RTW Biotech Opp. - Half-year Report
13/09/2023 07:00
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RNS Number : 2172M RTW Biotech Opportunities Ltd 13 September 2023
LEI: 549300Q7EXQQH6KF7Z84
13 September 2023
RTW Biotech Opportunities Ltd
Interim Report for the period ended 30 June 2023
Strong NAV performance, significantly outperforming benchmark indices
RTW Biotech Opportunities Ltd (the "Group"), the London Stock Exchange-Premium
listed investment company focused on identifying transformative assets with
high growth potential across the biopharmaceutical and medical technology
sectors, is pleased to announce its Interim Report for the six months ended 30
June 2023.
Financial Highlights:
The Group continued to outperform the benchmark indices in the period since
Admission, demonstrating the strength of the Investment Manager, investment
strategy and the portfolio:
RTW Biotech Opportunities Ltd Interim reporting period Previous Interim reporting period (01/01/2022-30/06/2022) Admission (30/10/2019)-
(01/01/2023-30/06/2023)
30/06/2023
Ordinary NAV - start of period US$326.1 million US$363.0 million US$168.0 million
Ordinary NAV - end of period US$356.5 million US$265.7 million US$356.5 million
NAV per Ordinary Share - start of period US$1.54 US$1.71 US$1.04
NAV per Ordinary Share - end of period US$1.68 US$1.25 US$1.68
NAV movement per Ordinary Share +9.3% -26.8% +61.5%
Price per Ordinary Share - start of period US$1.21 US$1.78 US$1.04
Price per Ordinary Share - end of period US$1.25 US$0.97 US$1.25
Share price return (i) +2.9% -45.7% +19.7%
Benchmark returns (ii)
Russell 2000 Biotech +5.3% -39.1% -0.3%
Nasdaq Biotech -3.2% -20.7% +20.7%
(i) Total shareholder return is an alternative
performance measure
(ii) Source: Capital IQ
Portfolio Highlights
· As at 30 June 2023, the Group had decreased the number of core
portfolio companies to 37 (H1 2022: 41).
o 10 publicly-listed (H1 2022: 15)
o 27 privately-held (H1 2022: 26)
· A stand-out event for the period was the sale of Prometheus
Biosciences, which at the time was the Group's largest holding (14.8% of NAV).
Prometheus was acquired by Merck at a 75% premium to the prior closing price.
Total proceeds from the sale of Prometheus shares amounted to US$99.1 million
on total invested capital of US$8.4 million, representing an 11.8x multiple.
The multiple on capital invested in the private rounds was 22x.
· CinCor Pharma announced an agreement to be acquired by
AstraZeneca for US$1.3 billion. The total consideration amounted to a 207%
premium to the prior closing price. At the time of the announcement, the
position represented 0.6% of NAV.
· 5 new core portfolio companies were added during the period (H1
2022: 2).
o Co-led Cargo Therapeutics Series A financing round in March 2023 (0.4%
NAV)
o Co-led Oricell Therapeutics Series B financing round in February 2023
(0.6% NAV)
o Participated in Abdera Therapeutics Series B financing round in April 2023
(0.3% NAV)
o Participated in a bridge financing in Allurion Technologies in February
2023 (0.01% NAV)
o Participated in Tourmaline Bio's Series A financing round in May 2023
(0.2% NAV)
· 24/37 core portfolio companies had pipeline products in clinical
stage programmes (H1 2022: 28/41) on 30 June 2023.
· As at 30 June 2023, 51% of NAV was invested in core portfolio
companies (H1 2022: 62%), whilst 31% was invested in other public portfolio
companies (H1 2022: 33.5%) and 18% was held in cash plus assets and current
liabilities (H1 2022: 5%).
· 3 private portfolio companies - Mineralys, Acelyrin and Orchestra
BioMed - successfully listed on the Nasdaq during the period, and Tourmaline
Bio entered into a merger agreement with Nasdaq-listed Talaris Therapeutics,
which is expected to close in the fourth quarter.
o Mineralys successfully launched an upsized initial public offering (IPO)
in February 2023, raising US$192 million.
§ On the first day of trading, Mineralys' share price rose by 15.25%, to
close at US$18.44 per share.
o Acelyrin successfully launched an upsized IPO in May 2023, raising US$540
million.
§ On the first day of trading, Acelyrin's share price traded up by 30.55% to
close at US$23.50 per share.
o Orchestra BioMed announced the closing of its merger with RTW's Health
Sciences Acquisitions Corporation 2 and started trading on the Nasdaq.
· The Group participated in a US$125 million strategic financing
deal with Milestone Pharmaceuticals. The strategic financing included US$50
million in convertible notes from RTW-managed funds, including the Group, as
well as a commitment by the Investment Manager of US$75 million in royalty
funding.
Post Period-End Highlights
· Apogee Therapeutics successfully listed on the Nasdaq via an
upsized IPO in July 2023, raising US$300 million.
o On the first day of trading, Apogee's share price traded up by 24.9% to
close at $21.23 per share. At 30 June 2023, Apogee represented 0.6% of the
Group's NAV.
· Following a February 2023 announcement that Allurion Technologies
would go public via a business combination transaction that would include a
PIPE led by RTW-managed funds, including the Group, and a synthetic royalty
financing, the transaction was completed on 1 August 2023, and Allurion began
trading on the NYSE on 2 August, raising US$100 million.
· The Company announced a share buyback programme, given the
Board's belief that the share price materially undervalues the Company.
Roderick Wong, MD, Managing Partner and Chief Investment Officer of RTW
Investments, LP (the "Investment Manager") commented:
"We are pleased to report the Group achieved strong performance, particularly
in comparison with our benchmarks, which we have outperformed not only during
the period but also on a one and three-year basis. During the six months to 30
June 2023, RTW's NAV increased by +9.3% compared with +5.3% for the Russell
2000 Biotech index.
"Performance since inception remained significantly ahead of both the Nasdaq
Biotech and Russell 2000 Biotech indices with RTW achieving a +61.5% NAV
performance since inception compared with +20.7% for the Nasdaq Biotech index
and -0.3% for the Russell 2000 Biotech index, over the same periods.
"It has been a very active six months for the Group, with three portfolio
companies listing on the Nasdaq and one announcing a merger with a listed
entity. We have also seen two take-outs in the portfolio at very healthy
premiums, one of which was RTW's largest position at the time, Prometheus
Biosciences. Additionally, there have been five new core portfolio companies
added to the portfolio, while five core public portfolio companies were
exited.
"With the second longest and deepest bear market for the biotech sector now
behind us, this is an exciting time to invest in highly attractive
opportunities across our private, core public and other public portfolios. We
look ahead to the remainder of 2023 with confidence as we look to add both
public and private companies to our portfolio of transformative assets with
high growth potential across the biopharma and med-tech sectors. We look
forward to updating shareholders with our continued progress throughout the
remainder of the year."
For Further Information
RTW Investments, LP +44 20 7959 6361
Woody Stileman, Managing Director
Krisha McCune, Director, Client Service
Elysium Fund Management Limited +44 (0)14 8181 0100
Joanna Duquemin Nicolle, Chief Executive Officer
Sadie Morrison, Managing Director
Numis +44 (0)20 7260 1000
Freddie Barnfield
Nathan Brown
Euan Brown
BofA Securities +44 (0)20 7628 1000
Edward Peel
Kieran Millar
Buchanan +44 20 7466 5107
Charles Ryland
Henry Wilson
George Beale
Cadarn Capital +44 (0)73 6888 3211
David Harris
Morgan Stanley Fund Services USA LLC +1 (914) 225 8885
About RTW Biotech Opportunities Ltd: RTW Biotech Opportunities Ltd (LSE: RTW
& RTWG) is an investment fund focused on identifying transformative assets
with high growth potential across the biopharmaceutical and medical technology
sectors. Driven by a long-term approach to support innovative businesses, RTW
Biotech Opportunities Ltd invests in companies developing next-generation
therapies and technologies that can significantly improve patients' lives. RTW
Biotech Opportunities Ltd is managed by RTW Investments, LP, a
leading healthcare-focused entrepreneurial investment firm with deep
scientific expertise and a strong track record of supporting companies
developing life-changing therapies.
Visit the website at www.rtwfunds.com/rtw-biotech-opportunities-ltd
(https://www.rtwfunds.com/rtw-biotech-opportunities-ltd/) for more
information.
Highlights
30 June 2023 Financial Highlights
US$1.68 NAV per Ordinary Share
US$356.5 million Ordinary NAV 30 June 2022: US$1.25
30 June 2022: US$265.7 million
+61.5% Ordinary NAV growth since inception +19.7% total shareholder return since inception
30 June 2022: +20.1% 30 June 2022: -7.1%
+9.3% Ordinary NAV per share growth YTD +2.9% total shareholder return YTD
30 June 2022: -26.8% 30 June 2022: -45.7%
US$9.5 million in cash / cash equivalents US$1.25 price per Ordinary Share ¹
30 June 2022: US$7.6 million 30 June 2022: US$0.97
1 The share price has since recovered to US$1.26 at 11 September 2023.
Portfolio Highlights in the period
Capital markets activity in the core portfolio¹: 5 new core portfolio companies added
2 take-outs, 2 IPOs, 1 SPAC merger, 1 reverse merger, 5 core public portfolio companies exited
and 2 announced strategic financings
24/37 core portfolio companies have clinical programs
51% of NAV invested in the core portfolio 30 June 2022: 28/41
30 June 2022: 62%
37 core portfolio companies in total:
27 private, 10 public
30 June 2022: 26 private, 15 public
1 Core portfolio consists of companies that were initially added to the
portfolio as private investments, reflecting the key focus of the Group's
strategy. As initially private investments continue to be held beyond IPO, the
core portfolio consists of both privately-held and publicly-listed companies.
Our Purpose
Transforming the lives of millions
RTW's long-term strategy is anchored in identifying sources of
transformational innovations with significant commercial potential by engaging
in deep scientific research and a rigorous idea generation process, which is
complemented by years of investment, company building, and both transactional
and legal expertise.
Identify
Identify transformational innovations
RTW has developed expertise through a comprehensive study of industry and
academic efforts in targeted areas of significant innovation. Thanks to the
decoding of the human genome, there is more clarity around the causes of
disease. Coupled with exciting new modalities that can address genetic
diseases in a targeted way, drug innovation is accelerating.
Engage
Engage in deep research to unlock value
RTW has developed repeatable internal processes combining technology and
manpower to comprehensively cover critical drivers of innovation across the
globe. We seek to identify, through rigorous scientific analysis,
biopharmaceutical and medical technology assets that have a high probability
of becoming commercially viable products, dramatically changing the course of
treatment and in some cases bringing effective and/or fully curative outcomes
to patients.
Build
Build new companies around promising academic licences
RTW has the capabilities to partner with universities and in-license academic
programs, by providing capital and infrastructure to entrepreneurs to advance
scientific programs. Particularly in rare disease there is often little
existing research and are few treatment options, so forming a rare
disease-focused company is a way of shining a light on this space and creating
a roadmap to eventually developing curative treatments.
Support
Support full life cycle investment
A key part of RTW's competitive advantage is the ability to determine at which
point of a company's life cycle we should support the target asset or
pipeline. As a full life cycle investor, we can provide growth capital,
creative financing solutions, capital markets expertise, or guidance through
contributing our time and sharing our collective experience as directors and
stewards of tomorrow's most exciting and innovative companies. Taking a
long-term full life cycle approach and having a truly evergreen structure
enables us to avoid the pitfalls and structural constraints of venture-only or
public-only vehicles. Our focus is on becoming the best investors and company
builders we can be, delivering exceptional results to shareholders and making
a positive impact on patients' lives.
Chair's Statement
I am pleased to report that the Investment Manager ("RTW") has achieved a
solid performance for the Group. The Group's NAV returned +9.3% over the
six-month period, materially outperforming both the Russell 2000 Biotech and
the Nasdaq Biotech Index ("NBI") which returned +5.3% and -3.2% respectively.
The Group's NAV has also strongly outperformed its biotech benchmarks over one
year and three years.
Since admission in October 2019, the Group's NAV has significantly
outperformed its biotech benchmarks returning +61.5% versus -0.3% and +20.7%
for the Russell 2000 Biotechnology Index and the NBI, respectively. However,
the Company's share price has lagged NAV growth with a +19.7% return as the
shares fell to a discount to NAV in 2022, alongside many of our peers, after
having traded at a small premium for most of the prior years since admission.
The discount widened in the early part of the year as the shares traded
sideways despite a pickup in the Group's NAV but started to narrow again
towards the end of the reporting period.
H1 2023 Overview and Outlook
There has been no shortage of positive activity in the portfolio in the first
half of 2023 with two take-outs, two IPOs, a SPAC merger, a reverse merger,
two announced strategic financings, five new private investments and five
exits (not including the take-outs). At the end of the period, the Group had
thirty-seven core portfolio holdings, a decrease from forty-one last year. The
core portfolio represents 51.2% of NAV, down from 61.8% at the same time last
year. The "other public" portfolio (a replica of the long names held in RTW's
private funds, devised to mitigate the cash drag of setting aside cash for
future deployment into core positions) remains at about one third of NAV. The
reduced allocation to the core portfolio and the currently elevated Available
Cash position (18%) is a result of the Group recently receiving substantial
proceeds from the sale of Prometheus Biosciences to Merck
The Prometheus sale was the stand-out event in the first half of the year. At
14.8% of NAV, Prometheus was the Group's largest holding when it was acquired
by Merck at a 75% premium to the prior closing price. Total proceeds from the
sale of Prometheus shares amounted to US$99.1 million on total invested
capital of US$8.4 million, representing an 11.8x multiple. The multiple on
capital invested in the private rounds was 22x. This transformational
transaction is a perfect example of the Group's successful investment strategy
at work. The ability to invest across a company's life cycle provides
significant advantages. Surveying early-stage private assets provides access
to experimental data that typically isn't shared in the public markets and
investing early allows time to build relationships with entrepreneurs and
management teams. Without the pressure to exit at an IPO, the Investment
Manager typically aims to increase the size of the most promising investments
as they enter the public markets. It was the duration and flexibility offered
by our listed investment company structure that allowed the Investment Manager
to increase conviction and grow the position through the IPO and multiple
inflection points right up to the end.
In light of this significant success in demonstrating the value of a full life
cycle investment strategy, the Group announced a capital allocation plan after
the end of the reporting period. This included a share buyback, given the
Board's belief that the share price materially undervalues the Group and its
portfolio. The Board believes that this further demonstrates: 1) its
confidence in the outlook for the biotech sector and the Group's portfolio; 2)
capital allocation discipline; and 3) the proven value of the Group's model.
The Board is pleased with the reaction from our shareholders and the market.
With the biotech sector only just recovering from the second deepest and
second longest bear market in its history, now is a particularly opportune
time to take receipt of the Prometheus proceeds. Valuations are attractive,
fundamentals have turned around and M&A has become a significant tailwind.
As a result, the Group will retain an appropriate level of the proceeds to
invest in highly attractive equity opportunities across the private, core
public and other public portfolios over the medium term, as per the Group's
core objective.
Financing conditions in the sector remain tight, however, and this environment
enables RTW to flex the transactional capabilities it has built over the years
to help support exciting companies by offering strategic financing solutions
including royalty financing. The Company's shareholders will access royalty
opportunities through an investment in RTW's "4010 Royalty Fund." There will
be no double-charging, as fees will be taken at the Company level only. The
Board considers that this presents an attractive, uncorrelated, cash-yielding
investment that complements the Group's portfolio. The Group intends to limit
royalty investment exposure to approximately 15% of NAV including the current
royalty holding in the portfolio, which was 4.0% of NAV as at 30 June.
In a time when private market valuations are so heavily scrutinised, it is
important to have a robust valuation process. We strongly believe this to be
the case with RTW's Valuation Committee's fair value approach to marking the
private portfolio on a monthly basis, in conjunction with two independent
third-party valuation firms, Alvarez & Marsal and Houlihan Lokey. The
proof comes when private investments become public companies. With two IPOs in
the first half and another just after the end of the reporting period, we have
a reasonable sample to assess the private portfolio's fair value. With all of
these events seeing a step-up from their prior private holding value by an
average of 58%, we emphasise our confidence in the Group's portfolio and
outlook for the sector.
AGM Results and Name Change
The Group held its Annual General Meeting on 21 June 2023 to consider the
audited consolidated financial statements and other matters, including a
change of name from RTW Venture Fund Limited to RTW Biotech Opportunities Ltd.
We are grateful to shareholders who cast their votes. The results have been
announced to the market and published on the Investment Manager's website
https://www.rtwfunds.com/rtw-biotech-opportunities-ltd/
(https://www.rtwfunds.com/rtw-biotech-opportunities-ltd/) .
The Board believes that this name better places it amongst its listed
healthcare and biotech investment company peers and more accurately reflects
the Group's full life cycle approach to biotech investing as a partner that
can invest in both the private and public domains and across the capital
structure with the flexibility to focus on where the most attractive
opportunities exist.
New Corporate Broker and Distribution Partner
In April, the Board appointed Numis as a corporate broker alongside BofA
Securities, which remains as Joint Corporate Broker. Soon after, the Group
started working with Cadarn Capital, a specialist investment company
distribution and investor relations partner to accelerate the Group's brand
recognition, particularly in the UK, after more than three years of
peer-leading performance since admission.
On behalf of the Board, I would like to express our gratitude for your
continued support and wish you all the best for the remainder of 2023.
William Simpson
Chair of the Board of Directors
RTW Biotech Opportunities Ltd
12 September 2023
Report of the Investment Manager
Executive Summary
Since listing on the London Stock Exchange in October 2019, the Group has
grown the NAV attributable to Ordinary Shareholders from US$168.0 million to
US$356.5 million as of 30 June 2023. The NAV per Ordinary Share has increased
61.5% from US$1.04 to US$1.68 in the same period. Disappointingly, the share
price has not kept pace with NAV, returning +19.7%, as the shares fell to a
discount in early 2022 and have remained there despite a substantial pick-up
in the Group's NAV from the low in May 2022. From that point in time until the
end of the current reporting period, the NAV has increased by 37.7% from
US$1.22, while the share price has increased by only 8.7%. With continued NAV
outperformance versus the market and peers, and with the sector's recovery
gaining momentum, it is our expectation that the share price should follow.
