Half-year Report
15/09/2022 07:00
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RNS Number : 4931Z RTW Venture Fund Limited 15 September 2022
15 September 2022
RTW Venture Fund Limited
Interim Report for the period ended 30 June 2022
Robust performance against a challenging market
RTW Venture Fund Limited (the "Company"), the London Stock Exchange-Premium
listed investment company focused on identifying transformative assets with
high growth potential across the biopharmaceutical and medical technology
sectors, is pleased to announce its Interim Report for the six months ended 30
June 2022.
Financial Highlights:
· The Company continued to outperform the benchmarks in the period
since Admission, demonstrating strength of the Investment Manager and the
portfolio:
RTW Venture Fund Limited Interim reporting period (01/01/2022-30/06/2022) Interim reporting period (01/01/2021-30/06/2021) Admission (30/10/2019 to 30/06/2022)
Ordinary NAV - start of period US$363.0 million US$375.3 million US$168.0 million
Ordinary NAV - end of period US$265.7 million US$397.2 million US$265.7 million
NAV per Ordinary Share - start of period US$1.71 US$1.96 US$1.04
NAV per Ordinary Share - end of period US$1.25 US$1.91 US$1.25
NAV movement per Ordinary Share (%) -26.8% -2.6% 20.1%
Price per Ordinary Share - start of period US$1.78 US$1.88 US$1.04
Price per Ordinary Share - end of period US$0.97 US$2.05 US$0.97
Share price return (%) (i) -45.7% 9.0% -6.7%
Benchmark returns (ii)
Nasdaq Biotech -20.7% 8.8% +11.0%
Russell 2000 Biotech -39.1% -3.6% -16.1%
(i) Total shareholder return is an alternative performance measure.
(ii) Source: Capital IQ.
Portfolio Highlights
· Further progress made in investing capital and realising gains
from high growth biotech companies with transformative assets:
· As at 30 June 2022, the Company had increased the number of
Portfolio Companies to 41(H1 2021: 34 Portfolio Companies)
o 15 publicly-listed (H1 2021: 14)
o 26 privately-held (H1 2021: 20)
· 2 new core portfolio companies were added during the period (H1
2021: +13)
o Lenz Therapeutics representing 0.5% of NAV
o Mineralys representing 0.4% of NAV
· 28/41 core portfolio companies' pipeline products were in
clinical stage programmes (H1 2021: 29/44) on 30 June 2022
· As at 30 June 2022, 62% of NAV was invested in core portfolio
companies (H1 2021: c.65%)
· In H1 2022, the company exited 3 public portfolio companies,
Athira (1.6x MOC), Biomea (0.9x) and iTeos (3.6x)
· 1 private portfolio company, Cincor, successfully launched an
initial public offering (IPO) during the period, at a price of US$16.00 per
share, raising US$193.6 million
o 1.4x valuation step-up from the initial time of investment to 30 June 2022
· Sale of the Company's Mavacamten royalty to Bristol Myers Squibb
following the successful completion of its phase three trials providing a
+4.9% uplift to NAV
· The Company continued to invest additionally in a portfolio of
listed companies selected by the Investment Manager to be representative of
positions which are also held in their other investment vehicles, currently
this comprises c. 34% of NAV
Post period-end
· Share price has materially recovered by 23% since the period-end
from US$0.97 to US$1.19 at 13 September 2022
· The Company, alongside other investment vehicles of RTW
Investments, participated in Immunocore's series D financing round in July
2022
Roderick Wong, MD, Managing Partner and Chief Investment Officer of RTW
Investments, LP (the "Investment Manager") commented:
"Given the headwinds being faced by the sector, we are pleased to report that
good progress has been made across the portfolio during the period, with the
successful IPO of Cincor and two new core portfolio companies added, Lenz
Therapeutics and Mineralys.
During the six months to 30 June 2022, the decrease in the NAV of -26.8%
compared with -39.1% for the Russell 2000 Biotech index. Performance since
inception remained comfortably ahead of both the Nasdaq Biotech and Russell
2000 Biotech benchmarks with RTW delivering a +20.1% NAV performance since
inception compared with +11% for the Nasdaq Biotech index and -16.1% for the
Russell 2000 Biotech index, over the same periods.
Looking ahead, we feel that sentiment across the biotech sector is now
beginning to change which has been highlighted by the stronger share price
performance of the Company post-period end, up 23% as of 13 September 2022.
Also supporting this is the increasing volume of M&A activity with the
highest number of M&A deals in a quarter since Q2 2018, driven in part by
the compelling valuations on offer for many attractive companies.
Accordingly, we also continue to see a number of attractively valued
opportunities in our investment pipeline and look ahead to the next period
with confidence as we continue to add both public and private companies to our
portfolio of transformative assets. We look forward to updating shareholders
with our continued progress throughout the remainder of 2022."
Analyst and Investor Call
A conference call for analysts will be held at 2pm BST / 9am EST today. To
register for the event please RSVP to georgeb@buchanan.uk.com.
For Further Information
RTW Investments, LP +44 (0) 77 1741 7711
Woody Stileman, Managing Director
Stephanie Sirota, Chief Business Officer
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 5000
Charles Ryland
Henry Wilson
George Beale
About RTW Venture Fund Limited:
RTW Venture Fund Limited (LSE: RTW and 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.
30 June 2022 Financial Highlights
US$1.25 NAV per Ordinary Share
US$265.7 million Ordinary NAV
-7.1% total shareholder return since Admission
20.1% Ordinary NAV growth since Admission
-45.7% total shareholder return YTD
-26.8% Ordinary NAV per share growth YTD
US$7.6 million in cash / cash equivalents* US$0.97 price per Ordinary Share**
*Excludes amounts due from brokers.
**The share price has since recovered to US$1.19 at 13 September 2022.
Portfolio Highlights
2 new core portfolio companies added in the period
62% of NAV invested in core portfolio companies
28/41 of the core portfolio companies' pipeline products
41 core portfolio companies: are in clinical stage programs
26 privately-held and 15 publicly-listed
Investing with purpose
Our mission is to be scientists and entrepreneurs who aspire to change
patients' lives through innovation. Our long-term strategy is anchored in
identifying sources of transformational innovations by engaging in deep
scientific research and rigorous idea generation process, which is
complemented with years of investing, company building, transactional, and
legal expertise.
Identify transformational innovations
We have developed expertise through our comprehensive study of industry and
academic efforts in targeted areas of significant innovation.
Engage deep research and unlocking value
We have developed a repeatable internal process combining technology and
manpower to comprehensively cover critical drivers of innovation globally.
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.
Support full lifecycle investment
A key part of our competitive advantage is the ability to determine at what
point in a company's lifecycle we should support the target asset or
pipeline.
Chairman's Statement
It is with pleasure that I present the 2022 interim results for RTW Venture
Fund Limited (the "Company"). The Company was admitted to the London Stock
Exchange ("LSE") nearly three years ago on 30 October 2019, and I am pleased
to report that, despite a challenging external environment that impacted on
our share price and NAV, and those of our competitors throughout the sector,
the Company continued to progress well and has recently committed further
resources to developing the life science ecosystem in the UK.
H1 2022 Overview
In a record-breaking year for private and public financing activity last year,
the Company invested in 21 new companies. Whilst it could have been
substantially more, the disciplined and resolute focus on science,
fundamentals, and valuation by RTW Investments, LP (the "Investment Manager"
or "RTW") provided a balanced approach reflecting an appropriate view of
market conditions at the time. It is on this foundation that the Company has
continued to deliver on its strategy during the first half of 2022, despite
the challenging financing environment, demonstrating a clarity of process and
creativity of execution. In particular, the sale of the Company's Mavacamten
royalty to Bristol Myers Squibb following the successful completion of its
phase three trials, the IPO of Cincor, and the two-part transaction (licensing
and equity investment) with Lenz Therapeutics, together demonstrate the
breadth of the Company's capabilities.
In the period from 31 December 2021 to 30 June 2022, the Company's NAV
declined by 26.8% from US$363.0 million or US$1.71 per Ordinary Share to
US$265.7 million or US$1.25 per Ordinary Share. The NAV was significantly
impacted by declines in public market valuations, in particular the largest
detractor to the NAV was the mark to market share price performance of Rocket
(c. -5.3%), which was slightly offset by the private core portfolio (+1.3%),
where a realised gain in RTW Royalty Holdings 1, following the successful sale
of Mavacamten which was the largest contributor (c. +4.9% of NAV). RTW Venture
Fund's share price has declined by 45.7%, while the small-cap heavy Russell
2000 Biotechnology Index declined by 39.1% and the large-cap heavy Nasdaq
Biotechnology Index declined by 20.7% for the period. Since admission, the
Company's NAV per Ordinary Share has appreciated by 20.1% against a -16.1%
decline for the Russell 2000 Biotechnology Index. By any standards, this is a
commendable and consistent degree of outperformance and testament to the
Investment Manager's robust business model.
At the end of the period, the Company had forty-one core portfolio companies,
of which twenty-six were privately held and fifteen were publicly listed. All
core portfolio companies were initiated as private investments by the
Investment Manager. During the first half of 2022, the Company added two
portfolio companies, Lenz Therapeutics and Mineralys, and exited three
portfolio public companies, Athira, Biomea and iTeos. One private portfolio
company, Cincor successfully went public this year. The core portfolio
represented c. 62% of NAV at the end of the reporting period. To mitigate any
drag on performance due to excess cash awaiting deployment into new private
assets, the Company has c. 34% of NAV in a portfolio of listed companies
selected by the Investment Manager to be representative of positions which are
also held in their other investment funds. The balance of c. 5% of the
remaining NAV was held as cash and working capital.
AGM Results, Board Composition and Corporate Brokers Updates
The Company held its Annual General Meeting on 21 June 2022 to consider the
audited financial statements, and other matters. The results have been
announced to the market and published on the Investment Manager's website
https://www.rtwfunds.com/venture-fund/
(https://www.rtwfunds.com/venture-fund/) . I am happy to report that all of
our AGM resolutions were approved. It is a privilege to continue to serve as
Chairman with fellow Guernsey-based Independent Directors, William Scott, and
Paul Le Page, who collectively have several decades of experience in the
listed Investment Company sector. I am pleased that our fourth Director,
Stephanie Sirota, who is a principal and Chief Business Officer of the
Investment Manager, will continue to provide our Board with specialist
technical insight and demonstrate her personal commitment to the Company. I am
also pleased that a resolution was passed to increase the maximum annual
amount of renumeration available to be paid to all Directors such that we will
have the ability to further grow and diversify our Board.
To further strengthen our work with shareholders, the Board has appointed
Merrill Lynch International (BofA Securities) as a corporate broker and
financial adviser to the Company alongside J.P. Morgan Cazenove.
Outlook
Over the last eighteen months, the Company's NAV and share price have been
significantly impacted by what is, to date, the second worst biotech bear
market in history. However, we now look ahead with renewed confidence. Public
market valuations are at historic lows while innovation remains at an all-time
high. The Investment Manager provides greater detail in its report but, in
summary, 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
recent dislocation of markets has created significant opportunities for
skilled investors such as RTW who have the scale of scientific resource and
understanding, together with extensive capital markets experience 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 grow the Company's portfolio, by attracting
demand from new shareholders to assist in the financing of an exciting
pipeline of new ideas, based upon its strategy of founding, investing, and
supporting companies developing next-generation therapies and technologies
that can significantly improve patients' lives. Accordingly, the Board expects
the Company to continue to achieve a strong performance over the long term and
creating value for shareholders.
On behalf of the Board, I would like to express my gratitude for your
continued support and wish you all the best for the remainder of 2022.
William Simpson
Chairman of the Board of Directors
RTW Venture Fund Limited
14 September 2022
Report of the Investment Manager
Executive summary
Given the headwinds being faced by the sector, we are pleased to report that
good progress has been made across the portfolio during the period, with the
successful IPO of Cincor and two new core portfolio companies added. During
the six months to 30 June 2022, the decrease in the NAV of -26.8% compared
with -39.1% for the Russell 2000 Biotech index. Performance since inception
remained comfortably ahead of both the Nasdaq Biotech and Russell 2000 Biotech
benchmarks. Looking ahead, we feel that sentiment across the biotech sector is
now beginning to change, supported by the increasing volume of M&A
activity, driven in part by the compelling valuations on offer for many
attractive companies. We look ahead to the next period with confidence.
