Annual Financial Report
31/03/2023 07:00
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RNS Number : 8473U RTW Venture Fund Limited 31 March 2023
LEI: 549300Q7EXQQH6KF7Z84
31 March 2023
RTW Venture Fund Limited
Annual Report and Audited Financial Statements for the Year Ended 31 December
2022
Benchmark outperformance, realising significant value through successful
portfolio company IPOs and disposals
RTW Venture Fund Limited (the "Group" or the "Company"), a London Stock
Exchange-listed investment company focused on identifying transformative
assets with high growth potential across the life sciences sector, is pleased
to announce its Annual Results for the year ended 31 December 2022.
Financial Highlights -
RTW Venture Fund Limited Year-end reporting period Previous Year-end reporting period (01/01/2021-31/12/2021) Admission (30/10/2019)
(01/01/2022-31/12/2022)
to 31/12/2022
Ordinary NAV US$326.1 million US$363.0 million US$326.1 million
NAV per Ordinary Share US$1.54 US$1.71 US$1.54
NAV movement per Ordinary Share -10.2% -9.9% 47.6%
Price per Ordinary Share US$1.21 US$1.78 US$1.21
Share price return (i) -32.0% -5.3% 16.4%
Benchmark returns (ii)
Russell 2000 Biotech -31.3% -26.9% -5.3%
Nasdaq Biotech -10.9% -0.6% 24.7%
(i) Total shareholder return is an alternative
performance measure.
(ii) Source: Capital IQ.
Portfolio Highlights
· As of 31 December 2022, the Group held 39 core portfolio
companies (2021: 42)
o 14 of which are publicly-listed (2021: 17)
o 25 of which are privately-held (2021: 25)
· 68% (2021: 67%) of the core portfolio companies' pipeline
products are in clinical stage programs
· As of 31 December 2022, 70.9% of NAV was invested in core
portfolio companies (2021: 66.4%)
· During the year to 31 December 2022, 2 portfolio companies
(Cincor and Third Harmonic Bio), completed an initial public offering (IPO)
· The Group added 3 new companies to its portfolio in 2022 (Lenz
Therapeutics, Mineralys and Apogee Therapeutics), while disposing of 6 core
public portfolio companies (Athira, Biomea, iTeos, Pyxis, Pulmonx, and
Landos), and 1 core private position, RTW Royalty Holdings 1 (Mavacamtem)
Roderick Wong, MD, Managing Partner and Chief Investment Officer of RTW
Investments, LP (the "Investment Manager") commented:
"We are pleased to report another robust set of results for the RTW Venture
Fund in 2022. We find ourselves in unprecedented market conditions, having
witnessed the second consecutive year of a bear market in the biotech sector.
"Given these challenging times, we are happy to report that the Group has once
again significantly outperformed the Russell 200 Biotech Index (the most
appropriate performance comparator), with a -10.2% NAV return for the period,
against a -31.3% return for the Index.
"The Group's successful strategy of selecting high-quality transformative
assets with significant growth potential could be seen in our core portfolio,
which held up well, contributing +0.2% to NAV during 2022. Whilst only a
modest return, it compares favourably to the weak performance of the Group's
sector indices.
"Due to the adverse market conditions, 2022 saw just two of our portfolio
companies IPO. RTW added three new companies to the portfolio and disposed of
seven. Disposals crystalised a +1.6% contribution to NAV for the year with the
proceeds being redeployed into other public opportunities.
"Most importantly, we continue to see public market valuations at significant
discounts to historic levels, providing extremely compelling investment
opportunities, with many of potential best-in-class therapeutics trading at
notable lows compared to their long-term benchmarks. Our resources and
expertise place us in an excellent position to capitalise on these trends and
achieve significant value for shareholders over the medium- to long-term."
For Further Information
RTW Investments, LP +44 (0)20 7959 6361
Woody Stileman, Managing Director
Elysium Fund Management Limited +44 (0)14 8181 0100
Joanna Duquemin Nicolle, Chief Executive Officer
Sadie Morrison, Managing Director
J.P. Morgan Cazenove +44 (0)20 7742 4000
William Simmonds
Jérémie Birnbaum
James Bouverat (Sales)
BofA Securities +44 (0) 20 7628 1000
Edward Peel
Kieran Millar
Buchanan +44 (0)20 7466 5107
Charles Ryland
Henry Wilson
George Beale
Morgan Stanley Fund Services USA LLC +1 (914) 225 8885
About RTW Venture Fund Limited:
RTW Venture Fund Limited (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 Venture Fund invests in
companies developing next-generation therapies and technologies that can
significantly improve patients' lives.
RTW Venture Fund Limited 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 RTW website at www.rtwfunds.com
(https://protect.mimecast-offshore.com/s/eY8OCgLEp4SlY4JEFN_vEF) for more
information.
Chairman's Statement
Building disruptive companies through innovative investing
RTW Venture Fund Limited (the "Company"), passed its third anniversary since
admission to the London Stock Exchange ("LSE") on 30 October 2022. Since
admission, the Company's NAV per ordinary share has grown by +48% and it has
outperformed its relevant benchmarks through good times for the sector and,
recently, through bad. Despite a -10% decline in NAV this year, I am pleased
to say that the Group (including the Company's new wholly-owned subsidiary)
outperformed the smaller capitalisation Russell 2000 Biotech Index by
approximately 20% as we begin to witness the early stages of a recovery for
the sector, which I am confident that we are very well positioned to
capture.
2022 Overview
After the flood comes the drought. 2021 was a record-breaking year for private
and public biotech financing activity. Then 2022 saw IPOs fall to the lowest
levels in ten years and follow-on financings return to 2016 levels, which is
when the sector experienced a significant drug pricing panic. This year saw
actual drug pricing reform as part of the Inflation Reduction Act, which was
signed into US federal law in August. At a sector level there is no impact on
revenue growth potential through 2026, which limits its impact on equities
today, and in fact resolves significant policy uncertainty. However, there are
likely to be some unintended consequences that will need careful navigation.
As a result, of the decline in IPOs, the Group's cadence of new investments
and IPOs also slowed, albeit not as dramatically as the sector as a whole.
During 2022, the Group added three portfolio companies, Lenz Therapeutics,
Mineralys and Apogee Therapeutics, and exited six core public portfolio
companies, Athira, Biomea, iTeos, Pyxis, Pulmonx, and Landos and one core
private position, RTW Royalty Holdings 1 (Mavacamtem). In total, the exits
crystalised a c.+1.8% contribution to NAV. Two private portfolio companies,
Cincor and Third Harmonic Bio successfully went public and one, Orchestra
BioMed, announced its intention to combine with RTW's Health Sciences
Acquisitions Corporation 2, a deal which subsequently completed in January
2023.
At the end of the period, the Group had thirty-eight core portfolio companies,
of which twenty-five were privately held and thirteen were publicly listed.
All core portfolio companies were initiated as private investments by the
Investment Manager including three company creations. The core portfolio
represented c. 71% of NAV at the end of the reporting period, up from 66% at
the end of 2021. For the balance of the portfolio, to mitigate any drag on
performance due to excess cash awaiting deployment into new private assets,
the Group invests in a portfolio of listed companies selected by the
Investment Manager to be representative of positions that are also held in its
other investment funds. At the end of the reporting period, this represented
c. 29% of NAV, down from 37% at the end of 2021.
In the year ended 31 December 2022, the NAV declined by -10.2% % from US$363.0
million or US$1.71 per Ordinary Share to US$326.1 million or US$1.54 per
Ordinary Share. The main detractor to the NAV was the markdown in Ji Xing (c.
-2.2% contribution), after the IPO was delayed due to market conditions,
despite a positive operating performance. The mark to market share price
performance of Prometheus Biosciences (c. +9.1% contribution) and the realised
gain in RTW Royalty Holdings 1 (c. +4.9% contribution), following the
successful sale to Bristol Myers Squibb, were two outstanding results in a
year that saw the Russell 2000 Biotechnology Index decline by 32.0%. Since
admission, the Company's NAV per Ordinary Share has appreciated by 47.6%
against a -5.3% decline for the Russell 2000 Biotechnology Index. By any
standard, this is a commendable and consistent degree of outperformance and
testament to the Investment Manager's robust business model and expertise.
The Company's share price fell to a discount to NAV this year as did those of
many of our investment company peers, especially those that provide growth
financing to private companies. This was, perhaps, exacerbated by a change in
U.S. tax regulation affecting publicly traded partnerships (PTPs), which the
Company was formerly classified as for U.S. tax purposes. A number of
custodians effecting transactions in the Company's Ordinary Shares informed
the Company's shareholders that, as a result of the imposition of a
new U.S. withholding tax obligation, they would no longer hold or deal with
the Ordinary Shares if the Company continued to be classified as a PTP. This
likely led to some selling pressure on the shares as the 1 January 2023
deadline approached until the Company changed its tax status on 1 December,
which was subsequently ratified by an EGM held on 19 December 2022. We thank
our shareholders for their support through this and are pleased that the share
price has recovered significantly since. We are optimistic that it will
continue to do so with further NAV accretion in an improving market
environment.
Outlook
Public market valuations are still near historic lows, while innovation
remains at an all-time high. The valuation metrics of the sector and our
portfolio are truly compelling by historic standards, with many companies
developing great potential therapies trading at a fraction of long-term
valuation norms. The private portfolio is well funded and fairly valued and a
sector bear market from February 2021 to June 2022 has created significant
opportunities for a skilled investor, such as RTW, that has both scale of
scientific resources and understanding, together with extensive capital
markets experience and solutions to outpace their less experienced and
less-resourced rivals.
The Investment Manager believes that there remains significant demand for
reliable capital to support the discovery and development of scientific
innovation, and that there is an opportunity to grow their footprint in the UK
and EU as an active local participant in the biotech ecosystem. The Investment
Manager therefore intends to seek additional ways of growing demand for the
Company's shares with the ambition of restoring a premium valuation that can
lead to the growth of the Group and its portfolio. This growth would assist in
the financing of an exciting pipeline of new ideas, based upon the Group's
strategy of founding, investing, and supporting companies developing
next-generation therapies and technologies that can significantly improve
patients' lives. Accordingly, the Board expects the Group to continue to
achieve a strong performance over the long term and create value for
shareholders.
2023 AGM
The Company will hold its Annual General Meeting on 21 June 2023 to review the
annual results and provide portfolio updates.
We would like to dedicate a part of the meeting to address questions from our
shareholders. At the present time, we anticipate holding it at Royal Chambers,
St Julian's Avenue, St Peter Port, Guernsey. We encourage our shareholders to
share their questions here and we will endeavour to answer as many as we can:
RTWVentureFund@rtwfunds.com (mailto:RTWVentureFund@rtwfunds.com) .
On behalf of the Board, I would like to express my gratitude for your
continued support and wish you all the best for 2023.
William Simpson
Chairman of the Board of Directors
RTW Venture Fund Limited
30 March 2023
Report of the Investment Manager
Together we are harnessing the potential to accelerate the revolution in
medicine
Executive summary
Since its listing on the London Stock Exchange in October 2019, the Group has
grown the NAV attributable to Ordinary Shareholders from US$168.0 million to
US$326.1 million by a combination of investment returns and the issue of
additional Ordinary Shares. The NAV per Ordinary Share has grown 47.6% from
$1.04 to $1.54 as of 31 December 2022. Since admission to the year-end, the
share price has lagged NAV growth, returning +16.4%, as the shares fell,
albeit by much less than the wider market as represented by the Russell 2000
Biotechnology Index this year.
Table 1. Financial Highlights
RTW Venture Fund Limited Year-end reporting period Previous Year-end reporting period (01/01/2021-31/12/2021) Admission (30/10/2019)
(01/01/2022-31/12/2022)
to 31/12/2022
Ordinary NAV - start of period US$363.0 million US$375.3 million US$168.0 million
Ordinary NAV - end of period US$326.1million US$363.0 million US$326.1million
NAV per Ordinary Share - start of period US$1.71 US$1.96 US$1.04
NAV per Ordinary Share - end of period US$1.54 US$1.71 US$1.54
NAV movement per Ordinary Share -10.2% -12.8% 47.6%
Price per Ordinary Share - start of period US$1.78 US$1.88 US$1.04
Price per Ordinary Share - end of period US$1.21 US$1.78 US$1.21
Share price return (i) -32.0% -5.3% 16.4%
Benchmark returns (ii)
Russell 2000 Biotech -31.3% -26.9% -5.3%
Nasdaq Biotech -10.9% -0.6% 24.7%
(i) Total shareholder return is an
alternative performance measure.
(ii) Source: Capital IQ.
RTW Investments, LP (the "Investment Manager", "us", "we"), a leading global
healthcare-focused investment firm with a strong track record of supporting
companies developing life-changing therapies, created the Company as an
investment fund focused on identifying transformative assets with high growth
potential across the biopharmaceutical and medical technology sectors. Driven
by our 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.
As of 31 December 2022, approximately 71% of the portfolio was invested in the
core portfolio (private and public), a 5% increase versus 31 December 2021.
Within that, the mix changed slightly. Core private exposure stands at 25% of
NAV, a 3% reduction on last year, while core public exposure increased by 10%
to 46%. We define core public companies as companies that were initially added
to our portfolio as private investments, reflecting the key focus of the
Company's strategy. Our investment approach is defined as full life cycle and,
therefore, involves retaining our private investments well beyond their IPO,
hence our core portfolio consists of both privately-held and publicly-listed
companies.
Approximately 29% of the Company's NAV is currently invested in other publicly
listed companies in lieu of holding cash for future private investments. This
portfolio of assets has been carefully selected by us, matching, on a
pro-rated basis, the long investments held in our other 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.
The -10.2% reduction in NAV during 2022 was largely driven by the "other
public" portfolio's (-9.3% contribution), which declined roughly in line with
the Russell 2000 Biotech Index. The core portfolio made a small positive
contribution to NAV with the core public portfolio contributing +0.2% and the
core private portfolio detracting -0.1%. Within our core private portfolio we
crystallised gains of +4.9% of NAV when RTW Royalty Holdings sold Mavacamten
to Bristol Myers Squibb. These gains were offset by write-downs across the
majority of our private portfolio based on declining public market
comparables. The positive return of the core portfolio, in a year when small
cap biotech companies, particularly newly public ones, performed very poorly,
highlights the selectivity of our process, quality of our investments and
value of our full life cycle approach. Income and Expense (offset by both the
mark to market on the Performance Allocation Share for the period from 1
January 2022 through 30 November 2022 and Non-Controlling Interest for the
period from 1 December 2022 through 31 December 2022) make up the balance of
returns (-0.7% contribution).
Figure 1. Performance drivers as of 31 December 2022
chart
On listing, the Company's core portfolio included six companies, four of which were developing clinical-stage therapeutics and two medtech companies developing transformative devices. The Group now has thirty-eight core portfolio companies having added three new companies in 2022 alongside seven disposals. Core portfolio companies added in 2022 are listed below.
Our 2022 new investments include:
Company name Description % NAV (1)
Lenz Therapeutics Clinical stage biopharma company developing treatments for presbyopia 0.4%
Mineralys Therapeutics Clinical stage biopharma company developing treatments for hypertension 0.3%
Apogee Therapeutics Pre-clinical biopharma company developing treatments for inflammation 0.6%
(1) On 31 December 2022
As of 31 December 2022, the portfolio was diversified across treatment
modalities, therapeutic focus, and the clinical stage of programs (Figure
2A-C). While the portfolio remains dominated by US-based companies (Figure
2D), we are committed to adding UK and EU-based scientists and companies in an
effort to support the best assets across the globe and foster local biotech
ecosystems. By constructing the portfolio in such a way, investors can gain
exposure to the most innovative parts of a highly specialised sector with the
explosive potential of companies such as Prometheus Biosciences (which we
expand on below).
Figure 2. Core portfolio breakdown, by (A) modality, (B) therapeutic focus,
(C) clinical stage and (D) geography as of 31 December 2022
(A) chart (B) chart
(C) chart (D) chart
Key updates for Core Portfolio Companies during 2022:
Clinical milestones
§ In January 2022, Immunocore received an FDA approval for Kimmtrak
(tebentafusp), its first-in-class T-cell therapy for the treatment of uveal
melanoma.
§ In April, C4 Therapeutics shared Phase 1 first-in-human clinical data for
its targeted protein degradation program in multiple myeloma that
unfortunately had limited efficacy and needed to refine its treatment regimen.
§ In May, Rocket Pharmaceuticals shared positive top line data for its
registrational gene therapy program for Leukocyte Adhesion Deficiency-I
(LAD-I), a rare genetic disorder of immunodeficiency in young children.
§ In May, Tarsus Pharmaceuticals shared positive data in the second Phase 3
trial for their blepharitis demodex treatment. The company filed a New Drug
Application ("NDA") with the FDA in September.
§ In June, Beta Bionics shared results of the multi-center randomised
Insulin-Only Bionic Pancreas Pivotal Trial for Type 1 diabetes patients at the
American Diabetes Association ("ADA") conference. The trial met key endpoints
and showed consistent mean HbA1c reductions across various patient subgroups.
§ In August, Cincor Pharma shared positive Phase 2 data for its hypertension
program.
§ In August, Ventyx Biosciences shared positive Phase 1 data for its TYK2
program for autoimmune and inflammatory conditions.
§ In October, Avidity Biosciences announced an FDA partial clinical hold on
new participant enrolment in its lead program for myotonic dystrophy.
§ In September, Immunocore shared first in human data on its PRAME program.
§ In November, Rocket Pharmaceuticals presented a positive data update on its
LADI clinical trial. Then, in December, it provided an update on its Danon
program, stating that the company anticipates starting a pivotal clinical
trial in H1'23.
§ In November, Mineralys Therapeutics shared positive Phase 2 data for its
hypertension program.
§ In December, Prometheus Biosciences reported positive Phase 2 data for its
antibody therapy for inflammatory diseases, suggesting a best-in-class
profile.
§ In December, Avidity Biosciences announced a positive clinical update on
its proof-of-concept Phase 1 trial for is antibody-siRNA therapy.
§ In December, Third Harmonic Bio announced the discontinuation of its Phase
1b study for the treatment of chronic inducible urticaria.
§ In December, Cincor Pharma announced the failure of its Phase 2 trial of
baxdrostat for uncontrolled hypertension by missing a statistically
significant difference between its treatment and placebo arms.
Financing and commercial developments
§ In January 2022, Cincor Pharma announced pricing of its IPO at
US$16.00 per share, raising US$193.6 million and beginning to trade on Nasdaq
Global Market under ticker "CINC".
§ In January 2022, Magnolia Medical Technologies raised US$46 million in a
follow-on cross-over round where RTW served as a co-lead investor. Ovid
Amadi, PhD, Senior Analyst at RTW joins Magnolia's Board of Directors.
§ In February 2022, the Company and other affiliated funds of the Investment
Manager participated in a follow-on Series C financing round in Beta Bionics.
§ In April, Ji Xing announced an exclusive licensing agreement with Lenz
Therapeutics to develop and commercialise LNZ100 and LNZ101 for the treatment
of presbyopia in Greater China. As a part of the transaction, Lenz
Therapeutics has also become the latest addition to the Company's portfolio.
§ In April, Mavacamten, the underlying asset of RTW Royalty Holdings 1
received FDA approval. Soon after, the Company sold its stake in the royalty
to Bristol Myers Squibb for a significant gain.
§ In June, the Company and other affiliated funds of the Investment Manager
participated in a Series B financing round in Mineralys Therapeutics, a
clinical-stage biopharma working on hypertension.
§ In September, Third Harmonic Bio announced the pricing of its IPO at
US$17.00 per share, raising US$185.3 million and beginning to trade on Nasdaq
Global Market under ticker "THRD".
§ In July, Orchestra BioMed announced a strategic collaboration with
Medtronic, the closing of US$110 million private equity financing round, and
plans to list on Nasdaq through a merger with RTW sponsored Health Sciences
Acquisitions Corporation 2.
§ In July, Immunocore announced a PIPE financing round that RTW participated
in and then announced continued success in the commercial launch of Kimmtrak
for uveal melanoma.
§ In December, the Group announced a US$2 million investment in Apogee
Therapeutics, which is working on developing best-in-class medicines for
immunological and inflammatory diseases. RTW co-lead the Series B round.