Financial Highlights, Performance Drivers and Significant Events
Table 1. Financial Highlights
RTW Biotech Opportunities Ltd Interim reporting period Previous Interim reporting period (01/01/2022-30/06/2022) Admission (30/10/2019)-
(01/01/2023-30/06/2023)
30/06/2023
Ordinary NAV - start of period US$326.1 million US$363.0 million US$168.0 million
Ordinary NAV - end of period US$356.5 million US$265.7 million US$356.5 million
NAV per Ordinary Share - start of period US$1.54 US$1.71 US$1.04
NAV per Ordinary Share - end of period US$1.68 US$1.25 US$1.68
NAV movement per Ordinary Share +9.3% -26.8% +61.5%
Price per Ordinary Share - start of period US$1.21 US$1.78 US$1.04
Price per Ordinary Share - end of period US$1.25 US$0.97 US$1.25
Share price return (i) +2.9% -45.7% +19.7%
Benchmark returns (ii)
Russell 2000 Biotech +5.3% -39.1% -0.3%
Nasdaq Biotech -3.2% -20.7% +20.7%
(i) Total shareholder return is an
alternative performance measure
(ii) Source: Capital IQ
RTW Investments, LP, the "Investment Manager", a leading global
healthcare-focused investment firm with a strong track record of supporting
companies developing life-changing therapies, created the Group as an
investment fund focused on identifying transformative assets with high growth
potential across the biopharmaceutical and medical technology sectors. Driven
by deep scientific expertise and a long-term approach to building and
supporting innovative businesses, we invest in companies developing
transformative next-generation therapies and technologies that can
significantly improve patients' lives while creating significant value for our
shareholders.
NAV performance in the first half of 2023 has overwhelmingly been driven by
the core public portfolio (+12.6% contribution) with two of those positions
being acquired by large cap pharma companies at significant premiums. In
particular, our largest holding Prometheus Biosciences, which contributed
+12.6% to NAV, announced in April that it was to be acquired by Merck for
US$200.00 per share in cash, a 75% premium to the prior closing price. In
January, CinCor Pharma (+0.9% contribution) announced an agreement to be
acquired by AstraZeneca for US$1.3 billion upfront. CinCor shareholders also
received a non-tradable contingent value right, payable upon receipt of FDA
approval. Combined, these payments represent a 206% premium. There were no
other contributors of note. Core public holding, Avidity Biosciences, was the
only noticeable detractor (-2.4%) after it announced clinical data in May that
did not meet expectations.
The core private portfolio made a small negative contribution (-0.6%) to NAV.
Within that, RTW Royalty 2 (Urogen) contributed +0.5%, incorporating
distributions received this year and a 7% increase in the valuation as sales
revenue forecasts provided by independent analysts were added to our valuation
models. This was offset by write-downs in Alcyone (-0.4%) which is in a
challenged financing position, and Neurogastrx (-0.5%) which suffered a
clinical setback and is being wound down. The "other public" portfolio
contributed -1.2% to NAV.
Orchestra BioMed was not a significant contributor or detractor in the
reporting period (-0.2% when combined with the contribution from HSAC2 founder
shares); however, it is worth commenting on as its merger in January with our
SPAC ("HSAC2") was a notable event. A strong start saw the shares trade above
US$20 (versus US$10 at the de-merger), then trade down to US$7 at the end of
the reporting period. With the majority of its market cap in cash, an EV of
less than US$100 million, and backed by global medical devices leader,
Medtronic, we remain excited for the future of the company and continue to
believe that SPACs are a useful financing vehicle, especially in bear markets,
in spite of the challenges they have had in recent times in the general
market.
Figure 1. Performance Drivers as of 30 June 2023
* Exited positions
Key updates for Core Portfolio Companies during H1 2023:
Clinical & Commercial
§ In January, Rocket announced the addition of a new cardiac gene therapy
program, RP-A601, for arrhythmogenic cardiomyopathy due to plakophilin 2
pathogenic variants (PKP2-ACM).
§ In March, Avidity Biosciences announced that discussions were ongoing with
the US FDA regarding the partial clinical hold on new participant enrolment in
its Phase 1/2 clinical trial for AOC 1001 (treats Mytonic Dystrophy).
§ In March, Immunocore positively surprised the market with US$42 million of
net sales of Kimmtrak in Q4 2022.
§ In May, Rocket posted several positive data updates from their PKD, Fanconi
Anaemia, LAD-I and Danon Disease programs at the American Society of Cell and
Gene Therapy ("ASGCT") conference.
§ In May, Avidity's partial clinical hold was eased. However, the data from
the higher dose of AOC 1001 in the muscular dystrophy trial didn't appear to
further reduce expression of toxic DMPK, the hallmark of the disease.
§ In May, Rocket received FDA clearance for the company's RP-A601 programme
to enter the clinic.
§ In April, Neurogastrx announced the latest data from its NG010 trial that
indicated the top-line primary end point did not meet statistical significance
and its resultant potential liquidation.
Financing
§ In January, CinCor Pharma announced an agreement to be acquired by
AstraZeneca for $1.3 billion upfront. CinCor shareholders will also receive a
non-tradable contingent value right, payable upon receipt of FDA approval.
Combined, these payments represent a 206% premium.
§ In January, Orchestra BioMed announced the closing of its merger with RTW's
Health Sciences Acquisitions Corporation 2 and started trading on the Nasdaq
under the ticker "OBIO". Medtronic joined as Orchestra's commercial partner,
anchoring the combination alongside RTW.
§ In February, Mineralys Therapeutics went public through an upsized initial
public offering, which raised US$192 million, under the ticker "MLYS".
§ In February, the Group participated in a bridge financing round in Allurion
Technologies, a company with a swallowable, procedure-less gastric pill
balloon for weight loss. Earlier that month the company announced its
intention to go public via a business combination that would include a fully
committed PIPE led by RTW Investments and a non-dilutive, synthetic royalty
financing to close concurrently with the business combination.
§ In March, the Group and other funds managed by RTW co-led a US$45 million
Series B-1 financing round of OriCell Therapeutics, a China-based cell therapy
company.
§ In March, the Group and other funds managed by RTW co-led a US$200 million
Series A financing round in Cargo Therapeutics, a clinical stage CAR T-cell
therapy company.
§ In March, the Group announced its participation in a US$125 million
strategic financing deal with Milestone Pharmaceuticals. The strategic
financing included US$50 million in convertible notes from RTW-managed funds,
including the Group, as well as a commitment by RTW of US$75 million in
royalty funding.
§ In April, Prometheus Biosciences announced that it agreed to be acquired by
Merck for US$200.00 per share in cash, a 75% premium to the prior closing
price, for a total consideration of US$10.8 billion.
§ In April, the Group participated in a Series B financing of Abdera
Therapeutics; a pre-clinical stage biopharmaceutical company focused on small
cell lung cancer and other solid tumours. The company raised US$142 million in
a combined series A and B.
§ In May, Acelyrin went public through an upsized US$540 million initial
public offering under the ticker "SLRN".
§ In June, Prometheus Biosciences announced that its acquisition by Merck had
been completed.
§ In June, Tourmaline Bio announced a merger with Talaris Therapeutics
alongside a US$75 million private placement that will provide the company with
a cash runway through 2026. The merger is expected to close in the fourth
quarter of 2023.
Portfolio Breakdown, New Investments & Capital Allocation Plan
We define the core public portfolio as companies that were initially added to
our portfolio as private investments, reflecting the key focus of the Group's
strategy. Our investment approach is defined as full life cycle and therefore
involves retaining private investments beyond their IPOs; hence the core
portfolio consists of both privately-held and publicly-listed companies.
As of 30 June 2023, the Group's core portfolio accounted for 51.2% of NAV (H1
2022: 61.8%) and included 37 companies (H1 2022: 41), ranging from
biotechnology companies developing preclinical to clinical-stage therapeutic
programs, companies developing traditional small molecule pharmaceuticals, and
med-tech companies developing or commercialising transformative devices. We
selected these companies based upon our rigorous assessment of scientific and
commercial potential and with regard to the valuation of the assets at the
time of investment. Table 4 shows the top fifteen portfolio companies at the
end of the reporting period.
Private companies accounted for 21.7% of NAV on 30 June 2023 and core public
companies accounted for 29.5%. The small decrease in exposure to private
investments primarily reflects the migration of three positions into the core
public portfolio as a result of IPOs (Mineralys and Acelyrin) and a SPAC
merger (Orchestra BioMed). These events outweighed the addition of the new
private positions shown in Table 3. The lower exposure to the core public
portfolio reflects the aforementioned sale of Prometheus to Merck and the
exiting of our holdings in Monte Rosa, Ventyx, Tenaya, Third Harmonic and C4.
Approximately one third of the Group's NAV is invested in other publicly
listed companies, which is similar to the same period last year. The "other
public" portfolio is designed to mitigate the drag of setting aside cash for
future deployment into core positions. This portfolio of assets has been
carefully selected, matching, on a pro-rated basis, the long investments held
in our private funds. The investments represented in this portfolio are
similarly categorised as innovative biotechnology and medical technology
companies developing and commercialising potentially disruptive and
transformational products.
As of 30 June, the Group had an Available Cash position of 18% of NAV. This
primarily reflects proceeds received from the sale of Prometheus stock. We
will retain an appropriate level of these proceeds to invest in highly
attractive opportunities across the private, core public and other public
portfolios. We also plan to leverage the sector's current tight financing
conditions by offering strategic financing solutions including royalty
financing deployed through "4010 Royalty Fund", another fund managed by RTW
Investments. The Board also plans to distribute a portion of the Prometheus
proceeds through a share buyback, which has now commenced. We share the
Board's view that the current discount to NAV undervalues the Group and its
portfolio, and we feel that this action represents an attractive,
NAV-accretive investment.
As of 30 June 2023, the portfolio was diversified across treatment modalities,
therapeutic focus, and clinical stage. While the portfolio is still majority
invested in US-based companies, we are committed to adding UK and EU companies
in an effort to support the best assets across the globe and help foster local
biotech ecosystems. By constructing the portfolio in such a way, investors get
exposure to the most innovative parts of a highly specialised sector with the
explosive potential of companies like Prometheus Biosciences.
Looking forward, we expect the total portfolio sector allocation to remain
close to 80% biopharmaceutical assets and 20% medical technology assets. In
line with prior prospectus guidance, we anticipate two-thirds of new
investments will be made in mid- to later-stage venture companies and
one-third focused on active company building around the discovery and
development or licensing and distribution of promising assets. As per our
recently announced capital allocation plan, royalty investments (across
biopharma and medtech) will be limited to approximately 15% of NAV.
Table 2. NAV capital breakdown as of 30 June 2023 compared to 30 June 2022
Portfolio grouping % of NAV % of NAV
30 June 2023 30 June 2022
Core private 21.7% 31.1%
Core public 29.5% 30.7%
"Other public" 30.8% 33.5%
Available Cash 18.0% 4.7%
Total 100.0% 100.0%
Table 3. New investments added in the first half of 2023
Company name Description % NAV
Cargo Therapeutics Clinical stage biotech company targeting large B-cell lymphoma 0.4%
Allurion Technologies Medtech company with a swallowable, procedure-less gastric pill balloon for 0.01%
weight loss, commercially available in 5 countries, clinical stage in the U.S.
OriCell Therapeutics Preclinical stage pharmaceutical company focusing on multiple myeloma 0.6%
Abdera Therapeutics Preclinical biopharma company developing radiopharmaceuticals for lung cancer 0.3%
Tourmaline Bio Late-stage biotech company developing medicines for thyroid eye disease and 0.2%
atherosclerotic cardiovascular disease
Figure 2. Core Portfolio breakdown as a percentage of NAV, adjusted to be out
of 100%, by (A) Therapeutic Focus, (B) Modality, (C) Clinical Stage and (D)
Geography as of 30 June 2023
Table 4. Top fifteen core positions as of 30 June 2023
Portfolio Company Description Therapeutic Area Clinical stage of Expected upcoming catalyst % NAV
lead program
Rocket Gene therapy platform company for rare paediatric diseases. Four clinical Rare Disease Phase 2 Q3 2023 12.5%
programs for Fanconi anaemia, Danon, LAD, and PKD.
Immunocore T-cell receptor therapy company focused on oncology and infectious disease Oncology Commercial Q3 2023 7.3%
Ji Xing NewCo focused on acquiring rights from innovative therapies for development Cardiovascular, Ophthalmology Phase 3 Series D Q4 2023 7.3%
and commercialisation in China
RTW Royalty 2 Royalty deal with Urogen for JELMYTO, the first FDA-approved treatment for Oncology Commercial Q3 4.0%
low-grade upper tract urothelial cancer
Milestone Clinical stage company developing interventions for tachycardias Cardiovascular Phase 3 FDA filing 2.5%
Q3 2023
Orchestra Medical device company focused on developing products for the treatment of Cardiovascular Phase 3 - 1.8%
coronary artery disease and hypertension
Avidity Antibody conjugated RNA medicines company. Lead program for myotonic Myotonic Dystrophy Phase 1 P1 Data 1.8%
dystrophy, a degenerative disease with no therapy
Q4 2023
Beta Bionics Closed-loop pancreatic system for automated and autonomous delivery of insulin Type 1 Diabetes Phase 3 - 1.3%
NiKang Biotech using a structure-based design to develop innovative small molecules Oncology Phase 1 Data 1.2%
against promising molecular targets in oncology
Q1 2024
Ancora Medical device company developing products that target dysfunction of the left Cardiovascular Phase 3 - 1.1%
ventricle, the underlying cause of heart failure
Tarsus Clinical stage biotech developing first-in-class therapeutics for ophthalmic Ophthalmology Phase 3 PDUFA Q3 2023 1.1%
conditions
GH Research Clinical stage biotech developing therapies to manage mental disease CNS Phase 2 Data 1.0%
YE 2023
Acelyrin Biopharma company focused on accelerating the development and delivery of Inflammation Phase 2 - 0.8%
transformative medicines in immunology
Magnolia Medical Medical diagnostics company that has patented a technique and technology for Inflammation, sepsis Commercial - 0.7%
blood culture collection
OriCell China-based pharma company developing tumour cellular immunotherapeutics to Multiple myeloma Preclinical - 0.6%
treat relapsed and refractory multiple myeloma
Table 5. Core portfolio positions as of 30 June 2023 compared to 30 June 2022
Portfolio Company Private¹/ Public² Valuation in US$ at 30/06/2023 % of Group's net assets at 30/06/2023 Valuation in US$ at 30/06/2022 % of Group's net assets at 30/06/2022
Rocket Public 47,705,037 12.5% 32,538,657 11.5%
Immunocore Public 27,716,450 7.3% 12,034,341 4.2%
Ji Xing Private 27,586,548 7.3% 24,451,819 8.6%
RTW Royalty 2 Private 15,086,772 4.0% 14,474,522 5.1%
Milestone (5) Public 9,577,632 2.5% 3,772,913 1.3%
Orchestra ³ (4) Public 6,979,837 1.8% 2,471,736 0.9%
Avidity Public 6,952,998 1.8% 10,171,421 3.6%
Beta Bionics Private 5,117,893 1.3% 5,673,324 2.0%
NiKang Private 4,452,023 1.2% 4,359,087 1.5%
Ancora Private 4,240,240 1.1% 2,754,042 1.0%
Tarsus Public 4,181,963 1.1% 3,161,080 1.1%
GH Research Public 3,639,221 1.0% 3,061,056 1.1%
Acelyrin ³ Public 3,008,053 0.8% 1,306,017 0.5%
Magnolia Medical Private 2,628,698 0.7% 2,589,231 0.9%
OriCell Private 2,339,375 0.6% - -
Apogee Private 2,303,380 0.6% - -
Umoja Private 2,248,947 0.6% 2,669,948 0.9%
Encoded Private 2,216,591 0.6% 2,881,595 1.0%
Mineralys ³ Public 1,982,335 0.5% 1,034,231 0.4%
Kyverna Private 1,863,590 0.5% 1,292,043 0.5%
Numab Private 1,852,448 0.5% 1,642,139 0.6%
Nuance Private 1,665,286 0.4% 1,526,120 0.5%
Lenz Private 1,451,751 0.4% 1,471,248 0.5%
Cargo Private 1,412,351 0.4% - -
Abdera Private 1,136,802 0.3% - -
Lycia Private 979,462 0.3% 969,864 0.3%
Tourmaline Bio Private 891,289 0.2% - -
Artiva Private 865,532 0.2% 919,286 0.3%
Artios Private 741,774 0.2% 681,351 0.2%
Swift Health Private 645,171 0.2% 740,211 0.3%
CinCor Public 541,706 0.1% 3,329,206 1.2%
Prometheus Labs Private 175,734 0.05% 207,885 0.1%
Alcyone Private 149,750 0.04% 4,054,228 1.4%
Yarrow Private 149,231 0.04% 463,044 0.2%
Neurogastrx Private 114,535 0.03% 1,597,646 0.6%
Allurion Private 39,247 0.01% - -
Visus Private 149 0.00004% 2,237,667 0.8%
( )
1 Valuations for private portfolio companies on a fair value basis.
2 The valuations of public positions were calculated using their market
capitalisation as of 30 June 2023
3 Position was private at the last interim reporting period end and has since
gone public. In accordance with the Group's valuation policy in practice prior
to 2023, as at 30 June 2022, the Group applied a discount to its investments
in private companies that became public companies subject to customary
post-IPO lock-up provisions. As of 1 January 2023, the Group has elected to
early adopt FASB's ASU 2022-03, ASC Topic 820, "Fair Value Measurement of
Equity Securities Subject to Contractual Sale Restrictions" which eliminated
this practice. Refer to Note 1 to these unaudited interim consolidated
financial statements.
4 Includes shares held in the initial SPAC vehicle (HSAC2) that merged with
Orchestra in January 2023
5 Includes pre-funded warrants
Table 6. RTW representation on portfolio company boards as of 30 June 2023
Portfolio Company ¹ RTW representative on the board
Alcyone Piratip Pratumsuwan
Ji Xing Rod Wong, Peter Fong, Gotham Makker
Magnolia Ovid Amadi
Nikang Chris Liu
Rocket Rod Wong, Gotham Makker, Naveen Yalamanchi
Yarrow Rod Wong, Peter Fong, Gotham Makker
1 In aggregate these represent 22% of the NAV of the Group at 30 June 2023
Table 7. Top 5 "Other Public" portfolio holdings as of 30 June 2023
Position Ticker % of NAV Description
Argenx SE ARGX 3.8% Commercial stage multi-pipeline immunology company
PTC Therapeutics PTCT 2.4% Commercial stage biotech making therapies for rare genetic diseases.