Table 1. Financial Highlights
RTW Venture Fund Limited Interim reporting period (01/01/2022-30/06/2022) Interim reporting period (01/01/2021-30/06/2021) Admission (30/10/2019 to 30/06/2022)
Ordinary NAV - start of period US$363.0 million US$375.3 million US$168.0 million
Ordinary NAV - end of period US$265.7 million US$397.2 million US$265.7 million
NAV per Ordinary Share - start of period US$1.71 US$1.96 US$1.04
NAV per Ordinary Share - end of period US$1.25 US$1.91 US$1.25
NAV movement per Ordinary Share (%) -26.8% -2.6% 20.1%
Price per Ordinary Share - start of period US$1.78 US$1.88 US$1.04
Price per Ordinary Share - end of period US$0.97 US$2.05 US$0.97
Share price return (%) (i) -45.7% 9.0% -6.7%
Benchmark returns (ii)
Nasdaq Biotech -20.7% 8.8% +11.0%
Russell 2000 Biotech -39.1% -3.6% -16.1%
(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 30 June 2022, c. 31% of NAV was invested in private companies and c. 31%
was invested in core public companies. This was approximately the same as 30
June 2021 and 31 December 2021 as disposals and additions have largely offset
each other. 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 lifecycle and
therefore involves retaining our private investments well beyond their IPO,
hence our core portfolio consists of both privately-held and publicly-listed
companies, which were private at the time of our initial investment.
Approximately 34% of the Company's NAV is invested in other publicly listed
companies in order to mitigate the drag of setting aside 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 categorized
as innovative biotechnology and medical technology companies developing and
commercializing potentially disruptive and transformational products.
The 26.8% reduction in NAV during the first half of 2022 was largely driven by
our public core holdings (-17.6% contribution) with other public positions
(-11.7%) making up the rest. This was offset slightly by the core private
portfolio, which contributed +1.3% as the realised gain on the sale of
Mavacamten in RTW Royalty outweighed our other private portfolio write-downs
for the period and the Company's performance fee allocation and expenses,
which contributed +1.1% (as the decline in NAV led to a credit to the
performance fee accrual). The top contributors to the NAV were RTW Royalty
Holding 1 (+4.9%), RTW Royalty Holding 2 (+0.5%), Immunocore (+0.3%) and
Cincor (+0.1%). The top detractors were Rocket (-5.3%), Ji Xing (-2.4%), C4
Therapeutics (-2.0%) and Avidity (-2.0%). Please see the next section on
performance drivers as of 30 June 2022 for further details on individual
names.
Figure 1. Performance drivers as of 30 June 2022
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 Company now has 41 core portfolio companies, having added two new companies so far in 2022 alongside three disposals by 30 June 2022. Core portfolio companies added in the first half of 2022 are listed below.
Our 2022 new investments include:
Company name Description % NAV
Lenz Therapeutics Clinical stage biopharma company developing treatments for presbyopia 0.5%
Mineralys Clinical stage biopharma company developing treatments for hypertension 0.4%
As of 30 June 2022, the portfolio was diversified across treatment modalities,
therapeutic focus, and clinical stage of their programs (Figure 2A-C). While
the portfolio remains dominated by US-based companies (Figure 2D), we are
committed to adding UK and EU-based companies in an effort to support the best
assets globally and foster local biotech ecosystems.
Figure 2. Portfolio breakdown, by (A) modality, (B) therapeutic focus, (C)
clinical stage and (D) geography as of 30 June 2022
Key updates for Core Portfolio Companies during H1 2022:
Clinical
§ 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 2022, 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 needs to refine its treatment regimen.
§ In May 2022, Rocket 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 2022, Tarsus shared positive data in the second Phase 3 trial for
their blepharitis demodex treatment. The company is expecting to file a New
Drug Application ("NDA") with the FDA by the end of 2022.
§ In June 2022, Beta Bionics shared results of the multi-center randomized
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.
Financing
§ In January 2022, Cincor announced the 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 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 Medical'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 2022, Ji Xing announced an exclusive licensing agreement with Lenz
Therapeutics to develop and commercialize 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 2022, Mavacamten, the underlying asset of RTW Royalty Holding 1
received FDA approval in April and the Company subsequently sold its stake in
the royalty to Bristol Myers Squibb for a significant gain.
§ In June 2022, the Company and other affiliated funds of the Investment
Manager participated in Series B financing round in Mineralys Therapeutics, a
clinical-stage biopharma working on hypertension.
Portfolio performance and updates
The Company's NAV has outperformed its biotech benchmarks since admission on
30 October 2019, returning +20% vs. +11% and -16% for the Nasdaq Biotechnology
Index and the Russell 2000 Biotechnology Index, respectively. However, the
Company's share price has returned -7% since admission after a -46% return
during the first half of 2022 compared with -21% for the Nasdaq Biotechnology
Index and -39% for the Russell 2000 Biotechnology Index. Having traded at an
average premium to NAV of c.+10% from admission to 31 December 2021, the
shares fell to a discount in 2022, which increased in June alongside many of
our peers with a wave of de-risking.
Figure 3. RTW NAV per Ordinary Share vs. RTW.L Share Price and Benchmarks as
of 30 June 2022
Source: Capital IQ
Table 2. Performance of all private and core public portfolio investments
since inception as of 30 June 2022
Portfolio Holding Initial Investment Valuation Date MOC* XIRR* Holding Period (yrs)
Inivata ^ 24/12/2020 18/06/2021 2.6 635.5% 0.5
Prometheus Biosciences 30/10/2020 30/06/2022 3.6 132.5% 1.7
RTW Royalty Holdings 1 13/11/2020 30/06/2022 3.4 131.8% 1.6
HSAC 2 17/07/2020 30/06/2022 4.4 117.6% 2.0
Iteos Therapeutics ^ 24/03/2020 17/03/2022 3.6 108.2% 2.0
Frequency Therapeutics ^ 17/07/2019 23/03/2021 2.8 85.3% 1.7
Athira Pharma ^ 29/05/2020 30/06/2022 1.6 56.8% 2.1
Cincor Pharma 22/09/2021 30/06/2022 1.4 52.7% 0.8
Prometheus Laboratories 31/12/2020 30/06/2022 1.6 35.5% 1.5
Immunocore 13/08/2019 30/06/2022 1.8 26.6% 2.9
RTW Royalty Holdings 2 05/05/2021 30/06/2022 1.3 25.6% 1.2
Milestone Pharma 23/07/2020 30/06/2022 1.5 25.3% 1.9
Ventyx Biosciences 26/02/2021 30/06/2022 1.3 22.7% 1.3
Magnolia Medical 02/07/2021 30/06/2022 1.1 22.0% 1.0
Avidity Biosciences 08/11/2019 30/06/2022 1.6 19.7% 2.6
Encoded Therapeutics 12/06/2020 30/06/2022 1.4 19.5% 2.0
Pulmonx Corporation 17/04/2020 30/06/2022 1.4 16.3% 2.2
Ji Xing Pharmaceuticals 10/02/2020 30/06/2022 1.1 7.9% 2.4
Visus Therapeutics 26/01/2021 30/06/2022 1.1 5.3% 1.4
Tarsus Pharma 24/09/2020 30/06/2022 1.0 2.4% 1.8
Nikang Therapeutics 09/09/2020 30/06/2022 1.0 1.3% 1.8
Lenz Therapeutics 13/04/2022 30/06/2022 1.0 0.0% 0.2
Mineralys Therapeutics 01/06/2022 30/06/2022 1.0 0.0% 0.1
Neurogastrx 25/06/2021 30/06/2022 1.0 -1.4% 1.0
Artiva Biotherapeutics 23/02/2021 30/06/2022 1.0 -1.5% 1.3
C4 Therapeutics 02/06/2020 30/06/2022 0.9 -2.9% 2.1
Numab Therapeutics 07/05/2021 30/06/2022 1.0 -3.2% 1.1
Ancora Heart 20/01/2021 30/06/2022 1.0 -3.5% 1.4
Beta Bionics 28/06/2019 30/06/2022 0.9 -5.8% 3.0
Monte Rosa Therapeutics 12/03/2021 30/06/2022 0.9 -5.9% 1.3
Nuance Biotech 07/12/2020 30/06/2022 0.9 -9.1% 1.6
Biomea Fusion ^ 23/12/2020 24/01/2022 0.9 -10.2% 1.1
Orchestra Biomed 28/06/2019 30/06/2022 0.8 -10.4% 3.0
Artios Pharma 27/07/2021 30/06/2022 0.9 -12.9% 0.9
Third Harmonic Bio 17/12/2021 30/06/2022 0.9 -14.4% 0.5
GH Research Ireland 09/04/2021 30/06/2022 0.8 -15.9% 1.2
Umoja Biopharma 09/06/2021 30/06/2022 0.8 -16.9% 1.1
Lycia Therapeutics 02/09/2021 30/06/2022 0.9 -17.0% 0.8
InBrace 27/08/2021 30/06/2022 0.8 -18.3% 0.8
Acelyrin 20/10/2021 30/06/2022 0.9 -19.6% 0.7
Yarrow 14/05/2021 30/06/2022 0.8 -23.1% 1.1
Kyverna 09/11/2021 30/06/2022 0.8 -23.3% 0.6
Alcyone Therapeutics 08/06/2021 30/06/2022 0.8 -24.3% 1.1
Tenaya Therapeutics 17/12/2020 30/06/2022 0.5 -40.3% 1.5
Landos Biopharma 09/08/2019 30/06/2022 0.2 -45.0% 2.9
Pyxis Oncology 08/03/2021 30/06/2022 0.2 -70.8% 1.3
AVERAGE 1.3 25.1% 1.5
*Alternative Performance Measure
^ Exited the position
Table 3. Performance of Rocket Pharmaceutical from admission to 30 June 2022
Share price at admission Share price at 30 June 2022 Share price return %
Rocket Pharmaceutical US$14.00 US$13.76 -1.8%*
* Negative return from Rocket's share price performance did not result in a
crystalized loss.
Table 4. NAV capital breakdown as of 30 June 2022
Portfolio grouping % of NAV
Core private 31.1%
Core public 30.7%
"Other" public 33.5%
Cash, due to/from brokers, other (including liabilities such as other payables 4.7%
and accrued expenses)
Total 100.0%
As of 30 June 2022, our top five holdings in the "other public" portfolio
were:
- 3.6% of NAV in Argenx (ticker: "ARGX"), a commercial stage
multi-pipeline immunology company
- 2.1% in Cytokinetics ("CYTK"), a biopharma company developing
treatments for cardiovascular conditions
- 2.1% in Stoke Therapeutics ("STOK"), a biotech company developing
RNA-based treatments for severe genetic diseases
- 1.8% in PMV Pharma ("PMVP"), a targeted oncology company
- 1.7% in PTC Therapeutics ("PTCT"), a biotech company developing
therapies for rare genetic diseases
We expect to deploy the capital invested into "other public" assets into
private companies as the new opportunities arise.