§ In December, Takeda announced the acquisition of Nimbus' TYK2-targeting
drug, providing a positive read-through for RTW Venture Fund Ltd.'s holding in
Ventyx Biosciences, which is also advancing a TYK2-targeting therapy.
Portfolio performance and updates
The Company's NAV has significantly outperformed biotech benchmarks since
admission on 30 October 2019, returning +47.6% versus -5.3% and +24.7% for the
Russell 2000 Biotechnology Index and the Nasdaq Biotechnology Index,
respectively. This marks the third consecutive full year of outperformance
against the more comparable Russell 2000 Biotechnology Index. However, the
Company's share price has lagged NAV, returning +16.4% since admission after a
-32.0% return in 2022 compared with a -31.1% return for the Russell 2000
Biotechnology Index in 2022 and -10.9% for the Nasdaq Biotechnology Index in
2022. Having traded at a premium for most of the time from admission to 31
December 2021, the shares fell to a discount in 2022 alongside most investment
companies that have exposure to growth stage private companies.
Figure 3. RTW NAV per Ordinary Share vs. RTW.L Share Price and Benchmarks as
of 31 December 2022
chart
Table 2. Performance of all private and core public portfolio investments
since inception as of 31 December 2022
Portfolio Holding Initial Investment Valuation/Exit Date MOC (1) XIRR (1) Holding Period (yrs)
Inivata (2) 24/12/2020 18/06/2021 2.62 635.5% 0.5
Prometheus Biosciences 30/10/2020 31/12/2022 14.05 268.6% 2.2
RTW Royalty Holdings 1 (2) 13/11/2020 30/12/2022 3.38 129.6% 2.1
Ventyx Biosciences 26/02/2021 31/12/2022 3.36 110.8% 1.8
Iteos Therapeutics (2) 24/03/2020 17/03/2022 3.63 108.2% 2.0
Frequency Therapeutics (2) 17/07/2019 23/03/2021 2.79 85.3% 1.7
HSAC 2 17/07/2020 31/12/2022 4.31 83.0% 2.5
Athira Pharma (2) 29/05/2020 30/06/2022 1.65 56.8% 2.1
Immunocore 13/08/2019 31/12/2022 2.83 39.5% 3.4
Avidity Biosciences 08/11/2019 31/12/2022 2.42 32.5% 3.1
Prometheus Laboratories 31/12/2020 31/12/2022 1.41 18.9% 2.0
RTW Royalty Holdings (2) 05/05/2021 31/12/2022 1.32 18.8% 1.7
Mineralys 01/06/2022 31/12/2022 1.08 14.6% 0.6
Pulmonx Corporation (2) 17/04/2020 04/11/2022 1.31 13.1% 2.6
Acelyrin 20/10/2021 31/12/2022 1.12 11.6% 1.2
Ji Xing Pharmaceuticals 10/02/2020 31/12/2022 1.11 7.4% 2.9
Encoded Therapeutics 12/06/2020 31/12/2022 1.18 6.8% 2.6
Magnolia Medical 02/07/2021 31/12/2022 1.05 4.8% 1.5
Tarsus Pharma 24/09/2020 31/12/2022 1.05 2.1% 2.3
Nikang Therapeutics 09/09/2020 31/12/2022 1.03 1.6% 2.3
Numab Therapeutics 07/05/2021 31/12/2022 1.02 1.4% 1.7
Ancora Heart 20/01/2021 31/12/2022 1.01 1.0% 1.9
Apogee Therapeutics 15/11/2022 31/12/2022 1.00 0.0% 0.1
Neurogastrx 25/06/2021 31/12/2022 0.99 -0.3% 1.5
Milestone Pharma 23/07/2020 31/12/2022 0.96 -1.9% 2.4
Lenz Therapeutics, Inc. 13/04/2022 31/12/2022 0.99 -2.0% 0.7
Artiva Biotherapeutics 23/02/2021 31/12/2022 0.94 -3.4% 1.9
Nuance Biotech 07/12/2020 31/12/2022 0.92 -4.1% 2.1
Kyverna 09/11/2021 31/12/2022 0.95 -4.3% 1.1
Beta Bionics 28/06/2019 31/12/2022 0.86 -5.0% 3.5
C4 Therapeutics 02/06/2020 31/12/2022 0.88 -5.8% 2.6
Orchestra Biomed 28/06/2019 31/12/2022 0.86 -7.5% 3.5
Cincor Pharma 22/09/2021 31/12/2022 0.90 -7.6% 1.3
Lycia Therapeutics 02/09/2021 31/12/2022 0.89 -8.3% 1.3
Artios Pharma 27/07/2021 31/12/2022 0.87 -9.1% 1.4
Biomea Fusion (2) 23/12/2020 24/01/2022 0.89 -10.2% 1.1
GH Research Ireland 09/04/2021 31/12/2022 0.79 -12.9% 1.7
Umoja Biopharma 09/06/2021 31/12/2022 0.78 -14.5% 1.6
RTW Holdings LLC (Yarrow) 14/05/2021 31/12/2022 0.88 -16.2% 1.6
Monte Rosa Therapeutics 12/03/2021 31/12/2022 0.73 -16.2% 1.8
Swift Health Systems 27/08/2021 31/12/2022 0.74 -20.1% 1.3
Landos Biopharma (2) 09/08/2019 02/11/2022 0.08 -55.0% 3.2
Tenaya Therapeutics 17/12/2020 31/12/2022 0.16 -59.1% 2.0
Alcyone Therapeutics 08/06/2021 31/12/2022 0.25 -66.2% 1.6
Pyxis Oncology (2) 08/03/2021 08/07/2022 0.22 -70.5% 1.3
Third Harmonic Bio, Inc. 17/12/2021 31/12/2022 0.26 -73.1% 1.0
Visus Therapeutics 26/01/2021 31/12/2022 0.00 -99.4% 1.9
AVERAGE 1.54 23.0% 1.88
1 Alternative Performance Measure
2 Exited the position
Table 3. Performance of Rocket Pharmaceuticals from admission to 31 December
2022
Share price at admission Share price at 31 December 2022 Share price return %
Rocket Pharmaceuticals US$14.00 US$19.57 +39.8%
Table 4. NAV capital breakdown as of 31 December 2022
Portfolio grouping % of NAV
Core private 24.6%
Core public 46.3%
"Other" public 29.8%
Cash, due to/from brokers, other (including liabilities such as other payables -0.7%
and accrued expenses)
Total 100.0%
As of 31 December 2022, our top five holdings in the "other public" portfolio
were:
- 4.2% of NAV in Argenx (ticker: "ARGX"), a commercial stage
multi-pipeline immunology company;
- 1.8% of NAV in Axsome Therapeutics (ticker: "AXSM") a commercial
staged biotech focused on CNS treatments;
- 1.7% of NAV in Masimo Corporation (ticker: "MASI") a global
medtech company focused on patient monitoring;
- 1.5% of NAV in PTC Therapeutics ("PTCT"), a biotech company
developing therapies for rare genetic diseases;
- 1.4% of NAV in Ultragenyx Pharmaceuticals (ticker: "RARE") a
biopharma company addressing rare diseases.
We expect to deploy the capital invested in "other public" assets into private
companies as the opportunities arise.
Table 5. Overview of core portfolio companies' valuations and Company
shareholding on 31 December 2022
Portfolio Company % of Company's net assets Private (1)/ Public (2) Company's % shareholding Valuation of Company's investment in US$ YTD P&L US$
Prometheus Bio 15.2% Public <1% $52,760,400 $33,198,288
Rocket 13.5% Public <5% $46,982,775 -$6,604,656
Immunocore 7.4% Public <1% $25,908,924 $9,935,999
Ji Xing (4) 7.3% Private <15% $25,225,606 -$8,036,798
Avidity 4.2% Public <5% $14,502,829 -$1,268,910
RTW Royalty Holdings (Urogen) 4.0% Private <20% $14,074,846 $1,510,287
Ventyx 2.3% Public <1% $8,025,353 $3,454,534
Beta Bionics 1.6% Private <5% $5,633,890 -$766,537
Orchestra 1.3% Private <5% $4,490,264 -$500,961
NiKang 1.3% Private <5% $4,416,891 -$227,399
Ancora 1.2% Private <5% $4,163,943 $9,122
Tarsus 0.9% Public <1% $3,169,037 -$2,050,561
GH Research 0.9% Public <1% $2,981,309 -$4,174,446
Milestone (5) 0.8% Public <5% $2,871,141 -$2,125,030
Umoja 0.7% Private <1% $2,540,152 -$852,790
Magnolia 0.7% Private <5% $2,403,543 $95,829
Encoded 0.7% Private <1% $2,364,636 -$1,872,579
Cincor 0.6% Public <1% $2,175,674 -$683,084
Apogee Therapeutics 0.6% Private <1% $2,102,903 $0
Numab Therapeutics AG 0.5% Private <1% $1,768,384 $49,888
Acelyrin 0.5% Private <1% $1,650,669 $179,485
Nuance 0.5% Private <1% $1,622,898 -$148,311
Neurogastrx 0.5% Private <1% $1,612,974 -$8,329
Kyverna 0.4% Private <1% $1,455,105 -$74,908
Lenz Therapeutics 0.4% Private <5% $1,449,836 -$21,412
Monte Rosa 0.4% Public <1% $1,402,744 -$2,361,254
Alcyone (4) 0.4% Private <5% $1,280,484 -$3,820,806
Mineralys 0.3% Private <1% $1,119,555 $85,324
Lycia 0.3% Private <1% $1,008,626 -$122,674
RTW Holdings, LLC (Yarrow) (4) 0.3% Private <5% $1,001,854 -$133,869
C4 Therapeutics 0.3% Public <1% $926,459 -$7,565,568
Tenaya 0.3% Public <1% $881,791 -$7,331,469
Artiva 0.3% Private <1% $880,074 -$298,454
Artios 0.2% Private <1% $675,895 -$98,421
Swift Health 0.2% Private <1% $649,150 -$228,531
Third Harmonic 0.1% Public (3) <1% $347,952 -$1,088,132
Prometheus Labs 0.1% Private <1% $186,504 $54,524
Visus 0.0% Private <1% $149 -$2,352,170
Pulmonx 0.0% Public <1% $27 -$896,517
1 Valuations for private portfolio companies on a fair value basis as of 31
December 2022.
2 The valuations of public positions have been calculated using their market
capitalisation as at 31 December 2022.
3 In accordance with its valuation policy, the Group applies a discount to its
investments in private portfolio companies which become public portfolio
companies that are subject to customary post-IPO lock-up provisions. The
valuation policy also includes Level 1 securities purchased at or after
portfolio company IPO.
4 Excludes convertible note.
5 Includes pre-funded warrants.
Table 6. RTW representation on portfolio companies' boards
Portfolio company (1) RTW representative on the board
Alcyone Piratip Pratumsuwan
Ji Xing Rod Wong, Peter Fong
Magnolia Ovid Amadi
Nikang Rod Wong
Rocket Rod Wong, Gotham Makker, Naveen Yalamanchi
Yarrow Rod Wong, Peter Fong
1 In aggregate these represented 23% of the NAV of the Group at 31 December
2022
Summary of top fifteen core portfolio companies as of 31 December 2022:
As of 31 December 2022, the Group's core portfolio included thirty-eight
companies comprised of pre-clinical to commercial stage biotechnology
companies, companies developing traditional small molecule pharmaceuticals,
and med-tech companies developing or commercializing transformative devices.
We selected the Group's portfolio companies based upon our rigorous assessment
of scientific and commercial potential, opportunities to positively impact
value, and with regard to the valuation of the assets at the time of
investment. The table below includes the top fifteen portfolio companies at
the end of the reporting period.
Table 7. RTW Venture Fund core portfolio - Top fifteen positions as of 31
December 2022
Portfolio Company Therapeutic Area Clinical Stage Description Expected Catalyst % NAV
Prometheus Bio Inflammation Phase 2 Precision medicine company focused on IBD, a chronic inflammatory disease of Data updates in Q2 2023 15.2%
GI tract with the lead antibody program against TL1A.
Rocket Rare Disease Phase 2 Gene therapy platform company for rare paediatric diseases. Four clinical Data updates in H1 2023 13.5%
programs for Fanconi anaemia, Danon, LAD, and PKD.
Immunocore Oncology Commercial T-cell receptor therapy company focused on oncology and infectious disease. Launch updates in H1 2023 7.4%
Lead program for uveal melanoma.
Ji Xing Cardiovascular, Ophthalmology Phase 3 NewCo focused on acquiring rights for innovative therapies for development and Series D in H2 2023 7.3%
commercialisation in China.
Avidity Myotonic Dystrophy Phase 1 Antibody conjugated RNA medicines company. Lead program for myotonic Data updates in Q2 2023 4.2%
dystrophy, a degenerative disease with no therapy.
RTW Royalty Holdings Oncology Commercial Royalty as a part of RTW-Urogen deal based on revenues of both Jelmyto and - 4.0%
(Urogen) UGN‐102.
Ventyx Autoimmune Phase 2 Clinical stage biotech advancing a promising immunology pipeline for Data updates in Q2 2023 2.3%
autoimmune and inflammatory diseases.
Beta Bionics Type 1 Diabetes Pivotal Closed-loop pancreatic system for automated and autonomous delivery of - 1.6%
insulin.
Orchestra Cardiovascular Pivotal Medical device company focused on developing products for the treatment of Data updates in H1 2023 1.3%
coronary artery disease and hypertension.
NiKang Oncology Phase 1 Biotech using a structure-based design to develop innovative small molecules Data updates in H1 2023 1.3%
against promising molecular targets in oncology.
Ancora Cardiovascular Pivotal Medical device company dedicated to developing products which target - 1.2%
dysfunction of the left ventricle, the underlying cause of heart failure.
Tarsus Ophthalmology Phase 3 Clinical stage biotech developing first-in-class therapeutics for ophthalmic PDUFA Aug 25, 2023 0.9%
conditions.
GH Research CNS Phase 2 Clinical stage biotech developing therapies to manage mental disease. - 0.9%
Milestone Cardiovascular Phase 3 Clinical stage company developing interventions for tachycardias. FDA filing H2 2023 0.8%
Umoja Oncology Preclinical Preclinical stage biotech company developing cell therapies in cancer. The - 0.7%
lead program is focused on B cell malignancies.
Sector review and outlook
chart
We already knew that 2021 was an historic year for small cap biotech. The
Russell 2000 Biotech Index finished -27%, behind only 2008's -31% and 2002's
-54%. Then 2022 tied 2008 for second from the bottom, with a drop of -31%, a
rare two down years in a row. As a result, the absolute number and percentage
of companies trading at less than 1x market capitalisation to cash remains
near historic highs (37%). This is despite some meaningful advances in biotech
innovation, most importantly Biogen/Eisai's lecanemab for Alzheimer's.
charts
Funding for smaller public companies is scarce. The IPO market is at its
lowest level in a decade and follow-on offerings declined for the second year
in a row, back to the lowest level since 2016's drug pricing panic. In sharp
contrast, big was beautiful this year. The NYSE Arca Pharmaceutical Index
(DRG) finished +5% on the year. In fact, the 36% performance gap between
large and small cap therapeutics adds to last year's 50% gap, totaling the
largest outperformance for pharma since 1997-98. Investors are setting aside
long-term risks (most notably Medicare price negotiation and patent cliffs
beginning in 2026) and are placing high value on recession-resistant near-term
growth, which pharma is delivering with its own innovation breakthrough, the
Glp1s. The Glp1s are the first class of medicines to deliver meaningful
weight loss with an attractive safety profile, and early sales momentum
suggests the potential to create one of, if not the largest drug class in
history. Eli Lilly and Novo Nordisk have surpassed Pfizer and Merck as the
second and third largest biopharma companies, thanks to the success of
Mounjaro and Rybelsus.
The large-cap-weighted Nasdaq Biotech Index lost -11% in 2022. Companies with
consistent growth, or those who can plug pharma patent holes with de-risked
blockbuster potential have been first to recover. Overall, we believe this
is consistent with a biotech recovery that is in its earliest innings.
A year ago, our optimism for 2022 stemmed from expectations for a return to
normalcy at the FDA, clarity on drug pricing, increased M&A, and the
historically large performance gap between biotech and the broader markets.
The 2022 volume (of deals worth over US$500 million) totaled US$58 billion, a
nice pick-up from 2021's US$52 billion, the lowest in the past eight years.
Pharma (DRG +5%) and large cap biotech (NBI -11%) significantly outperformed
the broader market and (S&P500 -19%), narrowing the performance gap. In
sum, we have seen significant progress against each of these items.
Unfortunately, small caps have so far been left behind (Russell 2000
Biotechnology Index -31% and XBI -26%), and our concentration here has
correspondingly affected 2022 NAV performance.
Volume of deals worth over US$500 million totaled
$58b
2021: $52 billion
After the last two years, we think investors have priced in failure for much
of the wave of companies that experienced setbacks after going public too
early. Of the IPO classes of 2020-2021, the average performance is -37% and
-50%, with 74% trading below cash. Notable breakthroughs in the past year
have only minimally improved sentiment. This includes several potential
first-in-class therapies for blockbuster markets. In addition to Biogen and
Eisai's Alzheimer's breakthrough, Axsome is launching the first new class of
oral antidepressants in over half a century, Karuna reported positive Phase 3
schizophrenia data for a first-in-class muscarinic receptor directed therapy,
and Madrigal reported the first successful Phase 3 study ever conducted for
fatty liver disease.
chart
FDA approved novel new drugs
37
2021: 50
Drugs from new modalities
13
2021: 9
In total, the FDA approved 37 novel new drugs (two of which came from RTW
portfolio companies: Kimmtrak from Immunocore and Camzyos (mavacamten) from
RTW Royalty Holdings 1). This is down from last year's 50 and likely reflects
an FDA that has struggled post-COVID. Importantly, however, drugs from new
modalities continue to increase: 13 vs 9 last year. It includes an
impressive four gene therapies (vs zero last year), two bispecifics, an RNAi,
mRNA, cell therapy, ADC, radiotherapy, and the first ever TCR and microbiome
therapies. With innovation from new modalities continuing to mature and
accelerate, we think the swing of the sentiment pendulum from optimism to
pessimism for small companies creates asymmetric opportunity in front of
future potential breakthroughs. Importantly, several of our core early-stage
therapeutic companies that have suffered either alongside other small caps or
due to their own setbacks remain key positions in the portfolio. Those that
have cleared our re-underwriting efforts have made operational progress this
past year and many are nearing their next value inflection points. We like
the asymmetric risk reward in front of these more mature data readouts in
2023.
Recent cases suggest that the market environment may be increasingly more
likely to reward strong data. In December, positive data translated to
significant moves for Madrigal Pharmaceuticals (+320%), and our own Prometheus
Biosciences (+167%) and Avidity (+91%).
We continue to expect M&A to accelerate given patent expiries and
headwinds from the Inflation Reduction Act of 2022 in the second half of the
decade, growing pharma cash balances, small company cost of capital, and lower
valuations. This should help drive better performance for the sector, which
has never been down three years in a row.
Executing on our strategy
We are scientists and entrepreneurs who aspire to change the lives of patients
through innovation, and our mission is at the heart of everything we do. We
power breakthrough therapies that transform the lives of millions. True value
realisation from transformative products takes time, and in order to capture
that value, it is critical to be involved in and invested in such companies
throughout the various stages of their development. As a full life cycle
investor, we recognise the importance of providing growth capital along with
the support of an experienced team, if and when it is needed, at any critical
inflection point in an asset's life cycle. Scientific development rarely
follows a linear path, which is why we are always thinking about the optimal
way to support a company. This can be achieved through providing growth
capital, creative financing solutions, capital markets expertise, or guidance
through investing our time and sharing our collective experience as directors
and stewards of tomorrow's most exciting and disruptive companies.
Our full life cycle approach and broad offering of financial solutions for
investee companies allows us to capture a diverse opportunity set. In the
first half, this was most clearly demonstrated when we sold our royalty stake
in Mavacamten, the underlying asset of RTW Royalty Holdings 1, to Bristol
Myers Squibb soon after the drug had achieved the primary endpoint of its
Phase 3 trials, achieving a greater than 3x return on our initial investment
in November 2020. We originally acquired the royalty asset as part of a
multi-solution transaction with Cytokinetics, a promising mid-stage
cardiovascular company, which also included an equity investment, a regional
partnering deal with Ji Xing, and future clinical trial funding. It was a
ground-breaking transaction because, as a single counterparty, we were able to
move quickly to simplify and de-risk the execution of a process that would
otherwise have taken much longer with the involvement of multiple partners. We
believe that we are the only investment manager who could have accomplished
what we did.