Axsome Therapeutics AXSM 2.1% Commercial stage biotech focused on CNS
Stoke Therapeutics STOK 2.0% Clinical stage biotech developing RNA treatments for severe genetic diseases
Establishment Labs Holdings ESTA 1.9% Commercial stage medtech manufacturing innovative breast health solutions
Private Portfolio Valuations and Cash Runway Analysis
The core private and public portfolios are the foundation of the Group's
strategy. They are built on our rigorous assessment of the best private market
investment opportunities. We have always been highly selective in this area,
focusing only on companies with both well-founded science and attractive
commercial opportunities. We are now benefiting from this discipline in a
challenging capital markets environment as our private portfolio is a good
size and well-funded.
As of 30 June 2023, the average cash runway of the twenty-four companies in
our private portfolio that burn cash was twenty-six months, which gives them a
good amount of time to focus on their clinical development plans until funding
markets improve. There are eleven companies with less than twelve months of
runway, two of which are RTW company creations, which is by design. Of the
remainder, most have reasonable and well-formed capital raising plans in
place. Two are in more challenging financial positions and one of those is
being wound down with residual cash being returned to shareholders.
Which brings us to our private valuations. We hold our private company
investments at 'fair value' i.e., the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction between market
participants. This is assessed in accordance with US GAAP, utilizing valuation
techniques consistent with the International Private Equity and Venture
Capital Guidelines including, but not limited to, the income approach and the
market approach. Valuations are adjusted both during regular valuation cycles
and on an ad hoc basis in response to 'trigger events' which may include
changes in fundamentals, an intention to carry out an IPO, or changes to the
valuations of comparable public companies. Our valuation process ensures that
private companies are valued in both a fair and timely manner.
The process is overseen by the RTW Valuation Committee. The Committee is
supported by RTW's valuation team that is independent from the investment team
and receives advice from two independent third-party valuation firms, Alvarez
& Marsal and Houlihan Lokey. The Committee approves valuations of private
company investments on a monthly basis and utilises the analysis of an
independent third-party valuation firm no less frequently than twice in a year
in determining the fair value of each material private investment. The
valuations are also reviewed twice per year by the Board and are subject to
the scrutiny of KPMG in the annual audit process.
In the first half of this year, the private portfolio saw a total of
thirty-six valuation adjustments. Twelve positions were marked up by an
average of 16.8%; twelve were marked lower by any average of -26.6%. The
balance remained at cost given the recent date of the investment. At 30 June,
the average time since the last third-party valuation was 4.7 weeks and with
an average of 1.2 years having elapsed since the last financing round.
The value of the private portfolio is best demonstrated by the three portfolio
IPOs that have completed so far this year (including Apogee Therapeutics which
occurred after the reporting period). In all cases, we saw a step-up in
valuation from prior private holding value by c. 58% on average and a 1.82x
multiple on invested capital. It is worth noting that this is happening in an
environment where there have only been a few meaningful biopharma IPOs,
highlighting the quality of the portfolio. Figure three shows the pickup in
IPO and new investment activity in our core portfolio versus last year.
Figure 3. New private investments and IPOs by year since admission
Figure 4. Core Portfolio Cash Runway Analysis
Figure 5. Private portfolio year to date valuation changes
*Position that went public during the period
Table 8. RTW's Private Valuation Statistics for H1 2023
Number of revaluations 36
Average time since last third-party valuation (at 30 June) 4.7 weeks
Average time since last financing round (at 30 June) 1.2 years
Average valuation change -3.7%
Average write-up 16.8%
Average write-down -26.6%
Average step-up to IPO price 58%
Average MOIC to IPO price 1.82x
Table 9. Performance of core portfolio investments since inception as of 30
June 2023
Portfolio Holding Initial Investment Valuation Date or Exit Date³ MOC¹ XIRR¹ Holding Period (yrs)
Inivata ² 24/12/2020 18/06/2021 2.6 635.5% 0.5
Prometheus Bio ² 30/10/2020 13/06/2023 24.7 275.8% 2.6
RTW Royalty Holdings ² 13/11/2020 30/12/2022 3.4 129.6% 2.6
iTeos ² 24/03/2020 17/03/2022 3.6 108.2% 2.0
Frequency ² 17/07/2019 23/03/2021 2.8 85.3% 1.7
Mineralys 01/06/2022 30/06/2023 1.8 74.8% 1.1
Cincor ² 22/09/2021 24/02/2023 2.1 68.3% 1.8
Acelyrin 20/10/2021 30/06/2023 2.0 58.5% 1.7
Athira ² 29/05/2020 30/06/2022 1.6 56.8% 2.1
Immunocore 13/08/2019 30/06/2023 3.0 35.2% 3.9
RTW Investments ICAV for RTW Fund 2 05/05/2021 30/06/2023 1.5 20.4% 2.2
Apogee Therapeutics 15/11/2022 30/06/2023 1.1 15.8% 0.6
Pulmonx ² 17/04/2020 04/11/2022 1.3 13.1% 2.6
Prometheus Labs 31/12/2020 30/06/2023 1.3 12.2% 2.5
Tarsus 24/09/2020 30/06/2023 1.3 9.7% 2.8
Magnolia 02/07/2021 30/06/2023 1.2 9.1% 2.0
Avidity 08/11/2019 30/06/2023 1.3 7.8% 3.6
Ji Xing 10/02/2020 30/06/2023 1.1 5.9% 3.4
Encoded 12/06/2020 30/06/2023 1.1 3.4% 3.0
Numab 07/05/2021 30/06/2023 1.1 3.3% 2.1
Ancora 20/01/2021 30/06/2023 1.0 1.7% 2.4
NiKang 09/09/2020 30/06/2023 1.0 1.6% 2.8
Abdera 04/04/2023 30/06/2023 1.0 0.0% 0.2
Allurion 23/02/2023 30/06/2023 1.0 0.0% 0.3
Cargo 09/02/2023 30/06/2023 1.0 0.0% 0.4
Oricell 24/02/2023 30/06/2023 1.0 0.0% 0.3
Tourmaline 02/05/2023 30/06/2023 1.0 0.0% 0.2
Ventyx ² 26/02/2021 20/03/2023 1.0 0.0% 2.1
Kyverna 09/11/2021 30/06/2023 1.0 0.0% 1.6
GH Research 09/04/2021 30/06/2023 1.0 -1.7% 2.2
Artios 27/07/2021 30/06/2023 1.0 -2.2% 1.9
Nuance 07/12/2020 30/06/2023 0.9 -2.4% 2.6
Artiva 23/02/2021 30/06/2023 0.9 -3.4% 2.3
C4 Therapeutics ² 02/06/2020 08/02/2023 0.9 -4.9% 2.7
Lenz Therapeutics 13/04/2022 30/06/2023 0.9 -5.3% 1.2
Beta Bionics 28/06/2019 30/06/2023 0.8 -7.0% 4.0
Lycia 02/09/2021 30/06/2023 0.9 -7.6% 1.8
Milestone 23/07/2020 30/06/2023 0.9 -8.7% 2.9
Orchestra 28/06/2019 30/06/2023 0.8 -9.3% 4.0
Biomea ² 23/12/2020 24/01/2022 0.9 -10.2% 1.1
Swift Health 27/08/2021 30/06/2023 0.7 -15.4% 1.8
Umoja 09/06/2021 30/06/2023 0.7 -16.3% 2.1
Monte Rosa ² 12/03/2021 02/02/2023 0.7 -19.2% 1.9
Tenaya ² 17/12/2020 08/02/2023 0.2 -51.1% 2.1
Landos ² 09/08/2019 02/11/2022 0.1 -55.0% 3.2
Third Harmonic ² 17/12/2021 12/04/2023 0.2 -67.1% 1.3
Pyxis ² 08/03/2021 08/07/2022 0.2 -70.5% 1.3
Neurogastrx 25/06/2021 30/06/2023 0.1 -73.2% 2.0
Alcyone 08/06/2021 30/06/2023 0.0 -87.5% 2.1
Yarrow 14/05/2021 30/06/2023 0.1 -97.0% 2.1
Visus 26/01/2021 30/06/2023 0.0 -98.2% 2.4
AVERAGE 1.6 18.0% 2.0
1 Alternative Performance Measure
2 Exited position
3 The valuation date for all investments still held at the period end was 30
June 2023. Dates other than 30 June 2023 are the dates that a position was
exited.
Table 10. Performance of Rocket Pharmaceuticals from admission to 30 June 2023
Share price at admission Share price at 30 June 2023 Share price return %
Rocket Pharmaceuticals US$14.00 US$19.87 42%
Sector review and outlook
Pharma went shopping in the first half of the year. Total deal value of US$93
billion puts sector M&A activity on track to be at the highest level since
2019. 2019's US$328 billion total was driven by two large deals,
Bristol-Meyers' US$74 billion for Celgene Corporation and AbbVie's US$63
billion for Allergan plc, both focused on diversification and cost savings. In
contrast, recent deals have been about innovative assets that can deliver
growth. Deal highlights include Pfizer's US$43 billion for Seagen Inc.,
Merck's US$11 billion for Prometheus, Novartis' US$3.2 billion for Chinook
Therapeutics, Sanofi's acquisition of Provention Bio for US$2.9 billion and
Lilly's US$2.4 billion for Dice Therapeutics. Premiums ranged from 30% for
Seagen up to 270% for Provention Bio and proxies tell the story of competitive
processes. Of the three large cap pharma companies we have highlighted as most
in need of patent cliff revenue replenishment (Bristol, Pfizer, and Merck),
only Pfizer has addressed a significant part of its exclusivity losses this
decade, not to mention the potential impact of the Inflation Reduction Act
(IRA) on small molecule portfolios. With attractive valuations for midcap
biotech companies and record (and growing) cash piles on large cap pharma
balance sheets, we think these deals will continue.
Despite the strong pick-up in M&A, the biotech sector's burgeoning
recovery from the second worst bear market in its history flattered to deceive
in the first half of the year. From the low in mid-May last year to the end of
January this year, the Russell 2000 Biotech Index rallied over 40%, but then
finished the first quarter -7.3%. It rallied back slightly in the second
quarter to finish the first half +5.3%, but it was the only sector index to
finish the half in meaningfully positive territory. The pharma heavy Arca
index was +0.7%, the large cap heavy NBI was -3.2%, and the most commonly
traded small cap index, the XBI, was +0.2%. At US$85.00, the XBI is trading at
approximately the same level as it was in 2015 and only marginally above last
year's lows when adjusting for subsequent take-outs and transformational
clinical data. As a result, sector valuations remain attractive. The NBI is
trading at 5.8x price to sales, which is still only 29% above Global Financial
Crisis lows. At the smaller end of the spectrum, 180 of the 578 companies with
less than US$10 billion of market capitalisation are trading at less than the
cash on their balance sheets.
We suspect that some negative sector headlines might have impacted sentiment
in the short term (without impacting fundamentals too much). The FTC Chair
Lina Khan's push to expand the definition of anti-competitiveness beyond
portfolio overlap likely dampened excitement about M&A. In the FTC's
lawsuit to block Amgen's acquisition of Horizon Therapeutics, Khan introduced
theoretical product bundling of non-overlapping products as an argument to
block the deal. While we think the odds are low, should courts decide in
favour of the FTC, agreements not to bundle across products seem a
straightforward remedy in the same way that there were no pharma deals in the
last decade that were blocked due to portfolio overlap - any issues were
solvable with the divestiture of overlapping products.
The banking crisis in the first quarter also likely weighed on sentiment,
especially with "biotech bank", Silicon Valley Bank ("SVB"), featuring so
heavily. This was made moot by the deposit backstop, and SVB's orderly
wind-down should have no material impact on biotech funding. However, it did
conceal two significant M&A deals that happened on the same weekend:
Pfizer-Seagen was the biggest deal since 2019 and Sanofi-Provention was the
biggest premium paid so far this year.
Another reason the sector's recovery has decelerated is likely the strong
performance in the technology sector, driven by interest in AI. The
year-to-date performance divergence between tech and biotech is as wide as it
has ever been. For biotech, the near-term opportunity to apply AI is in the
laborious idea generation and screening phases of target discovery and
molecular design, making these processes more efficient. This is clearly more
incremental rather than transformational, as the market thinks AI will be for
some large cap tech names, which have driven the sector's returns, pulling
growth capital flows away from other sectors.
The good news is that capital markets activity is showing some improvement on
top of the M&A already mentioned. Follow-on activity has been solid,
rewarding those drug developers that can deliver successful data or news, with
many of these offerings being oversubscribed and upsized. IPO activity is
still slow with only three significant biotech debuts this year. Two more IPOs
took place after the end of the reporting period, and they performed well on
debut. We think that our portfolio company Apogee Therapeutics' upsized IPO in
July may augur well for a better IPO environment ahead given its strong
performance despite its being a pre-clinical company.
Finally, we believe that there is room for upside surprises with the Inflation
Reduction Act ("IRA"), as we approach implementation later this year. The
market appears to have assumed that Medicare price negotiations are
effectively early genericisation with dramatic and immediate price drops. Amid
this sentiment, we think there could be some upside optionality. For example,
the negotiation framework leaves the door open for more modest price
reductions, especially for drugs that address high unmet needs with limited
alternatives. What's more, pharma companies are now challenging the IRA in
courts. In our view, if there is anything that ameliorates the worst-case
scenarios, then this will likely be interpreted as positive for the sector.
Key portfolio company events post period end
On 17 July 2023, Apogee Therapeutics, a pre-clinical company focused on
inflammation, went public through an upsized IPO, raising US$300 million. The
company started trading on the Nasdaq under the ticker symbol "APGE".
Outlook for the remainder of 2023: A plan for future sustainability reporting
and policy
Following the Board's directive in the second quarter to develop an approach
to ESG for RTW Biotech Opportunities Ltd, the Group engaged sustainability
advisory firm, Terra Instinct, to be its partner in developing a new policy
and investor reporting. As an independent third party, Terra Instinct will
take stock of the Investment Manager's investment process, governance
infrastructure, and other relevant controls and procedures to help craft an
ESG policy and framework for future reporting, including the presentation of
estimates and carbon emissions metrics, all with a view to being in line with
relevant standards. The first reporting is expected in the 2023 Annual Report.
RTW Investments, LP
12 September 2023
Statement of Principal Risks and Uncertainties for the Remaining Six Months of
the year to 31 December 2023
As described in the Group's annual consolidated financial statements for the
year ended 31 December 2022, the Group's principal and emerging risks and
uncertainties include the following:
- Failure to achieve investment objective;
- Counterparty risk;
- The Investment Manager relies on key personnel;
- Portfolio companies may be subject to litigation;
- Exposure to global political and economic risks;
- Clinical development and regulatory risks;
- Imposition of pricing controls for clinical products and services;
- Inflation;
- Ukraine war;
- Availability of capital;
- Liquidity risk.
The Board believes that these risks are unchanged in respect of the remaining
six months of the year to 31 December 2023.
Further information in relation to these principal risks and uncertainties may
be found on pages 34 to 36 of the Group's annual report and audited
consolidated financial statements for the year ended 31 December 2022.
These inherent risks associated with investments in the biotech and
pharmaceutical sector could result in a material adverse effect on the Group's
performance and value of the Ordinary Shares.
Risks are mitigated and managed by the Board through continual review, policy
setting and regular reviews of the Group's risk matrix by the Audit Committee
to ensure that procedures are in place with the intention of minimising the
impact of the above-mentioned risks. The Board carried out a formal review of
the risk matrix at the Audit Committee meeting held on 27 July 2023. The Board
relies on periodic reports provided by the Investment Manager and
Administrator regarding risks that the Group faces. When required, experts
will be employed to gather information, including tax advisers and legal
advisers.
Statement of Directors' Responsibilities
The Directors confirm to the best of their knowledge that:
- the unaudited interim consolidated financial statements have been
prepared in conformity with US generally accepted accounting principles; and
- the interim management report (which includes the Chair's Statement,
Report of the Investment Manager and Statement of Principal Risks and
Uncertainties) together with the unaudited interim consolidated financial
statements include a fair review of the information required by:
a. DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an
indication of important events that have occurred during the first six months
of the financial year and their impact on the unaudited interim consolidated
financial statements; and a description of the principal risks and
uncertainties for the remaining six months of the financial year; and
b. DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being
related party transactions that have taken place during the first six months
of the financial year and that have materially affected the financial position
or performance of the Group during that period; and any changes in the related
party transactions described in the last annual report that could do so.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Group's website
(https://www.rtwfunds.com/rtw-biotech-opportunities-ltd). Legislation in
Guernsey governing the preparation and dissemination of financial statements
may differ from legislation in other jurisdictions.
By order of the Board
William Simpson Paul Le Page
Chair Director
12 September 2023 12 September 2023
INDEPENDENT REVIEW REPORT TO RTW BIOTECH OPPORTUNITIES LTD (formerly RTW Venture Fund Limited)
Conclusion
We have been engaged by RTW Biotech Opportunities Ltd (formerly RTW Venture
Fund Limited)(the "Company") to review the consolidated financial statements
in the half-yearly financial report for the six months ended 30 June 2023 of
the Company and its subsidiary (together, the "Group"), which comprises the
unaudited interim consolidated statement of assets and liabilities including
the unaudited interim consolidated condensed schedule of investments, the
unaudited interim consolidated statements of operations, changes in net assets
and cash flows and the related explanatory notes.
Based on our review, nothing has come to our attention that causes us to
believe that the consolidated financial statements in the half-yearly
financial report for the period ended 30 June 2023 do not give a true and
fair view of the financial position of the Company as at 30 June 2023 and of
its financial performance and its cash flows for the six month period then
ended, in conformity with U.S. generally accepted accounting principles and
the Disclosure Guidance and Transparency Rules ("the DTR") of the UK's
Financial Conduct Authority ("the UK FCA").
Scope of review
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410 Review of Interim Financial Information Performed by the
Independent Auditor of the Entity ("ISRE (UK) 2410") issued by the Financial
Reporting Council for use in the UK. A review of interim financial
information consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other review
procedures. We read the other information contained in the half-yearly
financial report and consider whether it contains any apparent misstatements
or material inconsistencies with the information in the consolidated financial
statements.
A review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK) and consequently does not enable
us to obtain assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not express an audit
opinion.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Scope of review section of this report,
nothing has come to our attention to suggest that the directors have
inappropriately adopted the going concern basis of accounting or that the
directors have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
ISRE (UK) 2410. However future events or conditions may cause the Group or the
Company to cease to continue as a going concern, and the above conclusions are
not a guarantee that the Group and the Company will continue in operation.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been
approved by, the directors. The directors are responsible for preparing the
interim financial report in accordance with the DTR of the UK FCA.
The consolidated financial statements included in this interim report have
been prepared in accordance with U.S. generally accepted accounting
principles.