Table 5. Overview of core portfolio companies' valuations as of 30 June 2022
Portfolio Company % of Company's net assets Private*/ Public** Company's % shareholding Valuation of Company's investment in US$ YTD P&L
US$
Rocket 11.5% Public <5% 32,538,657 -19,083,355
Ji Xing 8.6% Private <10% 24,451,819 -8,810,584
RTW Royalty Holdings 2 5.1% Private <20% 14,474,522 1,909,963
Prometheus Biosciences 4.7% Public <5% 13,208,394 -5,088,468
Immunocore 4.2% Public <1% 12,034,341 990,229
Avidity 3.6% Public <5% 10,171,421 -6,468,268
Beta Bionics 2.0% Private <5% 5,673,324 -727,103
NiKang 1.5% Private <5% 4,359,087 -285,203
Alcyone 1.4% Private <5% 4,054,228 -1,047,061
Milestone 1.3% Public <5% 3,772,913 -245,699
Cincor *** 1.2% Public <1% 3,329,206 470,448
Tarsus 1.1% Public <5% 3,161,080 -2,058,518
GH Research 1.1% Public <1% 3,061,056 -4,094,699
Ventyx 1.1% Public <1% 2,993,293 -1,577,526
Encoded 1.0% Private <1% 2,881,595 -1,355,620
Ancora 1.0% Private <1% 2,754,042 -166,090
Umoja 0.9% Private <1% 2,669,948 -722,993
Magnolia 0.9% Private <5% 2,589,231 281,518
Orchestra 0.9% Private <1% 2,471,736 -499,292
Tenaya 0.9% Public <1% 2,469,892 -5,743,368
Visus 0.8% Private <5% 2,237,667 -114,651
Monte Rosa 0.6% Public <1% 1,782,461 -1,981,537
Numab Therapeutics 0.6% Private <1% 1,642,139 -51,026
Neurogastrx 0.6% Private <1% 1,597,646 -23,656
Nuance 0.5% Private <1% 1,526,120 -245,089
Lenz Therapeutics 0.5% Private <1% 1,471,248 0
C4 Therapeutics 0.5% Public <1% 1,360,533 -7,384,455
Acelyrin 0.5% Private <1% 1,306,017 -165,167
Kyverna 0.5% Private <1% 1,292,043 -237,970
Third Harmonic 0.5% Private <1% 1,277,017 -110,821
Mineralys 0.4% Private <1% 1,034,231 0
Lycia 0.3% Private <1% 969,864 -161,435
Landos 0.3% Public <5% 925,765 -5,179,019
Artiva 0.3% Private <1% 919,286 -259,242
InBrace 0.3% Private <1% 740,211 -137,470
Artios 0.2% Private <1% 681,351 -92,966
Pulmonx 0.2% Public <1% 525,982 -852,261
Yarrow 0.2% Private <5% 463,044 -101,644
Prometheus Labs 0.1% Private <1% 207,885 75,904
Pyxis 0.0% Public <1% 94,669 -2,739,518
RTW Royalty Holdings 1 0.0% Private <10% 23,391 17,937,954
( )
* Valuations for private portfolio companies on a fair value basis as of 30
June 2022.
**The valuations of public positions have been calculated using their market
capitalization as at the Latest Practicable Date.
***In accordance with the Company's valuation policy, the Company 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.
Table 6. RTW representation on portfolio companies' boards
Portfolio Company * 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
Visus Tony Nguyen
Yarrow Rod Wong, Peter Fong, Gotham Makker
*In aggregate this represented 23% of the NAV of the company at 30 June 2022
Summary of top fifteen core portfolio companies as of 30 June 2022:
As of 30 June 2022, the Company's portfolio included forty-one companies,
ranging from biotechnology companies developing preclinical to clinical-stage
therapeutic programs, companies developing traditional small molecule
pharmaceuticals, and med-tech companies developing or commercializing
transformative devices. We selected the Company'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 30 June
2022
Portfolio Company Description Public/Private Clinical stage Expected upcoming catalyst % NAV
Rocket Gene therapy platform company for rare paediatric diseases. Four clinical Public: "RCKT" Phase 2 Q3 2022 11.50%
programs for Fanconi anaemia, Danon, LAD, and PKD
Ji Xing NewCo focused on acquiring rights from innovative therapies in the West for Private Phase 3 Series D; H2 2022 8.60%
development and commercialization in China
RTW Royalty Holdings 2 Royalty as a part of RTW-Urogen deal Private NA - 5.10%
Prometheus Biosciences Precision medicine company focused on IBD, a chronic inflammatory disease of Public: "RXDX" Phase 1 Q4 2022 4.70%
GI tract; lead antibody program against TL1A
Immunocore T-cell receptor therapy company focused on oncology and infectious disease. Public: "IMCR" Commercial Q3 2022 4.20%
Lead program for uveal melanoma
Avidity Antibody conjugated RNA medicines company. Lead program for myotonic Public: "RNA" Phase 1 Q3 2022 3.60%
dystrophy, a degenerative disease with no therapy
Beta Bionics Closed-loop pancreatic system for automated and autonomous delivery of insulin Private Pivotal - 2.00%
NiKang Biotech using a structure-based design to develop innovative small molecules Private Phase 1 - 1.50%
against promising molecular targets in oncology
Alcyone Gene therapy platform company developing therapies for CNS diseases Private Preclinical - 1.40%
Milestone Clinical stage company developing interventions for tachycardias Public: "MIST" Phase 3 H2 2022 1.30%
Cincor Clinical stage biopharma developing next-gen treatments for cardio-renal Public: "CINC" Phase 2 Q3 2022 1.20%
diseases
Tarsus Clinical stage biotech developing first-in-class therapeutics for ophthalmic Public: "TARS" Registrational NDA H2 2022 1.10%
conditions
GH Research Clinical stage biotech developing therapies to manage mental disease Public: "GHRS" Phase 2 - 1.10%
Ventyx Clinical stage biotech advancing a promising immunology pipeline for Public: "VTYX" Phase 1 - 1.10%
autoimmune and inflammatory diseases
Encoded Gene therapy company developing treatments for rare paediatric CNS disorders Private Preclinical - 1.00%
Aggregate of the rest of the core portfolio companies include: Acelyrin, 12.40%
Ancora, Artios, Artiva, Athira, Biomea, C4 Therapeutics, Frequency, InBrace,
Inivata, iTeos, Kyverna, Landos, Lenz Therapeutics, Lycia, Magnolia,
Mineralys, Monte Rosa, Neurogastrx, Nuance, Numab Therapeutics, Orchestra,
Prometheus Labs, Pulmonx, Pyxis, RTW Royalty Holdings, Tenaya, Third Harmonic,
Umoja, Visus
Sector review and outlook
The Russell 2000 Biotech Index declined -39.1% in the first half of 2022,
bringing the total decline to c. -70% from the peak in February 2021. This
bear market now significantly surpasses all prior falls, in both depth and
duration, except for the bursting of the genomics bubble in 2000-2002. Stage
one of the bear market was almost entirely related to sector specific issues
in 2021 (i.e. a lack of a permanent commissioner at the FDA, which was still
consumed by COVID-19; and a risk of a detrimental drug pricing reform package
at that time proposed in the Build Back Better Bill). Stage two of the bear
market in 2022 has been largely driven by broader macro factors including
inflation, interest rates and general risk aversion brought on by the war in
Ukraine.
We thought sector valuations presented a very attractive opportunity at the
start of the year; now they look even more attractive at crisis-like levels.
Price-to-Sales (for the Nasdaq Biotechnology Index, the broadest sector index)
has fallen to 4.5x, which is equal to the spring of 2009, the trough of the
Global Financial Crisis. What is more, the smaller companies, where we
generally invest, have been marked down furthest. Given the lack of revenues
in this space, we use cash multiples to assess valuations. As of 30 June 2022,
65% of the sub-US$10bn market cap companies are trading at less than 2x their
net cash and a record 34% are trading at less than the net cash on their
balance sheets. For perspective, less than 10% of our public (core and other)
portfolio is trading at less than 1x and c. 20% are trading at between one and
two times.
The main cause behind the distress in smaller companies are newly public
companies after a record 108 IPOs in the sector last year. Most of these
companies are now trading at significantly below their IPO prices and many are
trading below their net cash. New issuances in the sector have plummeted in
number this year with just thirteen IPOs so far. This sounds terrible, but it
is much better than the Global Financial Crisis when there were just three
IPOs in 2008 and four in 2009. Despite the significant drop, there are still
82% more public biopharma companies than there were in 2015. However, the
sector is relatively well funded. Average cash balances currently stand at
about US$235m, which is roughly double the level in 2015, just before the last
significant sector fall. That said, burn rates have also doubled, so the
runways are the same at about 2.9 years. Private financings are also down and
the mix within it has changed significantly as large new vintages are
supporting early-stage rounds, but there is a significant lack of funding
activity beyond that. We have been keeping our powder dry so far this year in
case this presents a significant opportunity in the coming months.
The key question is, will the number of challenged small companies prevent a
recovery for the sector as participants deal with the clean-up? We do not
think so because the sum of negative enterprise value companies amounts to
only 3% of the total market cap of sub-US$25bn companies. In other words, from
a financial perspective, the bad ideas have been written down and are no
longer financially material. However, whilst it may not matter for the sector
as a whole, it may well matter for some healthcare funds. In theory, the firms
that should be better positioned through this period are ones that are
selective stock-pickers with a focus on mid cap post proof of concept
opportunities (i.e. those that are not weighed down by the challenges of
supporting young, struggling companies), with sufficient capital to finance
and bandwidth to selectively invest more in their high conviction names. In
addition, we believe that syndicate partners and positioning on a company's
cap table will be increasingly important in the new environment.
Before returning to the positives, it is important to highlight the impact of
the recent US drug pricing reform that formed part of the recently passed
Inflation Reduction Act. The overall deal is palatable and is largely similar
to that negotiated last year. However, in the Investment Manager's opinion,
the proposal for a reduced pricing window before government negotiation starts
for small molecules is too short. Over the long term, this will act as a
significant disincentive for small molecule development, similar to the
situation in antibiotics about ten years ago. That is why there are so few new
antibiotics on the market now. Unfortunately, some disease areas can only be
addressed by small molecules and that will be a significant loss for those
patient populations, especially given how productive targeted oncology has
become. However, the reality is that no one will notice the drugs that they do
not have. In the short and medium term, the impact will likely be limited to a
handful of pharma and large cap biotech companies which have very large,
successful products that are sold into the Medicare population. For smaller
biotech companies, the impact will only be felt in companies that have high
expectations for product sales to the Medicare population. Crucially, though,
the reform bites in 2026, just as the patent cliffs for large cap pharma
companies also appear, adding further to their revenue challenges. This can
only be addressed by M&A. So, while the Inflation Reduction Act will
likely have a small hit to sector sentiment, it will also likely accelerate
M&A.
The good news is that we have already started to see a significant
acceleration of M&A activity. In fact, the second quarter saw the highest
number of M&A deals in a quarter since Q2 2018 with fourteen deals in
total (nine public, five private). Furthermore, it has been heavily rumored,
that Seagen may be acquired by a major pharma company. If the deal happens,
then over 15% of the total market cap of companies smaller than US$25bn (i.e.
the likely sellers to large pharma) will have been acquired in just a few
months. This is very significant, and we think it can re-catalyze the start of
the virtuous cycle (especially seen in the context of the c. 3% of distressed
small caps that might be written off).
The risk-reward asymmetry on a sector level and most importantly for our
portfolio and opportunities we are diligencing keeps us optimistic and team
morale remains strong. With our leadership team having lived through several
such periods in the past we are reminded that this bear market too shall pass.
We believe that the greatest opportunities are born in corrections like this
one, and we are hard at work trying to pick our next several "multi-baggers".
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 the breakthrough therapies that transform the lives of millions. True
value realization from transformative products takes time, and in order to
capture that value, it is critical to be involved and invested in such
companies throughout the various stages of their development and ultimately
distribution to patients. As a full lifecycle investor, we recognize 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 lifecycle. Scientific development rarely follows a linear path
and nor do we, 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 lifecycle approach and broad offering of financial solutions for
investee companies enables us to capture a diverse opportunity set. This was
mostly clearly demonstrated in April when we sold our royalty stake in
Mavacamten, the underlying asset of RTW Royalty Holding 1 to Bristol Myers
Squibb immediately after the drug had achieved the primary endpoint of its
phase three trials, achieving a greater than 3x return on our 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, simplify and de-risk the execution of a process that would
otherwise have taken much longer with the involvement of multiple partners.
Under the circumstances, we believe that we are the only investment manager
who could have accomplished what we did.
