proprietary and third party ESG
tools. This platform provides a framework and resources that the Company can
draw upon when assessing ESG factors, as part of the stock analysis and
investment process, while it also provides an improved ESG reporting
capability at both the stock level and for the overall portfolio. There is
currently an on-going review of the Company's ESG policy that includes an
internal integration accreditation process that each investment strategy in
Schroders must undertake in collaboration with the Sustainable Investment
team. The goal is to formally outline and demonstrate within the investment
process how ESG risks are integrated, including which tools are used. This
process is expected to be concluded over the next six months and an updated
ESG policy outlined in the 2024 Annual Report.
Percentile
Top ten Quoted Holdings ESG Risk Score ESG Risk Rating Momentum (vs Biotech sector) Exposure* Management **
1 Cytokinetics 21.5 Medium Improving 7th Medium Strong
2 Supernus Pharmaceuticals 32.0 High Deteriorating N/A*** Medium Average
3 Gilead Sciences 22.7 Medium Improving 11th Medium Average
4 BioMarin Pharmaceutical 24.1 Medium Improving 19th Medium Average
5 Vera Therapeutics 26.5 Medium Improving 43rd Medium Average
6 United Therapeutics 22.7 Medium Deteriorating 12th Medium Average
7 Incyte Genomics 24.8 Medium Deteriorating 24th Medium Average
8 Amgen 23.8 Medium Deteriorating 16th Medium Average
9 BeiGene 24.1 Medium Improving 18th Medium Average
10 Alnylam Pharmaceuticals 28.4 Medium Improving 70th Medium Average
Source: Sustainalytics 29 February 2024
* The extent to which a company is exposed to different material ESG
issues.
** How well a company is managing its relevant ESG issues, looking at
robustness of ESG programmes, practices and policies.
*** Supernus is classed as a pharmaceutical company so its ranking in the
37th percentile of pharmaceutical companies is not comparable with the rest of
the top 10.
INTERIM MANAGEMENT STATEMENT
Principal risks and uncertainties
The principal risks and uncertainties in the Company's business fall into the
following risk categories: strategic/performance; political; investment
related; operational and service provider and tax, legal and regulatory.
A detailed explanation of the key risks and uncertainties in each of these
categories can be found on pages 27 to 29 of the Company's published annual
report and financial statements for the year ended 31 August 2023.
These risks and uncertainties have not materially changed during the six
months ended 29 February 2024. However, the Board undertook a review of the
principal and emerging risks for the Company while reviewing these financial
statements and is pleased to note that following the smooth transition of the
investment mandate together with the change in several service providers the
associated risk has significantly reduced. The Directors also noted that
geopolitical and climate change risk in particular continue to develop and
will be reported on in the next annual report as appropriate.
Going concern
Having assessed the principal risks and uncertainties, and the other matters
discussed in connection with the viability statement as set out on page 30 of
the published annual report and financial statements for the year ended 31
August 2023, the Directors consider it appropriate to adopt the going concern
basis in preparing the financial statements.
Related party transactions
There have been no transactions with related parties that have materially
affected the financial position or the performance of the Company during the
six months ended 29 February 2024.
Directors' responsibility statement
In respect of the half year report for the six months ended 29 February 2024,
we confirm that, to the best of our knowledge:
- the condensed set of Financial Statements contained within have been
prepared in accordance with IAS 34 Interim Financial Reporting and give a true
and fair view of the assets, liabilities, financial position and profit and
loss of the Company as at 29 February 2024 as required by the Disclosure
Guidance and Transparency Rule 4.2.4R;
- the half year report includes a fair review as required by Disclosure
Guidance and Transparency Rule 4.2.7R, of important events that have occurred
during the six months to 29 February 2024 and their impact on the condensed
set of Financial Statements, and a description of the principal and emerging
risks for the remaining six months of the financial year; and
- the half year report includes a fair review of the information
concerning related party transactions as required by the Disclosure Guidance
and Transparency Rule 4.2.8R.
The half year report has not been reviewed or audited by the Company's
auditors.
The half year report for the six months ended 29 February 2024 was approved by
the Board on 7 May 2024 and the above responsibility statement was signed on
its behalf by the Chair.