In preparing the half-yearly financial report, the directors are responsible
for assessing the Group and the Company's ability to continue as a going
concern, disclosing, as applicable, matters related to going concern and using
the going concern basis of accounting unless liquidation is imminent.
Our responsibility
Our responsibility is to express to the Company a conclusion on
the consolidated financial statements in the half-yearly financial report
based on our review. Our conclusion, including our conclusions relating to
going concern, are based on procedures that are less extensive than audit
procedures, as described in the scope of review paragraph of this report.
The purpose of our review work and to whom we owe our responsibilities
This report is made solely to the Company in accordance with the terms of our
engagement letter to assist the Company in meeting the requirements of the DTR
of the UK FCA. Our review has been undertaken so that we might state to the
Company those matters we are required to state to it in this report and for no
other purpose. To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the Company for our review work,
for this report, or for the conclusions we have reached.
Dermot Dempsey
For and on behalf of KPMG Channel Islands Limited
Chartered Accountants
Guernsey
12 September 2023
Unaudited Interim Consolidated Statement of Assets and Liabilities
as at 30 June 2023 and 31 December 2022
(Expressed in United States Dollars)
30 June 2023 31 December 2022
(unaudited) (audited)
ASSETS:
Investments in securities, at fair value (cost at 30 June 2023: $269,083,089; 319,379,663 350,125,577
31 December 2022:
$259,472,596)
Derivative contracts, at fair value 17,299,695
(cost at 30 June 2023: $3,137,223;
31 December 2022: $2,614,659) 21,467,649
Cash and cash equivalents 9,471,726 6,966,168
Due from brokers 69,744,112 22,195,456
Receivable from unsettled trades 140,511 439,798
Other assets 508,574 345,750
TOTAL ASSETS 416,544,281 401,540,398
LIABILITIES:
Securities sold short, at fair value 19,098,561 12,438,334
(proceeds at 30 June 2023: $18,620,507;
31 December 2022: $15,407,927)
Derivative contracts, at fair value 5,664,527 8,926,743
(proceeds at 30 June 2023: $nil;
31 December 2022: $nil)
Due to brokers 8,106,390 25,823,016
Payable for unsettled trades 2,463,202 5,561,560
Accrued expenses 796,444 866,756
TOTAL LIABILITIES 36,129,124 53,616,409
TOTAL NET ASSETS 380,415,157 347,923,989
NET ASSETS attributable to Ordinary Shares 356,530,733 326,079,521
(shares at 30 June 2023: 212,389,138;
31 December 2022: 212,389,138)
NET ASSETS attributable to Non-Controlling Interest 23,884,424 21,844,468
1.6787 1.5353
NAV per Ordinary Share
The unaudited interim consolidated financial statements of the Group were
approved and authorised for issue by the Board of Directors on 12 September
2023 and signed on its behalf by:
William Simpson
Paul Le Page
Chair
Director
See accompanying notes to the unaudited interim consolidated financial
statements.
Unaudited Interim Consolidated Condensed Schedule of Investments
as at 30 June 2023
(Expressed in United States Dollars)
Descriptions Number of Shares Cost Fair Value Percentage of Net Assets
Investments in securities, at fair value
Common stocks
United States
Healthcare
Rocket Pharmaceuticals, Inc. 2,400,755 8,188,796 47,703,002 12.54
Others* 127,515,791 121,984,566 32.07
Total United States 135,704,587 169,687,568 44.61
Netherlands
Healthcare 6,553,862 7,843,162 2.06
Ireland
Healthcare 6,637,310 6,368,860 1.67
British Virgin Islands
Healthcare 776,929 1,264,551 0.33
Bermuda
Healthcare 808,297 992,316 0.26
China
Healthcare
Ji Xing Pharmaceuticals Ltd. 541,205 216,482 595,382 0.16
Canada
Healthcare 2,752,161 557,697 0.15
Cayman Islands
Financials 46,790 49,270 0.01
Healthcare 84,830 432,632 0.11
Total Cayman Islands 131,620 481,902 0.12
Total common stocks 153,581,248 187,791,438 49.36
* No individual investment security or contract constitutes greater than 5
percent of net assets.
See accompanying notes to the unaudited interim consolidated financial
statements.
Unaudited Interim Consolidated Condensed Schedule of Investments (continued)
as at 30 June 2023
(Expressed in United States Dollars)
Descriptions Number of Shares Cost Fair Value Percentage of Net Assets
Investments in securities, at fair value (continued)
Convertible preferred stocks
United States
Healthcare* 42,502,730 35,071,074 9.22
China
Healthcare
Ji Xing Pharmaceuticals Ltd. 10,599,945 14,824,184 16,299,307 4.28
Others 1,771,208 1,665,285 0.44
Total China 16,595,392 17,964,592 4.72
Ireland
Healthcare 1,093,042 2,164,154 0.57
Switzerland
Healthcare 1,729,518 1,852,448 0.49
Total convertible preferred stocks 61,920,682 57,052,268 15.00
American depository receipts
United Kingdom
Healthcare
Immunocore Holdings plc 462,249 11,872,691 27,716,450 7.29
Netherlands
Healthcare 8,497,764 9,584,240 2.52
Ireland
Healthcare 1,701,274 3,345,424 0.88
Sweden
Healthcare 178,258 260,325 0.07
Total American depository receipts 22,249,987 40,906,439 10.76
Convertible notes
China
Healthcare
Ji Xing Pharmaceuticals Ltd. 978,174 9,781,740 10,691,858 2.81
Canada
Healthcare 7,512,664 7,512,660 1.97
United States
Healthcare 2,221,835 338,228 0.09
Total convertible notes 19,516,239 18,542,746 4.87
* No individual investment security or contract constitutes greater than 5
percent of net assets.
See accompanying notes to the unaudited interim consolidated financial
statements.
Unaudited Interim Consolidated Condensed Schedule of Investments (continued)
as at 30 June 2023
(Expressed in United States Dollars)
Descriptions Number of Shares Cost Fair Value Percentage of Net Assets
Investments in securities, at fair value (continued)
Investment in private investment companies
Ireland
Healthcare 11,814,933 15,086,772 3.97
Total investment in private investment companies 11,814,933 15,086,772 3.97
Total investments in securities, at fair value 269,083,089 319,379,663 83.96
See accompanying notes to the unaudited interim consolidated financial
statements.
Unaudited Interim Consolidated Condensed Schedule of Investments (continued)
as at 30 June 2023
(Expressed in United States Dollars)
Descriptions Number of contracts Cost Fair Value Percentage of Net Assets
Derivative contracts - assets, at fair value
Equity swaps
United States
Healthcare 11,888,081 3.13
British Virgin Islands
Healthcare 2,093,912 0.55
Ireland
Healthcare 662,644 0.17
Total equity swaps 14,644,637 3.85
Warrants
Canada
Healthcare 2,462,706 1,507,276 0.40
United States
Healthcare
Rocket Pharmaceuticals, Inc. 10,709 6,282 2,035 0.00
Others 668,235 604,041 0.16
Total United States 674,517 606,076 0.16
Total warrants 3,137,223 2,113,352 0.56
Contingent value rights
United States
Healthcare 541,706 0.14
Total contingent value rights 541,706 0.14
Total derivative contracts - assets, at fair value 3,137,223 17,299,695 4.55
See accompanying notes to the unaudited interim consolidated financial
statements.
Unaudited Interim Consolidated Condensed Schedule of Investments (continued)
as at 30 June 2023
(Expressed in United States Dollars)
Descriptions Proceeds Fair Value Percentage of Net Assets
Securities sold short, at fair value
Common stocks
United States
Healthcare 16,920,032 16,944,342 4.46
Bermuda
Healthcare 937,113 992,316 0.26
Cayman Islands
Financials 46,135 49,270 0.01
Healthcare 46,260 432,633 0.11
Total Cayman Islands 92,395 481,903 0.12
Netherlands
Healthcare 347,970 419,675 0.11
Total common stocks 18,297,510 18,838,236 4.95
American depository receipts
Sweden
Healthcare 322,997 260,325 0.07
Total American depository receipts 322,997 260,325 0.07
Total securities sold short, at fair value 18,620,507 19,098,561 5.02
Descriptions Fair Value Percentage of Net Assets
Derivative contracts - liabilities, at fair value
Equity swaps
United States
Healthcare 5,583,588 1.47
Index 80,939 0.02
Total United States 5,664,527 1.49
Total derivative contracts - liabilities, at fair value 5,664,527 1.49
See accompanying notes to the unaudited interim consolidated financial
statements.
Audited Consolidated Condensed Schedule of Investments
as at 31 December 2022
(Expressed in United States Dollars)
Descriptions Number of Shares Cost Fair Value Percentage of Net Assets
Investments in securities, at fair value
Common stocks
United States
Healthcare
Prometheus Biosciences, Inc. 670,916 6,802,058 52,946,904 15.22
Rocket Pharmaceuticals, Inc. 2,400,755 8,188,796 46,982,775 13.50
Others* 124,096,539 118,157,365 33.96
Total United States 139,087,393 218,087,044 62.68
Netherlands
Healthcare 4,368,486 5,345,551 1.54
Ireland
Healthcare 4,099,988 2,981,309 0.86
Canada
Healthcare 3,275,323 1,012,216 0.29
British Virgin Islands
Healthcare 547,564 997,552 0.29
China
Healthcare
Ji Xing Pharmaceuticals Ltd. 541,205 216,482 600,738 0.17
Cayman Islands
Financials 254,581 257,459 0.07
Healthcare 188,880 194,370 0.06
Total Cayman Islands 443,461 451,829 0.13
Bermuda
Healthcare 260,330 208,004 0.06
Belgium
Healthcare 165,629 32,919 0.01
Total common stocks 152,464,656 229,717,162 66.03
* No individual investment security or contract constitutes greater than 5
percent of net assets.
See accompanying notes to the unaudited interim consolidated financial
statements.
Audited Consolidated Condensed Schedule of Investments (continued)
as at 31 December 2022
(Expressed in United States Dollars)
Descriptions Number of Cost Fair Value Percentage of Net Assets
Shares
Investments in securities, at fair value (continued)
Convertible preferred stocks
United States
Healthcare* 44,011,844 38,108,351 10.95
China
Healthcare
Ji Xing Pharmaceuticals Ltd. 10,599,945 14,824,185 16,433,316 4.73
Others 1,771,209 1,622,898 0.47
Total China 16,595,394 18,056,214 5.20
Switzerland
Healthcare 1,729,518 1,768,384 0.51
Ireland
Healthcare 116,545 117,696 0.03
Total convertible preferred stocks 62,453,301 58,050,645 16.69
American depository receipts
United Kingdom
Healthcare
Immunocore Holdings plc 453,985 11,440,789 25,908,924 7.45
Others 1,064,820 813,170 0.23
Total United Kingdom 12,505,609 26,722,094 7.68
Netherlands
Healthcare 8,996,563 9,918,906 2.85
Ireland
Healthcare 893,338 961,567 0.28
Sweden
Healthcare 339,248 528,539 0.15
Israel
Healthcare 372,743 98,985 0.03
Total American depository receipts 23,107,501 38,230,091 10.99
* No individual investment security or contract constitutes greater than 5
percent of net assets.
See accompanying notes to the unaudited interim consolidated financial statements.
Audited Consolidated Condensed Schedule of Investments (continued)
as at 31 December 2022
(Expressed in United States Dollars)
Descriptions Number of Shares Cost Fair Value Percentage of Net Assets
Investments in securities, at fair value (continued)
Investment in private investment companies
Ireland
Healthcare 11,814,933 14,074,846 4.04
Total investment in private investment companies 11,814,933 14,074,846 4.04
Convertible notes
China
Healthcare
Ji Xing Pharmaceuticals Ltd. 762,474 7,624,737 8,191,552 2.35
United States
Healthcare 2,007,468 1,861,281 0.53
Total convertible notes 9,632,205 10,052,833 2.88
Total investments in securities, at fair value 259,472,596 350,125,577 100.63
See accompanying notes to the unaudited interim consolidated financial
statements.
Audited Consolidated Condensed Schedule of Investments (continued)
as at 31 December 2022
(Expressed in United States Dollars)
Descriptions Cost Fair Value Percentage of Net Assets
Derivative contracts - assets, at fair value
Equity swaps
United States
Healthcare 16,781,963 4.83
British Virgin Islands
Healthcare 2,097,803 0.60
Ireland
Healthcare 206,563 0.06
Total equity swaps 19,086,329 5.49
Warrants
Canada
Healthcare 1,939,543 1,858,925 0.53
United States
Healthcare 674,517 522,337 0.15
Cayman Islands
Financials 599 58 0.00
Total warrants 2,614,659 2,381,320 0.68
Total derivative contracts - assets, at fair value 2,614,659 21,467,649 6.17
See accompanying notes to the unaudited interim consolidated financial
statements.
Audited Consolidated Condensed Schedule of Investments (continued)
as at 31 December 2022
(Expressed in United States Dollars)
Descriptions Proceeds Fair Value Percentage of Net Assets
Securities sold short, at fair value
Common stocks
United States
Healthcare 14,521,155 11,500,094 3.31
Netherlands
Healthcare 293,711 221,800 0.06
Cayman Islands
Financials 96,480 98,829 0.03
Healthcare 46,260 89,072 0.03
Total Cayman Islands 142,740 187,901 0.06
Total common stocks 14,957,606 11,909,795 3.43
American depository receipts
Sweden
Healthcare 450,321 528,539 0.15
Total American depository receipts 450,321 528,539 0.15
Total securities sold short, at fair value 15,407,927 12,438,334 3.58
Descriptions Fair Value Percentage of Net Assets
Derivative contracts - liabilities, at fair value
Equity swaps
United States
Healthcare 7,041,281 2.02
Index 1,860,052 0.54
Total United States 8,901,333 2.56
Israel
Healthcare 25,410 0.01
Total derivative contracts - liabilities, at fair value 8,926,743 2.57
See accompanying notes to the unaudited interim consolidated financial
statements.
Unaudited Interim Consolidated Statement of Operations
For the six month periods ended 30 June 2023 and 30 June 2022
(Expressed in United States Dollars)
1 January 2023 to 1 January 2022 to
30 June 2023 30 June 2022
(unaudited) (unaudited)
Investment income
Interest 1,089,563 95,611
(net of withholding taxes of $nil; 30 June 2022: $nil)
Dividends (net of withholding taxes of $nil; 30 June 2022: $1,041) 455,581 603,135
Other 341,807 -
Total investment income 1,886,951 698,746
Expenses
Management fees 2,115,840 1,889,306
Interest 1,106,575 132,354
Professional fees 388,034 378,758
Research costs 247,998 420,054
Audit fees 235,641 117,100
Administrative fees 199,914 160,113
Directors' fees 87,798 102,434
Dividends - 2,372
Other expenses 234,829 146,595
Total expenses 4,616,629 3,349,086
Net investment income/(loss) (2,729,678) (2,650,340)
Realised and change in unrealised gain/(loss) on investments, derivatives and
foreign currency transactions
Net realised gain/(loss) on securities and foreign currency transactions 81,097,820 17,933,993
Net change in unrealised gain/(loss) on securities and foreign currency (43,904,533) (124,566,690)
translation
Net realised gain/(loss) on derivative contracts (544,139) (2,150,440)
Net change in unrealised gain/(loss) on derivative contracts (1,428,302) 7,569,273
Net realised and unrealised gain/(loss) on investments, derivatives and 35,220,846 (101,213,864)
foreign currency transactions
Net increase/(decrease) in net assets resulting from operations 32,491,168 (103,864,204)
See accompanying notes to the unaudited interim consolidated financial statements.
Unaudited Interim Consolidated Statement of Changes in Net Assets
For the six month period ended 30 June 2023
(Expressed in United States Dollars)
Ordinary Non-Controlling Interest
Share Class
Net assets, beginning of period 326,079,521 21,844,468
Operations
Net investment income/(loss) (2,729,678) -
Net realised gain/(loss) on securities and foreign currency transactions 81,097,820 -
Net change in unrealised gain/(loss) on securities and foreign currency (43,904,533) -
translation
Net realised gain/(loss) on derivative contracts (544,139) -
Net change in unrealised gain/(loss) on derivative contracts (1,428,302) -
Income/(loss) attributable to Non-Controlling Interest (2,039,956) 2,039,956
Net change in net assets resulting from operations 30,451,212 2,039,956
Net assets, end of period 356,530,733 23,884,424
See accompanying notes to the unaudited interim consolidated financial
statements.
Unaudited Interim Consolidated Statement of Changes in Net Assets
For the six month period ended 30 June 2022
(Expressed in United States Dollars)
Ordinary Performance Allocation Share Class Total Shareholders' Funds
Share Class
Net assets, beginning of period 363,040,222 24,320,504 387,360,726
Operations
Net investment income/(loss) (2,650,340) - (2,650,340)
Net realised gain/(loss) on securities and foreign currency transactions 17,933,993 - 17,933,993
Net change in unrealised gain/(loss) on securities and foreign currency (124,566,690) - (124,566,690)
translation
Net realised gain/(loss) on derivative contracts (2,150,440) - (2,150,440)
Net change in unrealised gain/(loss) on derivative contracts 7,569,273 - 7,569,273
Performance Allocation 6,521,130 (6,521,130) -
Net change in net assets resulting from operations (97,343,074) (6,521,130) (103,864,204)
Net assets, end of period 265,697,148 17,799,374 283,496,522
See accompanying notes to the unaudited interim consolidated financial statements.