Our global reach continues to expand with new offices opened in London and
Shanghai. In China, our own 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 Company'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$140m 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, underlining the value of
our full lifecycle approach and we are proud to part of a significant UK
success story.
From a science perspective, our primary areas of focus remain in genetic
medicines, small molecule, antibody and next generation antibody therapies,
rare diseases, targeted oncology, and medical technologies. We are excited by
advancements we are witnessing in neurology, ophthalmology, immunology,
muscular dystrophies, and cardiovascular and pulmonary diseases.
We believe there is a significant demand for reliable capital providers, such
as us, to continue to support scientific innovation and development of
transformative therapies for patients. With that in mind, we intend to grow
the Company's portfolio by attracting new shareholders to assist in the
financing of an exciting pipeline of new ideas. We expect the split to remain
close to 80% biopharmaceutical assets and 20% across 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 of the investments focused on active company building around the
discovery and development or licensing and distribution of promising assets.
Key portfolio company events post period end
On 5 July 2022, Orchestra BioMed announced a strategic collaboration, closing
of US$110 million private equity financing and plans to list on Nasdaq through
merger with RTW-sponsored Health Sciences Acquisitions Corporation 2.
On 18 July 2022, the Company alongside other investment vehicles of the
Investment Manager participated in a private investment in public equity
("PIPE") financing in Immunocore together with Rock Springs Capital and
General Atlantic.
RTW Investments, LP
14 September 2022
Statement of Principal Risks and Uncertainties for the Remaining Six Months of
the year to 31 December 2022
As described in the Company's annual financial statements for the year ended
31 December 2021, the Company's principal and emerging risks and uncertainties
include the following:
- Failure to achieve investment objective;
- Counterparty risk;
- The Investment Manager relies on key personnel;
- Portfolio companies may be subject to litigation;
- Exposure to global political and economic risks;
- Clinical development and regulatory risks;
- Imposition of pricing controls for clinical products and services;
- COVID-19;
- Inflation;
- Availability of capital; and
- Conflict in Ukraine.
The Covid-19 pandemic was considered to be a risk to the global economy when
the 31 December 2021 Strategic Report was released although it was diminishing
in severity due to the successful vaccine roll-out, and it is expected that
the risk to the Company from it will continue to decrease throughout 2022.
Except as above, the Board believes that these risks are unchanged in respect
of the remaining six months of the year to 31 December 2022.
Further information in relation to these principal risks and uncertainties may
be found on pages 48 to 49 of the Company's annual report and audited
financial statements for the year ended 31 December 2021.
These inherent risks associated with investments in the biotech and
pharmaceutical sector could result in a material adverse effect on the
Company's performance and value of the Ordinary Shares.
Risks are mitigated and managed by the Board through continual review, policy
setting and regular reviews of the Company's risk matrix by the Audit
Committee to ensure that procedures are in place with the intention of
minimising the impact of the above-mentioned risks. The Board carried out a
formal review of the risk matrix at the Audit Committee meeting held on 21
June 2022. The Board relies on periodic reports provided by the Investment
Manager and Administrator regarding risks that the Company faces. When
required, experts will be employed to gather information, including tax
advisers and legal advisers.
Statement of Directors' Responsibilities
The Directors confirm to the best of their knowledge that:
- the unaudited interim financial statements have been prepared in
conformity with US generally accepted accounting principles; and
- the interim management report (which includes the Chairman's
Statement, Report of the Investment Manager and Statement of Principal Risks
and Uncertainties) together with the unaudited interim financial statements
include a fair review of the information required by:
a. DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an
indication of important events that have occurred during the first six months
of the financial year and their impact on the unaudited interim financial
statements; and a description of the principal risks and uncertainties for the
remaining six months of the financial year; and
b. DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being
related party transactions that have taken place during the first six months
of the financial year and that have materially affected the financial position
or performance of the Company during that period; and any changes in the
related party transactions described in the last annual report that could do
so.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company's website
(www.rtwfunds.com/venture-fund (http://www.rtwfunds.com/venture-fund) ).
Legislation in Guernsey governing the preparation and dissemination of
financial statements may differ from legislation in other jurisdictions.
By order of the Board
William Simpson Paul Le Page
Chairman Director
14 September 2022 14 September 2022
INDEPENDENT REVIEW REPORT TO
RTW VENTURE FUND LIMITED
Conclusion
We have been engaged by RTW Venture Fund Limited (the "Company") to review
the financial statements in the half-yearly financial report for the six
months ended 30 June 2022 of the Company, which comprises the unaudited
interim statement of assets and liabilities including the unaudited interim
condensed schedule of investments, the unaudited interim statements of
operations, changes in net assets and cash flows and the related explanatory
notes.
Based on our review, nothing has come to our attention that causes us to
believe that the financial statements in the half-yearly financial report for
the period ended 30 June 2022 do not give a true and fair view of the
financial position of the Company as at 30 June 2022 and of its financial
performance and its cash flows for the six month period then ended, in
conformity with U.S generally accepted accounting principles and the
Disclosure Guidance and Transparency Rules ("the DTR") of the UK's Financial
Conduct Authority ("the UK FCA").
Scope of review
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410 Review of Interim Financial Information Performed by the
Independent Auditor of the Entity ("ISRE (UK) 2410") issued by the Financial
Reporting Council for use in the UK. A review of interim financial
information consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other review
procedures. We read the other information contained in the half-yearly
financial report and consider whether it contains any apparent misstatements
or material inconsistencies with the information in the financial
statements.
A review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK) and consequently does not enable
us to obtain assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not express an audit
opinion.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Scope of review section of this report,
nothing has come to our attention to suggest that the directors have
inappropriately adopted the going concern basis of accounting or that the
directors have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
ISRE (UK) 2410. However, future events or conditions may cause the Company to
cease to continue as a going concern, and the above conclusions are not a
guarantee that the Company will continue in operation.
Director's responsibilities
The half-yearly financial report is the responsibility of, and has been
approved by, the directors. The directors are responsible for preparing the
interim financial report in accordance with the DTR of the UK FCA.
The financial statements included in this interim report have been prepared
in conformity with U.S generally accepted accounting principles.
In preparing the half-yearly financial report, the directors are responsible
for assessing the Company's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless liquidation is imminent.
Our responsibility
Our responsibility is to express to the Company a conclusion on the financial
statements in the half-yearly financial report based on our review. Our
conclusion, including our conclusions relating to going concern, are based on
procedures that are less extensive than audit procedures, as described in the
Scope of review paragraph of this report.
The purpose of our review work and to whom we owe our responsibilities
This report is made solely to the Company in accordance with the terms of our
engagement letter to assist the Company in meeting the requirements of the DTR
of the UK FCA. Our review has been undertaken so that we might state to the
Company those matters we are required to state to it in this report and for no
other purpose. To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the Company for our review work,
for this report, or for the conclusions we have reached.
Dermot Dempsey
for and on behalf of KPMG Channel Islands Limited
Chartered Accountants, Guernsey
14 September 2022
Unaudited Interim Statement of Assets and Liabilities
as at 30 June 2022 and 31 December 2021
(Expressed in United States Dollars)
30 June 2022 31 December 2021
(unaudited) (audited)
US$ US$
ASSETS:
Investments in securities, at fair value (cost at 30 June 2022: 265,255,409 409,179,507
US$255,919,074; cost at 31 December 2021:
US$271,421,062)
Derivative contracts, at fair value (cost at 30 June 2022: US$2,614,659; cost 22,120,849 10,983,574
at 31 December 2021: US$2,348,062)
Cash and cash equivalents 7,555,421 6,484,057
Due from brokers 18,212,213 12,323,965
Due from investments 2,020,197 -
Receivable from unsettled trades 320,833 200,695
Other assets 70,554 191,565
TOTAL ASSETS 315,555,476 439,363,363
LIABILITIES:
Securities sold short, at fair value (proceeds at 30 June 2022: US$14,615,477; 10,678,578 9,318,393
proceeds at 31 December 2021: US$9,620,981)
Derivative contracts, at fair value (proceeds at 30 June 2022: US$nil; 6,612,238 3,310,833
proceeds at 31 December 2021: US$nil)
Due to brokers 13,385,084 38,019,859
Accrued expenses 871,653 861,545
Payable for unsettled trades 511,401 492,007
TOTAL LIABILITIES 32,058,954 52,002,637
TOTAL NET ASSETS 283,496,522 387,360,726
NET ASSETS attributable to Ordinary Shares (shares at 30 June 2022: 265,697,148 363,040,222
212,389,138; shares at 31 December 2021: 212,389,138)
NET ASSETS attributable to Performance Allocation Shares (shares at 30 June 17,799,374 24,320,504
2022: 1; shares at 31 December 2021: 1)
1.2510 1.7093
NAV per Ordinary Share
The unaudited interim financial statements of the Company were approved and
authorised for issue by the Board of Directors on 14 September 2022 and signed
on its behalf by:
William Simpson
Paul Le Page
Chairman
Director
See accompanying notes to the unaudited interim financial statements.
Unaudited Interim Condensed Schedule of Investments
as at 30 June 2022
(Expressed in United States Dollars)
Descriptions Number of Shares Cost Fair Value US$ Percentage of Net Assets
US$ %
Investments in securities, at fair value
Common stocks
United States
Consumer Staples 726,224 590,775 0.21
Financials 108,150 106,960 0.04
Healthcare
Rocket Pharmaceuticals, Inc. 2,364,728 6,223,376 32,538,657 11.48
Others* 136,932,517 117,248,561 41.35
Total United States 143,990,267 150,484,953 53.08
Netherlands
Healthcare 4,245,216 5,262,529 1.85
Ireland
Healthcare 4,099,988 3,061,056 1.08
Canada
Healthcare 3,841,890 1,067,208 0.38
British Virgin Islands
Healthcare 226,450 554,404 0.20
Cayman Islands
Financials 422,961 415,959 0.14
Healthcare 104,050 101,449 0.04
Total Cayman Islands 527,011 517,408 0.18
China
Healthcare
Ji Xing Pharmaceuticals Ltd. 541,205 216,482 454,612 0.16
Bermuda
Healthcare 260,330 105,954 0.04
Belgium
Healthcare 202,098 75,698 0.03
Total common stocks 157,609,732 161,583,822 57.00
* No individual investment security or contract constitutes greater than 5
percent of net assets.
See accompanying notes to the unaudited interim financial statements.
Unaudited Interim Condensed Schedule of Investments (continued)
as at 30 June 2022
(Expressed in United States Dollars)
Descriptions Number Cost Fair Value US$ Percentage of Net Assets
of Shares US$ %
Investments in securities, at fair value
(continued)
Convertible preferred stocks
United States
Healthcare* 42,126,153 39,111,635 13.79
China
Healthcare
Ji Xing Pharmaceuticals Ltd. 11,362,419 22,448,291 23,997,207 8.46
Others 1,771,209 1,526,120 0.54
Total China 24,220,130 25,523,327 9.00
Switzerland
Healthcare 1,704,186 1,642,139 0.58
Ireland
Healthcare 116,545 40,109 0.01
Total convertible preferred stocks 68,167,014 66,317,210 23.38
American depository receipts
United Kingdom
Healthcare 7,775,731 12,545,241 4.43
Netherlands
Healthcare 6,702,178 7,734,835 2.73
Sweden
Healthcare 601,551 522,941 0.18
Ireland
Healthcare 893,338 327,685 0.12
Israel
Healthcare 372,743 193,562 0.07
China
Healthcare 326,777 37,937 0.01
Singapore
Healthcare 214,738 27,921 0.01
Total American depository receipts 16,887,056 21,390,122 7.55
* No individual investment security or contract constitutes greater than 5
percent of net assets.
See accompanying notes to the unaudited interim financial statements.