In the second half of the year, our second SPAC, Health Sciences Acquisitions
Corporation 2, announced a proposed combination with Orchestra BioMed, one of
the Group's core private holdings. The combination subsequently closed after
year-end and, on 27 January 2023, Orchestra started trading on Nasdaq Global
Market under the ticker "OBIO". Simultaneously, the company cemented a
strategic collaboration with Medtronic, a global leader in medical technology,
services and solutions, to develop its "BackBeat Cardiac Neuromodulation
Therapy" as a potential integrated treatment for cardiac pacemaker patients.
We always believed that Orchestra had promising data and a leadership team
with an exceptional track record of bringing novel medical technologies to
market; now they have that, a new partnership with a global leader and the
financial resources to help accelerate their clinical development and position
them for commercial success. In our opinion, this deal validates our view on
and approach to SPACs, which is that they can be an especially useful tool to
bring public-ready companies to the next stage of their life cycle when the
capital markets are temporarily closed for business.
Our global reach continues to expand with new offices opened in London and
Shanghai. In China, our NewCo Ji Xing, continues to build out its clinical
pipelines with the addition of an exclusive licensing agreement with Lenz
Therapeutics for their LNZ100 and LNZ101 treatments for presbyopia. As part of
the transaction, Lenz Therapeutics also became the latest addition to the
Group's portfolio, underlining the value of our multi-asset approach. In
London, we have continued to support the development of Immunocore with our
participation in a US$140 million PIPE (Private Investment in Public Equity)
alongside a small handful of other investors in July. As a firm, we have been
supporting Immunocore since their Series A in 2015 and we are proud to be part
of a significant UK success story as the company received FDA approval in
January for Kimmtrak (tebentafusp), its first-in-class T-cell therapy for the
treatment of uveal melanoma, which subsequently surpassed most people's
expectations on its commercial launch. We expect to receive clinical updates
from their highly promising PRAME (Preferentially Expressed Antigen of
Melanoma) program, which could be a blockbuster drug, in 2023.
From a science perspective, our primary areas of focus remain in genetic
medicines, rare diseases, small molecules, targeted oncology, medical
technologies, antibodies, and next generation antibody therapies. Our
science-led, full life cycle approach was clearly demonstrated this year by
Prometheus Biosciences' transformational data from their Phase 2 studies in
ulcerative colitis and Crohn's disease. The company's Anti-TL1A antibody is a
new mechanism of action in inflammatory bowel disease ("IBD") which also
leverages companion diagnostics that may enable a more personalised and
effective treatment for patients suffering from the condition. With
best-in-disease efficacy against existing, commercially validated, mechanisms
of action, we believe Prometheus is set up to capture a significant portion of
the multibillion-dollar IBD market. On the heels of the Phase 2 data,
Prometheus successfully raised US$500 million in a follow-on financing to
advance into Phase 3 development. We have been following the company for
several years, starting in February 2020 when we observed proof-of-concept
data from Pfizer, which alerted us to the possibilities of the TL1A mechanism
of action. After further scrutinizing the science and gaining a better
understanding of its companion diagnostic platform (something which Pfizer was
not considering at the time), we co-led the crossover financing in November
2020 when they raised US$130 million ahead of anchoring their IPO and US$220
million raise in March 2021 at a US$660 million valuation. Prometheus' market
cap now stands at US$5.5 billion.
None of this is possible without a sound foundation. Our foundation, or core,
is built on our rigorous assessment of the best private market investment
opportunities, which then go on to realise their ultimate value in the public
markets. We have always been highly selective in this area, focusing only on
companies with 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 reasonable size and is well funded.
Figure 4 shows a breakdown of the approximate cash runway of our core private
companies that have negative cash flow. Of the twenty-four companies that do
so, the average cash runway (at current burn rates) is around three years,
which gives them the time to focus on their clinical development until the
funding markets normalise. Of the six companies with less than one year of
runway, two are RTW NewCos, so that is by design. Of the remaining four, only
two are in a challenging financial position.
Figure 4. Core private portfolio - approximate cash runway as of 31 December
2022
chart
Reflecting their challenged positions, these two companies, Alcyone and Visus,
were written down by RTW's Valuation Committee to the tune of -75% and -99%,
respectively, through 2022. Figure 5 shows the 2022 valuation changes for all
the core private holdings in the portfolio on 31 December 2022. It is
important to note that this does not include the value realisations from RTW
Royalty Holdings 1 or the changes arising from Cincor's or Third Harmonic's
IPOs. Last year, we marked down seventeen of the privates we now hold by an
average of 23% and marked up seven by an average of 12%. Apogee Therapeutics'
valuation remained unchanged as we only invested in December 2022. 70% of the
markdowns were primarily driven by changes to relative comparables or
market-based inputs. On the other hand, 71% of the markups were primarily
driven by idiosyncratic company performance or a financing or transaction. Our
Valuation Committee, which includes an expert internal team, takes a fair
value approach to marking our private portfolio, doing so on a monthly basis,
with the involvement of multiple third-party valuation companies, with the
goal of ensuring there are no surprises for our investors. The Board reviews
and challenges these valuations in two semi-annual meetings.
Figure 5. Core private portfolio on 31 December 2022 - year to date valuation
changes
chart
In summary, the private portfolio is in good shape and we have been active and
fair in our valuation of the individual holdings. This foundation provides us
with the capacity and the confidence to continue to back our existing holdings
should they need it and make new investments as the opportunities arise
We believe there is a significant demand for reliable capital providers such
as ourselves, to continue to support scientific innovation and the development
of transformative therapies for patients. We expect the portfolio's sector
split to remain close to 80% biopharmaceutical assets and 20% medical
technology assets. In line with prior prospectus guidance, we anticipate
two-thirds of the 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.
Key portfolio company events post period end
§ In January 2023, Cincor Pharma entered into an agreement to be acquired by
AstraZeneca for a total deal value of US$1.8 billion, a 206% premium to the
prior closing market value.
§ In January 2023, Orchestra BioMed combined with RTW's HSAC 2 and started
trading on Nasdaq Global Markets under the ticker symbol "OBIO".
§ On 9 February 2023, Mineralys Therapeutics announced pricing of its IPO by
offering 12 million shares at US$16.00 per share. The shares began trading on
Nasdaq Global Market on 10 February 2023 under ticker "MLYS". Since IPO,
Mineralys Therapeutics shares have traded down 7.2% as of 29 March 2023.
§ On 28 March 2023, Milestone Therapeutics announced a $125m strategic
financing from the Investment Manager to support Milestone's operations into
mid-2025, including etripamil NDA submission and launch in PSVT.
§ Privately-held portfolio companies
§ 25
§ 2021: 25
RTW Investments, LP
30 March 2023
Our Long-Term Strategy
Transforming the lives of millions
Our long-term strategy is anchored in identifying sources of transformational
innovations by engaging in deep scientific research and a rigorous idea
generation process, which is complemented with years of investment, company
building, transactional, and legal expertise.
Identify
Identify transformational innovations
We have developed expertise through our comprehensive study of industry and
academic efforts in targeted areas of significant innovation. Thanks to the
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
We developed repeatable internal processes combining technology and manpower
to comprehensively cover critical drivers of innovation globally. We seek to
identify biopharmaceutical and medical technology assets, ascertained through
rigorous scientific analysis that have a high probability of becoming
commercially viable products and can dramatically change the course of
treatment and in some cases bring effective and/or full curative outcomes to
patients.
Build
Build new companies around promising academic licences
We have the capabilities to partner with universities and in-license academic
programs, by providing capital and infrastructure to entrepreneurs to advance
scientific programs. Particularly working in rare diseases, often areas with
little existing research and treatment options, means that forming a rare
disease-focused company is a way of shining a light on this space and creating
a roadmap to eventually developing a curative treatment.
Support
Support full life cycle investment
A key part of our competitive advantage is the ability to determine at what
point in 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
investing 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 true 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.
Our Strategy in Action
Identify transformational innovations
Avidity Biosciences
RTW focuses on identifying transformational innovations across the life
sciences space, specifically backing scientific programs that have the
potential to disrupt the prevailing standard of care in their respective
disease areas.
Learn more about Avidity Biosciences,
www.aviditybiosciences.com (http://www.aviditybiosciences.com)
NAV
4.2%
2021: 4.3%
Portfolio company ownership
<5%
2021:<5%
The need
It is estimated that about 40,000 Americans suffer from myotonic dystrophy, a
rare genetic muscular dystrophy with no approved treatment options for
patients and their families.
Mission
Avidity is developing antibody oligonucleotide conjugate (AOC™)
therapeutics, which combines the tissue selectivity of monoclonal antibodies
and the precision of oligonucleotide-based therapeutics to overcome barriers
to the delivery of oligonucleotides and target genetic drivers of disease.
Status
In December, Avidity Biosciences announced a positive clinical update on its
proof-of-concept Phase 1 trial for AOC 1001, its antibody-siRNA therapy, for
myotonic dystrophy. The company is also expanding its pipeline in other rare
muscle disorders such as Facioscapulohumeral Muscular Dystrophy, Duchenne
Muscular Dystrophy and others.
Next milestone
Avidity is expected to share AOC 1001 Phase 1 clinical progress in H1 2023.
Engage in deep research to unlock value
Prometheus
Our team is comprised of individuals with medical and advanced scientific
training and legal and banking experience, enabling a deeply differentiated
approach to research, idea generation and strategic investment.
Learn more about Prometheus Biosciences
www.prometheusbiosciences.com (http://www.prometheusbiosciences.com)
NAV
15.2%
2021: 5.6%
Portfolio company ownership
<5%
2021: <5%
The need
Inflammatory Bowel Disease (IBD) is a chronic inflammatory condition of the GI
tract. The pathology of the disease is mixed and without a definitive cause,
therefore it represents an area of a high unmet need for a large proportion of
patients. Prometheus Biosciences is developing an antibody targeting TL1A, a
novel target in IBD. RTW has been an investor in Prometheus since the firm
co-led the company's crossover financing US$130 million raise in 2020.
Mission
Prometheus is a biotechnology company developing novel therapeutic and
companion diagnostic product candidates for the treatment of immune-mediated
diseases, starting with IBD. Its transformational approach brings the power of
big data to immune biology, changing lives through patient-centric drug
design.
Status
In December 2022, Prometheus shared positive Phase 2 clinical data for
ulcerative colitis and Crohn's disease clinical trials with a successful use
of companion diagnostic in IBD. The data suggests a best-in-class profile for
an IBD therapy.
Next milestone
Prometheus is expected to present further clinical data updates from its Phase
2 trials in IBD in H1 2023.
Building new companies
We engage in new company formation around promising academic licences and
beyond. We have the capabilities to partner with universities and in-license
academic programs, by providing capital and infrastructure to entrepreneurs to
advance scientific programs. We are well-placed to offer support to
early-stage life sciences companies and NewCos.
Company creation
Rocket
Danon Disease (AAV) - Halfway between Phase 1 and 2
Fanconi Anaemia (LVV) - Phase 2
Leukocyte Adhesion Deficiency (LVV) - End of Phase 1
Pyruvate Kinase Deficiency (LVV) - Phase 1
BAG3-Associated Dilated Cardiomyopathy - Lighter tint - End of Preclinical
PKP2-Associated Dilated Cardiomyopathy - Lighter tint - Mid of Preclinical
JiXing
OMECAMTIV MECABRIL: HfrEF - End of Phase 3
AFICAMTEN: oHCM - Phase 3
AFICAMTEN: nHCM - Phase 2
AFICAMTEN: HfpEF - Phase 2
ETRIPAMIL: PSVT - Phase 3
ETRIPAMIL: Atrial fibrillation (Afib) - Phase 3
OC-01: Dry eye disease - Phase 3
OC-02: Dry eye disease - Phase 3
LNZ100/101: Presbyopia - Phase 3
JX08: Demodex blepharitis - Lighter tint - Halfway between Preclinical and
Phase 1
Yarrow
ASO TECHNOLOGY - Preclinical
Support full life cycle investment
Orchestra (OBIO)
Drug development is not a linear process. There are advancements and setbacks
and we are structured to maximise value creation at any point beginning with
company creation to late-stage venture and into publicly traded markets. We
let the fundamentals and not market movements dictate our investment.
Learn more about Orchestra Biomed
www.orchestrabiomed.com (http://www.orchestrabiomed.com)
NAV
1.3%
2021: 0.6%
Portfolio company ownership
<1%
2021: <1%
The need
Orchestra BioMed is a biomedical innovation company accelerating high-impact
technologies to patients. Its flagship product candidates include BackBeat
Cardiac Neuromodulation Therapy™ (CNT™) for the treatment of hypertension,
a significant risk factor for death worldwide, and Virtue® Sirolimus
AngioInfusion™ Balloon (SAB) for the treatment of atherosclerotic artery
disease, the leading cause of mortality worldwide. The Company has been
invested in Orchestra Biomed since the time of its listing on LSE in 2019.
Mission
Orchestra Biomed's partnership-enabled business model focuses on forging
strategic collaborations with and licensing patented technologies to leading
medical device companies to drive successful global commercialisation of
product candidates we develop. The company focuses on advancing promising
therapeutic solutions, such as BackBeat CNT and Virtue SAB, through late-stage
clinical research and regulatory approvals, while our partners focus on
leveraging their commercial expertise and existing infrastructure to bring our
product candidates to global markets quickly and efficiently.
Status
In July 2022, Orchestra Biomed announced its plans to list on Nasdaq through a
merger with Health Sciences Acquisitions Corporation 2 (HSAQ), an
RTW-sponsored SPAC. The RTW team has been delighted to support Orchestra in a
turbulent public markets environment and provide an alternative path to
becoming a public company.
Next milestone
The business merger occurred in January 2023 with Orchestra Biomed trading on
Nasdaq under ticker "OBIO". The transaction had negligible P&L impact as
we had anticipated a successful completion in our 31 December 2022 NAV.
Our Business Model
Shaping tomorrow's most disruptive companies
We are full life cycle investors creating value and offering support at any
stage, from academic programs all the way to mature publicly traded companies.
What we need to create value
EXPERIENCED TEAM
A collaborative team of doctors, academics, and drug developers coupled with
seasoned venture capitalists, investment bankers, lawyers and company
operators with a strong culture of compliance.
SCIENTIFIC RIGOUR
Our research process combines wide data-gathering with deep analysis to
identify the most compelling assets, technologies, and modalities with the
best chance of reaching patients.
FULL LIFE CYCLE INVESTING
Taking a long-term, full life cycle approach and having a true evergreen
structure helps us avoid the structural constraints of venture-only or
public-only vehicles.
GLOBAL REACH
Great science takes place everywhere in the world. Our priority is to unlock
value by advancing early-stage scientific development and delivering
innovative therapies to patients in need.
How we create value
We power breakthrough therapies that transform the lives of millions.
Identify transformative assets with high growth potential across the
biopharmaceutical and medical technology sectors. Driven by our deep
scientific understanding and long-term approach to supporting innovative
businesses, we invest in companies developing next-generation therapies and
technologies that can significantly improve patients' lives.
IDENTIFY TRANSFORMATIONAL INNOVATIONS AND UNMET NEEDS
We focus on identifying transformational innovations and unmet needs across
the life sciences space, specifically backing scientific programs that have
the potential to disrupt the prevailing standard of care in their respective
disease areas.
INVEST IN DEEP RESEARCH AND LONG-TERM RELATIONSHIPS
We believe in developing long-term relationships with great entrepreneurs and
scientists who are as passionate about medicine as we are and working closely
with our peers to support companies at any stage of their life cycle.
SUPPORT THROUGH FULL LIFE CYCLE INVESTMENT
A key part of our competitive advantage is the ability to determine at what
point in 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 solution, capital markets expertise, or guidance through
investing our time and sharing our collective experience as leaders of
tomorrow's most exciting and disruptive companies.
Value created
PATIENT BENEFITS
Innovation is the best medicine. We believe solving unmet patients' needs is
the best way to create value.
Number of drugs commercialised by our 10 most successful investments since
inception
11 (2021: 10)
Core portfolio companies with clinical stage programs
25 / 39 (2021: 28 / 42)
SHAREHOLDERS
Privileged access to private markets and bespoke negotiated opportunities
Total shareholder return since admission
+16.3% (2021: 71%)
NAV per ordinary share growth since inception
+47.6% (2021: 38.1%)
PORTFOLIO COMPANIES
We support teams through the inevitable setbacks that occur when introducing a
first-in-class or disruptive therapy.
NAV deployed into core portfolio companies
70.9% (2021: 66%)
RTW CHARITABLE FOUNDATION
Founded as the Charitable Foundation arm of RTW, RTWCF partners with
organisations conducting disease research and championing humanitarian causes.
Number of humanitarian grants
10 (2021: 9)
- 8 COVID Recovery grants in NYC, 1 STEM education grant in NYC (BioEYES), and
1 emergency response grant for Ukraine (Razom).
Operational and Financial Review for the Year
Leading with innovative asset creation
MARKET CAPITALISATION
The Company's market capitalisation declined from US$378 million at 31
December 2021 to US$257 million at 31 December 2022. The Company issued no
shares during the year and did not repurchase any shares so the decline in the
market capitalisation of its shares is solely attributable to the decline in
the Company's share price.
ORDINARY NAV
The Ordinary NAV of the Company declined from US$363 million to US$326 million
during the year. The main driver of the decline was the share price
performance of publicly-listed portfolio companies within the Group's
portfolio as realised gains from the sale of private investments were offset
by fair value write downs of the remaining private investments. The majority
of the private portfolio's fair value (excluding royalty investments) is made
up of convertible preferred stock and convertible notes, which offers a degree
of downside protection given their senior positioning in the capital
structure. Additionally, in the last three months before year end, the
majority of the private investment valuations were updated by independent
third-party valuers.
An approximate attribution of the Group's performance is provided below
Private Core Realised Gain +4.9%
Private Core Mark to Market -5.2%
Public Core Mark to Market +0.1%
Other Public Mark to Market -9.3%
Income, Expense and Other Offsets (1) -0.7%
Net Performance -10.2%
(1) Other Offsets are both the mark to market on the Performance Allocation
Share for the period from 1 January 2022 through 30 November 2022 and
Non-Controlling Interest for the period from 1 December 2022 through 31
December 2022.
( )
NAV PER ORDINARY SHARE
The -10.2% decline in NAV per Ordinary Share was driven by the decline in the
Company's ordinary NAV as the number of shares in issue did not change during
the year.
PREMIUM / DISCOUNT
The Company's shares traded on average at a c. 12% discount due to reduced
market demand for growth and venture capital assets during the reporting
period. At the year-end, the Company's Ordinary Shares were trading at a 21.2%
discount to NAV (2021: 4.1% premium to NAV; 2020: 4.1% discount to NAV).
TOTAL RETURN TO SHAREHOLDERS BASED ON ORDINARY NAV
As the Company has not paid dividends, the negative total return for the year
of -10.2% (2021: -12.8%) equates to the decline in NAV per Ordinary Share.
There was no performance allocation triggered during the reporting period as
the total shareholder return based on ordinary NAV movements was negative.
TOTAL RETURN TO SHAREHOLDERS BASED ON SHARE PRICE
The negative share price return of -32.0% in the year compared to the NAV
movement of -10.2% was the result of a decline in demand for growth companies
that are not currently profitable as interest rates increased in the US and
UK. Investors also assumed that private companies within venture capital
portfolios would be subject to substantial market-based valuation adjustments
leading to a cyclical widening of share price discounts. Companies with the
highest proportion of private growth assets experienced the most significant
widening.
ONGOING CHARGES
The Group's ongoing charges ratio is 1.92%, calculated in accordance with the
AIC recommended methodology, which excludes non-recurring costs and interest
payable and uses the average NAV in its calculation.