Kate Cornish-Bowden
Chair
7 May 2024
STATEMENT OF COMPREHENSIVE INCOME
for the six months ended 29 February 2024 (unaudited)
(Unaudited) (Unaudited) (Audited)
For the six months For the six months For the year
ended 29 February 2024 ended 28 February 2023 ended 31 August 2023
Revenue Capital Total Revenue Capital Total Revenue Capital Total
Note £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Gains on investments held at fair value through profit or loss - 31,764 31,764 - 18,294 18,294 - 9,606 9,606
Net foreign currency gains - 629 629 - 564 564 - 1,591 1,591
Income 4 650 - 650 447 - 447 863 - 863
Total income 650 32,393 33,043 447 18,858 19,305 863 11,197 12,060
Expenses
Management fee (799) - (799) (873) - (873) (1,810) - (1,810)
Performance fee 10 - (1,859) (1,859) - (199) (199) - (514) (514)
Administrative expenses (721) - (721) (659) - (659) (1,559) - (1,559)
Profit/(loss) before finance costs and taxation (870) 30,534 29,664 (1,085) 18,659 17,574 (2,506) 10,683 8,177
Finance costs (1,260) - (1,260) (560) - (560) (1,242) - (1,242)
Profit/(loss) before taxation (2,130) 30,534 28,404 (1,645) 18,659 17,014 (3,748) 10,683 6,935
Taxation (71) - (71) (54) - (54) (122) - (122)
Net profit/(loss) for the
period/year (2,201) 30,534 28,333 (1,699) 18,659 16,960 (3,870) 10,683 6,813
Earnings/(loss) per share (pence) 5 (5.66) 78.53 72.87 (4.17) 45.74 41.57 (9.53) 26.32 16.79
The "Total" column of this statement represents the Company's Statement of
Comprehensive Income prepared in accordance with IFRS.
The Company does not have any other comprehensive income and hence the net
profit/(loss) for the period/year, as disclosed above, is the same as the
Company's total comprehensive income.
The "Revenue" and "Capital" columns represent supplementary information
prepared under guidance set out in the Statement of Recommended Practice for
investment trust companies (the "SORP") issued by The Association of
Investment Companies in July 2022.
All revenue and capital items in the above statement derive from continuing
operations.
The notes on pages 22 to 24 form part of these Financial Statements.
STATEMENT OF CHANGES IN EQUITY
for the six months ended 29 February 2024 (unaudited)
Share Capital
Called-up premium redemption Capital Revenue
share capital reserve reserve reserves reserve Total
£'000 £'000 £'000 £'000 £'000 £'000
At 1 September 2023 10,346 29,873 31,482 249,147 (50,531) 270,317
Net profit/(loss) for the period - - - 30,534 (2,201) 28,333
Dividend paid in the period - - - (5,391) - (5,391)
Repurchase of ordinary shares into treasury - - - (6,750) - (6,750)
At 29 February 2024 10,346 29,873 31,482 267,540 (52,732) 286,509
for the six months ended 28 February 2023 (unaudited)
Share Capital
Called-up premium redemption Capital Revenue
share capital reserve reserve reserves reserve Total
£'000 £'000 £'000 £'000 £'000 £'000
At 1 September 2022 10,346 29,873 31,482 259,849 (46,661) 284,889
Net profit/(loss) for the period - - - 18,659 (1,699) 16,960
Dividend paid in the period - - - (5,707) - (5,707)
Repurchase of ordinary shares into treasury - - - (646) - (646)
At 28 February 2023 10,346 29,873 31,482 272,155 (48,360) 295,496
for the year ended 31 August 2023 (audited)
Share Capital
Called-up premium redemption Capital Revenue
share capital reserve reserve reserves reserve Total
£'000 £'000 £'000 £'000 £'000 £'000
At 1 September 2022 10,346 29,873 31,482 259,849 (46,661) 284,889
Net profit/(loss) for the year - - - 10,683 (3,870) 6,813
Dividend paid in the year - - - (11,407) - (11,407)
Repurchase of ordinary shares into treasury - - - (9,978) - (9,978)
At 31 August 2023 10,346 29,873 31,482 249,147 (50,531) 270,317
The notes on pages 22 to 24 form part of these Financial Statements.
STATEMENT OF FINANCIAL POSITION
as at 29 February 2024 (unaudited)
(Unaudited) (Unaudited) (Audited)
29 February 28 February 31 August
2024 2023 2023
Note £'000 £'000 £'000
Non-current assets
Investments held at fair value through profit or loss 305,068 321,668 301,904
Current assets
Receivables 6,474 9,525 2,967
Cash and cash equivalents 9,227 - -
15,701 9,525 2,967
Total assets 320,769 331,193 304,871
Current liabilities
Loan (27,669) - -
Overdraft - (24,193) (32,474)
Payables (6,591) (11,504) (2,080)
(34,260) (35,697) (34,554)
Net assets 286,509 295,496 270,317
Equity attributable to shareholders
Called-up share capital 10,346 10,346 10,346
Share premium 29,873 29,873 29,873
Capital redemption reserve 31,482 31,482 31,482
Capital reserves 267,540 272,155 249,147
Revenue reserve (52,732) (48,360) (50,531)
Total equity attributable to shareholders 286,509 295,496 270,317
Net asset value per share (pence) 9 748.90 724.88 687.51
The notes on pages 22 to 24 form part of these Financial Statements.