Unaudited Interim Condensed Schedule of Investments (continued)
as at 30 June 2022
(Expressed in United States Dollars)
Descriptions Number Cost Fair Value Percentage of Net Assets
of Shares US$ US$ %
Investments in securities, at fair value
(continued)
Investment in private investment companies
Ireland
Healthcare
UroGen Pharma Ltd 11,814,933 11,814,933 14,474,522 5.11
United States
Healthcare 3,906 23,391 0.01
Total investment in private investment companies 11,818,839 14,497,913 5.12
Convertible bonds
United States
Healthcare 1,436,433 1,466,342 0.52
Total convertible bonds 1,436,433 1,466,342 0.52
Total investments in securities, at fair value 255,919,074 265,255,409 93.57
See accompanying notes to the unaudited interim financial statements.
Unaudited Interim Condensed Schedule of Investments (continued)
as at 30 June 2022
(Expressed in United States Dollars)
Descriptions Cost Fair Value Percentage of Net Assets
US$ US$ %
Derivative contracts - assets, at fair value
Equity swaps
United States
Healthcare* 17,408,865 6.14
British Virgin Islands
Healthcare 1,227,423 0.43
Total equity swaps 18,636,288 6.57
Warrants
Canada
Healthcare 1,939,543 2,889,569 1.02
United States
Healthcare 674,517 594,876 0.21
Cayman Islands
Financials 599 116 0.00
Total warrants 2,614,659 3,484,561 1.23
Total derivative contracts - assets, at fair value 2,614,659 22,120,849 7.80
* No individual investment security or contract constitutes greater than 5
percent of net assets.
See accompanying notes to the unaudited interim financial statements.
Unaudited Interim Condensed Schedule of Investments (continued)
as at 30 June 2022
(Expressed in United States Dollars)
Descriptions Proceeds US$ Fair Value Percentage of Net Assets
US$ %
Securities sold short, at fair value
Common stocks
United States
Healthcare 13,441,811 9,882,913 3.49
Netherlands
Healthcare 278,805 210,347 0.07
Cayman Islands
Financials 96,480 95,991 0.03
Healthcare 46,260 44,536 0.02
Total Cayman Islands 142,740 140,527 0.05
Canada
Healthcare 170,424 84,310 0.03
Total common stocks 14,033,780 10,318,097 3.64
American depository receipts
Sweden
Healthcare 460,857 322,544 0.12
China
Healthcare 120,840 37,937 0.01
Total American depository receipts 581,697 360,481 0.13
Total securities sold short, at fair value 14,615,477 10,678,578 3.77
Descriptions Fair Value Percentage of Net Assets
US$ %
Derivative contracts - liabilities, at fair value
Equity swaps
United States
Healthcare 4,356,145 1.54
Index 1,907,626 0.67
Total United States 6,263,771 2.21
Ireland
Healthcare 199,414 0.07
Israel
Healthcare 149,053 0.05
Total derivative contracts - liabilities, at fair value 6,612,238 2.33
See accompanying notes to the unaudited interim financial statements.
Audited Condensed Schedule of Investments
as at 31 December 2021
(Expressed in United States Dollars)
Descriptions Number of Shares Cost Fair Value US$ Percentage of Net Assets
US$ %
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 unaudited interim financial statements.
Audited Condensed Schedule of Investments (continued)
as at 31 December 2021
(Expressed in United States Dollars)
Descriptions Number Cost Fair Value US$ Percentage of Net Assets
of Shares US$ %
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 unaudited interim financial statements.
Audited Condensed Schedule of Investments (continued)
as at 31 December 2021
(Expressed in United States Dollars)
Descriptions Cost Fair Value Percentage of Net Assets
US$ US$ %
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 unaudited interim financial statements.
Audited Condensed Schedule of Investments (continued)
as at 31 December 2021
(Expressed in United States Dollars)
Descriptions Cost Fair Value Percentage of Net Assets
US$ US$ %
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 unaudited interim financial statements.
Audited Condensed Schedule of Investments (continued)
as at 31 December 2021
(Expressed in United States Dollars)
Descriptions Proceeds US$ Fair Value Percentage of Net Assets
US$ %
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
US$ %
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 unaudited interim financial statements.
Unaudited Interim Statement of Operations
For the six month periods ended 30 June 2022 and 30 June 2021
(Expressed in United States Dollars)
1 January 2022 to 1 January 2021 to
30 June 2022 30 June 2021
(unaudited) (unaudited)
US$ US$
Investment income
Dividends (net of withholding taxes of US$1,041; 30 June 2021: US$60,607) 603,135 141,416
Interest (net of withholding taxes of US$nil; 30 June 2021: US$nil) 95,611 3,817
Total investment income 698,746 145,233
Expenses
Management fees 1,889,306 2,429,491
Research costs 420,054 85,664
Professional fees 378,758 593,053
Administrative fees 160,113 168,213
Interest 132,354 99,528
Audit fees 117,100 118,794
Directors' fees 102,434 108,125
Dividends 2,372 -
Listing fees - 355,911
Other expenses 146,595 211,881
Total expenses 3,349,086 4,170,660
Net investment income/(loss) (2,650,340) (4,025,427)
Realised and change in unrealised gain/(loss) on investments, derivatives and
foreign currency transactions
Net realised gain/(loss) on securities and foreign currency transactions 17,933,993 37,276,081
Net change in unrealised gain/(loss) on securities and foreign currency (124,566,690) (49,705,000)
translation
Net realised gain/(loss) on derivative contracts (2,150,440) 37,014
Net change in unrealised gain/(loss) on derivative contracts 7,569,273 (1,725,385)
Net realised and unrealised gain/(loss) on investments, derivatives and (101,213,864) (14,117,290)
foreign currency transactions
Net increase/(decrease) in net assets resulting from operations (103,864,204) (18,142,717)
See accompanying notes to the unaudited interim financial statements.
Unaudited Interim Statement of Changes in Net Assets
For the six month period ended 30 June 2022
(Expressed in United States Dollars)
Ordinary Share Class Fund Performance Allocation Share Class Fund Total Shareholders' Funds
US$ US$ US$
Net assets, beginning of period 363,040,222 24,320,504 387,360,726
Operations
Net investment income/(loss) (2,650,340) - (2,650,340)
Net realised gain/(loss) on securities and foreign currency transactions 17,933,993 - 17,933,993
Net change in unrealised gain/(loss) on securities and foreign currency (124,566,690) - (124,566,690)
translation
Net realised gain/(loss) on derivative contracts (2,150,440) - (2,150,440)
Net change in unrealised gain/(loss) on derivative contracts 7,569,273 - 7,569,273
Performance Allocation 6,521,130 (6,521,130) -
Net change in net assets resulting from operations (97,343,074) (6,521,130) (103,864,204)
Capital transactions
Issuance of Ordinary Shares (net of issuance cost of US$nil) - - -
Performance Allocation distribution - - -
Net change in net assets resulting from capital transactions - - -
Net change in net assets (97,343,074) (6,521,130) (103,864,204)
Net assets, end of period 265,697,148 17,799,374 283,496,522
See accompanying notes to the unaudited interim financial statements.
Unaudited Interim Statement of Changes in Net Assets
For the six month period ended 30 June 2021
(Expressed in United States Dollars)
Ordinary Share Class Fund Performance Allocation Share Class Fund Total Shareholders' Funds
US$ US$ US$
Net assets, beginning of period 375,281,126 37,330,803 412,611,929
Operations
Net investment income/(loss) (4,025,427) - (4,025,427)
Net realised gain/(loss) on securities and foreign currency transactions 37,276,081 - 37,276,081
Net change in unrealised gain/(loss) on securities and foreign currency (49,705,000) - (49,705,000)
translation
Net realised gain/(loss) on derivative contracts 37,014 - 37,014
Net change in unrealised gain/(loss) on derivative contracts (1,725,385) - (1,725,385)
Performance Allocation 3,634,006 (3,634,006) -
Net change in net assets resulting from operations (14,508,711) (3,634,006) (18,142,717)
Capital transactions
Issuance of Ordinary Shares (net of issuance costs of US$183,148) 36,438,617 - 36,438,617
Performance Allocation distribution - (4,974,920) (4,974,920)
Net change in net assets resulting from capital transactions 36,438,617 (4,974,920) 31,463,697
Net change in net assets 21,929,906 (8,608,926) 13,320,980
Net assets, end of period 397,211,032 28,721,877 425,932,909
See accompanying notes to the unaudited interim financial statements.
Unaudited Interim Statement of Cash Flows
For the six month periods ended 30 June 2022 and 30 June 2021
(Expressed in United States Dollars)
1 January 2022 to 1 January 2021 to
30 June 2022 30 June 2021
(unaudited) (unaudited)
US$ US$
Cash flows from operating activities
Net increase/(decrease) in net assets resulting from operations (103,864,204) (18,142,717)
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 (17,933,993) (37,276,081)
Net change in unrealised (gain)/loss on securities and foreign currency 124,566,690 49,705,000
translation
Net realised (gain)/loss on derivative contracts 2,150,440 (37,014)
Net change in unrealised (gain)/loss on derivative contracts (7,569,273) 1,725,385
Purchases of investments in securities (74,873,499) (136,091,082)
Proceeds from sales of investments in securities 102,920,476 90,062,691
Proceeds from securities sold short 18,317,735 6,061,565
Payments for securities sold short (7,713,126) (1,453,921)
Proceeds from derivative contracts 909,574 196,652
Payments for derivative contracts (3,326,611) (762,605)
Changes in operating assets and liabilities:
Other assets 121,011 68,866
Due from investments (2,020,197) -
(Receivable from)/payable for unsettled trades (100,744) 361,040
Due to brokers (24,634,775) 18,855,592
Accrued expenses 10,108 627,597
Net cash provided by/(used in) operating activities (including restricted 6,959,612 (26,099,032)
cash)
Cash flows from financing activities
Net proceeds from issuance of shares - 36,438,617
Performance Allocation distribution - (4,974,920)
Net cash provided by/(used in) financing activities - 31,463,697
Net change in cash and cash equivalents (including restricted cash) 6,959,612 5,364,665
Cash and cash equivalents (including restricted cash), beginning of the period 18,808,022 24,586,452
Cash and cash equivalents (including restricted cash), end of the period 25,767,634 29,951,117
At 30 June 2022, the amounts categorised in cash and cash equivalents
(including restricted cash) include the following:
Cash and cash equivalents 7,555,421 18,013,748
Due from brokers 18,212,213 11,937,369
Total cash and cash equivalents (including restricted cash) 25,767,634 29,951,117
Supplemental disclosure of cash flow information
Cash paid during the period for interest 135,420 141,472
See accompanying notes to the unaudited interim statements.
Notes to the Unaudited Interim Financial Statements
For the six month period ended 30 June 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. It 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 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.
The Company 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 Company focuses on creating,
building, and supporting world-class life sciences, biopharmaceutical and
medical technology companies. The Company'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 Company is managed by RTW
Investments, LP, a Delaware limited partnership, to provide the Company with
discretionary portfolio management, risk management services and certain other
services. The Investment Manager is an investment adviser registered with the
U.S. Securities and Exchange Commission under the Investment Advisers Act of
1940.
Basis of presentation
The unaudited interim financial statements are expressed in United States
Dollars. The unaudited interim financial statements which give a true and fair
view and have been prepared in conformity with US generally accepted
accounting principles ("US GAAP") and are in compliance with the Companies
(Guernsey) Law, 2008. The Company is an investment company and follows 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 unaudited interim 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.
Cash and cash equivalents (including restricted cash)
Cash represents cash deposits held at financial institutions. Cash equivalents
include short-term highly liquid investments of sufficient credit quality that
are readily convertible to known amounts of cash and have original maturities
of three months or less. Cash equivalents are carried at cost plus accrued
interest, which approximates fair value. Cash equivalents are held for the
purpose of meeting short-term liquidity requirements, rather than for
investment purposes. As at 30 June 2022 and 31 December 2021, the Company 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
Company 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 Company 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 Company.
Unobservable inputs reflect the Company'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 Company 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 Company 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 Company's own
assumptions are set to reflect those that market participants would use in
pricing the asset or liability at the measurement date. The Company 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 Company 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
Company 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 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 Company 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 Company values investments in convertible notes in accordance with the
unlisted investments section above. As of 30 June 2022, these investments are
all categorised in Level 3 of the fair value hierarchy.