Highlights
Market Capitalisation as of 31 Dec 2022
2022: US$257m
2021: US$378m
2020: US$360m
Ordinary NAV as of 31 Dec 2022
2022: US$326m
2021: US$363m
2020: US$375m
Premium to NAV discount as of 31 Dec 2022
2022: -21.2%
2021: +4.1%
2020: -4.1%
Ongoing charges as of 31 Dec 2022
2022: 1.92%
2021: 1.73%
2020: 1.96%
Our Key Performance Indicators
Measuring our performance
The Board has identified the following indicators for assessing the Group's
annual performance in meeting its objectives:
Financial KPIs
NAV Growth
PERFORMANCE
Performance of the portfolio companies and cash management strategy net of all
fees and costs
KEY FACTORS
· Portfolio performance and progression through clinical trials
· Cash management
· Capital pool and deployment
· Scientific and financial risks
PROGRESS
Ordinary NAV
2022: -10.2%
2021: -12.8%
During the reporting period this was largely driven by public companies' share
price performance.
FUTURE INTENT
Achieve superior long-term capital appreciation; target an annualised total
return of 20% over the medium term
LINK TO STRATEGY
Identify
Engage
Build
Support
LINK TO PRINCIPAL RISKS
Failure to achieve investment objective
Exposure to global political and economic risks
Clinical Development & Regulatory Risks
Total shareholder return
PERFORMANCE
Delivering value to the shareholders
KEY FACTORS
· Portfolio performance
· Liquidity of RTW.L shares
· General market sentiment
PROGRESS
Return
2022: -32.0%
2021: -5.3%
FUTURE INTENT
Achieve superior long-term capital appreciation; target an annualised total
return of 20% over the medium term
LINK TO STRATEGY
Identify
Engage
Build
Support
LINK TO PRINCIPAL RISKS
Failure to achieve investment objective
Exposure to global political and economic risks
Clinical Development & Regulatory Risks
Premium/discount to NAV
PERFORMANCE
The level of supply and demand for the Company's shares
KEY FACTORS (in order of impact at year end)
· The percentage of private growth assets within the Group's
portfolio
· Portfolio performance
· Liquidity of the Company's shares
· Governance
PROGRESS
Premium/discount to NAV (average during the year)
2022: -12%
2021: 10%
FUTURE INTENT
Return to par or a premium to NAV such that total shareholder returns more
closely match NAV performance
LINK TO STRATEGY
Identify
Engage
Build
Support
LINK TO PRINCIPAL RISKS
Failure to achieve investment objective
Exposure to global political and economic risks
Percent of NAV invested in core portfolio companies
PERFORMANCE
Level of capital deployment into core portfolio companies
KEY FACTORS
· Level of capital deployment and investment pace, as well as
availability of funds to be deployed into new portfolio companies or for
follow-on investments into existing portfolio companies
PROGRESS
NAV invested in core portfolio
2022: 71%
2021: 66%
Deployed into core portfolio companies
FUTURE INTENT
Identify transformative assets with high growth potential across the
biopharmaceutical and medical technology sectors
LINK TO STRATEGY
Identify
Engage
Build
Support
LINK TO PRINCIPAL RISKS
Clinical Development & Regulatory Risks
The Investment Manager relies on key personnel
Exposure to global political and economic risks
Non-financial KPIs
Geographic & therapeutically diversified portfolio
PERFORMANCE
Measures the Group's commitment to invest in best-in-class science and
innovative assets worldwide
KEY FACTORS
· Continue to diversify within life sciences sector, looking for
opportunities globally and also support local biotech ecosystems
PROGRESS
Therapeutic areas addressed
2022: 10
2021: 10
Core portfolio companies' focus spans multiple therapeutic areas, treatment
modalities and geographies.
FUTURE INTENT
Continue investing in and supporting companies developing next generation
therapies and technologies that can significantly improve patients' lives
LINK TO STRATEGY
Identify
Engage
Build
Support
LINK TO PRINCIPAL RISKS
Clinical Development & Regulatory Risks
Exposure to global political and economic risks
Active and robust pipeline
PERFORMANCE
Delivers transformational new treatments and medical devices to patients in
need.
KEY FACTORS
· Balance and breadth of the pipeline across all clinical stages
· Data readouts and progress through multiple clinical stages
· Commercial opportunity and competitive landscape
PROGRESS
Portfolio companies have leading programs in a clinical stage
2022: 68%
2021: 67%
Capturing a spectrum of early-stage Phase 1 to late stage Pivotal
FUTURE INTENT
Progress towards delivering transformational treatments to patients in areas
of high unmet need.
LINK TO STRATEGY
Identify
Engage
Build
Support
LINK TO PRINCIPAL RISKS
Clinical Development & Regulatory Risks
Exposure to global political and economic risks
Imposition of pricing controls
Risk Management
Applying deep scientific expertise with a long-term investment horizon
Our long-term strategy is anchored in identifying transformative assets with
high growth potential across the biopharmaceutical and medical technology
sectors. Driven by our deep scientific understanding and a long-term approach
to supporting innovative businesses, we invest in companies developing
next-generation therapies and technologies that can significantly improve
patients' lives. With this significant opportunity also comes risk.
Our risk framework is overseen by the Audit Committee under delegation from
the Board. Multiple parties contribute to managing risk, including the Board,
the RTW team, and the Group's other advisers.
Risk framework
Our risk framework begins with the Investment Policy, and the Board, which
oversees the Company's operation in accordance with the Investment Policy and
the process to ensure a robust assessment of principal and emerging risks and
potential future risks, and receives an update at each Board meeting. A risk
register is maintained that sets out our principal and emerging risks and how
we mitigate them. The RTW team is responsible for day-to-day operation and
oversight of the risk framework. The RTW team has a culture of transparency,
ensuring that any developments are shared and addressed effectively with the
benefit of input from the whole team, and reported to the Board where
appropriate. We rely on having highly experienced personnel to support and
manage issues as they arise.
The Audit Committee oversees and monitors the risk framework, including
reviewing the risk register to ensure it properly captures the principal and
emerging risks, overseeing the framework for identifying risks (including
potential future risks), reviewing the ongoing operation and effectiveness of
our control environment to manage the principal and emerging risks we face,
and ensuring that any actions identified are taken forward by the RTW and
Elysium teams as appropriate. This review process provides a focus to drive
continuous improvement in our risk processes.
Identifying principal and emerging risks
We evaluate our principal and emerging risks on an ongoing basis using both
top-down and bottom-up inputs. We also continuously assess future risks that
could have a potential impact. During the year the Board and the Investment
Manager had ongoing discussions to consider current and potential risks of the
Group. The discussions also generated insights into a range of potential
emerging risks and have helped to focus attention on additional areas for
monitoring by the Board and the Investment Manager.
The RTW team carries out a bottom-up review, considering each of our life
science companies and our internal operations, both as a specific exercise and
on an ongoing basis through regular monitoring of our portfolio companies. In
doing this we draw on the underlying assessments by the management teams of
each of our life science companies. These inputs are brought together in our
risk register, which is reviewed by the Audit Committee in detail each year.
The principal and emerging risks identified by the Board are set out on below.
These have not substantially changed in the last year, although COVID-19 is no
longer considered to be a principal risk of the Group. The Board also monitors
future risks that may arise, including the longer-term risks of changes to US
pharmaceutical drug pricing and US FDA productivity.
Risk management structure
Board of Directors
Risk management leadership
Audit Committee
Reviews and monitors the risk framework
RTW Team
Risk management is integral to the investment process and financial management
Implementing and monitoring risk controls; risk reporting
Other advisers
Risk identification; risk reporting
Portfolio companies' management teams
Risk identification and mitigation
Risk appetite
The Board is willing to accept a level of risk in managing our business to
achieve our strategic goals. As part of the risk framework, the Board sets the
risk appetite in relation to each of the principal and emerging risks and
monitors the actual risk against that. Where a risk is approaching or moves to
the higher end of what the Board deems to be acceptable, the Board will
consider the actions being taken to manage it. This year the Audit Committee
carried out a detailed review of the defined risk types, to ensure they
continue to reflect the understanding of the Board and accurately reflect the
risks we take. Following that review the Audit Committee recommended to the
Board that the risk appetite remained appropriate, and the Board has accepted
that recommendation.
Principal and Emerging Risks and Uncertainties
Principal risks and how we mitigate them
Under the FCA's Disclosure Guidance and Transparency Rules the Directors are
required to identify the material risks to which the Group is exposed, and the
steps taken to mitigate those risks.
The Group has five categories of risks in its risk register namely:
· Investment Risks
· Operational Risks
· Governance/Reputational Risks
· External Risks
· Emerging Risks
Investment Risks
1. FAILURE TO ACHIEVE INVESTMENT OBJECTIVE
RISK DESCRIPTION
The Group's target return on net assets is not guaranteed and may not be
achieved.
RISK CONTROL MEASURES
The Board will monitor and supervise the Group's performance, compared to the
target return, similar investment funds and broader market conditions. Where
performance is unsatisfactory, the Board will discuss the appropriate response
with the Investment Manager.
DECREASING
STRATEGIC LINK
Build
Support
Operational Risks
2. COUNTERPARTY RISK
RISK DESCRIPTION
The Group has the potential to be exposed to the creditworthiness of trading
counterparties in OTC derivatives contracts, its prime broker in the event of
re-hypothecation of its investments and any counterparty where collateral or
cash margin is provided or where cash is deposited in the normal course of
business.
RISK CONTROL MEASURES
The Group uses Goldman Sachs, Morgan Stanley and Bank of America Merrill
Lynch, JP Morgan and Jefferies as prime brokers and Cowen, UBS, Bank of
America Merrill Lynch, Goldman Sachs, Jefferies, and Morgan Stanley as ISDA
counterparties. To monitor counter party risk, the Investment Manager monitors
fluctuations in share prices, percentage changes in daily, monthly, and annual
5-year CDS spreads and S&P credit ratings. If a counterparty group share
price moves up or down in excess of 20%, the trader at the Investment Manager
is alerted immediately. In case of an alert, the trader notifies RTW's Chief
Compliance Officer. There has been no disruption in operations with the
Group's counterparties to date. The Group's bankers are an offshore branch of
Barclays Bank PLC and are also included in the Investment Manager's CDS
monitoring program.
STABLE
STRATEGIC LINK
Identify
Engage
Build
Support
Governance/Reputational Risks
3. THE INVESTMENT MANAGER RELIES ON KEY PERSONNEL
RISK DESCRIPTION
The Investment Manager relies on the founder of RTW, Roderick Wong M.D.
Roderick Wong is a key figure at the Investment Manager and is extensively
involved in investment decisions.
RISK CONTROL MEASURES
In the event that Roderick Wong was to no longer work for the Investment
Manager or was incapacitated, the Board is able to terminate the Investment
Management Agreement within 180 days if a suitable replacement has not been
found and would consider whether it was appropriate to wind up the Group and
return capital to shareholders, or to appoint a new Investment Manager.
STABLE
STRATEGIC LINK
Identify
Engage
Build
Support
4. PORTFOLIO COMPANIES MAY BE SUBJECT TO LITIGATION
RISK DESCRIPTION
Portfolio Companies may be subject to product liability claims. Such liability
claims would have a direct financial impact and may impact market acceptance
even if ultimately rebutted.
RISK CONTROL MEASURES
The Investment Manager's due diligence process includes considering the risk
that innovative therapies may have unforeseen side effects, based on the
Investment Manager's extensive sector knowledge and experience, published
research, and publicly available information.
STABLE
STRATEGIC LINK
Identify
Engage
Build
Support
External Risks
5. EXPOSURE TO GLOBAL POLITICAL AND ECONOMIC RISKS
RISK DESCRIPTION
It is anticipated that approximately 75% of investments will be in US
companies or licensing agreements with US institutions and 25% of investments
will be made outside of the US. The Group's investments will be exposed to
foreign exchange, and global political, economic, and regulatory risks.
RISK CONTROL MEASURES
The Investment Manager has extensive experience transacting across the global
healthcare marketplace and will be responsible for identifying relevant events
and updating the investment plans appropriately.
STABLE
STRATEGIC LINK
Engage
Build
Support
6. CLINICAL DEVELOPMENT & REGULATORY RISKS
RISK DESCRIPTION
New drugs, medical devices and procedures are subject to extensive regulatory
scrutiny before approval, and approvals can be revoked.
RISK CONTROL MEASURES
The Investment Manager's due diligence process includes a rigorous process of
assessing preclinical and clinical assets and their probabilities of success
to become an approved product utilizing scientific, clinical, commercial and
regulatory benchmarks. Additionally, the Investment Manager's process of
evaluation includes assessing the likely attitude of regulators towards a
potential new therapy. The due diligence will also consider the unmet need of
the disease and whether the therapy offers advantages over the current
standard of care.
STABLE
STRATEGIC LINK
Identify
Engage
Build
Support
7. IMPOSITION OF PRICING CONTROLS FOR CLINICAL PRODUCTS AND SERVICES
RISK DESCRIPTION
Portfolio Company products may be subject to price controls, price gouging
claims and other pricing regulation in the US and other major markets; or
government healthcare systems may be the major purchasers of the products.
RISK CONTROL MEASURES
While future political developments cannot be reliably forecast, the
Investment Manager's due diligence process includes an assessment of political
risk, and the likely acceptability of the investee's pricing intentions.
STABLE
STRATEGIC LINK
Build
Support
8. INFLATION
RISK DESCRIPTION
The unprecedented level of fiscal and monetary stimulus that has been applied
to the global economy has caused US inflation to surge to a 40-year high and
resulted in sharp falls in the share prices of technology firms without
current earnings.
RISK CONTROL MEASURES
The creation of value through innovation in the biotechnology sector outweighs
the singular and/or short-term adjustment to valuation levels arising from
changes in discount rates as a result of rising inflation. The Investment
Manager holds investments that have current earnings and cash-flows and has
significant exposure to Phase 3 products which have a high probability of
achieving cash-flows in the near-term. Whilst the pace of interest rate rises
has moderated in reaction to reductions in US inflation it is not possible to
say that this risk is reducing yet as inflationary pressures remain.
STABLE
STRATEGIC LINK
Identify
Engage
Build
Support
9. UKRAINE WAR
RISK DESCRIPTION
The ongoing war in Ukraine has led to the imposition of harsh sanctions on
Russia and substantial restrictions on the ability to transact in Russian
securities and trade with Russian companies. These sanctions and the
corresponding impact on commodity and transport costs have weighed on the
global economy.
RISK CONTROL MEASURES
The Investment Manager has confirmed that the Group has no direct or indirect
exposure to Russian securities or assets.
STABLE
STRATEGIC LINK
Identify
Engage
Build
Support
Emerging Risks
10. AVAILABILITY OF CAPITAL
RISK DESCRIPTION
Funding for early stage venture companies through smaller public companies is
much reduced in comparison to recent years. The IPO market is at its lowest
level in a decade and follow-on offerings declined for the second year in a
row, back to the lowest level since 2016's drug pricing panic. The Russell
2000 Biotech Index of listed LifeSci companies has declined for a second year
in a row to give a cumulative drawdown of 49.8%, with the 69.9 % fall from 8
February 2021 to 11 May 2022 approaching the worst in recent decades, being
the 84.7% decline from 6 March 2000 to 11 March 2003. With a record number
of companies trading at less than 1x their cash balances, the market appears
to believe that not all companies will survive. With reduced availability of
capital allocation to the sector, in particular through the absence of
generalist investors, there may be the risk that not all sponsors have enough
capital to support the continued financing of all investees.
RISK CONTROL MEASURES
The Investment Manager is a long-standing full life-cycle investor in the
sector, in many instances supplying commercial expertise and advice to
investees in addition to supporting successive financing rounds. The
Investment Manager is experienced in identifying potential in companies that
have strong fundamentals at attractive valuations that create an asymmetric
and attractive risk/reward profile. The Board formally reviews the financing
status of the Group's private portfolio with the Investment Manager at least
twice each year at Board meetings. 25% of the Group's NAV is exposed to
private companies of which only one quarter will need refinancing within the
next 12 months and most of these companies have re-financing plans in place.
Out of these six private companies (amounting to 6.25% of NAV) two are RTW
NewCos, so that is by design. Approximately 29% of the Group's NAV is
currently invested in other publicly listed companies in lieu of holding cash
for future private investments with a further 46% of NAV invested in core
publicly listed holdings that could also be sold. The Group has no net
borrowings. The Group therefore retains significant access to sources of
liquid capital to enable it to support investees for the foreseeable future.
INCREASING
11. LIQUIDITY RISK
RISK DESCRIPTION
Many investees are not yet at a stage of their life cycle where they are
inherently cash-generative and enjoy stable, predictable free cash-flow.
They have typically raised significant amounts of cash which are then held in
bank deposits and liquid securities to meet operational requirements until
their next planned capital raising round or IPO. In recent weeks there
have been several high-profile bank failures, some of which, but not all, are
to some extent attributable directly or indirectly to rising policy interest
rates and rising long-term yields in response to sustained inflationary
pressures. To the extent that investees keep their cash on deposit at such
banks, there is a risk that they may suffer a partial or total loss of their
capital and suffer a consequent liquidity crisis threatening their ability to
continue their planned development.
RISK CONTROL MEASURES
The Investment Manager closely monitors counterparty exposures in its
portfolio companies. Exposures to recent bank failures have been minimal in
that four portfolio companies totalling 1.68% of Group NAV had some exposure
to Silicon Valley Bank. Portfolio companies will typically manage their
treasury functions on a prudent basis, spreading exposure over several
counterparties thereby avoiding catastrophic losses from any single failure.
Where the Investment Manager becomes aware of significant risk concentration
it will engage with investees to encourage more prudent diversification. The
Board also notes that, to date, regulators have ensured that no depositors
have lost funds in such banking failures although it recognises that this may
not necessarily be achieved in the future.
STABLE
Longer Term Viability Statement
Realising a robust and resilient company
ASSESSING THE PROSPECTS OF THE GROUP
The corporate planning process is underpinned by scenarios that encompass a
wide spectrum of potential outcomes. These scenarios are designed to explore
the resilience of the Group to the potential impact of significant risks set
out below.
The scenarios are designed to be severe but plausible and take full account of
the availability and likely effectiveness of the mitigating actions that could
be taken to avoid or reduce the impact or occurrence of the underlying risks
and which would realistically be open to management in the circumstances. In
considering the likely effectiveness of such actions, the conclusions of the
Board's regular monitoring and review of risk and the Investment Manager's
internal control systems is taken into account.
The Board reviewed the impact of stress testing the quantifiable risks to the
Group's cash flows as detailed in risk factors 1-5 and concluded that the
Group, would have sufficient working capital to fund its operations in the
following extreme scenario:
(1) The Group incurred NAV losses of 39% of NAV over a three-year period
ending 28 February 2026.
(2) No new capital was raised.
(3) US$45 million of private investments were funded from cash and by selling
public portfolio investments.
To provide some context for this scenario, the NASDAQ Biotech Index was in a
26% drawdown at the end of February and the additional 39% drawdown that we
have modelled simulates a total drawdown of approximately 55% which has only
been exceeded on a rolling 3-year basis once in the life of the index in Q1
2003 at the end of the technology bubble.
The Board considers that this stress testing-based assessment of the Group's
prospects is reasonable in the circumstances of the inherent uncertainty
involved.
THE PERIOD OVER WHICH WE CONFIRM LONGER TERM VIABILITY
Within the context of the corporate planning framework discussed above, the
Board has assessed the prospects of the Group over a three-year period ending
28 February 2026. Whilst the Board has no reason to believe the Group will not
be viable over a longer period, given the inherent uncertainty involved, the
period over which the Board considers it possible to form a reasonable
expectation as to the Group's longer-term viability, based on the stress
testing scenario planning discussed above, is the three-year period to
February 2026. This period is used for the Investment Manager's business plans
and has been selected because it presents the Board and therefore readers of
the Annual Report with a reasonable degree of confidence whilst still
providing an appropriate longer-term outlook.
CONFIRMATION OF LONGER-TERM VIABILITY
The Board confirms that it has carried out a robust assessment of the emerging
and principal risks facing the Group, including those that would threaten its
business model, future performance, solvency or liquidity. Based upon the
robust assessment of the principal and emerging risks facing the Group and its
stress testing-based assessment of the Group's prospects, the Board confirms
that it has a reasonable expectation that the Group will be able to continue
in operation and meet its liabilities as they fall due over the period to
February 2026.