Unaudited Interim Consolidated Statement of Cash Flows
For the six month periods ended 30 June 2023 and 30 June 2022
(Expressed in United States Dollars)
1 January 2023 to 1 January 2022 to
30 June 2023 30 June 2022
(unaudited) (unaudited)
Cash flows from operating activities
Net increase/(decrease) in net assets resulting from operations 32,491,168 (103,864,204)
Adjustments to reconcile net change in net assets resulting from operations to
net cash provided by/(used in) operating activities:
Net realised (gain)/loss on securities and foreign currency transactions (81,097,820) (17,933,993)
Net change in unrealised (gain)/loss on securities and foreign currency 43,904,533 124,566,690
translation
Net realised (gain)/loss on derivative contracts 544,139 2,150,440
Net change in unrealised (gain)/loss on derivative contracts 1,428,302 (7,569,273)
Effect of exchange rate changes on cash and cash equivalents (86,823) -
Purchases of investments in securities (62,998,246) (74,873,499)
Proceeds from sales of investments in securities 126,303,452 102,920,476
Proceeds from securities sold short 20,627,975 18,317,735
Payments for securities sold short (9,246,930) (7,713,126)
Proceeds from derivative contracts 4,325,394 909,574
Payments for derivative contracts (5,392,097) (3,326,611)
Changes in operating assets and liabilities:
Other assets (162,824) 121,011
Due from investments - (2,020,197)
(Receivable from)/payable for unsettled trades (2,799,071) (100,744)
Due to brokers (17,716,626) (24,634,775)
Accrued expenses (70,312) 10,108
Net cash provided by/(used in) operating activities 50,054,214 6,959,612
Cash flows from financing activities
Net proceeds from issuance of shares - -
Performance Allocation distribution - -
Net cash provided by/(used in) financing activities - -
Net change in cash and cash equivalents 50,054,214 6,959,612
Cash, cash equivalents, and restricted cash, beginning of the period 29,161,624 18,808,022
Cash, cash equivalents, and restricted cash, end of the period 79,215,838 25,767,634
At 30 June 2023, the amounts categorised in cash, cash equivalents, and
restricted cash include the following:
Cash and cash equivalents 9,471,726 7,555,421
Due from brokers 69,744,112 18,212,213
Total 79,215,838 25,767,634
Supplemental disclosure of cash flow information
Cash paid during the period for interest 1,149,630 135,420
See accompanying notes to the unaudited interim consolidated financial
statements.
1. Nature of operations and summary of significant accounting policies
RTW Biotech Opportunities Ltd, formerly known as RTW Venture Fund Limited (the
"Company"), is a publicly listed Guernsey non-cellular company limited by
shares. The Company was originally incorporated in the State of Delaware,
United States of America, and re-domiciled into Guernsey under the Companies
Law on 2 October 2019 with registration number 66847 on the Guernsey Register
of Companies. On 30 October 2019, all of the issued Ordinary Shares of the
Company were listed and admitted to trading on the Specialist Fund Segment of
the London Stock Exchange under the ticker symbol: RTW. Subsequently, on 6
August 2021, the Company's Ordinary Shares were admitted to trading on the
Premium Segment of the London Stock Exchange with the additional ticker
symbol: RTWG denoting the Sterling price. The original ticker, RTW, continues
to denote the US Dollar price.
On 22 June 2023, the Company changed its name from "RTW Venture Fund Limited"
to "RTW Biotech Opportunities Ltd".
On 1 December 2022 the Company changed its status for U.S. federal tax
purposes from a publicly traded partnership to a corporation. The Group
believes that the change in status will cause it to be treated as a passive
foreign investment company. This change has been necessitated by recent
changes to U.S. tax legislation due to come into effect from 1 January 2023.
The Company established a new wholly owned subsidiary, RTW Venture Fund
Operating Limited (the "Subsidiary"), to which it has transferred its right to
the profits and losses attributable to the Group's portfolio of assets. This
reorganisation has had no economic impact on shareholders. All the income and
expenses of the Subsidiary are consolidated with the income and expenses of
the Group. On 14 July 2023, the Subsidiary changed its name from "RTW Venture
Fund Operating Limited" to "RTW Biotech Opportunities Operating Ltd.".
The Group seeks to use equity capital (from the net proceeds of any share
issuance or, where appropriate, from the net proceeds of investment
divestments or other related profits) to provide seed and additional growth
capital to the private investments. To mitigate cash-drag, the uninvested
portion is invested across public stocks largely replicating the public stock
portfolios of RTW's existing US-based funds. The Group focuses on creating,
building, and supporting world-class life sciences, biopharmaceutical and
medical technology companies. The Group's investment objective is to generate
attractive risk-adjusted returns through investments in securities, both
equity and debt, long and short, of companies with a focus on the
pharmaceutical sector.
Pursuant to an investment management agreement, the Group is managed by RTW
Investments, LP, a Delaware limited partnership, to provide the Group with
discretionary portfolio management, risk management services and certain other
services. The Investment Manager is an investment adviser registered with the
U.S. Securities and Exchange Commission under the Investment Advisers Act of
1940.
Basis of presentation
The unaudited interim consolidated financial statements are expressed in
United States Dollars. The unaudited interim consolidated financial statements
which give a true and fair view and have been prepared in accordance with US
generally accepted accounting principles ("US GAAP") and are in compliance
with the Companies (Guernsey) Law, 2008. The entities comprised within the
Group are investment companies and follow the accounting and reporting
guidance in Financial Accounting Standards Board's ("FASB") Accounting
Standards Codification Topic 946, Financial Services - Investment Companies.
The Directors consider that it is appropriate to adopt a going concern basis
of accounting in preparing the unaudited interim consolidated financial
statements. In reaching this assessment, the Directors have considered a wide
range of information relating to present and future conditions including the
balance sheets, future projections, cash flows and the longer-term strategy of
the business
Principles of consolidation
The unaudited interim consolidated financial statements include accounts of
the Company consolidated with the accounts of the Subsidiary. All inter-group
balances have been eliminated upon consolidation. The Subsidiary is
incorporated in Guernsey.
Non-Controlling Interest
An affiliate of the Investment Manager, RTW Venture Performance LP, holds an
interest in the Subsidiary. The Non-Controlling Interest captures both
Performance Allocation and mark to market movements on the New Performance
Allocation Share held by RTW Venture Performance LP in the Subsidiary. For the
period ended 30 June 2023, the entirety of the income/(loss) attributable to
Non-Controlling Interest was comprised of mark to market movements of Notional
Ordinary Shares.
Cash, cash equivalents, and restricted cash
Cash represents cash deposits held at financial institutions. Cash equivalents
include short-term highly liquid investments of sufficient credit quality that
are readily convertible to known amounts of cash and have original maturities
of three months or less. Cash equivalents are carried at cost plus accrued
interest, which approximates fair value. Cash equivalents are held for the
purpose of meeting short-term liquidity requirements, rather than for
investment purposes. As at 30 June 2023 and 31 December 2022, the Group had no
cash equivalents.
Restricted cash is subject to a legal or contractual restriction by third
parties as well as a restriction as to withdrawal or use, including
restrictions that require the funds to be used for a specified purpose and
restrictions that limit the purpose for which the funds can be used. The Group
considers cash pledged as collateral for securities sold short, cash
collateral posted with counterparties for derivative contracts and further
amounts due from brokers to be restricted cash, as outlined in Note 3.
Fair value - definition and hierarchy
Fair value is defined as the price that would be received to sell an asset or
paid to transfer a liability (i.e. the 'exit price') in an orderly transaction
between market participants at the measurement date.
In determining fair value, the Group uses various valuation techniques. A fair
value hierarchy for inputs is used in measuring fair value that maximizes the
use of observable inputs and minimizes the use of unobservable inputs by
requiring that the most observable inputs are to be used when available.
Observable inputs are those that market participants would use in pricing the
asset or liability based on market data obtained from sources independent of
the Group.
Unobservable inputs reflect the Group's assumptions about the inputs market
participants would use in pricing the asset or liability based on the best
information available in the circumstances. The fair value hierarchy is
categorised into three levels based on the inputs as follows:
Level 1 - Valuations based on unadjusted quoted prices in active markets for
identical assets or liabilities that the Group has the ability to access.
Valuation adjustments are not applied to Level 1 investments. Since valuations
are based on quoted prices that are readily and regularly available in an
active market, valuation of these investments does not entail a significant
degree of judgement.
Level 2 - Valuations based on inputs, other than quoted prices included in
Level 1, that are observable, either directly or indirectly.
Level 3 - Valuations based on inputs that are unobservable and significant to
the overall fair value measurement.
Investments in private investment companies measured using net asset value as
a practical expedient are not categorized in the fair value hierarchy.
The availability of valuation techniques and observable inputs can vary from
investment to investment and is affected by a wide variety of factors,
including the type of investment, whether the investment is new and not yet
established in the marketplace, and other characteristics particular to the
transaction. To the extent that valuation is based on models or inputs that
are less observable or unobservable in the market, the determination of fair
value requires more judgement. Those estimated values do not necessarily
represent the amounts that may be ultimately realised due to the occurrence of
future circumstances that cannot be reasonably determined. Because of the
inherent uncertainty of valuation, those estimated values may be materially
higher or lower than the values that would have been used had a ready market
for the investments existed. Accordingly, the degree of judgement exercised by
the Group in determining fair value is greatest for investments categorised in
Level 3. In certain cases, the inputs used to measure fair value may fall into
different levels of the fair value hierarchy. In such cases, for disclosure
purposes, the level in the fair value hierarchy within which the fair value
measurement falls in its entirety is determined based on the lowest level
input that is significant to the fair value measurement.
Fair value is a market-based measure considered from the perspective of a
market participant rather than an entity-specific measure. Therefore, even
when market assumptions are not readily available, the Group's own assumptions
are set to reflect those that market participants would use in pricing the
asset or liability at the measurement date. The Group uses prices and inputs
that are current as of the measurement date, including periods of market
dislocation. In periods of market dislocation, the observability of prices and
inputs may be reduced for many investments. This condition could cause an
investment to be reclassified to a lower level within the fair value
hierarchy.
Fair value - valuation techniques and inputs
Investments in securities and securities sold short
Listed investments
The Group values investments in securities including exchange traded funds and
securities sold short that are freely tradable and are listed on a national
securities exchange or reported on the NASDAQ national market at their closing
sales price as of the valuation date. To the extent these securities are
actively traded and valuation adjustments are not applied, they are
categorised in Level 1 of the fair value hierarchy. Securities traded on
inactive markets or valued by reference to similar instruments or where a
discount may be applied are categorised in Level 2 or 3 of the fair value
hierarchy.
Unlisted investments
Unlisted investments are valued at fair value by the Directors following a
detailed review and appropriate challenge of the valuations proposed by the
Investment Manager. As part of their valuation process, the Investment Manager
engages Independent Valuers to challenge their assessed fair value on certain
unlisted investments. The Investment Manager's unlisted investment valuation
policy applies to techniques consistent with the IPEV Guidelines.
The valuation techniques applied are either a market-based approach, an income
approach such as discounted cash flows, or where available, a net asset value
practical expedient approach. A combination of the valuation techniques
mentioned may also be utilised. The IPEV Guidelines recognise that the price
of a recent transaction, if resulting from an orderly transaction, generally
represents fair value as at the transaction date and may be an appropriate
starting point for estimating fair value at subsequent measurement dates.
Consideration is given to the facts and circumstances as at the subsequent
measurement date including changes in the market and/or performance of the
investee company. Milestone analysis is used where appropriate to incorporate
operational progress at the investee company level. In addition, a trigger
event such as a subsequent round of financing by the investee company would
influence the market technique used to calibrate fair value at the measurement
date.
The market approach utilises guideline public companies relying on projected
revenues to derive an indicative enterprise value. Due to the nature of the
investments, being in the early stages of development, the projected revenues
are used as a proxy for stable state revenue. A selected multiple is then
applied based on the observed market multiples of the guideline public
companies. To reflect the risk associated with the achievement of the
projected revenues and the early development stage of each of the investments,
the indicative enterprise value is discounted at an appropriate rate.
The income approach utilises the discounted cash flow method. Projected cash
flows for each investment are discounted to determine an assumed enterprise
value.
Where applicable, the indicative enterprise value has been determined using a
back-solve model based on the pricing of the most recent round of financing.
The internal rate of return for each investment is compared to the selected
venture capital rate applied in the market approach to assess the
reasonableness of the indicated value implied by each financing round. The
derived enterprise value is allocated to the equity class on either a fully
diluted basis or using an option pricing model. The resulting indicative value
on a per share basis is then multiplied by the number of shares to derive the
fair market value.
American depository receipts
The Group values investments in American depositary receipts that are freely
tradable and are listed on a national securities exchange or reported on the
NASDAQ national market at their last reported sales price as of the valuation
date. These investments are categorised in Level 1 of the fair value
hierarchy.
Convertible bonds
Convertible bonds are recorded at fair value using valuation techniques based
on observable inputs. These instruments are generally categorised in Level 2
of the fair value hierarchy. In instances where significant inputs are
unobservable, convertible bonds are categorised in Level 3 of the fair value
hierarchy.
Convertible notes
The Group values investments in convertible notes in accordance with the
unlisted investments section above. As of 30 June 2023, these investments are
all categorised in Level 3 of the fair value hierarchy.
Convertible preferred stock
The Group values Level 1 investments in convertible preferred stock that are
listed on a national securities exchange at their closing sales price as of
the valuation date. Level 3 investments in convertible preferred stock are
valued in accordance with the unlisted investments section above. As of 30
June 2023, these investments are categorised in Level 1 and Level 3 of the
fair value hierarchy.
Investment in private investment companies
The Group values investment in private investment companies using the net
asset values provided by the underlying private investment companies as a
practical expedient. The Group applies the practical expedient to its private
investment companies on an investment-by-investment basis and consistently
with the Group's entire position in a particular investment, unless it is
probable that the Group will sell a portion of an investment at an amount
different from the net asset value of the investment.
Private investment in public equity
Private investment in public equity ("PIPE") cannot be offered for sale to the
public until the issuer complies with certain statutory or contractual
requirements. Such securities traded on inactive markets or valued by
reference to similar instruments or where a discount may be applied are
generally categorised in Level 2.
Derivative contracts
Equity swaps
Equity swaps may be centrally cleared or traded on the over-the-counter
market. The fair value of equity swaps is calculated based on the terms of the
contract and current market data, such as changes in fair value of the
reference asset. The fair value of equity swaps is generally categorised in
Level 2 of the fair value hierarchy.
Warrants
Warrants that are listed on major securities exchanges are valued at their
last reported sales price as of the valuation date. The fair value of
over-the-counter ("OTC") warrants is determined using the Black-Scholes option
pricing model, a valuation technique that follows the income approach. This
pricing model takes into account the contract terms (including maturity) as
well as multiple inputs, including time value, implied volatility, equity
prices, interest rates and currency rates. Warrants are categorised in all
levels of the fair value hierarchy.
Contingent value rights
Contingent value rights that are not traded on an organized facility are
valued using a market approach or such
other analysis and information as the Group may determine.
Fair value - valuation processes
The Group establishes valuation processes and procedures to ensure that the
valuation techniques are fair and consistent, and valuation inputs are
supportable. The Group designates the Investment Manager's Valuation Committee
to oversee the entire valuation process of the Group's investments. The
Valuation Committee comprises various members of the Investment Manager,
including those separate from the Group's portfolio management and trading
functions, and reports to the Board.
The Valuation Committee is responsible for developing the Group's written
valuation processes and procedures, conducting periodic reviews of the
valuation policies, and evaluating the overall fairness and consistent
application of the valuation policies.
The Investment Manager's Valuation Committee meets on a monthly basis or more
frequently, as needed, to determine the valuations of the Group's Level 3
investments. Valuations determined by the Valuation Committee are required to
be supported by market data, third-party pricing sources, industry-accepted
pricing models, counterparty prices or other methods they deem to be
appropriate, including the use of internal proprietary pricing models.
The Group periodically tests its valuations of Level 3 investments by
performing back-testing. Back-testing involves the comparison of sales
proceeds of those investments to the most recent fair values reported and, if
necessary, uses the findings to recalibrate its valuation procedures.
On a regular basis, the Group engages the services of third-party valuation
firms, the Independent Valuers, to perform an independent review of the
valuation of the Group's Level 3 investments and the Group may adjust its
valuations based on the recommendations from the Investment Manager's
Valuation Committee.
Translation of foreign currency
Assets and liabilities denominated in foreign currencies are translated into
United States Dollar amounts at the period-end exchange rates. Transactions
denominated in foreign currencies, including purchases and sales of
investments, and income and expenses, are translated into United States Dollar
amounts on the transaction date. Adjustments arising from foreign currency
transactions are reflected in the unaudited interim consolidated statement of
operations.
The Group does not isolate that portion of the results of operations arising
from the effect of changes in foreign exchange rates on investments from
fluctuations arising from changes in market prices of investments held. Such
fluctuations are included in net realised and change in unrealised gain/(loss)
on securities, derivatives and foreign currency transactions in the unaudited
interim consolidated statement of operations.
Reported net realised gain/(loss) from foreign currency transactions arise
from sales of foreign currencies; currency gains or losses realised between
the trade and settlement dates on securities transactions; and the difference
between the amounts of dividends, interest, and foreign withholding taxes
recorded on the Group's books and the United States Dollar equivalent of the
amounts actually received or paid.
Net change in unrealised gain/(loss) from foreign currency translation of
assets and liabilities arises from changes in the fair values of assets and
liabilities, other than investments in securities at the end of the period,
resulting from changes in exchange rates.
Investment transactions and related investment income
Investment transactions are accounted for on a trade date basis. Realised
gains and losses on investment transactions are determined using cost
calculated on first in, first out basis.
Dividends are recorded on the ex-dividend date and interest is recognised on
the accrual basis.
Withholding taxes on foreign dividends have been provided for in accordance
with the Group's understanding of the applicable country's rules and rates.
Offsetting of amounts related to certain contracts
Amounts due from and to brokers are presented on a net basis, by counterparty,
to the extent the Group has the legal right to offset the recognised amounts
and intends to settle on a net basis.
The Group has elected not to offset fair value amounts recognised for cash
collateral receivables and payables against fair value amounts recognised for
derivative positions executed with the same counterparty under the same master
netting arrangement. At 30 June 2023, the Group had cash collateral
receivables of $16,116,362 (31 December 2022: $16,384,706) (see Note 3) with
derivative counterparties under the same master netting arrangement.
Income taxes
On 1 December 2022, the Company changed its status for US federal tax purposes
from a publicly traded partnership ("PTP") to a corporation. This change by
the Board was necessitated due to recent changes to US tax legislation that
came into effect on 1 January 2023. Pursuant to this, the Company established
the Subsidiary, a partnership for US federal tax purposes, to which the
Company transferred its portfolio of assets and the attributable profits and
losses. The Company, as a corporation, is expected to be treated as a Passive
Foreign Investment Company ("PFIC") for US federal tax purposes.
The Company and Subsidiary are exempt from taxation in Guernsey and are each
charged an annual exemption fee of £1,200. The Group will only be liable to
tax in Guernsey in respect of income arising or accruing from a Guernsey
source, other than from a relevant bank deposit. It is not anticipated that
such Guernsey source taxable income will arise. The Group is managed so as not
to be resident in the UK for UK tax purposes.