International Biotechnology Trust plc
Registered in England and Wales as a public company limited by shares.
Company registration number: 02892872
CASH FLOW STATEMENT
for the six months ended 29 February 2024 (unaudited)
(Unaudited) (Unaudited) (Audited)
For the six For the six For the
months ended months ended year ended
29 February 28 February 31 August
2024 2023 2023
£'000 £'000 £'000
Operating activities
Profit/(loss) before taxation 28,404 17,014 6,935
Adjustments for:
(Increase)/decrease in investments (3,164) 5,378 21,006
Gains on foreign exchange (629) (564) (1,588)
Increase in receivables (3,507) (99) (25)
Increase/(decrease) in payables 4,511 (112) 1,082
Taxation paid (71) (45) (111)
Net cash inflow from operating activities 25,544 21,572 27,299
Financing activities
Repurchase of ordinary shares into treasury (6,750) (646) (9,978)
Bank loan drawdown 38,143 - -
Bank loan repayment (9,836) - -
Dividends paid (5,391) (5,707) (11,407)
Net cash inflow/(outflow) from financing activities 16,166 (6,353) (21,385)
Increase in cash and cash equivalents 41,710 15,219 5,914
Cash and cash equivalents at the beginning of the period/year (32,474) (39,976) (39,976)
Effect of foreign exchange rates (9) 564 1,588
Cash and cash equivalents at the end of the period/year 9,227 (24,193) (32,474)
The notes on pages 22 to 24 form part of these Financial Statements.
NOTES TO THE FINANCIAL STATEMENTS
1. Financial statements
The information contained within the financial statements in this half year
report has not been audited or reviewed by the Company's independent auditor.
The figures and financial information for the year ended 31 August 2023 are
extracted from the latest published financial statements of the Company and do
not constitute statutory financial statements for that year. Those financial
statements have been delivered to the Registrar of Companies, and included the
report of the auditor which was unqualified and did not contain a statement
under either section 498(2) or 498(3) of the Companies Act 2006.
2. Accounting policies
Basis of accounting
The financial statements have been prepared in accordance with International
Accounting Standard 34 "Interim Financial Reporting" and the accounting
policies set out in the statutory financial statements of the Company for the
year ended 31 August 2023. Where presentational guidance set out in the
Statement of Recommended Practice (the "SORP") for investment trusts issued by
The Association of Investment Companies in July 2022, is consistent with the
requirements of International Financial Reporting Standards, the financial
statements have been prepared on a basis compliant with the recommendations of
the SORP.
All of the Company's operations are of a continuing nature.
The accounting policies applied to these financial statements are consistent
with those applied in the financial statements for the year ended 31 August
2023.
3. Taxation
The tax charge comprises irrecoverable overseas withholding tax.
4. Income
(Unaudited) (Unaudited) (Audited)
For the six For the six For the
months ended months ended year ended
29 February 28 February 31 August
2024 2023 2023
£'000 £'000 £'000
Income from investments held at fair value through profit or loss:
Unfranked dividends 473 360 22
Franked dividends 104 80 818
577 440 840
Other income:
Bank interest 73 7 23
650 447 863
5. Earnings/(loss) per share
(Unaudited) (Unaudited) (Audited)
For the six For the six For the
months ended months ended year ended
29 February 28 February 31 August
2024 2023 2023
£'000 £'000 £'000
Net revenue loss (2,201) (1,699) (3,870)
Net capital profit 30,534 18,659 10,683
28,333 16,960 6,813
Weighted average number of shares in issue* 38,879,847 40,794,704 40,583,458
Revenue loss per share (pence) (5.66) (4.17) (9.53)
Capital profit per share (pence) 78.53 45.74 26.32
Total earnings per share (pence) 72.87 41.57 16.79
*Excluding those held in treasury (29 February 2024: 3,126,410; 28 February
2023: 618,988; 31 August 2023: 2,065,634).
6. Investments held at fair value through profit or loss
The Company's portfolio of investments, comprising investments in companies
and any derivatives, are carried in the Statement of Financial Position at
fair value. Other financial instruments held by the Company comprise amounts
due to or from brokers, dividends and interest receivable, accruals, cash and
drawings on the credit facility. For these instruments, the Statement of
Financial Position amount is a reasonable approximation of fair value. The
recognition and measurement policies for financial instruments measured at
fair value have not changed from those set out in the statutory financial
statements of the Company for the year ended 31 August 2023.
The investments in the Company's portfolio are categorised into a hierarchy
comprising the following three levels:
Level 1 - valued using quoted prices in active markets.
Level 2 - valued by reference to valuation techniques using observable inputs
other than quoted market prices included within Level 1.
Level 3 - valued by reference to valuation techniques using inputs that are
not based on observable market data.