On behalf of the Board
William Simpson
Chairman
30 March 2023
Section 172
Close collaborators and committed partners
Section 172 of the Companies Act 2006 applies directly to UK domiciled
companies. Nonetheless the AIC Code requires that the matters set out in
section 172 are reported on by all companies, irrespective of domicile,
provided this does not conflict with local company law.
Section 172 recognises that directors are responsible for acting in a way
that they consider, in good faith, is the most likely to promote the success
of the Group for the benefit of its shareholders as a whole. In doing so, they
are also required to consider the broader implications of their decisions and
operations on other key stakeholders and their impact on the wider community
and the environment. Key decisions are those that are either material to the
Group or are significant to any of the Group's key stakeholders. The Group's
engagement with key stakeholders and the key decisions that were made or
approved by the Directors during the year are described below.
Stakeholder group Methods of engagement Benefits of engagements
Shareholders
Continued access to capital is vital to the Group's longer term growth The Group engages with its shareholders through the issuance of regular In the financial year the Group issued:
objectives, and therefore, in line with its objectives, the Group seeks to portfolio updates in the form of RNS announcements and quarterly factsheets.
maintain shareholder satisfaction through:
- 10 portfolio updates by way of RNS
- Positive risk-adjusted returns
- 12 monthly NAV announcements by way of RNS
The Group provides in-depth commentary on the investment portfolio, corporate
- Continuous communication of portfolio updates governance and corporate outlook in its Annual and Interim Reports and - Fact sheets on a quarterly basis
financial statements.
- Annual and Interim Reports
In addition, the Group, through its brokers and Investment Manager, undertakes
regular roadshows to meet with existing and prospective investors to solicit Through its roadshows and broker outreach, the Group has met with 75+
their feedback, understand any areas of concern, and share forward looking investors / prospective investors.
investment commentary.
The Board receives quarterly feedback from its brokers in respect of investor
engagement and investor sentiment.
Service providers
The Group does not have any direct employees; however, it works closely with a The Group has identified its key service providers and on an annual basis The feedback given by the service providers is used to review the Group's
number of service providers (the Investment Manager, Administrator, undertakes a review of performance based on a questionnaire through which it policies and procedures to ensure open lines of communication, and operational
Sub-Administrator, Corporate Secretary, auditor, third party valuation agent, also seeks feedback. efficiency.
brokers and other professional advisers).
Furthermore, the Board and its sub-committees engage regularly with its
The independence, quality and timeliness of their service provision is service providers on a formal and informal basis.
critical to the success of the Group.
The Group will also regularly review all material contracts for service
quality and value.
Portfolio Companies
The Group is currently invested in 39 Core Portfolio Companies. The Investment Manager engages on a regular basis with its portfolio companies Honesty, fairness and integrity of the management teams of the portfolio
in order to conduct regular on-going due diligence and to meet obligations if companies are vital to the long-term success of the Group's investments.
the Investment Manager holds a board seat.
Community & Environment
The Group does not have direct employees. The Group aims to minimise its environmental footprint. The Group and the Directors minimise air travel by making maximum use of video
conferencing for Company related matters.
Climate change impact The Group does not anticipate any material impact to its business model from
climate change.
RTW Charitable Foundation represents an extension of the Investment Manager's To research grant recipients, RTW Charitable Foundation offers not only
mission. Its research process helps RTW identify important causes of human financial support, but also guidance gleaned from the experience of the
suffering and introduces the firm to individuals and organisations trying to Investment Manager in drug development and company building.
RTW Charitable Foundation was created by the Investment Manager with the make a difference.
vision to work towards a world free of ultra-rare disease. The Foundation Beyond research, RTW Charitable Foundation offers support to humanitarian
funds research of rare conditions that do not attract significant outside causes, initiatives that raise disease awareness and programs with direct
investment due to limited commercial opportunity patient impact.
ESG: Environmental, Social and Governance Topics
Responsible investing
The Board has directed the Group to initiate an ESG assessment in 2023, to
plan for forecasted regulatory measures, including the United Kingdom's
proposed Sustainability Disclosure Requirements, and pave the way for
reporting of the Group's ESG considerations to shareholders. The Group does
not have direct employees or physical office space, and most of its activities
are performed by other organisations. Therefore, the Group's carbon footprint
should be relatively small because it does not directly contribute to fuel
combustion or any other greenhouse gas emissions. Three of the four Directors,
as well as the Administrator, Company Secretary are all based in Guernsey
where Board meetings are held, thus reducing the environmental impact of long
commutes and flights. The Group's ESG assessment will also address indirect
impacts on ESG factors.
The Investment Manager's operations are highly concentrated in its primary
office space located in a building that is LEED Gold Certified based on, among
other things, the sustainability of its location, water efficiency, energy and
atmosphere characteristics, use of materials and resources, indoor
environmental quality, and innovation. The Investment Manager espouses a
strong culture of compliance, risk management and ethical behaviour. It aims
to always act in the best interests of shareholders, employees and
stakeholders. Its corporate code of ethics addresses the largest areas of risk
pertaining to the alternative asset management industry, including but not
limited to conflicts of interest, anti-bribery, employee investing, insider
trading and political contributions. Furthermore, it seeks to ensure that
investments do not lead to negative impacts on public health or well-being or
contribute to human or labour rights violations, corruption, serious
environmental harm or other actions which may be perceived to be unethical. It
seeks long-term investment partners that evidence equivalent professional and
ethical rigour. The Investment Manager is wholly-owned by minority and/or
female shareholders.
RESPONSIBLE INVESTING
The Board believes that acting and investing responsibly is a necessary
foundation for the long-term sustainability of investment success. The
Investment Manager's stated mission, to power breakthrough therapies that
transform the lives of millions, is an approach to investing that is
inherently socially conscious. Its team of scientists and researchers work
tirelessly to find treatments and potentially cures for diseases and
conditions in order to improve quality of life across the globe. As a
guiding principle, it prioritises overall positive impact on patients and
long-term meaningful outcomes to society and believes this is the foundation
of the Group's success.
RTW CHARITABLE FOUNDATION
The Investment Manager created the RTW Charitable Foundation ("RTWCF") with
its vision to work towards a world free of ultra-rare disease. It was founded
at the intersection of scientific progress and humanitarian effort. While
working to improve human health on a global scale is an inspiring undertaking,
the RTWCF brings hope to those with conditions so rare that they do not
attract significant outside investment due to the limited potential for
commercial opportunity. RTWCF's mission is to power rare disease research,
medical innovation and humanitarian collaborations to improve the health of
underserved communities.
It is able to provide capital, manpower, and logistical support to help
scientists push projects forward. In addition, it aims to contribute to
advocacy, disease awareness and direct support of organisations and
communities in New York City.
RTWCF provides research grant recipients financial support as well as guidance
gleaned from the Investment Manager's experience in drug development and
company building.
CASE STUDY
Improving vaccine access
In August 2021, some NYC neighbourhoods had less than 35% of residents fully
vaccinated, when the city average was roughly 55%. The New York City
Department of Health and Mental Hygiene found that distrust in government and
drug companies created hesitancy in vaccine uptake. We say this often - RTWCF
was one of the first to support our recovery efforts and helped pave the way
to our impact and reimagined programs. We're excited to reach new heights
together. New Immigrant Community Empowerment (NICE) supports immigrant
workers and their families by advocating for workplace safety and rights,
providing skills training, and connecting families with resources. During the
pandemic, NICE expanded their services to include food access, vaccine
support, and financial assistance. RTWCF partnered with NICE to distribute
10,000 meal and grocery packages, conduct comprehensive community outreach
around COVID-19 vaccination safety, and throw a Vaccine Access Block Party. In
2021, NICE helped over 5,000 people access COVID vaccines by translating
appointment registration documents, educating people on the vaccine, and
accompanying people to appointments.
CASE STUDY
Building education access
Areté Education designs interactive afterschool and summer programs to teach
students in the South Bronx about leadership skills, wellness, diverse career
paths, and arts & culture. During the pandemic, children living in
temporary housing had limited access to education when schools moved to remote
learning. With RTWCF's support, Areté Education created the Areté Hope
Network Program to provide direct assistance to families struggling during the
pandemic. Eighteen students and families with unstable housing received
stipends, groceries, hotspots, laptops, and mentoring to improve children's
attendance rates and academic performance. Students' engagement and attendance
improved dramatically: all students in warning groups labeled "chronically
absent" or "severely chronically absent" moved out of those warning groups
during the intervention. Ninety-three percent of participants had attendance
rates of 80% or higher including 50% with perfect attendance through the
course of the program.
Each of our days of action have been really inspirational and powerful, it is
a way to feel connected. We are really hands on, doing the work physically not
just mentally or through spirit. We combine all of these elements on our
journey at work to make a difference.
Consolidated Statement of Assets and Liabilities
as at 31 December 2022 and 31 December 2021
(Expressed in United States Dollars)
2022 2021
ASSETS:
Investments in securities, at fair value (cost at 31 December 2022: 350,125,577 409,179,507
$259,472,596; 31 December 2021:
$271,421,062)
Derivative contracts, at fair value 10,983,574
(cost at 31 December 2022: $2,614,659;
31 December 2021: $2,348,062) 21,467,649
Cash and cash equivalents 6,966,168 6,484,057
Due from brokers 22,195,456 12,323,965
Receivable from unsettled trades 439,798 200,695
Other assets 345,750 191,565
TOTAL ASSETS 401,540,398 439,363,363
LIABILITIES:
Securities sold short, at fair value 12,438,334 9,318,393
(proceeds at 31 December 2022: $15,407,927;
31 December 2021: $9,620,981)
Derivative contracts, at fair value 8,926,743 3,310,833
(proceeds at 31 December 2022: nil;
31 December 2021: $nil)
Due to brokers 25,823,016 38,019,859
Payable for unsettled trades 5,561,560 492,007
Accrued expenses 866,756 861,545
TOTAL LIABILITIES 53,616,409 52,002,637
TOTAL NET ASSETS 347,923,989 387,360,726
NET ASSETS attributable to Ordinary Shares 326,079,521 363,040,222
(shares at 31 December 2022: 212,389,138;
31 December 2021: 212,389,138)
NET ASSETS attributable to Non-Controlling Interest 21,844,468 -
NET ASSETS attributable to Performance Allocation Shares (shares at 31 - 24,320,504
December 2022: 0;
31 December 2021: 1)
1.5353 1.7093
NAV per Ordinary Share
The audited consolidated financial statements of the Group were approved and
authorised for issue by the Board of Directors on 30 March 2023 and signed on
its behalf by:
William Simpson
Paul Le Page
Chairman
Director
See accompanying notes to the consolidated financial statements.
Consolidated Condensed Schedule of Investments
as at 31 December 2022
(Expressed in United States Dollars)
Descriptions Number of Shares Cost Fair Value Percentage of Net Assets
Investments in securities, at fair value
Common stocks
United States
Healthcare
Prometheus Biosciences, Inc. 670,916 6,802,058 52,946,904 15.22
Rocket Pharmaceuticals, Inc. 2,400,755 8,188,796 46,982,775 13.50
Others* 124,096,539 118,157,365 33.96
Total United States 139,087,393 218,087,044 62.68
Netherlands
Healthcare 4,368,486 5,345,551 1.54
Ireland
Healthcare 4,099,988 2,981,309 0.86
Canada
Healthcare 3,275,323 1,012,216 0.29
British Virgin Islands
Healthcare 547,564 997,552 0.29
China
Healthcare
Ji Xing Pharmaceuticals Ltd. 541,205 216,482 600,738 0.17
Cayman Islands
Financials 254,581 257,459 0.07
Healthcare 188,880 194,370 0.06
Total Cayman Islands 443,461 451,829 0.13
Bermuda
Healthcare 260,330 208,004 0.06
Belgium
Healthcare 165,629 32,919 0.01
Total common stocks 152,464,656 229,717,162 66.03
* No individual investment security or contract constitutes greater than 5
percent of net assets.
See accompanying notes to the consolidated financial statements.
Consolidated Condensed Schedule of Investments (continued)
as at 31 December 2022
(Expressed in United States Dollars)
Descriptions Number Cost Fair Value Percentage of Net Assets
of 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 consolidated financial statements.
Consolidated Condensed Schedule of Investments (continued)
as at 31 December 2022
(Expressed in United States Dollars)
Descriptions Number of Shares Cost Fair Value Percentage of Net Assets
Investments in securities, at fair value (continued)
Investment in private investment companies
Ireland
Healthcare 11,814,933 14,074,846 4.04
Total investment in private investment companies 11,814,933 14,074,846 4.04
Convertible notes
China
Healthcare
Ji Xing Pharmaceuticals Ltd. 762,474 7,624,737 8,191,552 2.35
United States
Healthcare 2,007,468 1,861,281 0.53
Total convertible notes 9,632,205 10,052,833 2.88
Total investments in securities, at fair value 259,472,596 350,125,577 100.63
See accompanying notes to the consolidated financial statements.
Consolidated Condensed Schedule of Investments (continued)
as at 31 December 2022
(Expressed in United States Dollars)
Descriptions Cost Fair Value Percentage of Net Assets
Derivative contracts - assets, at fair value
Equity swaps
United States
Healthcare 16,781,963 4.83
British Virgin Islands
Healthcare 2,097,803 0.60
Ireland
Healthcare 206,563 0.06
Total equity swaps 19,086,329 5.49
Warrants
Canada
Healthcare 1,939,543 1,858,925 0.53
United States
Healthcare 674,517 522,337 0.15
Cayman Islands
Financials 599 58 0.00
Total warrants 2,614,659 2,381,320 0.68
Total derivative contracts - assets, at fair value 2,614,659 21,467,649 6.17
See accompanying notes to the consolidated financial statements.
Consolidated Condensed Schedule of Investments (continued)
as at 31 December 2022
(Expressed in United States Dollars)
Descriptions Proceeds Fair Value Percentage of Net Assets
Securities sold short, at fair value
Common stocks
United States
Healthcare 14,521,155 11,500,094 3.31
Netherlands
Healthcare 293,711 221,800 0.06
Cayman Islands
Financials 96,480 98,829 0.03
Healthcare 46,260 89,072 0.03
Total Cayman Islands 142,740 187,901 0.06
Total common stocks 14,957,606 11,909,795 3.43
American depository receipts
Sweden
Healthcare 450,321 528,539 0.15
Total American depository receipts 450,321 528,539 0.15
Total securities sold short, at fair value 15,407,927 12,438,334 3.58
Descriptions Fair Value Percentage of Net Assets
Derivative contracts - liabilities, at fair value
Equity swaps
United States
Healthcare 7,041,281 2.02
Index 1,860,052 0.54
Total United States 8,901,333 2.56
Israel
Healthcare 25,410 0.01
Total derivative contracts - liabilities, at fair value 8,926,743 2.57
See accompanying notes to the consolidated financial statements.
Consolidated Condensed Schedule of Investments
as at 31 December 2021
(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
Financials 108,150 106,527 0.03
Healthcare
Prometheus Biosciences, Inc. 740,564 5,396,652 21,850,828 5.64
Rocket Pharmaceuticals, Inc. 2,364,728 6,223,376 51,622,012 13.33
Others* 131,292,813 177,272,154 45.76
Materials 45,415 9,801 0.00
Total United States 143,066,406 250,861,322 64.76
Ireland
Healthcare 4,099,989 7,155,755 1.85
Netherlands
Healthcare 3,339,207 4,302,049 1.11
Canada
Healthcare 4,400,407 2,573,859 0.66
China
Healthcare
Ji Xing Pharmaceuticals Ltd. 541,205 216,482 844,280 0.22
British Virgin Islands
Healthcare 226,450 689,080 0.18
Cayman Islands
Financials 422,961 414,583 0.11
Healthcare 104,050 103,530 0.03
Total Cayman Islands 527,011 518,113 0.14
Bermuda
Healthcare 260,330 262,413 0.07
Belgium
Healthcare 207,840 146,096 0.04
Switzerland
Healthcare 106,002 83,035 0.02
Total common stocks 156,450,124 267,436,002 69.05
* No individual investment security or contract constitutes greater than 5
percent of net assets.
See accompanying notes to the consolidated financial statements.
Consolidated Condensed Schedule of Investments (continued)
as at 31 December 2021
(Expressed in United States Dollars)
Descriptions Number Cost Fair Value Percentage of Net Assets
of Shares
Investments in securities, at fair value (continued)
Convertible preferred stocks
United States
Healthcare* 35,924,442 39,402,135 10.17
China
Healthcare
Ji Xing Pharmaceuticals Ltd. 10,599,945 14,824,184 24,793,386 6.40
Others 1,771,209 1,771,209 0.46
Total China 16,595,393 26,564,595 6.86
Switzerland
Healthcare 1,704,186 1,693,165 0.44
Ireland
Healthcare 116,545 132,819 0.03
Total convertible preferred stocks 54,340,566 67,792,714 17.50
Exchange traded funds
United States
Index
SPDR S&P 500 ETF TRUST 67,579 26,216,888 32,097,322 8.28
Total exchange traded funds 26,216,888 32,097,322 8.28
Investment in private investment companies
Ireland
Healthcare 11,814,933 13,068,663 3.37
United States
Healthcare 8,234,839 10,013,859 2.59
Total investment in private investment companies 20,049,772 23,082,522 5.96
* No individual investment security or contract constitutes greater than 5
percent of net assets.
See accompanying notes to the consolidated financial statements.
Consolidated Condensed Schedule of Investments (continued)
as at 31 December 2021
(Expressed in United States Dollars)
Descriptions Cost Fair Value Percentage of Net Assets
Investments in securities, at fair value (continued)
American depository receipts
United Kingdom
Healthcare 7,368,293 12,033,889 3.11
Netherlands
Healthcare 3,786,165 3,962,050 1.02
Ireland
Healthcare 893,338 1,085,120 0.28
Sweden
Healthcare 438,397 388,133 0.10
Israel
Healthcare 372,855 308,578 0.08
China
Healthcare 549,132 202,418 0.05
Singapore
Healthcare 231,809 67,036 0.02
Total American depository receipts 13,639,989 18,047,224 4.66
Convertible bonds
United States
Healthcare 723,723 723,723 0.18
Total convertible bonds 723,723 723,723 0.18
Total investments in securities, at fair value 271,421,062 409,179,507 105.63
See accompanying notes to the consolidated financial statements.
Consolidated Condensed Schedule of Investments (continued)
as at 31 December 2021
(Expressed in United States Dollars)
Descriptions Cost Fair Value Percentage of Net Assets
Derivative contracts - assets, at fair value
Equity swaps
United States
Healthcare 5,442,939 1.41
British Virgin Islands
Healthcare 2,128,260 0.55
Netherlands
Healthcare 4,225 0.00
Total equity swaps 7,575,424 1.96
Warrants
Canada
Healthcare 1,939,543 3,077,816 0.79
United States
Healthcare 407,920 329,865 0.09
Cayman Islands
Financials 599 469 0.00
Total warrants 2,348,062 3,408,150 0.88
Total derivative contracts - assets, at fair value 2,348,062 10,983,574 2.84
See accompanying notes to the consolidated financial statements.
Consolidated Condensed Schedule of Investments (continued)
as at 31 December 2021
(Expressed in United States Dollars)
Descriptions Proceeds Fair Value Percentage of Net Assets
Securities sold short, at fair value
Common stocks
United States
Healthcare 8,526,920 8,330,314 2.15
Materials 56,309 9,801 0.00
Total United States 8,583,229 8,340,115 2.15
Netherlands
Healthcare 278,805 324,576 0.09
Cayman Islands
Financials 96,480 97,018 0.03
Switzerland
Healthcare 106,146 83,035 0.02
Total common stocks 9,064,660 8,844,744 2.29
American depository receipts
Sweden
Healthcare 462,836 388,133 0.10
China
Healthcare 93,485 85,516 0.02
Total American depository receipts 556,321 473,649 0.12
Total securities sold short, at fair value 9,620,981 9,318,393 2.41
Descriptions Fair Value Percentage of Net Assets
Derivative contracts - liabilities, at fair value
Equity swaps
United States
Healthcare 3,223,278 0.83
Ireland
Healthcare 52,601 0.01
Israel
Healthcare 34,954 0.01
Total derivative contracts - liabilities, at fair value 3,310,833 0.85
See accompanying notes to the consolidated financial statements.