Convertible preferred stock
The Company values Level 1 investments in convertible preferred stock that are
listed on a national securities exchange at their closing sales price as of
the valuation date. Level 3 investments in convertible preferred stock are
valued in accordance with the unlisted investments section above. As of 30
June 2022, these investments are categorised in Level 1 and Level 3 of the
fair value hierarchy.
Investment in private investment companies
The Company values investment in private investment companies using the net
asset values provided by the underlying private investment companies as a
practical expedient. The Company applies the practical expedient to its
private investment companies on an investment-by-investment basis and
consistently with the Company's entire position in a particular investment,
unless it is probable that the Company will sell a portion of an investment at
an amount different from the net asset value of the investment.
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 Company establishes valuation processes and procedures to ensure that the
valuation techniques are fair and consistent, and valuation inputs are
supportable. The Company designates the Investment Manager's Valuation
Committee to oversee the entire valuation process of the Company's
investments. The Valuation Committee comprises various members of the
Investment Manager, including those separate from the Company's portfolio
management and trading functions, and reports to the Board.
The Valuation Committee is responsible for developing the Company'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 Company'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 Company 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 Company engages the services of a third-party
valuation firm, the Independent Valuer, to perform an independent review of
the valuation of the Company's Level 3 investments and may adjust its
valuations based on the recommendations from the Investment Manager's
Valuation Committee.
Translation of foreign currency
Assets and liabilities denominated in foreign currencies are translated into
United States Dollar amounts at the period-end exchange rates. Transactions
denominated in foreign currencies, including purchases and sales of
investments, and income and expenses, are translated into United States Dollar
amounts on the transaction date. Adjustments arising from foreign currency
transactions are reflected in the unaudited interim statement of operations.
The Company does not isolate that portion of the results of operations arising
from the effect of changes in foreign exchange rates on investments from
fluctuations arising from changes in market prices of investments held. Such
fluctuations are included in net realised and change in unrealised gain/(loss)
on securities, derivatives and foreign currency transactions in the unaudited
interim 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 Company's books and the United States Dollar equivalent of the
amounts actually received or paid.
Net change in unrealised gain/(loss) from foreign currency translation of
assets and liabilities arises from changes in the fair values of assets and
liabilities, other than investments in securities at the end of the period,
resulting from changes in exchange rates.
Investment transactions and related investment income
Investment transactions are accounted for on a trade date basis. Realised
gains and losses on investment transactions are determined using cost
calculated on first in, first out basis.
Dividends are recorded on the ex-dividend date and interest is recognised on
the accrual basis.
Withholding taxes on foreign dividends have been provided for in accordance
with the Company'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 Company has the legal right to offset the recognised amounts
and intends to settle on a net basis.
The Company has elected not to offset fair value amounts recognised for cash
collateral receivables and payables against fair value amounts recognised for
derivative positions executed with the same counterparty under the same master
netting arrangement. At 30 June 2022, the Company had cash collateral
receivables of US$16,046,021 (31 December 2021: US$12,228,870) (see Note 3)
with derivative counterparties under the same master netting arrangement.
Income taxes
The Company is exempt from taxation in Guernsey and is charged an annual
exemption fee of £1,200. The Company 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 Company is managed so as not to be resident in the UK for UK tax purposes
and as a foreign limited partnership for US tax purposes and provides full tax
reporting for its US shareholders.
The Company 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 Company 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 Company's unaudited
interim financial statements. Income tax and related interest and penalties
would be recognised as a tax expense in the unaudited interim statement of
operations if the tax position was deemed to meet the more likely than not
threshold.
The Investment Manager has analysed the Company'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 files an income tax return in the US federal jurisdiction, and may
have to file income tax returns in various US states and foreign
jurisdictions. Generally, the Company was subject to income tax examinations
by major taxing authorities for the tax period since inception. Based on its
analysis, the Company determined that it had not incurred any liability for
unrecognised tax benefits as of 31 December 2021 or 30 June 2022.
Use of estimates
Preparing unaudited interim financial statements in accordance with US GAAP
requires management to make estimates and assumptions in determining the
reported amounts of assets and liabilities, including the fair value of
investments, and disclosure of contingent assets and liabilities as of the
date of the unaudited interim financial statements and the reported amounts of
income and expenses during the reporting period. Actual results could differ
from those estimates.
New accounting pronouncements
There were no new accounting pronouncements required to be adopted by the
Company during the period.
2. Fair value measurements
The Company's assets and liabilities recorded at fair value have been
categorised based upon a fair value hierarchy as described in the Company's
significant accounting policies in Note 1.
The following table presents information about the Company's assets and
liabilities measured at fair value as of 30 June 2022:
Level 1 Level 2 Level 3 Investments measured at net asset value* Total
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
US$ US$ US$ US$ US$
Assets (at fair value)
Investments in securities
Common stocks 154,445,057 3,825,062 3,313,703 - 161,583,822
Convertible preferred stocks 40,109 - 66,277,101 - 66,317,210
American depository 21,390,122 - - - 21,390,122
receipts
Investment in private - - - 14,497,913 14,497,913
investment companies
Convertible bonds - - 1,466,342 - 1,466,342
Total investments in securities 175,875,288 3,825,062 71,057,146 14,497,913 265,255,409
Derivative contracts
Equity swaps - 18,636,288 - - 18,636,288
Warrants - 2,983,971 500,590 - 3,484,561
Total derivative contracts - 21,620,259 500,590 - 22,120,849
175,875,288 25,445,321 71,557,736 14,497,913 287,376,258
Liabilities (at fair value)
Securities sold short
Common stocks 10,222,106 95,991 - - 10,318,097
American depository receipts 360,481 - - - 360,481
Total securities sold short 10,582,587 95,991 - - 10,678,578
Derivative contracts
Equity swaps - 6,612,238 - - 6,612,238
Total derivative contracts - 6,612,238 - - 6,612,238
10,582,587 6,708,229 - - 17,290,816
* The Company'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 Company's assets and
liabilities measured at fair value as of 31 December 2021:
Level 1 Level 2 Level 3 Investments measured at net asset value* Total
(audited) (audited) (audited) (audited) (audited)
US$ US$ US$ US$ US$
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 23,082,522 420,163,081
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 Company's investment in private investment companies that are valued at
their net asset value are not categorized within the fair value hierarchy.
Transfers between Levels 2 and 3 generally relate to whether significant
relevant observable inputs are available for the fair value measurements in
their entirety. See Note 1 for additional information related to the fair
value hierarchy and valuation techniques and inputs. For the period ended 30
June 2022, the Company had transfers into Level 2 of US$1,083,096 from Level 3
due to conversion into publicly traded common stocks subject to an unexpired
180-day lock-up as at 30 June 2022 (for the year ended 31 December 2021:
US$9,064,760) and transfers into Level 1 of US$nil from Level 3 due to
conversion into publicly traded common stocks (for the year ended 31 December
2021: US$20,330,984). During the period ended 30 June 2022, US$nil relating to
investment companies measured using net asset value as a practical expedient
and which are not categorized in the fair value hierarchy, was transferred out
of Level 3 (for the year ended 31 December 2021: US$8,210,689). Transfers
between levels are deemed to occur at 30 June and 31 December each
period/year.
The following tables summarise the valuation techniques and significant
unobservable inputs used for the Company's investments that are categorised
within Level 3 of the fair value hierarchy as of 30 June 2022 and 31 December
2021:
Fair value at 30 June 2022 (unaudited) Valuation techniques Significant unobservable inputs Range of inputs
US$
Assets (at fair value)
Investments in securities
Convertible preferred stocks 42,965,988 Discounted cash flow; WACC 15% - 43%
Market approach; Exit revenue multiple 3.0x - 4.0x
and/or option pricing Expected volatility Revenue multiple 38% - 128%
2.2x - 2.7x
model
Market step-up multiple 0.8x - 1.5x
Market rate of return -20%
2,587,886 Market approach and cost to recreate approach Market rate of return -20%
Recovery rate 50%
12,840,843 Price of most recent funding round n/a n/a
Convertible notes 7,882,384 Discounted cash flow; WACC 16%
Market approach; Exit revenue multiple 4.0x
and/or option pricing Expected volatility 96% - 128%
model Market rate of return -10%
Market step-up multiple 0.8x - 1.2x
Common stocks 1,125,541 Discounted cash flow; WACC 16%
Market approach; Exit revenue multiple 4.0x
and/or option pricing Expected volatility 45% - 128%
model Revenue multiple 0.2x
Market step-up multiple 0.8x - 1.2x
Market rate of return -20% - -10%
2,188,162 Probability-weighted expected return Expected volatility 45%
method
Convertible bonds 1,466,342 Market approach and Market rate of return -20%
cost to recreate approach Recovery rate 50%
Total investments in securities 71,057,146
Derivative contracts
Warrants 2,869 Discounted cash flow;
Market approach; WACC 38%
and/or option pricing Exit revenue multiple 3.0x
model Expected volatility 45% - 50%
192,319 Probability-weighted expected return method Expected volatility 45%
305,402 Price of most recent funding round n/a n/a
Total derivative contracts 500,590
Fair value at 31 December 2021 Valuation techniques Significant unobservable inputs Range of inputs
(audited)
US$
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 funding round n/a n/a
Convertible bonds 723,723 Price of most recent funding round n/a n/a
Total investments in securities 69,844,960
Derivative contracts
Warrants 133,983 Price of most recent funding round n/a n/a
25 Discounted cash flow; WACC 38%
Market approach; Exit revenue multiple 3.0x
and/or option pricing model Expected volatility 45%
Total derivative contracts 134,008
The significant unobservable inputs used in the fair value measurements of
Level 3 convertible preferred stocks are WACC, exit revenue multiple, market
step-up multiple and expected volatility, market rate of return and recovery
rate. Increases in the WACC in isolation would result in a lower fair value
for the security, and vice versa. Increases in the exit revenue multiple or
market step-up multiple, market rate of return or recovery rate in isolation
would result in a higher fair value of the security, and vice versa. Increases
in volatility in isolation could result in a higher or lower fair value for
the security.
The following table presents additional information about Level 3 assets and
liabilities measured at fair value. Both observable and unobservable inputs
may be used to determine the fair value of positions that the Company has
classified within the Level 3 category. As a result, the unrealised gains and
losses for assets and liabilities within the Level 3 category may include
changes in fair value that were attributable to both observable and
unobservable inputs.
Changes in Level 3 assets and liabilities measured at fair value for the
period ended 30 June 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 30 June 2022
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
US$ US$ US$ US$ US$ US$ US$
Assets (at fair value)
Investments in securities
Convertible preferred stocks 67,177,270 - (14,924,618) 14,383,822 - (359,373) 66,277,101
Common stocks 1,943,967 - 1,368,759 977 - - 3,313,703
Convertible bonds 723,723 - 29,909 1,436,433 - (723,723) 1,466,342
Total investments in securities 69,844,960 - (13,525,950) 15,821,232 - (1,083,096) 71,057,146
Derivative contracts
Warrants 134,008 - 99,984 - - 266,598 500,590
Total derivative contracts 134,008 - 99,984 - - 266,598 500,590
* Conversions of convertible bonds into convertible preferred stock and
convertible preferred stock into common stock.
((a)) Realised and unrealised gains and losses are included in net realised
and change in unrealised gain/(loss) on investments, derivatives and foreign
currency transactions in the unaudited interim 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
(audited) (audited) (audited) (audited) (audited) (audited) (audited)
US$ US$ US$ US$ US$ US$ US$
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 period for assets
still held at end of period were as follows:
30 June 2022 31 December 2021
(unaudited) (audited)
US$ US$
Common stocks 1,368,759 497,966
Convertible bonds 29,909 -
Convertible preferred stocks (14,707,180) 12,873,757
Warrants 99,984 1
Change in unrealised gains and losses during the period for assets still held (13,208,528) 13,371,724
at period end
Total realised gains and losses and unrealised gains and losses in the
Company's investment in securities, derivative contracts and securities sold
short are made up of the following gain and loss elements:
30 June 2022 31 December 2021
(unaudited) (audited)
US$ US$
Realised gains 38,153,897 54,163,408
Realised losses (22,370,344) (14,532,072)
Net realised gain on securities, derivative contracts and securities sold 15,783,553 39,631,336
short
30 June 2022 31 December 2021
(unaudited) (audited)
US$ US$
Change in unrealised gains 49,444,528 106,379,343
Change in unrealised losses (166,441,945) (202,558,485)
Net change in unrealised gain/(loss) on securities, derivative contracts and (116,997,417) (96,179,142)
securities sold short
As at 30 June 2022 the Company had commitments (subject to completion of
certain parameters) to certain investments totalling US$4,772,722 (31 December
2021: US$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.