Categorisation within the hierarchy has been determined on the basis of the
lowest level input that is significant to the fair value measurement of the
relevant asset.
At 29 February 2024, the Company's investment portfolio and derivative
financial instruments were categorised as follows:
(Unaudited) (Unaudited) (Audited)
At 29 February At 28 February At 31 August
2024 2023 2023
£'000 £'000 £'000
Level 1 280,846 286,934 276,642
Level 2 - - -
Level 3 24,222 34,734 25,262
Total 305,068 321,668 301,904
There have been no transfers between Levels 1, 2 or 3 during the period/year
(period ended 28 February 2023 and year ended 31 August 2023: nil).
7. Dividends paid
(Unaudited) (Unaudited) (Audited)
For the six For the six For the
months ended months ended year ended
29 February 28 February 31 August
2024 2023 2023
£'000 £'000 £'000
First interim dividend of 13.90p (2023: 14.00p) 5,391 5,707 5,707
Second interim dividend of 14.20p - - 5,700
Total dividends paid in the period/year 5,391 5,707 11,407
8. Share capital
Changes in the number of shares in issue during the period/year were as
follows:
(Unaudited) (Unaudited) (Audited)
For the six For the six For the
months ended months ended year ended
29 February 28 February 31 August
2024 2023 2023
Ordinary shares of 25p each, allotted, called-up and fully paid
Opening balance of shares in issue, excluding shares held in treasury 39,318,183 40,863,009 40,863,009
Repurchase of shares into treasury (1,060,776) (98,180) (1,544,826)
Closing balance of shares in issue, excluding shares held in treasury 38,257,407 40,764,829 39,318,183
Shares held in treasury 3,126,410 618,988 2,065,634
Closing balance of shares in issue 41,383,817 41,383,817 41,383,817
9. Net asset value per share
(Unaudited) (Unaudited) (Audited)
At 29 February At 28 February At 31 August
2024 2023 2023
Net assets attributable to shareholders (£'000) 286,509 295,496 270,317
Ordinary shares in issue at end of period/year* 38,257,407 40,764,829 39,318,183
Net asset value per share (pence) 748.90 724.88 687.51
*Excludes those held in treasury (29 February 2024: 3,126,410; 28 February
2023: 618,988; 31 August 2023: 2,065,634).
10. Related party transactions
There have been no related party transactions that have materially affected
the financial position or the performance of the Company during the six month
period to 29 February 2024.
a) Transactions with the AIFM/Investment Manager
With effect from 20 November 2023, Schroder Unit Trusts Limited ("SUTL") was
appointed as the Company's Alternative Investment Fund Manager ("AIFM"). SUTL
agreed to waive the management fee for the first six months from 20 November
2023, after which the management fee payable by the Company on its quoted
portfolio will be 0.7% per annum.
Details of the previous management fee arrangement with SV Health Managers LLP
are given in the Directors' Report on page 41 of the Annual Report for the
year ended 31 August 2023.
(Unaudited) (Unaudited) (Audited)
At 29 February At 28 February At 31 August
2024 2023 2023
£'000 £'000 £'000
Management fee paid by the Company directly to SUTL -** - -
Management fee paid through unquoted funds to SV Health Managers LLP 354 428 791
Management fee paid by the Company directly to SV Health Managers LLP 799* 873 1,810
Accounting and administration fee payable by the Company directly to SUTL 28 - -
Total 1,181 1,301 2,601
* Includes a termination fee of £289,000 paid to SV Health Managers LLP.
** SUTL have agreed to a waiver of six months management fees from 20 November
2023 to 20 May 2024 under the terms of the new Alternative Investment Fund
Management Agreement.
A performance fee of £1,859,000 was accrued for the six month period ended 29
February 2024 (28 February 2023: £199,000; 31 August 2023: £514,000). Of the
£1,859,000 accrued, £177,000 was payable to SV Health Managers LLP and
£1,682,000 was accrued to SUTL.
SV Health Managers LLP will continue to provide ongoing investment management
advice to the Company in respect of the exited investments with contingent
milestones and the directly held unquoted investments in consideration for
payment of a performance fee on the same terms as previously set out in the
Directors' Report on page 41 of the Annual Report for the year ended 31 August
2023.
b) Directors' remuneration
The Directors of the Company are key management personnel. The total
remuneration payable to Directors in respect of the six months ended 29
February 2024 was £132,000 (28 February 2023: £84,000), of which £132,000
(28 February 2023: £nil), was outstanding at the period end.
This includes a one off fee of £47,000 for the additional work in relation to
the change of AIFM.
11. Events after the reporting period
The Directors have evaluated the period since the half year date and have not
noted any significant events after the end of the reporting period to the date
of this half year report requiring disclosure.
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