Consolidated Statement of Operations
For the year ended 31 December 2022 and 31 December 2021
(Expressed in United States Dollars)
2022 2021
Investment income
Interest (net of withholding taxes of $nil; 31 December 2021: $nil) 363,673
635,860
Dividends (net of withholding tax rebate of $123,149; 31 December 2021: tax 332,103 294,027
expense $123,894)
Other 1,199,296 -
Total investment income 2,167,259 657,700
Expenses
Management fees 3,751,464 4,813,854
Professional fees 1,008,629 1,070,317
Interest 779,988 215,606
Research costs 742,738 237,984
Audit fees 329,557 288,254
Administrative fees 312,003 330,834
Directors' fees 176,722 214,353
Listing fees - 936,615
Other expenses 357,429 346,867
Total expenses 7,458,530 8,454,684
Net investment income/(loss) (5,291,271) (7,796,984)
Realised and change in unrealised gain/(loss) on investments, derivatives and
foreign currency transactions
Net realised gain/(loss) on securities and foreign currency transactions 8,357,014 41,280,297
Net change in unrealised gain/(loss) on securities and foreign currency (99,115,160)
translation
(44,355,779)
Net realised gain/(loss) on derivative contracts (2,748,269) (1,648,961)
Net change in unrealised gain/(loss) on derivative contracts 4,601,568 2,936,018
Net realised and unrealised gain/(loss) on investments, derivatives and (34,145,466) (56,547,806)
foreign currency transactions
Net increase/(decrease) in net assets resulting from operations (39,436,737) (64,344,790)
See accompanying notes to the consolidated financial statements.
Consolidated Statement of Changes in Net Assets
For the year ended 31 December 2022
(Expressed in United States Dollars)
Ordinary Share Class Performance Allocation Share Class Total Shareholders' Funds Non-Controlling Interest
Net assets, beginning of year 363,040,222 24,320,504 387,360,726 -
Operations
Net investment income/(loss) (5,291,271) - (5,291,271) -
Net realised gain/(loss) on securities and foreign currency transactions 8,357,014 - 8,357,014 -
Net change in unrealised gain/(loss) on securities and foreign currency (44,355,779) - (44,355,779) -
translation
Net realised gain/(loss) on derivative contracts (2,748,269) - (2,748,269) -
Net change in unrealised gain/(loss) on derivative contracts 4,601,568 - 4,601,568 -
Performance Allocation 4,359,551 (4,359,551) - -
Income/(loss) attributable to Non-Controlling Interest (1,883,515) - (1,883,515) 1,883,515
Net change in net assets resulting from operations (36,960,701) (4,359,551) (41,320,252) 1,883,515
Capital transactions
In-kind transfer - (19,960,953) (19,960,953) 19,960,953
Net change in net assets resulting from capital transactions - (19,960,953) (19,960,953) 19,960,953
Net change in net assets (36,960,701) (24,320,504) (61,281,205) 21,844,468
Net assets, end of year 326,079,521 - 326,079,521 21,844,468
See accompanying notes to the consolidated financial statements.
Consolidated Statement of Changes in Net Assets
For the year ended 31 December 2021
(Expressed in United States Dollars)
Ordinary Share Class Performance Allocation Share Class Total Shareholders' Funds
Net assets, beginning of year 375,281,126 37,330,803 412,611,929
Operations
Net investment income/(loss) (7,796,984) - (7,796,984)
Net realised gain/(loss) on securities and foreign currency transactions 41,280,297 - 41,280,297
Net change in unrealised gain/(loss) on securities and foreign currency (99,115,160) - (99,115,160)
translation
Net realised gain/(loss) on derivative contracts (1,648,961) - (1,648,961)
Net change in unrealised gain/(loss) on derivative contracts 2,936,018 - 2,936,018
Performance Allocation 8,035,379 (8,035,379) -
Net change in net assets resulting from operations (56,309,411) (8,035,379) (64,344,790)
Capital transactions
Issuance of Ordinary Shares (net of issuance costs of $222,883) 44,068,507 - 44,068,507
Performance Allocation distribution - (4,974,920) (4,974,920)
Net change in net assets resulting from capital transactions 44,068,507 (4,974,920) 39,093,587
Net change in net assets (12,240,904) (13,010,299) (25,251,203)
Net assets, end of year 363,040,222 24,320,504 387,360,726
See accompanying notes to the consolidated financial statements.
Consolidated Statement of Cash Flows
For the year ended 31 December 2022 and 31 December 2021
(Expressed in United States Dollars)
2022
2021
Cash flows from operating activities
Net increase/(decrease) in net assets resulting from operations (39,436,737) (64,344,790)
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 (8,357,014) (41,280,297)
Net change in unrealised (gain)/loss on securities and foreign currency 99,115,160
translation
44,355,779
Net realised (gain)/loss on derivative contracts 2,748,269 1,648,961
Net change in unrealised (gain)/loss on derivative contracts (4,601,568) (2,936,018)
Effect of exchange rate changes on cash and cash equivalents 149,875 -
Purchases of investments in securities (116,361,329) (202,925,739)
Proceeds from sales of investments in securities 127,814,762 119,715,056
Proceeds from securities sold short 27,488,465 15,049,848
Payments for securities sold short (12,916,667) (5,416,866)
Proceeds from derivative contracts 1,971,402 (784,778)
Payments for derivative contracts (4,986,268) (1,466,746)
Changes in operating assets and liabilities:
Other assets (154,185) (66,990)
(Receivable from)/payable for unsettled trades 4,830,450 830,880
Due to brokers (12,196,843) 37,658,827
Accrued expenses 5,211 331,475
Net cash provided by/(used in) operating activities 10,353,602 (44,872,017)
Cash flows from financing activities
Net proceeds from issuance of shares - 44,068,507
Performance Allocation distribution - (4,974,920)
Net cash provided by/(used in) financing activities - 39,093,587
Net change in cash and cash equivalents 10,353,602 (5,778,430)
Cash, cash equivalents, and restricted cash, beginning of the year 18,808,022 24,586,452
Cash, cash equivalents, and restricted cash, end of the year 29,161,624 18,808,022
At 31 December 2022, the amounts categorised in cash, cash equivalents, and
restricted cash include the following:
Cash and cash equivalents 6,966,168 6,484,057
Due from brokers 22,195,456 12,323,965
Total 29,161,624 18,808,022
Supplemental disclosure of cash flow information
Cash paid during the year for interest 724,317 250,980
See accompanying notes to the consolidated financial statements.
Notes to the Consolidated Financial Statements
For the year ended 31 December 2022
(Expressed in United States Dollars)
1. Nature of operations and summary of significant accounting policies
RTW 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 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" or "OpCo"), to which it has transferred
its right to the profits and losses attributable to the Group's portfolio of
assets. This reorganisation will have no economic impact on shareholders. All
the income and expenses of the Subsidiary are consolidated with the income and
expenses of the Group.
The Group seeks to use equity capital (from the net proceeds of any share
issuance or, where appropriate, from the net proceeds of investment
divestments or other related profits) to provide seed and additional growth
capital to the private investments. To mitigate cash-drag, the uninvested
portion is invested across public stocks largely replicating the public stock
portfolios of RTW's existing US-based funds. The Group focuses on creating,
building, and supporting world-class life sciences, biopharmaceutical and
medical technology companies. The Group's investment objective is to generate
attractive risk-adjusted returns through investments in securities, both
equity and debt, long and short, of companies with a focus on the
pharmaceutical sector.
Pursuant to an investment management agreement, the Group is managed by RTW
Investments, LP, a Delaware limited partnership, to provide the Group with
discretionary portfolio management, risk management services and certain other
services. The Investment Manager is an investment adviser registered with the
U.S. Securities and Exchange Commission under the Investment Advisers Act of
1940.
Basis of presentation
The consolidated financial statements are expressed in United States Dollars.
The consolidated financial statements which give a true and fair view and have
been prepared in accordance with US generally accepted accounting principles
("US GAAP") and are in compliance with the Companies (Guernsey) Law, 2008. The
entities comprised within the Group are investment companies and follow the
accounting and reporting guidance in Financial Accounting Standards Board's
("FASB") Accounting Standards Codification Topic 946, Financial Services -
Investment Companies.
The Directors considered that it is appropriate to adopt a going concern basis
of accounting in preparing the consolidated financial statements. In reaching
this assessment, the Directors have considered a wide range of information
relating to present and future conditions including the balance sheets, future
projections, cash flows and the longer-term strategy of the business.
Principles of consolidation
The consolidated financial statements include accounts of the Company
consolidated with the accounts of the Subsidiary. All inter-group balances
have been eliminated upon consolidation. The Subsidiary is incorporated in
Guernsey.
Non-Controlling Interest
An affiliate of the Investment Manager, RTW Venture Performance LP, holds an
interest in the Subsidiary. At 31 December 2022, the Non-Controlling Interest
of $21,844,468 represents the in-kind transfer on 1 December 2022 of
$19,960,953 and mark to market of $1,883,515 for the period from 1 December
2022 through 31 December 2022. The Non-Controlling Interest will capture 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
year ended 31 December 2022, the entirety of the income/(loss) attributable to
Non-Controlling Interest was comprised of mark to market movements.
Cash, cash equivalents, and restricted cash
Cash represents cash deposits held at financial institutions. Cash equivalents
include short-term highly liquid investments of sufficient credit quality that
are readily convertible to known amounts of cash and have original maturities
of three months or less. Cash equivalents are carried at cost plus accrued
interest, which approximates fair value. Cash equivalents are held for the
purpose of meeting short-term liquidity requirements, rather than for
investment purposes. As at 31 December 2022 and 31 December 2021, 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. A discount for lack of marketability based on the 180-day
restriction period under SEC Rule 144 is applied for investments that the
Group purchases prior to an IPO and that subsequently begin trading on the
NASDAQ national market.
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 an Independent Valuer 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. 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 utilizes 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 utilizes the discounted cash flow method. Projected cash
flows for each investment are discounted to determine an assumed enterprise
value.
Where applicable, the indicative enterprise value has been determined using a
back-solve model based on the pricing of the most recent round of financing.
The internal rate of return for each investment is compared to the selected
venture capital rate applied in the market approach to assess the
reasonableness of the indicated value implied by each financing round. The
derived enterprise value is allocated to the equity class on either a fully
diluted basis or using an option pricing model. The resulting indicative value
on a per share basis is then multiplied by the number of shares to derive the
fair market value.
American depository receipts
The Group values investments in American depositary receipts that are freely
tradable and are listed on a national securities exchange or reported on the
NASDAQ national market at their last reported sales price as of the valuation
date. These investments are categorised in Level 1 of the fair value
hierarchy.
Convertible bonds
Convertible bonds are recorded at fair value using valuation techniques based
on observable inputs. These instruments are generally categorised in Level 2
of the fair value hierarchy. In instances where significant inputs are
unobservable, convertible bonds are categorised in Level 3 of the fair value
hierarchy.
Convertible notes
The Group values investments in convertible notes in accordance with the
unlisted investments section above. As of 31 December 2022, these investments
are all categorised in Level 3 of the fair value hierarchy.
Convertible preferred stock
The Group values Level 1 investments in convertible preferred stock that are
listed on a national securities exchange at their closing sales price as of
the valuation date. Level 3 investments in convertible preferred stock are
valued in accordance with the unlisted investments section above. As of 31
December 2022, 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. The Group generally values PIPE at a discount to similar
publicly traded companies to the extent the restriction is specific to the
security. The Group considers the type and duration of the restriction, but in
no event does the valuation exceed the listed price on any major securities
exchange. PIPE is generally categorized in Level 2 of the fair value
hierarchy. However, to the extent that significant inputs used to determine
liquidity discounts are unobservable, PIPE may be categorized in Level 3 of
the fair value hierarchy. As of 31 December 2022 and 31 December 2021, there
were no open PIPE positions.
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.
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 a third-party valuation
firm, the Independent Valuer, to perform an independent review of the
valuation of the Group's Level 3 investments and the Group may adjust its
valuations based on the recommendations from the Investment Manager's
Valuation Committee.
Translation of foreign currency
Assets and liabilities denominated in foreign currencies are translated into
United States Dollar amounts at the year-end exchange rates. Transactions
denominated in foreign currencies, including purchases and sales of
investments, and income and expenses, are translated into United States Dollar
amounts on the transaction date. Adjustments arising from foreign currency
transactions are reflected in the consolidated statement of operations.
The Group does not isolate that portion of the results of operations arising
from the effect of changes in foreign exchange rates on investments from
fluctuations arising from changes in market prices of investments held. Such
fluctuations are included in net realised and change in unrealised gain/(loss)
on securities, derivatives and foreign currency transactions in the
consolidated statement of operations.
Reported net realised gain/(loss) from foreign currency transactions arise
from sales of foreign currencies; currency gains or losses realised between
the trade and settlement dates on securities transactions; and the difference
between the amounts of dividends, interest, and foreign withholding taxes
recorded on the Group's books and the United States Dollar equivalent of the
amounts actually received or paid.
Net change in unrealised gain/(loss) from foreign currency translation of
assets and liabilities arises from changes in the fair values of assets and
liabilities, other than investments in securities at the end of the period,
resulting from changes in exchange rates.
Investment transactions and related investment income
Investment transactions are accounted for on a trade date basis. Realised
gains and losses on investment transactions have been calculated on a specific
identification method.
Dividends are recorded on the ex-dividend date and interest is recognised on
the accrual basis.
Withholding taxes on foreign dividends have been provided for in accordance
with the Group's understanding of the applicable country's rules and rates.
Offsetting of amounts related to certain contracts
Amounts due from and to brokers are presented on a net basis, by counterparty,
to the extent the Group has the legal right to offset the recognised amounts
and intends to settle on a net basis.
The Group has elected not to offset fair value amounts recognised for cash
collateral receivables and payables against fair value amounts recognised for
derivative positions executed with the same counterparty under the same master
netting arrangement. At 31 December 2022, the Group had cash collateral
receivables of $16,384,706 (31 December 2021: $12,228,870) (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
OpCo, 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 consolidated
financial statements. Income tax and related interest and penalties would be
recognised as a tax expense in the consolidated statement of operations if the
tax position was deemed to meet the more likely than not threshold.
The Investment Manager has analysed the Group's tax positions and has
concluded no liability for unrecognised tax benefits should be recorded
related to uncertain tax positions. Further, management is not aware of any
tax positions for which it is reasonably possible the total amounts of
unrecognised tax benefits will significantly change in the next twelve months.
The Company and OpCo each file income tax returns in the US federal
jurisdiction and, as applicable, in US state or local jurisdictions, or non-US
jurisdictions. Generally, the Group was subject to income tax examinations by
major taxing authorities for each tax period since inception. Based on its
analysis, the Group determined that it had not incurred any liability for
unrecognised tax benefits as of 31 December 2022 or 31 December 2021.
Use of estimates
Preparing consolidated financial statements in accordance with US GAAP
requires management to make estimates and assumptions in determining the
reported amounts of assets and liabilities, including the fair value of
investments, and disclosure of contingent assets and liabilities as of the
date of the consolidated financial statements and the reported amounts of
income and expenses during the reporting period. Actual results could differ
from those estimates.
New accounting pronouncements
In June 2022, the FASB issued ASU 2022-03, ASC Topic 820, "Fair Value
Measurement of Equity Securities Subject to Contractual Sale Restrictions".
The amendment clarifies that contractual sale restrictions should not be
considered when measuring the equity security's fair value and prohibits an
entity from recognizing a contractual sale restriction as a separate unit of
account. The amendments in this ASU are effective for the Group beginning
after December 15, 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 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 31 December 2022:
Level 1 Level 2 Level 3 Investments measured at net asset value* Total
Assets (at fair value)
Investments in securities
Common stocks 225,817,734 534,871 3,364,557 - 229,717,162
Convertible preferred stocks 117,696 - 57,932,949 - 58,050,645
American depository
receipts
38,230,091 - - - 38,230,091
Investment in private - - - 14,074,846 14,074,846
investment companies
Convertible notes - - 10,052,833 - 10,052,833
Total investments in securities 14,074,846 350,125,577
264,165,521 534,871 71,350,339
Derivative contracts
Equity swaps - 19,086,329 - - 19,086,329
Warrants - 1,904,409 476,911 - 2,381,320
Total derivative contracts - 20,990,738 476,911 21,467,649
264,165,521 21,525,609 71,827,250 14,074,846 371,593,226
Liabilities (at fair value)
Securities sold short
Common stocks 11,810,966 98,829 - - 11,909,795
American depository receipts 528,539 - - - 528,539
Total securities sold short 12,339,505 98,829 - 12,438,334
Derivative contracts
Equity swaps - 8,926,743 - - 8,926,743
Total derivative contracts - 8,926,743 - - 8,926,743
12,339,505 9,025,572 - - 21,365,077
* The Group's investment in private investment companies that are valued at
their net asset value are not 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 2021:
Investments measured at net asset value*
Level 1 Level 2 Level 3 Total
Assets (at fair value)
Investments in securities
Common stocks 249,490,511 16,001,524 1,943,967 - 267,436,002
Convertible preferred stocks 615,444 - 67,177,270 - 67,792,714
Exchange traded funds 32,097,322 - - - 32,097,322
Investment in private - - - 23,082,522
investment companies 23,082,522
American depository receipts 18,047,224 - - - 18,047,224
Convertible bonds - - 723,723 - 723,723
Total investments in securities 300,250,501 16,001,524 69,844,960 23,082,522 409,179,507
Derivative contracts
Equity swaps - 7,575,424 - - 7,575,424
Warrants 6,576 3,267,566 134,008 - 3,408,150
Total derivative contracts 6,576 10,842,990 134,008 - 10,983,574
300,257,077 26,844,514 69,978,968 420,163,081
23,082,522
Liabilities (at fair value)
Securities sold short
Common stocks 8,844,744 - - - 8,844,744
American depository receipts 473,649 - - - 473,649
Total securities sold short 9,318,393 - - - 9,318,393
Derivative contracts
Equity swaps - 3,310,833 - - 3,310,833
Total derivative contracts - 3,310,833 - - 3,310,833
9,318,393 3,310,833 - - 12,629,226
* 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 year ended 31
December 2022, the Group had net transfers into Level 2 of $4,555,194 from
Level 3 due to conversion into publicly traded common stocks subject to an
unexpired 180-day lock-up as at 31 December 2022 (2021: $9,064,760) and
transfers into Level 1 of $nil from Level 3 due to conversion into publicly
traded common stocks (2021: $20,330,984). Transfers between levels are deemed
to occur at year end.
The following tables summarise the valuation techniques and significant
unobservable inputs used for the Group's investments that are categorised
within Level 3 of the fair value hierarchy as of 31 December 2022 and 31
December 2021:
Fair value at 31 December 2022 Valuation techniques Significant unobservable inputs Range of inputs
Assets (at fair value)
Investments in securities
Convertible preferred stocks 50,023,996 Discounted cash flow; WACC 13% - 33%
and/or market approach; Revenue multiples 2.8x - 4.0x
Market step-up multiple
0.7x - 1.5x
Market rate of returns -30% - 20%
7,908,953 Price of most recent
funding round n/a n/a
Convertible notes 8,772,349 Discounted cash flow; WACC 13%
and/or market approach; Revenue multiples 4.0x
Market step-up multiple 0.7x - 1.1x
Market rate of returns 0%
1,280,484 Probability weighted expected return method ("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 - 4x
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
Fair value at 31 December 2021 Valuation techniques Significant unobservable inputs Range of inputs
Assets (at fair value)
Investments in securities
Convertible preferred
stocks 60,740,530 Discounted cash
flow; WACC 16% - 38%
Market approach; Exit revenue multiple 3.0x - 4.0x
and/or option
pricing model Expected volatility 40% - 135%
Market step-up
multiple 1.0x - 1.8x
6,436,740 Price of most recent
funding round n/a n/a
Common stocks 844,280 Market approach; Expected volatility 60%
and/or option Market step-up 1.1x - 1.7x
pricing model multiple
1,099,687 Price of most recent n/a n/a
funding round
Convertible bonds 723,723 Price of most recent n/a n/a
funding round
Total investments in securities 69,844,960
Derivative contracts
Warrants 133,983 Price of most recent n/a n/a
funding round
25 Discounted cash
flow; WACC 38%
Market approach; Exit revenue multiple 3.0x
and/or option Expected volatility 45%
pricing model
Total derivative contracts 134,008
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 table below presents additional information about Level 3 assets and
liabilities measured at fair value. Both observable and unobservable inputs
may be used to determine the fair value of positions that the Group has
classified within the Level 3 category. As a result, the unrealised gains and
losses for assets and liabilities within the Level 3 category may include
changes in fair value that were attributable to both observable and
unobservable inputs.