The Group recognises tax benefits of uncertain tax positions only where the
position is more likely than not to be sustained assuming examination by a tax
authority based on the technical merits of the position. In evaluating whether
a tax position has met the recognition threshold, the Group must presume the
position will be examined by the appropriate taxing authority and that taxing
authority has full knowledge of all relevant information. A tax position
meeting the more likely than not recognition threshold is measured to
determine the amount of benefit to recognise in the Group's unaudited interim
consolidated financial statements. Income tax and related interest and
penalties would be recognised as a tax expense in the unaudited interim
consolidated statement of operations if the tax position was deemed to meet
the more likely than not threshold.
The Investment Manager has analysed the Group's tax positions and has
concluded no liability for unrecognised tax benefits should be recorded
related to uncertain tax positions. Further, management is not aware of any
tax positions for which it is reasonably possible the total amounts of
unrecognised tax benefits will significantly change in the next twelve months.
The Company and the Subsidiary each file income tax returns in the US federal
jurisdiction and, as applicable, in US state or local jurisdictions, or non-US
jurisdictions. Generally, the Group was subject to income tax examinations by
major taxing authorities for each tax period since inception. Based on its
analysis, the Group determined that it had not incurred any liability for
unrecognised tax benefits as of 30 June 2023 or 31 December 2022.
Use of estimates
Preparing unaudited interim consolidated financial statements in accordance
with US GAAP requires management to make estimates and assumptions in
determining the reported amounts of assets and liabilities, including the fair
value of investments, and disclosure of contingent assets and liabilities as
of the date of the unaudited interim consolidated financial statements and the
reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates.
New accounting pronouncements
In June 2022, the FASB issued ASU 2022-03, ASC Topic 820, "Fair Value
Measurement of Equity Securities Subject to Contractual Sale Restrictions".
The amendment clarifies that contractual sale restrictions should not be
considered when measuring the equity security's fair value and prohibits an
entity from recognizing a contractual sale restriction as a separate unit of
account. The amendments in this ASU are effective for the Group beginning
after 15 December 2024. Early adoption is permitted for both interim and
annual financial statements that have not yet been issued or made available
for issuance. The Group has chosen to early adopt this pronouncement as of 1
January 2023 and does not expect this guidance to have a material impact on
its consolidated financial statements and related disclosures.
2. Fair value measurements
The Group's assets and liabilities recorded at fair value have been
categorised based upon a fair value hierarchy as described in the Group's
significant accounting policies in Note 1.
The following table presents information about the Group's assets and
liabilities measured at fair value as of 30 June 2023:
Level 1 Level 2 Level 3 Investments measured at net asset value* Total
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
Assets (at fair value)
Investments in securities
Common stocks 185,754,591 1,265,582 771,265 - 187,791,438
Convertible preferred stocks 2,164,152 - 54,888,116 - 57,052,268
American depository
receipts
40,906,439 - - - 40,906,439
Convertible notes - - 18,542,746 - 18,542,746
Investment in private - - - 15,086,772 15,086,772
investment companies
Total investments in securities 228,825,182 1,265,582 74,202,127 15,086,772 319,379,663
Derivative contracts
Equity swaps - 14,644,637 - - 14,644,637
Warrants - 1,828,186 285,166 - 2,113,352
Contingent value rights - 541,706 - - 541,706
Total derivative contracts - 17,014,529 285,166 - 17,299,695
228,825,182 18,280,111 74,487,293 15,086,772 336,679,358
Liabilities (at fair value)
Securities sold short
Common stocks 18,788,966 49,270 - - 18,838,236
American depository receipts 260,325 - - - 260,325
Total securities sold short 19,049,291 49,270 - - 19,098,561
Derivative contracts
Equity swaps - 5,664,527 - - 5,664,527
Total derivative contracts - 5,664,527 - - 5,664,527
19,049,291 5,713,797 - - 24,763,088
* The Group's investment in private investment companies that are valued at
their net asset value are not categorized within the fair value hierarchy.
The following table presents information about the Group's assets and
liabilities measured at fair value as of 31 December 2022:
Level 1 Level 2 Level 3 Investments measured at net asset value* Total
(audited) (audited) (audited) (audited) (audited)
Assets (at fair value)
Investments in securities
Common stocks 225,817,734 534,871 3,364,557 - 229,717,162
Convertible preferred stocks 117,696 - 57,932,949 - 58,050,645
American depository
receipts
38,230,091 - - - 38,230,091
Investment in private - - - 14,074,846 14,074,846
investment companies
Convertible notes - - 10,052,833 - 10,052,833
Total investments in securities 14,074,846 350,125,577
264,165,521 534,871 71,350,339
Derivative contracts
Equity swaps - 19,086,329 - - 19,086,329
Warrants - 1,904,409 476,911 - 2,381,320
Total derivative contracts - 20,990,738 476,911 21,467,649
264,165,521 21,525,609 71,827,250 14,074,846 371,593,226
Liabilities (at fair value)
Securities sold short
Common stocks 11,810,966 98,829 - - 11,909,795
American depository receipts 528,539 - - - 528,539
Total securities sold short 12,339,505 98,829 - 12,438,334
Derivative contracts
Equity swaps - 8,926,743 - - 8,926,743
Total derivative contracts - 8,926,743 - - 8,926,743
12,339,505 9,025,572 - - 21,365,077
* The Group's investment in private investment companies that are valued at
their net asset value are not categorized within the fair value hierarchy.
Transfers between Levels 2 and 3 generally relate to whether significant
relevant observable inputs are available for the fair value measurements in
their entirety. See Note 1 for additional information related to the fair
value hierarchy and valuation techniques and inputs. For the period ended 30
June 2023, the Group had net transfers into Level 2 of $161,322 from Level 3
due to conversion into publicly traded common stocks subject to an unexpired
180-day lock-up as at 30 June 2023 (for the year ended 31 December 2022:
$4,555,194) and transfers into Level 1 of $9,331,273 from Level 3 due to
conversion into publicly traded common stocks (for the year ended 31 December
2022: $nil). Transfers between levels are deemed to occur at period/year end.
The following tables summarise the valuation techniques and significant
unobservable inputs used for the Group's investments that are categorised
within Level 3 of the fair value hierarchy as of 30 June 2023 and 31 December
2022:
Fair value at 30 June 2023 (unaudited) Valuation techniques Significant unobservable inputs Range of inputs
Assets (at fair value)
Investments in securities
Convertible preferred stocks 44,551,292 Discounted cash flow WACC 15% - 41%
and/or market approach Revenue multiples 2.5x - 4.0x
Market step-up multiple 0.7x - 1.3x
Market rate of returns (20)% - 25%
7,346,103 Price of most recent
funding round n/a n/a
2,990,721 Probability weighted expected return method ("PWERM") WACC 14% - 19%
Revenue multiples 4.0x
Market step-up multiple 0.9x - 1.6x
Market rate of returns (30)% - (5)%
Recovery rate 3%
Convertible notes 10,691,854 Discounted cash flow WACC 15%
and/or market approach Revenue multiples 4.0x
Market step-up multiple 0.7x - 1.1x
Market rate of returns (10)% - 0%
7,701,142 Price of most recent funding round n/a n/a
149,750 PWERM Market rate of returns (30)% - 0%
Recovery rate 3%
Common stocks 771,116 Discounted cash flow WACC 15%
and/or market approach Revenue multiples 0.2x - 4.0x
Market step-up 0.7x - 1.1x
multiple
Market rate of returns (10)% - 0%
149 Recent transaction price n/a n/a
Total investments in securities 74,202,127
Derivative contracts
Warrants 285,166 Discounted cash flow, WACC 33% - 37%
Market approach, Revenue multiple 4.0x
and/or option pricing Market rate of returns Expected volatility (13)% - 3%
model 43% - 50%
Total derivative contracts 285,166
Fair value at 31 December 2022 Valuation techniques Significant unobservable inputs Range of inputs
(audited)
Assets (at fair value)
Investments in securities
Convertible preferred stocks 50,023,996 Discounted cash flow WACC 13% - 33%
and/or market approach Revenue multiples 2.8x - 4.0x
Market step-up multiple
0.7x - 1.5x
Market rate of returns -30% - 20%
7,908,953 Price of most recent
funding round n/a n/a
Convertible notes 8,772,349 Discounted cash flow WACC 13%
and/or market approach Revenue multiples 4.0x
Market step-up multiple 0.7x - 1.1x
Market rate of returns 0%
1,280,484 PWERM Market rate of returns -30%
Recovery rate 0% - 50%
Common stocks 1,208,299 Discounted cash flow WACC 13%
and/or market approach Revenue multiples 0.2x - 4.0x
Market step-up 0.7x - 1.1x
multiple
Market rate of returns -10%
2,156,109 PWERM Probability of business 95%
combination
149 Price of most recent
funding round n/a n/a
Total investments in securities 71,350,339
Derivative contracts
Warrants 315,589 Discounted cash flow, WACC 33%
Market approach, Revenue multiple 4.0x
and/or option pricing Market rate of returns Expected volatility 10%
model 53%
161,322 PWERM Expected volatility 25%
Total derivative contracts 476,911
The significant unobservable inputs used in the fair value measurements of
Level 3 common stock, convertible preferred stocks, convertible notes, and
warrants include, but are not limited to, WACC, revenue and/or earnings
multiple, market rate of return, and expected volatility. Increases in the
WACC in isolation would result in a lower fair value for the security, and
vice versa. Increases in multiples and/or market rate of returns in isolation
would result in a higher fair value of the security, and vice versa. A change
in volatility in isolation could result in a higher or lower fair value for
the security.
The below table presents additional information about Level 3 assets and
liabilities measured at fair value. Both observable and unobservable inputs
may be used to determine the fair value of positions that the Group has
classified within the Level 3 category. As a result, the unrealised gains and
losses for assets and liabilities within the Level 3 category may include
changes in fair value that were attributable to both observable and
unobservable inputs.
Changes in Level 3 assets and liabilities measured at fair value for the
period ended 30 June 2023 were as follows:
Balance beginning 1 January 2023 Realised gains/ (losses)((a)) Change in Unrealised gains/ (losses)((a)) Purchases Sales Transfers into/(from) Level 3* Ending balance 30 June 2023
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
Assets (at fair value)
Investments in securities
Common stocks 3,364,557 - (437,183) - - (2,156,109) 771,265
Convertible preferred stocks 57,932,949 - (2,059,571) 6,189,902 - (7,175,164) 54,888,116
Convertible notes 10,052,833 - (1,394,121) 9,884,034 - - 18,542,746
Total investments in securities 71,350,339 - (3,890,875) 16,073,936 - (9,331,273) 74,202,127
Derivative contracts
Warrants 476,911 - (30,423) - - (161,322) 285,166
Total derivative contracts 476,911 - (30,423) - - (161,322) 285,166
* Includes conversion of convertible bonds into convertible preferred stock
and convertible notes.
Changes in Level 3 assets and liabilities measured at fair value for the year
ended 31 December 2022 were as follows:
Balance beginning 1 January 2022 Realised gains/ (losses)((a)) Change in Unrealised gains/ (losses)((a)) Purchases Sales Transfers into/(from) Level 3((b)) Ending balance 31 December 2022
(audited) (audited) (audited) (audited) (audited) (audited) (audited)
Assets (at fair value)
Investments in securities
Convertible preferred stocks 67,177,270 - (17,555,053) 12,142,203 - (3,831,471) 57,932,949
Common stocks 1,943,967 - (664,647) 2,085,237 - - 3,364,557
Convertible notes - - 420,628 8,195,772 - 1,436,433 10,052,833
Convertible bonds 723,723 - - 1,436,433 - (2,160,156) -
Total investments in securities 69,844,960 - (17,799,072) 23,859,645 - (4,555,194) 71,350,339
Derivative contracts
Warrants 134,008 - 76,306 266,597 - - 476,911
Total derivative contracts 134,008 - 76,306 266,597 - - 476,911
((a)) Realised and unrealised gains and losses are included in net realised
and change in unrealised gain/(loss) on investments, derivatives and
foreign currency transactions in the unaudited interim consolidated
statement of operations.
((b)) Conversions of preferred stock into common stock.
Changes in Level 3 unrealised gains and losses during the period for assets
still held at period end were as follows:
30 June 2023 31 December 2022
(unaudited) (audited)
Common stocks (16,125) (664,647)
Convertible notes (1,294,842) 420,628
Convertible preferred stocks (1,974,247) (13,404,700)
Warrants (30,423) 76,306
Change in unrealised gains and losses during the period for assets still held (3,315,637) (13,572,413)
at period end
Total realised gains and losses and unrealised gains and losses in the Group's
investment in securities, derivative contracts and securities sold short are
made up of the following gain and loss elements:
30 June 2023 31 December 2022
(unaudited) (audited)
Realised gains 101,384,363 47,604,728
Realised losses (20,830,682) (41,995,983)
Net realised gain on securities, derivative contracts and securities sold 80,553,681 5,608,745
short
30 June 2023 31 December 2022
(unaudited) (audited)
Change in unrealised gains 54,511,837 112,585,347
Change in unrealised losses (99,844,672) (152,339,558)
Net change in unrealised gain/(loss) on securities, derivative contracts and (45,332,835) (39,754,211)
securities sold short
As at 30 June 2023 the Group had commitments (subject to completion of certain
parameters) to certain investments totalling $5,628,584 (31 December 2022:
$2,544,486).
3. Due to/from brokers
Due to/from brokers includes cash balances held with brokers and collateral on
derivative transactions. Amounts due from brokers may be restricted to the
extent that they serve as deposits for securities sold short or cash posted as
collateral for derivative contracts.
As at 30 June 2023, due from brokers totalled $69,744,112 (31 December 2022:
$22,195,456). Included within due from brokers is $53,627,750 (31 December
2022: $5,810,750) which can be used for investment. The Group pledged cash
collateral to counterparties to over-the-counter derivative contracts of
$16,116,362 (31 December 2022: $16,384,706) which is included in due from
brokers.
In the normal course of business, substantially all of the Group's securities
transactions, money balances, and security positions are transacted with the
Group's prime brokers and counterparties, Goldman Sachs & Co. LLC, Cowen
Financial Products, LLC, UBS AG, Bank of America Merrill Lynch, Morgan Stanley
& Co. LLC, Jefferies & Co. and J.P. Morgan Securities, LLC. The Group
is subject to credit risk to the extent any broker with which it conducts
business is unable to fulfil contractual obligations on its behalf. The
Group's management monitors the financial condition of such brokers and does
not anticipate any losses from these counterparties.
4. Derivative contracts
In the normal course of business, the Group utilizes derivative contracts in
connection with its proprietary trading activities. Investments in derivative
contracts are subject to additional risks that can result in a loss of all or
part of an investment. The Group's derivative activities and exposure to
derivative contracts are classified by the primary underlying risk, equity
price risk and foreign currency exchange rate risk. In addition to its primary
underlying risk, the Group is also subject to additional counterparty risk due
to the inability of its counterparties to meet the terms of their contracts.
Warrants
The Group may receive warrants from its portfolio companies upon an investment
in the debt or equity of a portfolio company. The warrants provide the Group
with exposure and potential gains upon equity appreciation of the portfolio
company's share price.
The value of a warrant has two components: time value and intrinsic value. A
warrant has a limited life and expires on a certain date. As time to the
expiration date of a warrant approaches, the time value of a warrant will
decline. In addition, if the stock underlying the warrant declines in price,
the intrinsic value of an "in the money" warrant will decline. Further, if the
price of the stock underlying the warrant does not exceed the strike price of
the warrant on the expiration date, the warrant will expire worthless. As a
result, there is the potential for the Group to lose its entire investment in
a warrant.
The Group is exposed to counterparty risk from the potential failure of an
issuer of warrants to settle its exercised warrants. The maximum risk of loss
from counterparty risk to the Group is the fair value of the contracts and the
purchase price of the warrants. The Group considers the effects of
counterparty risk when determining the fair value of its investments in
warrants.
Equity swap contracts
The Group is subject to equity price risk in the normal course of pursuing its
investment objectives. The Group may enter into equity swap contracts either
to manage its exposure to the market or certain sectors of the market, or to
create exposure to certain equities to which it is otherwise not exposed.
Equity swap contracts involve the exchange by the Group and a counterparty of
their respective commitments to pay or receive a net amount based on the
change in the fair value of a particular security or index and a specified
notional amount.
Volume of derivative activities
The Group considers the average month-end notional amounts during the period,
categorised by primary underlying risk, to be representative of the volume of
its derivative activities during the period ended 30 June 2023:
30 June 2023 (unaudited) 31 December 2022 (audited)
Long exposure Short exposure Long exposure Short exposure
Primary underlying risk Notional amounts Notional amounts Notional amounts Notional amounts
Equity price
Equity swaps 68,199,619 59,402,138 48,774,292 56,273,944
Warrants((a)) 2,650,211 - 4,024,470 -
Contingent value rights 541,706 - - -
71,391,536 59,402,138 52,798,762 56,273,944
((a)) Notional amounts presented for warrants are based on the fair value of
the underlying shares as if the warrants were exercised at each respective
month end date.
Impact of derivatives on the unaudited interim consolidated statement of
assets and liabilities and unaudited interim consolidated statement of
operations
The following tables identify the fair value amounts of derivative instruments
included in the unaudited interim consolidated statement of assets and
liabilities as derivative contracts, categorised by primary underlying risk,
at 30 June 2023 and 31 December 2022. The following table also identifies the
gain and loss amounts included in the unaudited interim consolidated statement
of operations as net realised gain/(loss) on derivative contracts and net
change in unrealised gain/(loss) on derivative contracts, categorised by
primary underlying risk, for the period ended 30 June 2023 and 30 June 2022.
30 June 2023 (unaudited)
Primary underlying risk Derivative assets Derivative liabilities Realised gain/(loss) Change in unrealised gain/(loss)
Equity price
Equity swaps 14,644,637 5,664,527 (543,767) (1,179,476)
Warrants 2,113,352 - (372) (790,532)
Contingent value rights 541,706 - - 541,706
17,299,695 5,664,527 (544,139) (1,428,302)
31 December 2022 (audited) 30 June 2022 (unaudited)
Primary underlying risk Derivative assets Derivative liabilities Realised gain/(loss) Change in unrealised gain/(loss)
Equity price
Equity swaps 19,086,329 8,926,743 (2,150,440) 7,759,459
Warrants 2,381,320 - - (190,186)
21,467,649 8,926,743 (2,150,440) 7,569,273
5. Securities lending agreements
The Group has entered into securities lending agreements with its prime
brokers. From time to time, the prime brokers lend securities on the Group's
behalf. As of 30 June 2023 and 31 December 2022, no securities were loaned and
no collateral was received.
6. Offsetting assets and liabilities
The Group is required to disclose the impact of offsetting assets and
liabilities represented in the unaudited interim consolidated statement of
assets and liabilities to enable users of the unaudited interim consolidated
financial statements to evaluate the effect or potential effect of netting
arrangements on its financial position for recognised assets and liabilities.