At 30 June 2022, amounts included within due from brokers of US$2,166,192 (31
December 2021: US$95,095) can be used for investment. The Company pledged cash
collateral to counterparties to over-the-counter derivative contracts of
US$16,046,021 (31 December 2021: US$12,228,870) which is included in due from
brokers.
In the normal course of business, substantially all of the Company's
securities transactions, money balances, and security positions are transacted
with the Company'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 Company 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 Company'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 Company 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 Company'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 Company is also subject to additional counterparty risk
due to the inability of its counterparties to meet the terms of their
contracts.
Warrants
The Company may receive warrants from its portfolio companies upon an
investment in the debt or equity of a portfolio company. The warrants provide
the Company 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 Company to lose its entire investment
in a warrant.
The Company 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 Company is the fair value of the contracts and
the purchase price of the warrants. The Company considers the effects of
counterparty risk when determining the fair value of its investments in
warrants.
Equity swap contracts
The Company is subject to equity price risk in the normal course of pursuing
its investment objectives. The Company 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 Company 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 Company considers the average month-end notional amounts during the
period, categorised by primary underlying risk, to be representative of the
volume of its derivative activities during the period ended 30 June 2022:
30 June 2022 31 December 2021
(unaudited) (audited)
Long exposure Short exposure Long exposure Short exposure
Primary underlying risk Notional amounts US$ Notional amounts US$ Notional amounts US$ Notional amounts US$
Equity price
Equity swaps 37,411,994 58,990,139 2,347,607 66,149,127
Warrants((a)) 3,380,244 - 9,031,998 -
40,792,238 58,990,139 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 unaudited interim statement of assets and
liabilities and statement of operations
The following tables identify the fair value amounts of derivative instruments
included in the unaudited interim statement of assets and liabilities as
derivative contracts, categorised by primary underlying risk, at 30 June 2022
and 31 December 2021. The following table also identifies the gain and loss
amounts included in the unaudited interim statement of operations as net
realised gain/(loss) on derivative contracts and net change in unrealised
gain/(loss) on derivative contracts, categorised by primary underlying risk,
for the period ended 30 June 2022 and 30 June 2021.
30 June 2022 (unaudited)
Primary underlying risk Derivative assets Derivative liabilities Realised gain/(loss) Change in unrealised gain/(loss)
US$ US$ US$ US$
Equity price
Equity swaps 18,636,288 6,612,238 (2,150,440) 7,759,459
Warrants 3,484,561 - - (190,186)
22,120,849 6,612,238 (2,150,440) 7,569,273
31 December 2021 (audited) 30 June 2021 (unaudited)
Primary underlying risk Derivative assets Derivative liabilities Realised gain/(loss) Change in unrealised gain/(loss)
US$ US$ US$ US$
Equity price
Equity swaps 7,575,424 3,310,833 34,571 (1,202,970)
Warrants 3,408,150 - 2,443 (522,415)
10,983,574 3,310,833 37,014 (1,725,385)
5. Securities lending agreements
The Company has entered into securities lending agreements with its prime
brokers. From time to time, the prime brokers lend securities on the Company's
behalf. As of 30 June 2022 and 31 December 2021, no securities were loaned and
no collateral was received.
6. Offsetting assets and liabilities
The Company is required to disclose the impact of offsetting assets and
liabilities represented in the unaudited interim statement of assets and
liabilities to enable users of the unaudited interim 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 Company to another party are determinable, the Company has the
right to offset the amounts owed with the amounts owed by the other party, the
Company intends to offset and the Company's right of setoff are enforceable by
law.
As of 30 June 2022 and 31 December 2021, the Company held financial
instruments and derivative instruments that were eligible for offset in the
unaudited interim 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 Company
against applicable liabilities or payment obligations of the Company to the
counterparty. These arrangements also allow the counterparty to net any of its
applicable liabilities or payment obligations they have to the Company against
any collateral sent to the Company.
As discussed in Note 1, the Company has elected not to offset assets and
liabilities in the unaudited interim statement of assets and liabilities. The
following table presents the potential effect of netting arrangements for
asset derivative contracts presented in the unaudited interim statement of
assets and liabilities:
Gross amounts of recognised assets Gross amounts offset in the unaudited interim statement of assets and Gross amounts of recognised assets and liabilities 30 June 2022 (unaudited)
liabilities
US$
US$ Gross amounts not offset in the unaudited interim statement of assets and
US$ liabilities
Description
Financial instruments((a)) Cash collateral received((b)) Net amount
US$ US$ US$
Equity swaps
Bank of America Merrill Lynch 11,027,032 - 11,027,032 (1,987,838) - 9,039,194
Morgan Stanley & Co. LLC 4,146,717 - 4,146,717 (1,821,688) - 2,325,029
Cowen Financial Products, LLC 3,323,265 - 3,323,265 (2,426,431) - 896,834
Jeffries & Co. 139,274 - 139,274 (139,274) - -
18,636,288 - 18,636,288 (6,375,231) - 12,261,057
Description Gross amounts of recognised assets Gross amounts offset in the statement of assets and liabilities Gross 31 December 2021 (audited)
US$ US$ amounts of Gross amounts not offset in the statement of assets and liabilities
recognised
assets and liabilities
US$
Financial instruments((a)) Cash collateral received((b)) Net amount
US$ US$ US$
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 Company 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 Company to be legally enforceable in the event of default,
but certain other criteria are not met in accordance with applicable
offsetting accounting guidance. The collateral amounts may exceed the related
net amounts of financial assets and liabilities presented in the unaudited
interim statement of assets and liabilities. If this is the case, the total
amount reported is limited to the net amounts of financial assets and
liabilities with that counterparty.
The following tables present the potential effect of netting arrangements for
liability derivative contracts presented in the unaudited interim statement of
assets and liabilities as of 30 June 2022 and 31 December 2021:
Gross amounts of recognised liabilities Gross amounts offset in the unaudited interim statement of assets and Gross amounts of recognised liabilities 30 June 2022 (unaudited) Net amount
liabilities
US$
US$ Gross amounts not offset in the unaudited interim statement of assets and US$
US$ liabilities
Description
Financial instruments((a)) Cash collateral pledged((b)) US$
US$
Equity swaps
Cowen Financial Products, LLC 2,426,431 - 2,426,431 (2,426,431) - -
Bank of America Merrill Lynch 1,987,838 - 1,987,838 (1,987,838) - -
Morgan Stanley & Co. LLC 1,821,688 - 1,821,688 (1,821,688) - -
Jeffries & Co. 330,539 - 330,539 (139,274) (191,265) -
UBS AG 45,742 - 45,742 - (45,742) -
6,612,238 - 6,612,238 (6,375,231) (237,007) -
Gross amounts of recognised liabilities Gross amounts offset in the statement of assets and liabilities Gross amounts of recognised liabilities 31 December 2021 (audited) Net amount
US$ US$ US$ Gross amounts not offset in the statement of assets and liabilities US$
Description
Financial instruments((a)) Cash collateral pledged((b))
US$ US$
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 Company 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 Company to be legally enforceable in the event of default,
but certain other criteria are not met in accordance with applicable
offsetting accounting guidance. The collateral amounts may exceed the related
net amounts of financial assets and liabilities presented in the unaudited
interim 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 Company is subject to certain inherent risks arising from its investing
activities of selling securities short. The ultimate cost to the Company to
acquire these securities may exceed the liability reflected in these unaudited
interim financial statements.
8. Risk factors
Some underlying investments may be deemed to be a highly speculative
investment and are not intended as a complete investment program. The Company
is designed only for sophisticated persons who are able to bear the economic
risk of the loss of their entire investment in the Company and who have a
limited need for liquidity in their investment. The following risks are
applicable to the Company:
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
Company's investments and/or on the fair value of the Company's investments.
Such events are beyond the Company's control, and the likelihood they may
occur and the effect on the Company cannot be predicted. The Company 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 Company'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 Company 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 Company'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 Company may not make an investment or a series of investments in a
Portfolio Company that result in the Company's aggregate investment in such
Portfolio Company exceeding 15 per cent. of the Company's gross assets, save
for Rocket for which the limit is 25 per cent. as stated in the Company's
prospectus. Each of these investment restrictions will be calculated as at the
time of investment. As such, it is possible that the Company'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 Company'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 Company maintains its cash balances in
financial institutions, which at times may exceed US federal or UK insured
limits, as applicable. The Company 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 Company 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 Company will attempt to limit its
transactions to counterparties which are established, well capitalised and
creditworthy.
Liquidity risk
Liquidity risk is the risk that the Company cannot meet its financial
commitments as they fall due. The Company'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 Company'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 Company 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 Company's investment in such Portfolio Company, or any
distributions received from the Portfolio Company. Under its investment
policy, the Company does not intend to enter into any securities or
financially engineered products designed to hedge portfolio exposure or
mitigate portfolio risk as a core part of its investment strategy.
9. Share capital
During the period ended 30 June 2022 the Company did not issue any Ordinary
Shares, as follows:
30 June 2022 (unaudited) 31 December 2021 30 June 2021 (unaudited)
(audited)
Number of
Number of Ordinary Shares Number of
Ordinary Shares Ordinary Shares
As at 1 January 212,389,138 191,515,735 191,515,735
Issuance of Ordinary Shares - 20,873,403 16,864,022
As at 30 June/31 December 212,389,138 212,389,138 208,379,757
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.
The Performance Allocation Amount will be allocated to the Performance
Allocation Share Class Fund. All Performance Allocation Shares are held by RTW
Venture Performance, LLC. As at 30 June 2022, there is one Performance
Allocation Share in issue (31 December 2021: one).
Performance Allocation Shares shall carry the right to receive, and
participate in, any dividends or other distributions of the Company available
for dividend or distribution. Performance Allocation Shares shall not be
entitled to receive notice of, to attend or to vote at general meetings of the
Company.
Management Shares shall not be entitled to receive, and participate in, any
dividends or other distributions of the Company available for dividend or
distribution. Management Shares shall be entitled to receive notice of, to
attend or to vote at general meetings of the Company. Upon admission the
Management shares of the Company were compulsorily redeemed by the Directors
for nil consideration.
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
Company. 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 Company.
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 Company (the "Management Fee"). For purposes of
determining the Management Fee, private investments will be valued at the fair
value. The Management Fee will be prorated for any period that is less than a
full month. The Management Fees charged for the period ended 30 June 2022
amounted to US$1,889,306 (period ended 30 June 2021: US$2,429,491) of which
US$nil (31 December 2021: US$nil) was outstanding at the period end.
Performance Allocation
The Articles provide that in respect of each Performance Allocation Period,
the Performance Allocation Amount shall be allocated to the Performance
Allocation Share Class Fund, subject to the satisfaction of a hurdle
condition.
The Performance Allocation Amount relating to the Performance Allocation
Period 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 Fund 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 Fund entered into a letter agreement dated 21 April 2020, pursuant
to which the Performance Allocation Share Class Fund agreed to defer
distributions of the Company's Ordinary Shares that would otherwise be
distributed to the Performance Allocation Share Class Fund no later than 30
business days after the publication of the Company's audited annual financial
statements. Under that letter agreement, such Ordinary Shares shall be
distributed to the Performance Allocation Share Class Fund at such time or
times as determined by the Board of Directors of the Company.