Changes in Level 3 assets and liabilities measured at fair value for the year
ended 31 December 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* Ending balance 31 December 2022
Assets (at fair value)
Investments in securities
Convertible preferred stocks 67,177,270 - (17,555,053) 12,142,203 - (3,831,471) 57,932,949
Common stocks 1,943,967 - (664,647) 2,085,237 - - 3,364,557
Convertible notes - - 420628 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
* Includes conversion of convertible bonds into convertible preferred stock
and convertible notes.
((a)) Realised and unrealised gains and losses are included in net realised
and change in unrealised gain/(loss) on investments, derivatives and foreign
currency transactions in the consolidated statement of operations.
Changes in Level 3 assets and liabilities measured at fair value for the year
ended 31 December 2021 were as follows:
Balance beginning 1 January 2021 Realised gains/ (losses) Change in Unrealised gains/ (losses) Purchases Sales Transfers into/(from) Level 3* Ending balance 31 December 2021
Assets (at fair value)
Investments in securities
Convertible preferred stocks 38,161,752 1,440,394 13,226,721 46,075,180 (2,331,033) (29,395,744) 67,177,270
Common stocks 9,087,381 - 502,587 564,688 - (8,210,689) 1,943,967
Convertible bonds - - - 723,723 - - 723,723
Total investments in securities 47,249,133 1,440,394 13,729,308 47,363,591 (2,331,033) (37,606,433) 69,844,960
Derivative contracts
Warrants 133,983 - 1 24 - - 134,008
Total derivative contracts 133,983 - 1 24 - - 134,008
* Conversions of preferred stock into common stock.
Changes in Level 3 unrealised gains and losses during the year for assets
still held at year end were as follows:
2022 2021
Common stocks (664,647) 497,966
Convertible notes 420,628 -
Convertible preferred stocks (13,404,700) 12,873,757
Warrants 76,306 1
Change in unrealised gains and losses during the year for assets still held at (13,572,413) 13,371,724
year end
Total realised gains and losses and unrealised gains and losses in the Group's
investment in securities, derivative contracts and securities sold short are
made up of the following gain and loss elements:
2022 2021
Realised gains 47,604,728 54,163,408
Realised losses (41,995,983) (14,532,072)
Net realised gain on securities, derivative contracts and securities sold 5,608,745 39,631,336
short
2022 2021
Change in unrealised gains 112,585,347 106,379,343
Change in unrealised losses (152,339,558) (202,558,485)
Net change in unrealised gain/(loss) on securities, derivative contracts and (39,754,211) (96,179,142)
securities sold short
As at 31 December 2022 the Group had commitments (subject to completion of
certain parameters) to certain investments totalling $2,544,486 (2021:
$2,358,325).
3. Due to/from brokers
Due to/from brokers includes cash balances held with brokers and collateral on
derivative transactions. Amounts due from brokers may be restricted to the
extent that they serve as deposits for securities sold short or cash posted as
collateral for derivative contracts.
As at 31 December 2022, restricted cash with due from brokers totalled
$22,195,456 (2021: $12,323,965). Included within due from brokers of
$5,810,750 (31 December 2021: $95,095) can be used for investment. The Group
pledged cash collateral to counterparties to over-the-counter derivative
contracts of $16,384,706 (31 December 2021: $12,228,870) 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, Jeffries & 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 year,
categorised by primary underlying risk, to be representative of the volume of
its derivative activities during the year ended 31 December 2022:
2022 2021
Long exposure Short exposure Long exposure Short exposure
Primary underlying risk Notional amounts Notional amounts Notional amounts Notional amounts
Equity price
Equity swaps 48,774,292 56,273,944 2,347,607 66,149,127
Warrants((a)) 4,024,470 - 9,031,998 -
52,798,762 56,273,944 11,379,605 66,149,127
((a)) Notional amounts presented for warrants are based on the fair value of
the underlying shares as if the warrants were exercised at each respective
month end date.
Impact of derivatives on the consolidated statement of assets and liabilities
and consolidated statement of operations
The following tables identify the fair value amounts of derivative instruments
included in the consolidated statement of assets and liabilities as derivative
contracts, categorised by primary underlying risk, at 31 December 2022 and 31
December 2021. The following table also identifies the gain and loss amounts
included in the consolidated statement of operations as net realised
gain/(loss) on derivative contracts and net change in unrealised gain/(loss)
on derivative contracts, categorised by primary underlying risk, for the year
ended 31 December 2022 and 31 December 2021.
2022
Primary underlying risk Derivative assets Derivative liabilities Realised gain/(loss) Change in unrealised gain/(loss)
Equity price
Equity swaps 19,086,329 8,926,743 (2,748,269) 5,894,995
Warrants 2,381,320 - - (1,293,427)
21,467,649 8,926,743 (2,748,269) 4,601,568
2021
Primary underlying risk Derivative assets Derivative liabilities Realised gain/(loss) Change in unrealised gain/(loss)
Equity price
Equity swaps 7,575,424 3,310,833 (1,651,404) 3,061,415
Warrants 3,408,150 - 2,443 (125,397)
10,983,574 3,310,833 (1,648,961) 2,936,018
5. Securities lending agreements
The Group has entered into securities lending agreements with its prime
brokers. From time to time, the prime brokers lend securities on the Group's
behalf. As of 31 December 2022 and 31 December 2021, no securities were loaned
and no collateral was received.
6. Offsetting assets and liabilities
The Group is required to disclose the impact of offsetting assets and
liabilities represented in the consolidated statement of assets and
liabilities to enable users of the consolidated financial statements to
evaluate the effect or potential effect of netting arrangements on its
financial position for recognised assets and liabilities. These recognised
assets and liabilities are financial instruments and derivative instruments
that are either subject to an enforceable master netting arrangement or
similar agreement or meet the following right of setoff criteria: the amounts
owed by the Group to another party are determinable, the Group has the right
to offset the amounts owed with the amounts owed by the other party, the Group
intends to offset and the Group's right of setoff is enforceable by law.
As of 31 December 2022 and 31 December 2021, the Group held financial
instruments and derivative instruments that were eligible for offset in the
consolidated statement of assets and liabilities and are subject to a master
netting arrangement. The master netting arrangement allows the counterparty to
net applicable collateral held on behalf of the Group against applicable
liabilities or payment obligations of the Group to the counterparty. These
arrangements also allow the counterparty to net any of its applicable
liabilities or payment obligations they have to the Group against any
collateral sent to the Group.
As discussed in Note 1, the Group has elected not to offset assets and
liabilities in the consolidated statement of assets and liabilities. The
following table presents the potential effect of netting arrangements for
asset derivative contracts presented in the consolidated statement of assets
and liabilities:
Gross amounts of recognised assets Gross amounts offset in the consolidated statement of assets and liabilities Gross amounts of recognised assets and liabilities 31 December 2022
Gross amounts not offset in the consolidated statement of
assets and liabilities
Description
Financial instruments((a)) Cash collateral received((b)) Net amount
Equity swaps
Bank of America Merrill Lynch 12,929,367 - 12,929,367 (3,983,939) - 8,945,428
Cowen Financial Products, LLC 3,239,591 - 3,239,591 (1,224,200) - 2,015,391
Morgan Stanley & Co. LLC 2,797,503 - 2,797,503 (2,797,503) - -
Jeffries & Co. 119,868 - 119,868 (119,868) - -
19,086,329 - 19,086,329 (8,125,510) - 10,960,819
Gross amounts of recognised assets Gross amounts offset in the statement of assets and liabilities Gross 31 December 2021
amounts of Gross amounts not offset in the statement of assets and liabilities
Description recognised
assets and liabilities
Financial instruments((a)) Cash collateral received((b)) Net amount
Equity swaps
Cowen Financial Products, LLC 5,777,357 - 5,777,357 (1,532,754) -
4,244,603
Bank of America Merrill Lynch 1,396,737 - 1,396,737 (1,190,091) - 206,646
Morgan Stanley & Co. LLC 306,560 - 306,560 (77,393) - 229,167
Jeffries & Co. 78,710 - 78,710 (78,710) - -
UBS AG 16,060 - 16,060 (16,060) - -
7,575,424 - 7,575,424 (2,895,008) - 4,680,416
((a)) Amounts related to master netting agreements (e.g. ISDA), determined by
the Group to be legally enforceable in the event of default and if certain
other criteria are met in accordance with applicable offsetting accounting
guidance but were not offset due to management's accounting policy election.
( )
((b)) Amounts related to master netting agreements and collateral agreements
determined by the Group to be legally enforceable in the event of default, but
certain other criteria are not met in accordance with applicable offsetting
accounting guidance. The collateral amounts may exceed the related net amounts
of financial assets and liabilities presented in the consolidated statement of
assets and liabilities. If this is the case, the total amount reported is
limited to the net amounts of financial assets and liabilities with that
counterparty.
The following tables present the potential effect of netting arrangements for
liability derivative contracts presented in the consolidated statement of
assets and liabilities as of 31 December 2022 and 31 December 2021:
Gross amounts of recognised liabilities Gross amounts offset in the consolidated statement of assets and liabilities Gross amounts of recognised liabilities 31 December 2022 Net amount
Gross amounts not offset in the consolidated statement of
assets and liabilities
Description
Financial instruments((a)) Cash collateral pledged((b))
Equity swaps
Bank of America Merrill Lynch 3,983,939 - 3,983,939 (3,983,939) - -
Morgan Stanley & Co. LLC 3,372,143 - 3,372,143 (2,797,503) (574,640) -
Cowen Financial Products, LLC 1,224,200 - 1,224,200 (1,224,200) - -
Jeffries & 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) -
Description Gross amounts of recognised liabilities Gross amounts offset in the statement of assets and liabilities Gross amounts of recognised liabilities 31 December 2021 Net amount
Gross amounts not offset in the statement of assets and liabilities
Financial instruments((a)) Cash collateral pledged((b))
Equity swaps
Cowen Financial Products, LLC 1,532,754 - 1,532,754 (1,532,754) - -
Bank of America Merrill Lynch 1,190,091 - 1,190,091 (1,190,091) - -
Jeffries & Co. 406,977 - 406,977 (78,710) (328,267) -
UBS AG 103,618 - 103,618 (16,060) (87,558) -
Morgan Stanley & Co. LLC 77,393 - 77,393 (77,393) - -
3,310,833 - 3,310,833 (2,895,008) (415,825) -
((a)) Amounts related to master netting agreements (e.g. ISDA), determined by
the Group to be legally enforceable in the event of default and if certain
other criteria are met in accordance with applicable offsetting accounting
guidance but were not offset due to management's accounting policy election.
((b)) Amounts related to master netting agreements and collateral agreements
determined by the Group to be legally enforceable in the event of default, but
certain other criteria are not met in accordance with applicable offsetting
accounting guidance. The collateral amounts may exceed the related net amounts
of financial assets and liabilities presented in the consolidated statement of
assets and liabilities. If this is the case, the total amount reported is
limited to the net amounts of financial assets and liabilities with that
counterparty.
7. Securities sold short
The Group is subject to certain inherent risks arising from its investing
activities of selling securities short. The ultimate cost to the Group to
acquire these securities may exceed the liability reflected in these
consolidated financial statements.
8. Risk factors
Some underlying investments may be deemed to be highly speculative investments
and are not intended as a complete investment 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 LifeSci 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 companies. Biotech companies 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 LifeSci 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 LifeSci Companies
and related investments.
Concentration of credit risk
In the normal course of business, the Group maintains its cash balances in
financial institutions, which at times may exceed US federal or UK insured
limits, as applicable. The Group is subject to credit risk to the extent any
financial institution with which it conducts business is unable to fulfil
contractual obligations on its behalf. Management monitors the financial
condition of such financial institutions and does not anticipate any losses
from these counterparties.
Counterparty risk
The Group invests in equity swaps and takes the risk of non-performance by the
other party to the contract. This risk may include credit risk of the
counterparty, the risk of settlement default, and generally, the risk of the
inability of counterparties to perform with respect to transactions, whether
due to insolvency, bankruptcy or other causes.
In an effort to mitigate such risks, the Group will attempt to limit its
transactions to counterparties which are established, well capitalised and
creditworthy.
Liquidity risk
Liquidity risk is the risk that the Group cannot meet its financial
commitments as they fall due. The Group's unquoted investments may have
limited or no secondary market liquidity so the Investment Manager maintains a
sufficient balance of cash and market quoted securities which can be sold if
needed to meet its commitments.
The Group's investments in quoted securities may also be subject to sale
restrictions on listing and when the Investment Manager is subject to close
periods or privy to confidential information by virtue of their active
involvement in the management of portfolio companies.
Derivative transactions may not be liquid in all circumstances, such that in
volatile markets it may not be possible to close out a position without
incurring a loss. The illiquidity of the derivatives markets may be due to
various factors, including congestion, disorderly markets, limitations on
deliverable supplies, the participation of speculators, government regulation
and intervention, and technical and operational or system failures.
Foreign exchange risk
The Group will make investments in various jurisdictions in a number of
currencies and will be exposed to the risk of currency fluctuations that may
materially adversely affect, amongst other things, the value of the Portfolio
Company or the Group's investment in such Portfolio Company, or any
distributions received from the Portfolio Company. Under its investment
policy, the Group does not intend to enter into any securities or financially
engineered products designed to hedge portfolio exposure or mitigate portfolio
risk as a core part of its investment strategy.
9. Share capital
During the year ended 31 December 2022 the Company did not issue any Ordinary
Shares:
2022 2021
Number of
Number of Ordinary Shares
Ordinary Shares
As at 1 January 212,389,138 191,515,735
Issuance of Ordinary Shares - 20,873,403
As at 31 December 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 will now be 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
31 December 2022, there were no Performance Allocation Shares of the Company
in issue (31 December 2021: one) and one New Performance Allocation Share of
the Subsidiary in issue (31 December 2021: nil).
New Performance Allocation Shares of the Subsidiary carry the right to
receive, and participate in, any dividends or other distributions of the
Subsidiary available for dividend or distribution. New Performance Allocation
Shares are not entitled to receive notice of, to attend or to vote at general
meetings of the Company or the Subsidiary.
For all share classes, subject to compliance with the solvency test set out in
the Companies Law, the Board may declare and pay such annual or interim
dividends and distributions as appear to be justified by the position of the
Group. The Board may, in relation to any dividend or distribution, direct that
the dividend or distribution shall be satisfied wholly or partly by the
distribution of assets, and in particular of paid-up shares or reserves of any
nature as approved by the Group.
10. Related party transactions
Management Fee
The Investment Manager receives a monthly management fee, in advance, as of
the beginning of each month in an amount equal to 0.104% (1.25% per annum) of
the net assets of the Group (the "Management Fee"). For purposes of
determining the Management Fee, private investments will be valued at the fair
value. The Management Fee will be prorated for any period that is less than a
full month. The Management Fees charged for the year ended 31 December 2022
amounted to $3,751,464 (31 December 2021: $4,813,854) of which $nil (31
December 2021: $nil) was outstanding at the year 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 year ended 31 December 2022 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 loss of $2,476,036 in 2022
(2021: notional loss of $3,559,670), which is included in Performance
Allocation within the 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 year ended 31 December 2022, the Board did not approve a cash
distribution to the Performance Allocation Share Class (31 December 2021:
$4,974,920). At the year end the Performance Allocation Share Class of the
Subsidiary is reflected within the Non-Controlling Interest balance of
$21,844,468 and was captured within the Performance Allocation Share Class of
the Company at 31 December 2021 with a balance of $24,320,504.
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. The following table
represents the number of related parties served on the boards of directors of
investments held by the Group during the year ended 31 December 2022 and 31
December 2021:
Investments Partners Employees
Rocket Two((a)) One
HSAC2 Holdings II Two((a)) One
Ji Xing Two((a)) One
Yarrow Biotechnology Two((b)) One
((a))Roderick Wong, Naveen Yalamanchi
((b))Roderick Wong, Peter Fong
( )
As at 31 December 2022, the number of Ordinary Shares held by each Director
was as follows:
2022 2021
Number of Ordinary Shares Number of Ordinary Shares
William Simpson 200,000 150,000
Paul Le Page 128,000 103,000
William Scott 305,003 150,000
Stephanie Sirota 1,010,000 1,000,000
All Directors added to their holdings during the year by purchasing Ordinary
Shares in the secondary market.
Roderick Wong is a major shareholder and also a member of the Investment
Manager. As at 31 December 2022, he held 29,593,872 Ordinary Shares in the
Group (13.93% of the Ordinary Shares in issue) (31 December 2021: 29,218,773,
13.76% of the Ordinary Shares in issue).
The total Directors' fees expense for the year amounted to $176,722 (31
December 2021: $214,353) of which $48,281 was outstanding at 31 December 2022
(31 December 2021: $52,761) 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 year ended 31 December 2022, EFML and MSFS charged administration
fees of $93,469 and $218,534 respectively (31 December 2021: EFML charged
$107,767 and MSFS charged $223,067) of which $6,484 and $91,099 (31 December
2021: EFML $8,396, MSFS $76,053) was outstanding at 31 December 2022, and is
included within accrued expenses.
12. Financial highlights
Financial highlights for the year ended 31 December 2022 and 31 December 2021
are as follows:
2022 2021
Per Ordinary Share operating performance
Net Asset Value, beginning of year $ 1.71 $ 1.96
Issuance of Ordinary Shares - 0.02
Income from investments
Net investment income/(loss) (0.02) (0.04)
Net realised and unrealised gain/(loss) on investments, derivatives and (0.15) (0.23)
foreign currency transactions
Total from investment operations (0.17) (0.27)
Net Asset Value, end of year $ 1.54 $ 1.71
Total return
Total return before Performance Allocation (10.18)% (15.35)%
Performance Allocation (excluding mark to market) - % 2.58 %
Total return after Performance Allocation (10.18)% (12.77)%
Ratios to average net assets*
Expenses 2.47% 2.22 %
Performance Allocation (1.44)% (2.11)%
Expenses and Performance Allocation 1.03% 0.11 %
Net investment income/(loss) (1.75)% (2.04)%
NAV total return for the year (10.18)% (15.35)%
* Ratios are not annualised.
Financial highlights are calculated for Ordinary Shares. An individual
shareholder's financial highlights may vary based on participation in new
issues, different Performance Allocation arrangements, and the timing of
capital share transactions. Net investment income/loss does not reflect the
effects of the Performance Allocation.
13. Subsequent events
These consolidated financial statements were approved by the Board of
Directors on 30 March 2023. Subsequent events have been evaluated through this
date.
General Company Information - Investment Objective and Investment Policy
The Company
RTW Venture Fund Limited is a company that was incorporated as a limited
liability corporation in the State of Delaware, United States of America on 16
February 2017, with the name "RTW Special Purpose Fund I, LLC", and
re-domiciled into Guernsey under the Companies Law on 2 October 2019 with
registration number 66847 on the Guernsey Register of Companies.
The Company is registered with the GFSC as a Registered Closed-ended
Collective Investment Scheme and is an investment company limited by shares.
The registered office of the Company is 1(st) Floor, Royal Chambers, St
Julian's Avenue, St Peter Port, Guernsey, GY1 3JX.
On 30 October 2019, the issued Ordinary Shares of the Company were listed and
admitted to trading on the Specialist Fund Segment of the Main Market of the
London Stock Exchange. The ISIN of the Company's Ordinary Shares is
GG00BKTRRM22 and trades under the ticker symbol "RTW" and "RTWG".
The Company's Ordinary Shares were admitted to trading on the Premium Segment
of the London Stock Exchange with effect from 6 August 2021.
The Subsidiary
On 1 December 2022 the Company changed its status for U.S. federal tax
purposes from a "publicly traded partnership" or "PTP" to a corporation. The
change in status caused it to be treated as a "passive foreign investment
company" or a "PFIC." This change was necessitated by recent changes
to U.S. tax legislation that came into effect on 1 January 2023.