These recognised assets and liabilities are financial instruments and
derivative instruments that are either subject to an enforceable master
netting arrangement or similar agreement or meet the following right of setoff
criteria: the amounts owed by the Group to another party are determinable, the
Group has the right to offset the amounts owed with the amounts owed by the
other party, the Group intends to offset and the Group's right of setoff is
enforceable by law.
As of 30 June 2023 and 31 December 2022, the Group held financial instruments
and derivative instruments that were eligible for offset in the unaudited
interim consolidated statement of assets and liabilities and are subject to a
master netting arrangement. The master netting arrangement allows the
counterparty to net applicable collateral held on behalf of the Group against
applicable liabilities or payment obligations of the Group to the
counterparty. These arrangements also allow the counterparty to net any of its
applicable liabilities or payment obligations they have to the Group against
any collateral sent to the Group.
As discussed in Note 1, the Group has elected not to offset assets and
liabilities in the unaudited interim consolidated statement of assets and
liabilities. The following table presents the potential effect of netting
arrangements for asset derivative contracts presented in the unaudited interim
consolidated statement of assets and liabilities:
Gross amounts of recognised assets Gross amounts offset in the unaudited interim consolidated statement of assets Gross amounts of recognised assets and liabilities 30 June 2023 (unaudited)
and liabilities
Gross amounts not offset in the unaudited interim consolidated statement of
assets and liabilities
Description
Financial instruments((a)) Cash collateral received((b)) Net amount
Equity swaps
Bank of America Merrill Lynch 7,706,960 - 7,706,960 (753,861) - 6,953,099
Cowen Financial Products, LLC 4,279,889 - 4,279,889 (1,803,874) - 2,476,015
Morgan Stanley & Co. LLC 2,313,308 - 2,313,308 (2,136,372) - 176,936
Jefferies & Co. 344,480 - 344,480 (344,480) - -
14,644,637 - 14,644,637 (5,038,587) - 9,606,050
Gross amounts of recognised assets Gross amounts offset in the consolidated statement of assets and liabilities Gross amounts of recognised assets and liabilities 31 December 2022 (audited)
Gross amounts not offset in the consolidated statement of
assets and liabilities
Description
Financial instruments((a)) Cash collateral received((b)) Net amount
Equity swaps
Bank of America Merrill Lynch 12,929,367 - 12,929,367 (3,983,939) - 8,945,428
Cowen Financial Products, LLC 3,239,591 - 3,239,591 (1,224,200) - 2,015,391
Morgan Stanley & Co. LLC 2,797,503 - 2,797,503 (2,797,503) - -
Jefferies & Co. 119,868 - 119,868 (119,868) - -
19,086,329 - 19,086,329 (8,125,510) - 10,960,819
((a)) Amounts related to master netting agreements (e.g. ISDA), determined by
the Group to be legally enforceable in the event of default and if certain
other criteria are met in accordance with applicable offsetting accounting
guidance but were not offset due to management's accounting policy election.
( )
((b)) Amounts related to master netting agreements and collateral agreements
determined by the Group to be legally enforceable in the event of default, but
certain other criteria are not met in accordance with applicable offsetting
accounting guidance. The collateral amounts may exceed the related net amounts
of financial assets and liabilities presented in the unaudited interim
consolidated statement of assets and liabilities. If this is the case, the
total amount reported is limited to the net amounts of financial assets and
liabilities with that counterparty.
The following tables present the potential effect of netting arrangements for
liability derivative contracts presented in the unaudited interim consolidated
statement of assets and liabilities as of 30 June 2023 and audited
consolidated statement of assets and liabilities 31 December 2022:
Gross amounts of recognised liabilities Gross amounts offset in the unaudited interim consolidated statement of assets Gross amounts of recognised liabilities 30 June 2023 (unaudited) Net amount
and liabilities
Gross amounts not offset in the unaudited interim consolidated statement of
assets and liabilities
Description
Financial instruments((a)) Cash collateral pledged((b))
Equity swaps
Morgan Stanley & Co. LLC 2,136,372 - 2,136,372 (2,136,372) - -
Cowen Financial Products, LLC 1,803,874 - 1,803,874 (1,803,874) - -
Bank of America Merrill Lynch 753,861 - 753,861 (753,861) - -
Jefferies & Co. 970,420 - 970,420 (344,480) (625,940) -
5,664,527 - 5,664,527 (5,038,587) (625,940) -
Gross amounts of recognised liabilities Gross amounts offset in the consolidated statement of assets and liabilities Gross amounts of recognised liabilities 31 December 2022 (audited) Net amount
Gross amounts not offset in the consolidated statement of
assets and liabilities
Description
Financial instruments((a)) Cash collateral pledged((b))
Equity swaps
Bank of America Merrill Lynch 3,983,939 - 3,983,939 (3,983,939) - -
Morgan Stanley & Co. LLC 3,372,143 - 3,372,143 (2,797,503) (574,640) -
Cowen Financial Products, LLC 1,224,200 - 1,224,200 (1,224,200) - -
Jefferies & Co. 336,931 - 336,931 (119,868) (217,063) -
UBS AG 9,530 - 9,530 - (9,530) -
8,926,743 - 8,926,743 (8,125,510) (801,233) -
((a)) Amounts related to master netting agreements (e.g. ISDA), determined by
the Group to be legally enforceable in the event of default and if certain
other criteria are met in accordance with applicable offsetting accounting
guidance but were not offset due to management's accounting policy election.
((b)) Amounts related to master netting agreements and collateral agreements
determined by the Group to be legally enforceable in the event of default, but
certain other criteria are not met in accordance with applicable offsetting
accounting guidance. The collateral amounts may exceed the related net amounts
of financial assets and liabilities presented in the unaudited interim
consolidated statement of assets and liabilities. If this is the case, the
total amount reported is limited to the net amounts of financial assets and
liabilities with that counterparty.
7. Securities sold short
The Group is subject to certain inherent risks arising from its investing
activities of selling securities short. The ultimate cost to the Group to
acquire these securities may exceed the liability reflected in these unaudited
interim consolidated financial statements.
8. Risk factors
Some underlying investments may be deemed to be highly speculative investments
and are not intended as a complete investment program. The Group is designed
only for sophisticated persons who are able to bear the economic risk of the
loss of their entire investment in the Group and who have a limited need for
liquidity in their investment. The following risks are applicable to the
Group:
Market risk
Certain events particular to each market in which Portfolio Companies conduct
operations, as well as general economic and political conditions, may have a
significant negative impact on the operations and profitability of the Group's
investments and/or on the fair value of the Group's investments. Such events
are beyond the Group's control, and the likelihood they may occur and the
effect on the Group cannot be predicted. The Group intends to mitigate market
risk generally by investing in Medtech and Biotech Companies in various
geographies.
Portfolio Company products are subject to regulatory approvals and actions
with new drugs, medical devices and procedures being subject to extensive
regulatory scrutiny before approval, and approvals can be revoked.
The market value of the Group's holdings in public Portfolio Companies could
be affected by a number of factors, including, but not limited to: a change in
sentiment in the market regarding the public Portfolio Companies, the market's
appetite for specific asset classes; and the financial or operational
performance of the public Portfolio Companies.
The size of investments in public Portfolio Companies or involvement in
management may trigger restrictions on buying or selling securities. Laws and
regulations relating to takeovers and inside information may restrict the
ability of the Group to carry out transactions, or there may be delays or
disclosure requirements before transactions can be completed.
Equity prices and returns from investing in equity markets are sensitive to
various factors, including but not limited to: expectations of future
dividends and profits; economic growth; exchange rates; interest rates; and
inflation.
Biotech/healthcare companies
The Portfolio Companies are biotechnology and medical technology companies,
which are generally subject to greater governmental regulation than other
industries at both the state and federal levels. Changes in governmental
policies may have a material effect on the demand for or costs of certain
products and services.
Any failure by a Portfolio Company to develop new technologies or to
accurately evaluate the technical or commercial prospects of new technologies
could result in it failing to achieve a growth in value and this could have a
material adverse effect on the Group's financial condition.
Portfolio Companies may not successfully translate promising scientific theory
into a commercially viable business opportunity. Further, the Portfolio
Companies' therapies in development may fail clinical trials and therefore no
longer be viable.
Portfolio Company products are subject to intense competition and there are
many factors that will affect whether the new therapies released by the
Portfolio Companies gain market share against competitors and existing
therapies.
Portfolio Companies may be newer small and mid-size Medtech and Biotech
Companies. These companies may be more volatile and have less experience and
fewer resources than more established companies.
Concentration risk
The Group may not make an investment or a series of investments in a Portfolio
Company that result in the Group's aggregate investment in such Portfolio
Company exceeding 15 per cent. of the Group's gross assets, save for Rocket
for which the limit is 25 per cent. as stated in the Group's prospectus. Each
of these investment restrictions will be calculated as at the time of
investment. As such, it is possible that the Group's portfolio may be
concentrated at any given point in time, potentially with more than 15 per
cent. of gross assets held in one Portfolio Company as Portfolio Companies
increase or decrease in value following such initial investment. The Group's
portfolio of investments may also lack diversification among Medtech and
Biotech Companies and related investments.
Concentration of credit risk
In the normal course of business, the Group maintains its cash balances in
financial institutions, which at times may exceed US federal or UK insured
limits, as applicable. The Group is subject to credit risk to the extent any
financial institution with which it conducts business is unable to fulfil
contractual obligations on its behalf. Management monitors the financial
condition of such financial institutions and does not anticipate any losses
from these counterparties.
Counterparty risk
The Group invests in equity swaps and takes the risk of non-performance by the
other party to the contract. This risk may include credit risk of the
counterparty, the risk of settlement default, and generally, the risk of the
inability of counterparties to perform with respect to transactions, whether
due to insolvency, bankruptcy or other causes.
In an effort to mitigate such risks, the Group will attempt to limit its
transactions to counterparties which are established, well capitalised and
creditworthy.
Liquidity risk
Liquidity risk is the risk that the Group cannot meet its financial
commitments as they fall due. The Group's unquoted investments may have
limited or no secondary market liquidity so the Investment Manager maintains a
sufficient balance of cash and market quoted securities which can be sold if
needed to meet its commitments.
The Group's investments in quoted securities may also be subject to sale
restrictions on listing and when the Investment Manager is subject to close
periods or privy to confidential information by virtue of their active
involvement in the management of portfolio companies.
Derivative transactions may not be liquid in all circumstances, such that in
volatile markets it may not be possible to close out a position without
incurring a loss. The illiquidity of the derivatives markets may be due to
various factors, including congestion, disorderly markets, limitations on
deliverable supplies, the participation of speculators, government regulation
and intervention, and technical and operational or system failures.
Foreign exchange risk
The Group will make investments in various jurisdictions in a number of
currencies and will be exposed to the risk of currency fluctuations that may
materially adversely affect, amongst other things, the value of the Portfolio
Company or the Group's investment in such Portfolio Company, or any
distributions received from the Portfolio Company. Under its investment
policy, the Group does not intend to enter into any securities or financially
engineered products designed to hedge portfolio exposure or mitigate portfolio
risk as a core part of its investment strategy.
9. Share capital
During the period ended 30 June 2023 the Company did not issue any Ordinary
Shares:
30 June 2023 31 December 2022 30 June 2022
(unaudited) (audited) (unaudited)
Number of Number of
Number of Ordinary Shares Ordinary Shares
Ordinary Shares
As at 1 January 212,389,138 212,389,138 212,389,138
Issuance of Ordinary Shares - - -
As at 30 June/31 December 212,389,138 212,389,138 212,389,138
Ordinary Shares carry the right to receive all income of the Company
attributable to the Ordinary Shares and to participate in any distribution of
such income made by the Company. Such income shall be divided pari passu among
the holders of Ordinary Shares in proportion to the number of Ordinary Shares
held by them.
Ordinary Shares shall carry the right to receive notice of and attend and vote
at any general meeting of the Company, and at any such meeting on a show of
hands, every holder of Ordinary Shares present in person (includes present by
attorney or by proxy or, in the case of a corporate member, by duly authorised
corporate representative) and entitled to vote shall have one vote, and on a
poll, subject to any special voting powers or restrictions, every holder of
Ordinary Shares present in person or by proxy shall be entitled to one vote
for each Ordinary Share, or fraction of an Ordinary Share, held.
On 1 December 2022, the Performance Allocation Share held by RTW Venture
Performance LP was surrendered in exchange for a New Performance Allocation
Share issued by the Subsidiary. The New Performance Allocation Share issued by
the Subsidiary has identical terms to the original Performance Allocation
Share issued by the Company. From 1 December 2022, the Performance Allocation
Amount is now allocated at the Subsidiary level, and is presented in the
Group's financial statements as part of the Non-Controlling Interest. The sole
New Performance Allocation Share is held by RTW Venture Performance LP. As at
30 June 2023, there were no Performance Allocation Shares of the Company in
issue (31 December 2022: nil) and one New Performance Allocation Share of the
Subsidiary in issue (31 December 2022: one).
New Performance Allocation Shares of the Subsidiary carry the right to
receive, and participate in, any dividends or other distributions of the
Subsidiary available for dividend or distribution. New Performance Allocation
Shares are not entitled to receive notice of, to attend or to vote at general
meetings of the Company or the Subsidiary.
For all share classes, subject to compliance with the solvency test set out in
the Companies Law, the Board may declare and pay such annual or interim
dividends and distributions as appear to be justified by the position of the
Group. The Board may, in relation to any dividend or distribution, direct that
the dividend or distribution shall be satisfied wholly or partly by the
distribution of assets, and in particular of paid-up shares or reserves of any
nature as approved by the Group.
10. Related party transactions
Management Fee
The Investment Manager receives a monthly management fee, in advance, as of
the beginning of each month in an amount equal to 0.104% (1.25% per annum) of
the net assets of the Group (the "Management Fee"). For purposes of
determining the Management Fee, private investments will be valued at the fair
value. The Management Fee will be prorated for any period that is less than a
full month. The Management Fees charged for the period ended 30 June 2023
amounted to $2,115,840 (period ended 30 June 2022: $1,889,306) of which $nil
(31 December 2022: $nil) was outstanding at the period end.
Performance Allocation
The Performance Allocation Share held by RTW Venture Performance LP was
surrendered in exchange for a New Performance Allocation Share issued by the
Subsidiary. The New Performance Allocation Share issued by the Subsidiary has
identical terms to the original Performance Allocation Share issued by the
Company.
In respect of each Performance Allocation Period, the Performance Allocation
Amount shall be allocated at the Subsidiary level and disclosed on the Group's
financial statements within the Non-Controlling Interest, subject to the
satisfaction of a hurdle condition.
The Performance Allocation Amount relating to the Performance Allocation
Period, which is calculated solely at the Subsidiary, is an amount equal to:
((A-B) x C) x 20 per cent.
where:
A is the Adjusted Net Asset Value per Ordinary Share on
the Calculation Date, adjusted by:
adding back (i) the total net Distributions (if any) per Ordinary Share
(whether paid, or declared but not yet paid) during the Performance Allocation
Period; and (ii) any accrual for the Performance Allocation for the current
Performance Allocation Period reflected in the Net Asset Value per Ordinary
Share; and deducting any accretion in the Net Asset Value per Ordinary Share
resulting from either the issuance of Ordinary Shares at a premium or the
repurchase or redemption of Ordinary Shares at a discount during the
Performance Allocation Period;
B is the Adjusted Net Asset Value per Ordinary Share at
the start of the Performance Allocation Period; and
C is the time weighted average number of Ordinary
Shares in issue during the Performance Allocation Period.
The Hurdle Amount represents an 8 per cent. annualised compounded rate of
return in respect of the Adjusted Net Asset Value per Ordinary Share from the
start of the initial Performance Allocation Period through the then current
Performance Allocation Period.
The Performance Allocation Share Class can elect to receive the Performance
Allocation Amount in Ordinary Shares; cash; or a mixture of the two, subject
to a minimum 50% as Ordinary Shares. The Performance Allocation Share Class
entered into a letter agreement dated 21 April 2020, pursuant to which the
Performance Allocation Share Class agreed to defer distributions of Ordinary
Shares that would otherwise be distributed to the Performance Allocation Share
Class no later than 30 business days after the publication of the Group's
audited annual consolidated financial statements. Under that letter agreement,
such Ordinary Shares shall be distributed to the Performance Allocation Share
Class at such time or times as determined by the Boards of Directors of the
Group.
The Group will increase or decrease the amount owed to the Performance
Allocation Share Class based on its investment exposure to the Group's
performance had such Performance Ordinary Shares been so issued. The
Performance Allocation Amount for the period ended 30 June 2023 includes the
residual, undistributed Performance Allocation Amounts from prior years that
were previously converted into a total of 14,228,208 Notional Ordinary Shares.
These Notional Ordinary Shares are subject to market risk alongside the
Ordinary Shares and incurred a mark to market gain of $2,039,956 in 2023 (31
December 2022: notional loss of $2,476,036), which is included in Performance
Allocation within the unaudited interim consolidated statement of changes in
net assets. There was no reallocation of uncrystallized performance allocation
back to Ordinary Shareholders related to the Group's performance in the
period.
Until the Group makes a distribution of Ordinary Shares to the Performance
Allocation Share Class, the Group will have an unsecured discretionary
obligation to make such distribution at such time or times as the Board of
Directors of the Group determines. RTW Venture Performance LP has agreed to
the deferral of the distributions of the Subsidiary's Ordinary Shares in
connection with its own tax planning. The Group does not believe that the
deferral of such distributions to the Performance Allocation Share Class will
have any negative effects on holders of the Company's Ordinary Shares.
The Investment Manager is a member of the Performance Allocation Share Class
and will therefore receive a proportion of the Performance Allocation Amount.
For the period ended 30 June 2023, the Board did not approve a cash
distribution to the Performance Allocation Share Class (period ended 30 June
2022: $nil). At the period end the Performance Allocation Share Class of the
Subsidiary is reflected within the Non-Controlling Interest balance of
$23,884,424 (31 December 2022: $21,844,468).
The Investment Manager is also refunded any research costs incurred on behalf
of the Group.
One of the Directors of the Group, Stephanie Sirota, is also a partner and the
Chief Business Officer of the Investment Manager.
As at 30 June 2023, the number of Ordinary Shares held by each Director was as
follows:
30 June 2023 31 December 2022
(unaudited) (audited)
Number of Ordinary Shares Number of Ordinary Shares
William Simpson 200,000 200,000
Paul Le Page 128,000 128,000
William Scott 350,000 305,003
Stephanie Sirota 1,010,000 1,010,000
Roderick Wong is a major shareholder and a member of the Investment Manager.