The Company will increase or decrease the amount owed to the Performance
Allocation Share Class Fund based on its investment exposure to the Company's
performance had such Performance Ordinary Shares been so issued. The
Performance Allocation Amount for the period ended 30 June 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 US$6,521,130 in 2022,
which is included in Performance Allocation within the Statement of Changes in
Net Assets. There was no reallocation of uncrystallized performance allocation
back to Ordinary Shareholders related to the Company's performance in the
period.
Until the Company makes a distribution of Ordinary Shares to the Performance
Allocation Share Class Fund, the Company will have an unsecured discretionary
obligation to make such distribution at such time or times as the Board of
Directors of the Company determines. RTW Venture Performance, LLC has agreed
to the deferral of the distributions of the Company's Ordinary Shares in
connection with its own tax planning. The Company does not believe that the
deferral of such distributions to the Performance Allocation Share Class Fund
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
Fund, and will therefore receive a proportion of the Performance Allocation
Amount. For the period ended 30 June 2022, the Board did not approve a cash
distribution to the Performance Allocation Share Class Fund (period ended 30
June 2021: US$4,974,920). At the period end the Performance Allocation was
US$17,799,374 (31 December 2021: US$24,320,504).
The Investment Manager is also refunded any research costs incurred on behalf
of the Company.
One of the directors of the Company, 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 Company during the period ended 30 June 2022 and 31
December 2021:
Investments Partners Employees
Rocket Two((a)) One
HSAC2 Holdings II Two((a)) One
Ji Xing One((b)) One
Yarrow Biotechnology Two((c)) One
RTW Royalty (#1) - One
RTW Royalty (#2) - One
((a))Roderick Wong, Naveen Yalamanchi
((b))Roderick Wong
((c))Roderick Wong, Peter Fong
As at 30 June 2022, the number of Ordinary Shares held by each Director was as
follows:
30 June 2022 31 December 2021
(unaudited) (audited)
Number of Ordinary Shares Number of Ordinary Shares
William Simpson 200,000 150,000
Paul Le Page 103,000 103,000
William Scott 179,381 150,000
Stephanie Sirota 1,000,000 1,000,000
William Simpson added to his holding during the period by purchasing 50,000
Ordinary Shares in the secondary market. William Scott added to his holding
during the period by purchasing 29,381 Ordinary Shares in the secondary
market.
Roderick Wong is a major shareholder and also a member of the Investment
Manager. As at 30 June 2022 he held 29,218,773 (13.76% of the Ordinary Shares
in issue) (31 December 2021: 29,218,773, 13.76% of the Ordinary Shares in
issue) Ordinary Shares in the Company.
The total Directors' fees expense for the period amounted to US$102,434 (30
June 2021: US$108,125) of which US$48,542 was outstanding at 30 June 2022 (31
December 2021: US$52,761), included within accrued expenses.
11. Administrative services
Elysium Fund Management Limited ("EFML") serves as Administrator to the
Company, providing administration, corporate secretarial, corporate governance
and compliance services. Morgan Stanley Fund Services USA LLC ("MSFS") serves
as the Company's Sub-Administrator. Ocorian Administration (Guernsey) Limited
("OAGL") previously served as the Company's administrator up until 1 February
2021.
During the period ended 30 June 2022, EFML and MSFS charged administration
fees of US$49,173 and US$110,940 respectively (period ended 30 June 2021: OAGL
charged US$25,045, EFML charged US$46,771 and MSFS charged US$96,397) of which
US$6,677 and US$140,940 (31 December 2021: EFML US$8,396, MSFS US$76,053) was
outstanding at 30 June 2022, and is included within accrued expenses.
12. Financial highlights
Financial highlights for the six month period ended 30 June 2022, six month
period ended 30
June 2021 and year ended 31 December 2021 are as follows:
30 June 2022 30 June 2021 31 December
(unaudited) (unaudited) 2021
(audited)
Per Ordinary Share operating performance
Net Asset Value, beginning of period US$ 1.71 US$ 1.96 US$ 1.96
Issuance of Ordinary Shares - 0.01 0.02
Income from investments
Net investment income/(loss) (0.01) (0.02) (0.04)
Net realised and unrealised gain/(loss) on investments, derivatives and (0.45) (0.04) (0.23)
foreign currency transactions
Total from investment operations (0.46) (0.06) (0.27)
Net Asset Value, end of period US$ 1.25 US$ 1.91 US$ 1.71
Total return
Total return before Performance Allocation (26.81)% (5.13)% (15.35)%
Performance Allocation (excluding mark-to-market) - % 2.41 % 2.58 %
Total return after Performance Allocation (26.81)% (2.72)% (12.77)%
Ratios to average net assets*
Expenses 1.10 % 1.07 % 2.22 %
Performance Allocation (2.14)% (0.93)% (2.11)%
Expenses and Performance Allocation (1.04)% 0.14 % 0.11 %
Net investment income/(loss) (0.87)% (1.03)% (2.04)%
NAV total return for the period/year (26.81)% (5.13)% (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 unaudited interim financial statements were approved by the Board of
Directors on 14 September 2022. Subsequent events have been evaluated through
this date.
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 Financial Statements;
"Antibody" a large Y-shaped blood protein that can stick to the surface of a virus,
bacteria, or receptor on a cell;
"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.;
"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;
"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 closed-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;
"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 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 Anaemia" 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;
"Half-Yearly Report" the Half-Yearly Report and Financial Statements;
"Immunocore" Immunocore Limited;
"InBrace" InBrace or Swift Health, Inc.;
"Independent Valuer" Alvarez & Marsal Valuation Services, LLC;
"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.;
"Latest Practicable Date" 30 June 2022, being the latest practicable date for valuing an asset for
inclusion in this report;
"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" London Stock Exchange plc;
"LSE" London Stock Exchange's main market for listed securities;
"Lycia" Lycia Therapeutics, Inc.;
"Magnolia Medical" or "Magnolia" Magnolia Medical Technologies, Inc.;
"Medtech" medical technology sector within healthcare;
"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.;
"NewCo" a new company;
"NiKang" Nikang Therapeutics, Inc;
"Notional Ordinary Shares" Performance Allocation 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;
"Oncology" a therapeutic area focused on diagnosis, prevention, and treatment of cancer;
"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 Fund in such amounts and as such times
as shall be determined by the Board;
"Performance Allocation Period" the First Performance Allocation Period and/or a subsequent Performance
Allocation Period, as the context so requires;
"Performance Allocation Share Class Fund" a class fund for the 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;
"Performance Allocation Shareholder" the holder of Performance Allocation Shares;
is when an institutional or an accredited investor buys stock directly from
a public company below market price;
"Private Investment in Public Equity" or "PIPE"
"POI Law" The Protection of Investors (Bailiwick of Guernsey) Law, 2020, as amended;
"Portfolio Companies" Private and public companies included into the portfolio;
"Premium Segment" Premium Segment of the Main Market of the LSE;
"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) );
"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;
"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;
"Small molecule" a compound that can regulate a biologic activity;
"SPAC" Special Purpose Acquisition Company;
"Tachycardia" a heart rhythm disorder;
"Tarsus" Tarsus, Inc.;
"Tenaya" Tenaya Therapeutics. Inc.;
"TL1A" a target for the treatment of inflammation associated with inflammatory bowel
disease (IBD);
"Type 1 Diabetes" or "T1D" a type of insulin resistance;
"Total shareholder return" a measure of shareholders' investment in a company with reference to movements
in share price and dividends paid over time;
"UK" United Kingdom;
"UK Code" the UK Corporate Governance Code 2018 published by the Financial Reporting
Council in July 2018;
"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;
"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 Company's Bankers, Prime Broker and an ISDA counterparty. A measure of the Company'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$265.7m) 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$1.25) 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$0.97) and the
period. the reporting period. price per share at the beginning of the period (US$1.78) minus one 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$0.97) 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$1.25) 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 realized and unrealized investments. The ratio between initial capital invested in a portfolio company and current
(as of 30 June 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 is expressed as a percentage that calculates the returns on the total
portfolio company. over time into a portfolio company. investment made with increments through a given period (from initial
investment date to 30 June 2022).
Ongoing charges ratio The recurring costs that the Company 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 Company's average NAV for the period. https://www.theaic.co.uk/sites/default/files/documents/AICOngoingChargesCalculationMay12.pdf
(https://www.theaic.co.uk/sites/default/files/documents/AICOngoingChargesCalculationMay12.pdf)
General Company Information - 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 Guernsey Financial Services Commission
("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.
Investment Objective
The Company 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 Company seeks to achieve its investment objective by leveraging RTW
Investments, LP's (the "Investment Manager") 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 Company is able to build a differentiated, sustainable
business to address said unmet need.
The Company 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 Company'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 Company's gross
assets and grow over time, as the Company 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
Company's gross assets.
The Company 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 Company 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 lifecycle 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 Company. Rather, the Company 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
Company is not required to allocate a specific percentage of its assets to
Private Portfolio Companies or Public Portfolio Companies.
The Company also intends, where appropriate, to invest further in its
Portfolio Companies, supporting existing investments throughout their
lifecycle. The Company 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 Company may seek opportunities to optimise investing
conditions, and to allow for such circumstances, the Company 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 Company will be subject to the following restrictions when making
investments in accordance with its investment policy:
• the Company may not make an investment or a series of investments in
a Portfolio Company that result in the Company's aggregate investment in such
Portfolio Company exceeding 15% (or, in the case of Rocket Pharmaceuticals,
Inc., 25%) of the Company's gross assets at the time of each such investment;
• the Company 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 Company'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 Company 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 Company'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 Company's underlying investments.
Capital deployment
The Company 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 Company'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 Company may seek opportunities to optimise investing
conditions, and to allow for such circumstances, there will be no limitations
placed on the Company'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 Company 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.
Schedule of Key Service Providers
For the period ended 30 June 2022
Board of Directors Independent Valuer Registrar
William Simpson (Chairman) Alvarez & Marsal Valuation Services LLC 600 Madison Avenue Link Market Services (Guernsey) Limited
Paul Le Page (Chairman of Audit Committee) 8th Floor Mont Crevelt House
William Scott New York Bulwer Avenue
Stephanie Sirota NY 10022 St Sampson
United States of America Guernsey
Investment Manager and AIFM GY2 4LH
RTW Investments, LP Guernsey Advocates to the Company
40 10th Avenue Carey Olsen (Guernsey) LLP Independent Auditor
Floor 7 Carey House KPMG Channel Islands Limited
New York Les Banques Glategny Court
NY 10014 St Peter Port Glategny Esplanade
United States of America Guernsey St Peter Port
GY1 4BZ Guernsey
Registered office GY1 1WR
1st Floor, Royal Chambers UK Legal Advisers to the Company
St Julian's Avenue Herbert Smith Freehills LLP Principal Bankers
St Peter Port Exchange House Barclays Bank PLC, Guernsey Branch
Guernsey Primrose Street Le Marchant House
GY1 3JX London Le Truchot
EC2A 2EG St Peter Port
Administrator and Company Secretary Guernsey
Elysium Fund Management Limited Corporate Brokers and Financial Advisers GY1 3BE
1st Floor, Royal Chambers Merrill Lynch International (BofA Securities)*
St Julian's Avenue 2 King Edward Street Prime Broker
St Peter Port London Goldman Sachs & Co. LLC
Guernsey EC1A 1HQ 200 West Street
GY1 3JX 29th Floor
J.P. Morgan Cazenove New York
Sub-Administrator 25 Bank Street NY 10282
Morgan Stanley Fund Services USA LLC Canary Wharf United States of America
2000 Westchester Avenue, 1(st) Floor London
Purchase E14 5JP Identifiers:
NY 10577 ISIN: GG00BKTRRM22
United States of America SEDOL: BKTRRM2 / BNNXVW5
Ticker: RTW / RTWG
LEI: 549300Q7EXQQH6KF7Z84
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* on 11 February 2022, Merrill Lynch International (BofA Securities) was
appointed as a corporate broker and financial adviser to the Company.
-- ENDS --
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