Related to the making of the tax election, the Company carried out a
reorganisation of the arrangements pursuant to which an affiliate of the
Investment Manager is allocated its share of the investment performance
generated by the Company. Pursuant to this, the Company established a new
wholly-owned subsidiary incorporated in Guernsey, RTW Venture Fund Operating
Limited, to which it has transferred its right to the profits and losses
attributable to the Company's portfolio of assets. The Directors of the
Subsidiary are the same as the Directors of the Company. This reorganisation
had no economic impact on shareholders and was effected solely for the purpose
of ensuring that the share of the investment performance generated by the
Company which is allocable to an affiliate of the Investment Manager receives
the same treatment for U.S. federal tax purposes as would have been the case
if no tax election by the Company had been compelled by the change
in U.S. tax law.
As part of the reorganisation, the Investment Management Agreement was amended
to provide services to the Subsidiary. There was no change to the investment
management fee, but 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.
Investment Objective
The Group seeks to achieve positive absolute performance and superior
long-term capital appreciation, with a focus on forming, building, and
supporting world-class life sciences, biopharmaceutical and medical technology
companies. It intends to create a diversified portfolio of investments across
a range of businesses, each pursuing the development of superior
pharmacological or medical therapeutic assets to enhance the quality of life
and/or extend patient life.
Investment Policy
The Group seeks to achieve its investment objective by leveraging the
Investment Manager's data-driven proprietary pipeline of innovative assets to
invest in life sciences companies:
· across various geographies (globally);
· across various therapeutic categories and product types
(including but not limited to genetic medicines, biologics, traditional
modalities such as small molecule pharmaceuticals and antibodies, and medical
devices);
· in both a passive and active capacity and intends, from time to
time, to take a controlling or majority position with active involvement in a
Portfolio Company to assist and influence its management. In those
situations, it is expected that the Investment Manager's senior executives may
serve in temporary executive capacities; and
· by participation in opportunities created by the Investment
Manager's formation of companies de novo when a significant unmet need has
been identified and the Group is able to build a differentiated, sustainable
business to address said unmet need.
The Group expects to invest approximately 80% of its gross in the
biopharmaceutical sector and approximately 20% of its gross assets in the
medical technology sector.
The Group's portfolio will reflect its view of the most compelling
opportunities available to the Investment Manager, with an initial investment
in each privately held Portfolio Company ("Private Portfolio Company")
expected to start in a low single digit per cent. of the Group's gross assets
and grow over time, as the Group may, if applicable, participate in follow-on
investments and/or continue holding the Portfolio Company as it becomes
publicly-traded. It is intended certain long-term holds will increase in size
and may represent between five and ten per cent. or greater of the Group's
gross assets.
The Group anticipates deploying one-third of its capital toward early-stage
and de novo company formations (including newly formed entities around
early-stage academic licenses and commercial stage corporate assets) and
two-thirds of its capital in mid- to late-stage ventures.
The Group may choose to invest in Portfolio Companies listed on a public stock
exchange ("Public Portfolio Companies") depending on market conditions and the
availability of appropriate investment opportunities. Equally, as part of a
full-life cycle investment approach, it is expected that Private Portfolio
Companies may later become Public Portfolio Companies. Monetisation events
such as IPOs and reverse mergers will not necessarily represent exit
opportunities for the Group. Rather, the Group may decide to retain all or
some of its investment in such Portfolio Companies or the acquiring Company
where they meet the standard of diligence set by the Investment Manager. The
Group is not required to allocate a specific percentage of its assets to
Private Portfolio Companies or Public Portfolio Companies.
The Group also intends, where appropriate, to invest further in its Portfolio
Companies, supporting existing investments throughout their life cycle. The
Group may divest its interest in Portfolio Companies in part or in full when
the risk-reward trade-off is deemed to be less favourable.
From time to time, the Group may seek opportunities to optimise investing
conditions, and to allow for such circumstances, the Group will have the
ability to hedge or enter into securities or derivative structures in order to
enhance the risk-reward position of the portfolio and its underlying
securities.
Investment restrictions
The Group will be subject to the following restrictions when making
investments in accordance with its investment policy:
• the Group may not make an investment or a series of investments in a
Portfolio Company that result in the Group's aggregate investment in such
Portfolio Company exceeding 15% (or, in the case of Rocket Pharmaceuticals,
Inc., 25%) of the Group's gross assets at the time of each such investment;
• the Group may not make any direct investment in any tobacco company
and not knowingly make or continue to hold any Public Portfolio Company
investments that would result in exposure to tobacco companies exceeding one
per cent. of the aggregate value of the Public Portfolio Companies from time
to time.
Each of these investment restrictions will be calculated as at the time of
investment. In the event that any of the above limits are breached at any
point after the relevant investment has been made (for instance, upon
successful realisation of economic and/or scientific milestones or as a result
of any movements in the value of the Group's gross assets), there will be no
requirement to sell or otherwise dispose of any investment (in whole or in
part).
Leverage and borrowing limits
The Group may use conservative leverage in the future in order to enhance
returns and maximise the growth of its portfolio, as well as for working
capital purposes, up to a maximum of 50% of the Group's net asset value at the
time of incurrence. Any other decision to incur indebtedness may be taken by
the Investment Manager for reasons and within such parameters as are approved
by the Board. There are no limitations placed on indebtedness incurred in the
Group's underlying investments.
Capital deployment
The Group anticipates that it will initially, upon Admission and upon any
subsequent capital raises, invest up to 80% of available cash in Public
Portfolio Companies that have been diligenced by the Investment Manager and
represent holdings in other portfolios managed by the Investment Manager,
subsequently rebalancing the portfolio between Public Portfolio Companies and
Private Portfolio Companies as opportunities to invest in the latter become
available.
Cash management
The Group's uninvested capital may be invested in cash instruments or bank
deposits pending investment in Portfolio Companies or used for working capital
purposes.
Hedging
As described above, the Group may seek opportunities to optimise investing
conditions, and to allow for such circumstances, there will be no limitations
placed on the Group's ability to hedge or enter into securities or derivative
structures in order to enhance the risk-reward position of the portfolio and
its underlying securities.
On an ongoing basis, the Group does not intend to enter into any securities or
financially engineered products designed to hedge portfolio exposure or
mitigate portfolio risk as a core part of its investment strategy, but may
enter into hedging transactions to hedge individual positions or reduce
volatility related to specific risks such as fluctuations in foreign exchange
rates, interest rates, and other market forces.
Glossary (unaudited)
Defined Terms
"Adjusted Net Asset Value" the NAV adjusted by deducting the unrealised gains and unrealised losses in
respect of private Portfolio Companies;
"Administrator" means Elysium Fund Management Limited;
"AIC" the Association of Investment Companies;
"AIC Code" the AIC Code of Corporate Governance dated February 2019;
"AIFM" means Alternative Investment Fund Manager;
"AIFMD" the Alternative Investment Fund Managers Directive;
"Alcyone" Alcyone Therapeutics, Inc.;
"Ancora" Ancora Heart, Inc.;
"Annual General Meeting" or "AGM" the annual general meeting of the shareholders of the Company;
"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;
"Antibody-Oligonucleotide Conjugates" or "AOC" molecules that combine structures of an antibody and an oligo;
"Artios" Artios Pharma, Inc.;
"Artiva" Artiva Biotherapeutics, Inc.;
"Athira" Athira Pharma, Inc.;
"Autoimmune diseases" conditions, where the immune system mistakenly attacks a body tissue;
"Avidity" Avidity Biosciences, Inc.;
"Beta Bionics" Beta Bionics, Inc.;
"Biomea" Biomea Fusion, Inc.;
"C4 Therapeutics" or "C4T" C4 Therapeutics, Inc.;
"Calculation Date" 31 December or, if such date is not a business day, the previous business day;
"Cardiovascular disease" conditions affecting heart and vascular system;
"CinCor" CinCor Pharma, Inc.;
"Clinical stage" or "clinical trial" a therapy in development goes through a number of clinical trials to ensure
its safety and efficacy. The trials in human subjects range from Phase 1 to
Phase 3. All studies done prior to clinical testing in human subjects are
considered preclinical;
"CNS" Central Nervous System
"Companies Law" the Companies (Guernsey) Law, 2008 (as amended);
"Company" or "RTW Venture Fund Limited" RTW Venture Fund Limited is a company incorporated in and controlled from
Guernsey as a close-ended Investment Company. The Company has an unlimited
life and is registered with the GFSC as a Registered Closed-ended Collective
Investment Scheme. The registered office of the Company is 1(st) Floor, Royal
Chambers, St Julian's Avenue, St Peter Port, Guernsey, GY1 3JX;
"Company's Articles" means the Company's Articles of Incorporation;
"Core portfolio companies" Include private companies and public companies that were initially added to
our portfolio as private investments;
"Corporate Brokers" being J.P. Morgan Cazenove and Bank of America;
"Crohn's Disease" a condition, in which a part(s) of digestive tract is inflamed;
"CRS" Common Reporting Standard;
"Danon Disease" a rare genetic heart condition in children, predominantly boys;
"Directors" or "Board" the directors of the Company as at the date of this document, or who served
during the reporting period, and "Director" means any one of them;
"DTR" Disclosure Guidance and Transparency Rules of the UK's FCA;
"Encoded" Encoded Therapeutics, Inc.;
"EU" or "European Union" the European Union first established by the treaty made at Maastricht on 7
February 1992;
"Fanconi Anemia" a rare genetic blood condition in young children;
"FATCA" the Foreign Account Tax Compliance Act;
"FCA" the Financial Conduct Authority;
"FCA Rules" the rules or regulations issued or promulgated by the FCA from time to time
and for the time being in force (as varied by any waiver or modification
granted, or guidance given, by the FCA);
"FDA" the US Food and Drug Administration;
"FRC" the Financial Reporting Council;
"Frequency" Frequency Therapeutics, Inc.;
"FTC" the Federal Trade Commission;
"Gene therapy" a biotechnology that uses gene delivery systems to treat or prevent a disease;
"Genetic Medicine" an approach to treat or prevent a disease using gene therapy or RNA medicines;
"GFSC" the Guernsey Financial Services Commission;
"GFSC Code" the GFSC Finance Sector Code of Corporate Governance as amended in June 2021;
"GH Research" GH Research PLC;
"Group" the Company and the Subsidiary;
"HCM" or "Hypertrophic cardiomyopathy" a cardiovascular disease characterised by an abnormally thick heart muscle;
"ImmTAC®" bi-specific biologic molecules designed to fight cancer or viral infections;
"Immunocore" Immunocore Limited;
"InBrace" InBrace or Swift Health, Inc.;
"Independent Valuer" Alvarez & Marsal Valuation Services, LLC;
"Infantile Malignant Osteopetrosis" or "IMO" a rare genetic bone disease in young children, manifesting in an increased
bone density;
"Interim Report" the Interim Financial Report;
"Investigational New Drug" or "IND" the FDA's investigational New Drug program is the means by which a
pharmaceutical company obtains permission to start human clinical trials;
"Investment Manager" RTW Investments, LP, also referred to as RTW;
"IPEV Guidelines" the International Private Equity and Venture Capital Valuation Guidelines;
"IPO" an initial public offering;
"IRR" internal rate of return;
"ISDA" International Swaps and Derivatives Association;
"iTeos" iTeos Therapeutics, Inc.;
"Ji Xing" Ji Xing Pharmaceuticals, formerly China New Co;
"Kyverna" Kyverna Therapeutics, Inc.;
"Landos" Landos Biopharma, Inc.;
"Lentiviral vector or "LVV" based gene therapy - a type of viral vector used to deliver a gene;
"Leukocyte adhesion deficiency" or "LAD-I" a rare genetic disorder of immunodeficiency in young children;
"LifeSci Companies" companies operating in the life sciences, biopharmaceutical, or medical
technology industries;
"Listing Rules" the listing rules made under section 73A of the Financial Services and Markets
Act 2000 (as set out in the FCA Handbook), as amended;
"London Stock Exchange" or "LSE" London Stock Exchange plc;
"LSE" London Stock Exchange's main market for listed securities;
"Lycia" Lycia Therapeutics, Inc.;
"MAGE-A4" a protein expressed on certain types of tumours;
"Magnolia Medical" or "Magnolia" Magnolia Medical Technologies, Inc.;
"Medtech" medical technology sector within healthcare;
"Menin" a target for the treatment development in oncology;
"Milestone" Milestone Pharmaceuticals, Inc.;
"MOC" Multiple on capital is the ratio of realised and unrealised gains divided by
the acquisition cost of an investment;
"Monte Rosa" Monte Rosa Therapeutics, Inc.;
"Myotonic Dystrophy" a genetic condition that affects muscle function;
"NASDAQ Biotech" a stock market index made up of securities of NASDAQ-listed companies
classified according to the Industry Classification Benchmark as either the
Biotechnology or the Pharmaceutical industry;
"Net Asset Value" or "NAV" the value of the assets of the Company less its liabilities, calculated in
accordance with the valuation guidelines laid down by the Board;
"Neurogastrx" Neurogastrx, Inc.;
"New Performance Allocation Shares" performance allocation shares of no-par value in the capital of the
Subsidiary;
"NewCo" a new company;
"NiKang" Nikang Therapeutics, Inc;
"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;
"Nuance" Nuance Pharma;
"Numab" Numab Therapeutics, Inc.;
"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;
"OpCo" or "Subsidiary" RTW Venture Fund Operating Limited;
"Ophthalmic conditions" conditions affecting the eye;
"Orchestra BioMed" or "Orchestra" Orchestra BioMed, Inc.:
"Ordinary Shares" the Ordinary Shares of the Company;
"Performance Allocation Amount" an allocation connected with the performance of the Company to be allocated to
the Performance Allocation Share Class in such amounts and as such times as
shall be determined by the Board;
"Performance Allocation Period" 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 Share Class" a class fund for the Performance Allocation Shares or New Performance
Allocation Shares to which the Performance Allocation will be allocated;
"Performance Allocation Shares" performance allocation shares of no-par value in the capital of the Company
(prior to the 1 December 2022 reorganisation), or performance allocation
shares of no-par value in the capital of the Subsidiary (with effect from the
1 December 2022 reorganisation);
"Performance Allocation Shareholder" the holder of Performance Allocation Shares or New Performance Allocation
Shares;
"PFIC" Passive Foreign Investment Company;
"Pilot study" a small-scale study;
"Private Investment in Public Equity" or "PIPE" is when an institutional or an accredited investor buys stock directly from
a public company below market price;
"POI Law" The Protection of Investors (Bailiwick of Guernsey) Law, 2020, as amended;
"Portfolio Companies" Private and public companies included into the portfolio;
"PRAME" a cancer-testis antigen (CTA) that is highly expressed in a broad range of
solid and hematologic malignancies;
"Premium Segment" Premium Segment of the Main Market of the LSE;
"PRIority Medicines" or "PRIME" to be accepted for PRIME, a medicine has to show its potential to benefit
patients with unmet medical needs based on early clinical data;
"Prometheus" Prometheus Biosciences, Inc.;
"Prospectus" the prospectus of the Company, most recently updated on 14 October 2019 and
available on the Company's website (www.rtwfunds.com/venture-fund
(http://www.rtwfunds.com/venture-fund) );
"PTP" Publicly Traded Partnership;
"Pulmonary conditions" pathologic conditions that affect lungs;
"Pulmonx" Pulmonx Corporation;
"Pyruvate Kinase Deficiency" or "PKD" a rare genetic disorder affecting red blood cells;
"Pyxis" Pyxis Oncology, Inc.;
"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;
"Rocket Pharmaceuticals" or "Rocket" Rocket Pharmaceuticals, Inc.;
"RTW" RTW Investments, LP, also referred to as the Investment Manager;
"RTWCF" RTW Charitable Foundation;
"RTW Royalty" RTW Royalty Holding Company #1 and #2;
"Russell 2000 Biotech" a stock index of small cap biotechnology and pharmaceutical companies;
"SEC Rule 144" selling restricted and control securities;
"Seed Assets" the initial portfolio of the Company, consisting of: Beta Bionics, Frequency,
Immunocore, Landos, Orchestra BioMed and Rocket;
"SFS" Specialist Fund Segment of the London Stock Exchange;
"Small molecule" a compound that can regulate a biologic activity;
"Sensorineural hearing loss" a type of hearing loss caused by damage to the inner ear;
"SPAC" Special Purpose Acquisition Company;
"Sub-Administrator" Morgan Stanley Fund Services USA LLC;
"Subsidiary" or "OpCo" RTW Venture Fund Operating Limited;
"Tachycardia" a heart rhythm disorder;
"Tarsus" Tarsus, Inc.;
"Tenaya" Tenaya Therapeutics. Inc.;
"TIGIT" a target for a checkpoint antibody development in immune-oncology;
"TL1A" a target for the treatment of inflammation associated with inflammatory bowel
disease (IBD);
"Type 1 Diabetes" or "TD1" a type of insulin resistance;
"Total shareholder return" a measure of shareholders' investment in a company with reference to movements
in share price and dividends paid over time;
"UK" United Kingdom;
"UK Code" the UK Corporate Governance Code 2018 published by the Financial Reporting
Council in July 2018;
"UK-Guernsey IGA" The UK-Guernsey Intergovernmental Agreement for the Automatic Exchange of
Information;
"Ulcerative Colitis" an inflammatory bowel disease that causes sores in the digestive tract;
"Umoja" Umoja Biopharma. Inc.;
"US" the United States of America;
"US GAAP" US Generally Accepted Accounting Principles;
"Uveal melanoma" a type of eye cancer;
"Valuation Committee" Valuation Committee of the Investment Manager;
"Ventyx" Ventyx Biosciences, Inc.;
"Visus" Visus Therapeutics, Inc.;
"WACC" weighted average cost of capital;
"XIRR" an internal rate of return calculated using irregular time intervals.
"Yarrow" Yarrow Biotechnology, Inc.
Alternative Performance Measures (unaudited)
( )
APM Definition Purpose Calculation
Available Cash Cash held by the Group's Bankers, Prime Broker and an ISDA counterparty. A measure of the Group's liquidity, working capital and investment level. Cash and cash equivalents, Due from brokers less Due to brokers on the
Statement of Assets & Liabilities.
NAV per Ordinary Share The Company'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$326.1 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$1.54) and the
reporting period. NAV per share at the beginning of the period (US$1.71) 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$1.21) and the
period. the reporting period. price per share at the beginning of the period (US$1.78) 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$1.21) 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$1.54) minus one expressed as a
percentage.
Multiple on Invested Capital (MOIC or MOC) The multiple that measures value that an investment has generated. A measure to evaluate performance of the realised and unrealised investments. The ratio between initial capital invested in a portfolio company and current
(as of 31 December 2022) value of the investment. It is a gross metric and
calculation is performed before fees and incentive.
Extended Internal Rate of Return (XIRR) The percentage or single rate of return when applied to all transactions in a A measure of return which is used when multiple investments have been made The rate also expressed as a percentage that calculates the returns on the
portfolio company. over time into a portfolio company. total investment made with increments through a given period (from initial
investment date to 31 December 2022).
Ongoing charges ratio The recurring costs that the Group has incurred during the period excluding A measure of the minimum gross profit that the Company needs to produce to Calculated in accordance with the AIC methodology detailed on the web link
performance fees and one off legal and professional fees expressed as a make a positive return for shareholders. below:
percentage of the Group's average NAV for the period. https://www.theaic.co.uk/sites/default/files/documents/AICOngoingChargesCalculationMay12.pdf
(https://www.theaic.co.uk/sites/default/files/documents/AICOngoingChargesCalculationMay12.pdf)
Ongoing Charges 2022 2021
US$ US$
Fees to Investment Manager 3,751,464 4,813,854
Legal and professional fees 1,008,629 1,070,317
Audit fees 329,557 288,254
Administration fees 312,003 330,834
Directors' remuneration 176,722 214,353
Other expenses 1,100,167 584,851
Listing fees - 936,615
Total expenses 6,678,542 8,239,078
Non-recurring expenses (487,786) (1,176,627)
Total ongoing expenses 6,190,756 7,062,451
Average NAV 322,418,512 408,929,032
Annualised ongoing charges (using AIC methodology) 1.92% 1.73 %
-- ENDS --
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