Roderick Wong serves on the board of the following investments: Rocket, Ji
Xing, and Yarrow Biotechnology. As at 30 June 2023, he held 29,693,872
Ordinary Shares in the Group (13.93% of the Ordinary Shares in issue) (31
December 2022: 29,593,872, 13.93% of the Ordinary Shares in issue).
The total Directors' fees expense for the period amounted to $87,798 (30 June
2022: $102,434) of which $50,219 was outstanding at 30 June 2023 (31 December
2022: $48,281) and is included within accrued expenses.
All of the Directors of the Company were also appointed as directors of the
Subsidiary on its incorporation on 23 November 2022.
11. Administrative services
Elysium Fund Management Limited ("EFML") serves as Administrator to the Group,
providing administration, corporate secretarial, corporate governance and
compliance services. Morgan Stanley Fund Services USA LLC ("MSFS") serves as
the Group's Sub-Administrator.
During the period ended 30 June 2023, EFML and MSFS charged administration
fees of $82,054 and $117,860 respectively (period ended 30 June 2022: EFML
charged $49,173 and MSFS charged $110,940) of which $24,765 and $61,929 (31
December 2022: EFML $6,484, MSFS $91,099) was outstanding at 30 June 2023, and
is included within accrued expenses.
12. Financial highlights
Financial highlights for the six month period ended 30 June 2023, six month
period ended 30 June 2022 and year ended 31 December 2022 are as follows:
30 June 2023 30 June 2022 31 December 2022
(unaudited) (unaudited) (audited)
Per Ordinary Share operating performance
Net Asset Value, beginning of period $ 1.54 $ 1.71 $ 1.71
Income from investments
Net investment income/(loss) (0.01) (0.01) (0.02)
Net realised and unrealised gain/(loss) on investments, derivatives and 0.16 (0.45) (0.15)
foreign currency transactions
Performance allocation (0.01) - -
Total from investment operations 0.14 (0.46) (0.17)
Net Asset Value, end of period $1.68 $ 1.25 $ 1.54
Total return
Total return before Performance Allocation 9.34 % (26.81)% (10.18)%
Performance Allocation (excluding mark to market) - % - % - %
Total return after Performance Allocation 9.34 % (26.81)% (10.18)%
Ratios to average net assets*
Expenses 1.34 % 1.10 % 2.47%
Performance Allocation - % (2.14)% (1.44)%
Expenses and Performance Allocation 1.34 % (1.04)% 1.03%
Net investment income/(loss) (0.79) % (0.87)% (1.75)%
NAV total return for the period 9.34 % (26.81)% (10.18)%
* Ratios are not annualised.
Financial highlights are calculated for Ordinary Shares. An individual
shareholder's financial highlights may vary based on the timing of capital
share transactions. Net investment income/loss does not reflect the effects of
the Performance Allocation.
13. Subsequent events
Subsequent to the period end the Company bought back 500,000 Ordinary Shares
at an average price of US$1.29 for a total cost of US$643,750. At the point
of signing these unaudited interim consolidated financial statements, all
500,000 of the shares were held in treasury.
These unaudited interim consolidated financial statements were approved by the
Board of Directors on 12 September 2023. Subsequent events have been evaluated
through this date.
Listing of portfolio company abbreviations used throughout this report
Shorthand Company Name Legal Company Name
Abdera Abdera Therapeutics, Inc.
Acelyrin Acelyrin, Inc.
Alcyone Alcyone Therapeutics, Inc.
Allurion Allurion Technologies, Inc.
Ancora Ancora Heart, Inc.
Apogee Apogee Therapeutics, Inc.
Artios Artios Pharma, Inc.
Artiva Artiva Biotherapeutics, Inc.
Athira Athira Pharma, Inc.
Avidity Avidity Biosciences, Inc.
Biomea Biomea Fusion, Inc.
C4 Therapeutics C4 Therapeutics, Inc.
Cargo Cargo Therapeutics, Inc.
CinCor CinCor Pharma, Inc.
Encoded Encoded Therapeutics, Inc.
Frequency Frequency Therapeutics, Inc.
GH Research GH Research PLC
HSAC2 Health Sciences Acquisition Corporation 2
Immunocore Immunocore Limited
Iteos iTeos Therapeutics, Inc.
Ji Xing Ji Xing Pharmaceuticals Limited
Kyverna Kyverna Therapeutics, Inc.
Landos Landos Biopharma, Inc.
Lenz Lenz Therapeutics
Lycia Lycia Therapeutics, Inc.
Magnolia Magnolida Medical Technologies, Inc.
Milestone Milestone Pharmaceuticals, Inc.
Mineralys Mineralys Therapeutics, LLC
Monte Rosa Monte Rosa Therapeutics, Inc.
Neurogastrx Neurogastrx, Inc.
Nikang Nikang Therapeutics, Inc.
Nuance Nuance Pharma
Numab Numab Therapeutics, Inc.
Orchestra Orchestra BioMed, Inc.
OriCell OriCell Therapeutics (Shangha) Co., Ltd
Prometheus Prometheus Biosciences, Inc.
Prometheus Labs Prometheus Laboratories, Inc.
Pulmonx Pulmonx Corporation
Pyxis Pyxis Oncology, Inc.
Rocket Rocket Pharmaceuticals, Inc.
RTW Royalty 1 RTW Royalty Holdings LLC (royalty deal for Mavacamten)
RTW Royalty 2 RTW Fund 2 (royalty deal for Jelmyto)
Swift Health Swift Health, Inc.
Tarsus Tarsus, Pharmaceuticals, Inc.
Tenaya Tenaya Therapeutics, Inc.
Third Harmonic Third Harmonic Bio, Inc.
Tourmaline Tourmaline Bio, Inc.
Umoja Umoja Biopharma, Inc.
Ventyx Ventyx Biosciences, Inc.
Visus Visus Therapeutics, Inc.
Yarrow RTW Holdings LLC
Glossary of Defined Terms
"4010 Royalty Fund" refers to
a private fund managed by RTW Investments. The Group will invest in this fund
via a feeder fund called 4010 Royalty Offshore FNT Fund, LP;
"Adjusted Net Asset Value" the Net Asset Value adjusted by deducting the unrealised gains and unrealised
losses in respect of private Portfolio Companies;
"Administrator" refers to Elysium Fund Management Limited;
"AIC" the Association of Investment Companies;
Alternative Investment Fund Manager;
"AIFM"
"Annual Report" the Annual Report and Audited Consolidated Financial Statements;
"Antibody" a large Y-shaped blood protein that can stick to the surface of a virus,
bacteria, or receptor on a cell;
"AOC" Antibody-Oligonucleotide Conjugates, molecules that combine structures of an
antibody and an oligo;
"Arca"
NYSE Arca Biotechnology Index (ticker BTK) consisting of 30 companies that are
a part of the biotechnology industry and are primarily involved in the use of
biological processes to develop products or provide services;
"Biotech" biotechnology subsector of healthcare;
"Calculation Date" 30 June or, if such date is not a business day, the previous business day;
"Cardiovascular disease" conditions affecting heart and vascular system;
"Clinical stage" or "clinical trial"
a therapy in development goes through a number of clinical trials to ensure
its safety and efficacy. The trials in human subjects range from Phase 1 to
Phase 3.
"CNS" Central Nervous System
RTW Biotech Opportunities Ltd is a company incorporated in Guernsey as a
closed-ended Investment Company.
"the Company"
"Core portfolio"
includes private companies and public companies that were initially added to
the portfolio as private investments;
"Danon Disease" a rare genetic heart condition in children, predominantly boys;
"Directors" or "Board"
the directors of the Company and the Subsidiary as at the date of this
document and "Director" means any one of them;
"Fanconi Anaemia" a rare genetic blood condition in young children;
"FCA" the Financial Conduct Authority;
"FDA" the United States Food and Drug Administration;
"FTC" the Federal Trade Commission;
"Gene therapy" a biotechnology that uses gene delivery systems to treat or prevent a disease;
"Genetic Medicine" an approach to treat or prevent a disease using gene therapy or RNA medicines;
"Group" the Company and the Subsidiary;
"HCM" or "Hypertrophic cardiomyopathy" a cardiovascular disease characterised by an abnormally thick heart muscle;
"Independent Valuers" refers to Alvarez & Marsal Valuation Services, LLC and Houlihan Lokey,
Inc.;
"Investigational New Drug" or the FDA's investigational New Drug program is the means by which a
pharmaceutical company obtains permission to start human clinical trials;
"IND"
"IPEV" the International Private Equity and Venture Capital Valuation
(IPEV) Guidelines set out recommendations, intended to represent current
best practice, on the valuation of Private Capital Investments:
"IPO" an initial public offering;
"IRA" Inflation Reduction Act of 2022;
"ISDA" International Swaps and Derivatives Association;
"Leukocyte adhesion deficiency" or "LAD-I" a rare genetic disorder of immunodeficiency in young children;
"London Stock Exchange" London Stock Exchange plc;
"LSE" London Stock Exchange's main market for listed securities;
"Medtech" medical technology subsector of healthcare;
"Merck" Merck & Co., Inc.;
"MOC" Multiple on capital is the ratio of realised and unrealised gains divided by
the acquisition cost of an investment;
"Myotonic Dystrophy" a genetic condition that affects muscle function;
"NASDAQ Biotech" or "NBI"
a stock market index made up of securities of NASDAQ-listed companies
classified according to the Industry Classification Benchmark as either the
Biotechnology or the Pharmaceutical industry;
"Net Asset Value" or "NAV" the value of the assets of the Group less its liabilities, calculated in
accordance with the valuation guidelines established by the Board;
"NewCo" a company incubated by RTW Investments, LP;
"Non-core portfolio assets" investments made in public companies as a part of cash management strategy;
"Notional Ordinary Shares" Performance Ordinary Shares in which receipt of such shares has been deferred;
"Official List" the official list of the UK Listing Authority;
"Oligonucleotides" or "Oligos" short DNA or RNA molecules that have a wide range of applications in genetic
testing and research;
"Oncology" a therapeutic area focused on diagnosis, prevention, and treatment of cancer;
"Ophthalmic conditions" conditions affecting the eye;
"Ordinary Shares" the Ordinary Shares of the Company;
"Other public portfolio" the portion of the portfolio selected to match, on a pro-rated basis, the long
investments held in our private funds and designed to mitigate the drag of
setting aside cash for future deployment into core positions.;
performance allocation shares of no-par value in the capital of the Company
(prior to the 1 December 2022 reorganisation), or performance allocation
"Performance Allocation Shares" shares of no-par value in the capital of the Subsidiary (with effect from the
1 December 2022 reorganisation);
each period ending on a Calculation Date and beginning on the business day
immediately following the last Performance Allocation Period in respect of
which a Performance Allocation has been allocated;
"Performance Allocation Period"
private investment in a public equity;
"PIPE"
"Premium Segment" Premium Segment of the Main Market of the London Stock Exchange;
"Prospectus" the prospectus of the Company, most recently updated on 14 October 2019 and
available on the Company's website
(www.rtwfunds.com/rtw-biotech-opportunities-ltd
(http://www.rtwfunds.com/rtw-biotech-opportunities-ltd) );
"Pyruvate Kinase Deficiency" or "PKD" a rare genetic disorder affecting red blood cells;
pharmaceuticals consisting of a radioactive compound used in radiation
therapy;
"Radiopharmaceuticals"
"Rare disease" a disease that affects a small percentage of the population;
"Registrar" Link Market Services (Guernsey) Limited;
"RNA medicines" a type of biotechnology that uses RNA to treat a disease;
"RTW" RTW Investments, LP, also referred to as the Investment Manager;
"Russell 2000 Biotech" a stock index of small cap biotechnology and pharmaceutical companies;
"Small molecule" a compound that can regulate a biologic activity;
"SPAC" Special Purpose Acquisition Company;
"Sub-Administrator" Morgan Stanley Fund Services USA LLC;
RTW Biotech Opportunities Operating Ltd;
"Subsidiary"
"Tachycardia" a heart rhythm disorder;
"Type 1 Diabetes" or "T1D" a type of insulin resistance;
"Total shareholder return" a measure of shareholders' investment in a company with reference to movements
in share price and dividends paid over time;
"US GAAP" United States Generally Accepted Accounting Principles;
"Uveal melanoma" a type of eye cancer;
"Valuation Committee" Valuation Committee of the Investment Manager;
"WACC"
weighted average cost of capital;
"XBI" the SPDR S&P Biotech ETF;
"XIRR" an internal rate of return calculated using irregular time intervals.
Alternative Performance Measures
( )
APM Definition Purpose Calculation
Available Cash Cash held by the Group's Bankers, Prime Brokers and ISDA counterparties. A measure of the Group's liquidity, working capital and investment level. Cash and cash equivalents, Due from brokers, Receivable from unsettled trades
and other miscellaneous current assets, less Due to brokers, Payable for
unsettled trades and other miscellaneous current liabilities on the Statement
of Assets & Liabilities.
NAV per Ordinary Share The Group's NAV divided by the number of Ordinary Shares. A measure of the value of one Ordinary Share. The net assets attributable to Ordinary Shares on the statement of financial
position (US$356.5 million) divided by the number of Ordinary Shares in issue
(212,389,138) as at the calculation date.
Price per share The Company's closing share price on the London Stock Exchange for a specified A measure of the supply and demand for the Company's shares. Extracted from the official list of the London Stock Exchange.
date.
NAV Growth The percentage increase/decrease in the NAV per Ordinary share during the A key measure of the success of the Investment Manager's investment strategy. The quotient of the NAV per share at the end of the period (US$1.68) and the
reporting period. NAV per share at the beginning of the period (US$1.54) minus one expressed as
a percentage.
Share price growth/Total Shareholder Return The percentage increase(decrease) in the price per share during the reporting A measure of the return that could have been obtained by holding a share over The quotient of the price per share at the end of the period (US$1.25) and the
period. the reporting period. price per share at the beginning of the period (US$1.21) minus 1.00 expressed
as a percentage. The measure excludes transaction costs.
Share Price Premium/ (Discount) The amount by which the Ordinary Share price is higher/lower than the NAV per A key measure of supply and demand for the Company's shares. A premium The quotient of the price per share at the end of the period (US$1.25) and the
Ordinary Share, expressed as a percentage of the NAV per ordinary share. implies excess demand versus supply and vice versa. NAV per share at the end of the period (US$1.68) minus one expressed as a
percentage.
Multiple on Invested Capital (MOIC or MOC) The multiple that measures value that an investment has generated. A measure to evaluate performance of the realised and unrealised investments. The ratio between initial capital invested in a portfolio company and current
(as of 30 June 2023) value of the investment. It is a gross metric and
calculation is performed before fees and incentive.
Extended Internal Rate of Return (XIRR) The percentage or single rate of return when applied to all transactions in a A measure of return which is used when multiple investments have been made The rate also expressed as a percentage that calculates the returns on the
portfolio company. over time into a portfolio company. total investment made with increments through a given period (from initial
investment date to 30 June 2023).
Ongoing Charges Ratio The recurring costs that the Group has incurred during the period excluding A measure of the minimum gross profit that the Group needs to produce to make Calculated in accordance with the AIC methodology detailed at the web link
performance fees and one-off legal and professional fees, expressed as a a positive return for shareholders. below:
percentage of the Group's average NAV for the period. https://www.theaic.co.uk/sites/default/files/documents/AICOngoingChargesCalculationMay12.pdf
(https://www.theaic.co.uk/sites/default/files/documents/AICOngoingChargesCalculationMay12.pdf)
General Company Information
Structure: Closed-End Investment Fund Dividend policy: To be reinvested ISIN: GG00BKTRRM22
Domicile: Guernsey Management fee: 1.25% SEDOLs: BKTRRM2 / BNNXVW5
Listing: London Stock Exchange, Premium Segment Performance fee: 20% with 8.0% hurdle Tickers: RTW (USD) and RTWG (GBP)
Launch date: 30 October 2019 Ongoing Charges Ratio: 1.9% LEI: 549300Q7EXQQH6KF7Z84
Currencies: USD and GBP Website: www.rtwfunds.com/rtw-biotech-opportunities-ltd
(http://www.rtwfunds.com/rtw-biotech-opportunities-ltd)
Investment Restrictions
No more than 15% of gross assets to be invested in other funds admitted to
listing by the FCA;
The aggregate investment in a portfolio company will not exceed 15% of the
Group's gross assets at the time of investment; and
No direct investments in tobacco.
Schedule of Key Service Providers
Board of Directors Investment Manager and AIFM Distribution Partner
William Simpson (Chair) RTW Investments, LP Cadarn Capital
Paul Le Page (Chair of Audit Committee) 40 10th Avenue, Floor 7 c/o WeWork
William Scott New York, NY 10014 1 Fore Street Avenue
Stephanie Sirota (Non-independent) United States of America London
EC2Y 9DT
Administrator and Company Secretary Guernsey Advocates to the Group Independent Auditor
Elysium Fund Management Limited Carey Olsen (Guernsey) LLP KPMG Channel Islands Limited
1st Floor, Royal Chambers Carey House Glategny Court
St Julian's Avenue Les Banques Glategny Esplanade
St Peter Port St Peter Port St Peter Port
Guernsey Guernsey Guernsey
GY1 3JX GY1 4BZ GY1 1WR
Sub-Administrator UK Legal Advisers to the Group Principal Bankers
Morgan Stanley Fund Services USA LLC Herbert Smith Freehills LLP Barclays Bank PLC, Guernsey Branch
2000 Westchester Avenue, 1(st) Floor Exchange House Le Marchant House
Purchase, NY 10577 Primrose Street Le Truchot
United States of America London St Peter Port
EC2A 2EG Guernsey
Corporate Brokers Registrar GY1 3BE
BofA Securities Link Market Services (Guernsey) Limited
2 King Edward Street Mont Crevelt House Independent Valuers
London Bulwer Avenue Alvarez & Marsal Valuation Services LLC
EC1A 1HQ St Sampson 600 Madison Avenue, 8th Floor
Guernsey New York, NY 10022
Numis Securities* GY2 4LH United States of America
45 Gresham Street
Houlihan Lokey, Inc.
London Public Relations 245 Park Avenue, 20(th) Floor
EC2V 7BF Buchanan New York, NY 10167
107 Cheapside United States of America
London
EC2V 6DN
* On 5 April 2023, Numis Securities was appointed as a corporate broker and
financial adviser to the Group.
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