REG-Syncona Limited: Interim Results <Origin Href="QuoteRef">SYNCS.L</Origin>
22/11/2017 07:05
22 November 2017
Syncona Limited
Interim results for the six months ended 30 September 2017
Strong returns and NAV increase with positive performance across the business
* Net assets at 30 September 2017 of £1,032.2 million; 156.4p per
share, a total return of 16.7 per cent 1
* 50.6 per cent 2 return from life science portfolio driven by
positive financing events in Nightstar and Autolus
* Funds portfolio generated return of 4.1 per cent 3 , benefitting
from continued strong equity markets
Significant advancement in evolution; differentiated strategy driving value
creation
* Evolution to concentrate on creating, investing in and building
global leaders in life science gathered pace
* Life science portfolio valued at £455.2 million and now represents
44.1 per cent of the Company’s Net Assets, up from 25.3 per cent at March
2017
* Pace of transition driven by strong value progression in the
portfolio and £91.6 million of follow-on investment into existing life
science portfolio
* Funds portfolio valued at £552.0 million providing a deep pool of
capital for investing in life sciences
* Significant progress made repositioning the funds portfolio towards
more liquid funds in hedged strategies with a lower volatility profile
Life science portfolio delivers very strong financial and operational progress
* Blue Earth Diagnostics, our PET imaging agent company, delivered
continued momentum in the launch and rollout of Axumin. Units sold in the
United States increased significantly in the third and fourth quarters since
launch to 1800 and 2500 units respectively, with strong reordering
rates and positive organic growth at existing sites
* Nightstar, our gene therapy company targeting inherited forms of
blindness, completed a US$45 million Series C financing and an IPO on NASDAQ
raising US$86 million at significant valuation uplifts
* Autolus, our CAR-T cell therapy company focused on the treatment of
cancer, completed a US$80 million Series C financing at a material uplift and
commenced its clinical trial programme
* Syncona’s Developing portfolio companies continue to progress the
delivery of key milestones, in particular with the appointment of CEOs with
significant gene therapy experience in Gyroscope and Freeline
Life Sciences valuation movements in period (£m):
Company 31 March 2017 value Net investment in the period Valuation change 30 Sept 2017 value % NAV
Established
Blue Earth Diagnostics £108.4 £6.0 £2.5 £116.9 11.3
Maturing
Nightstar Therapeutics £34.2 £25.6 £114.8 £174.6 16.9
Autolus £31.2 £38.1 £19.7 £89.0 8.6
Developing
Freeline Therapeutics £18.0 £13.0 - £31.0 3.0
Gyroscope Therapeutics £5.0 £2.8 - £7.8 0.8
Achilles Therapeutics £2.8 £3.8 - £6.6 0.6
CEGX £5.2 - - £5.2 0.5
CRT Pioneer Fund £21.8 £2.3 - £24.1 2.4
TOTAL £226.6 £91.6 £137.0 £455.2 44.1
Positive outlook and clear plan
Syncona has had a particularly strong start to the year. Our life science
portfolio companies remain well placed and are working towards the delivery of
important key milestones in their development plans, with a number commencing
or progressing clinical trials in 2018, which, if successful, will enable the
continued progression of their therapies to market.
Syncona is well funded, with a deep pool of capital in our funds portfolio
underpinning our life science portfolio. We continue to see a rich pipeline of
life science investment opportunities in areas of high unmet medical need,
with multiple projects under review. We have a highly selective and
disciplined investment strategy and maintain a focus on investing in only the
best opportunities. We continue to expect to invest up to £150.0 million into
new and existing life science investments in the current financial year,
having already made £91.6 million of investments into our existing life
sciences portfolio.
We remain positive on the outlook for the business and believe the investment
portfolio is well positioned to continue to deliver attractive risk adjusted
returns through the cycle.
Martin Murphy, CEO, Syncona Investment Management Limited, said, “Syncona
has made significant progress in the first half and delivered strong NAV
progression. We have demonstrated the benefit of a differentiated model that
enables us to draw from a deep pool of productively deployed capital to make
investments in our focused life sciences portfolio. Our objective is to ensure
our businesses have the backing they need to become global leaders in their
fields and deliver transformational treatments to patients in areas of high
unmet need.
“The Syncona team worked closely with our portfolio companies to achieve
significant milestones during a particularly busy first half. Among our
maturing business, Autolus completed an important financing round and
commenced clinical trials for its differentiated CAR-T programmes. Nightstar
completed a highly successful IPO just four years after Syncona founded the
Company. Our established business, Blue Earth Diagnostics, continued to prove
the efficacy and market appeal of its Axumin product in the US and commenced
its introduction to the European market.
“This progress reinforces the benefits of Syncona’s highly focused,
hands-on and long-term approach. The material valuation gains in this six
months reflect five years of significant efforts since Syncona was founded in
2012. Looking ahead, 2018 will be an important year as a number of our
portfolio companies enter or progress clinical trials and seek to deliver
other important milestones. There is much to do as we work to help these
businesses fulfil their potential and deliver value for both patients and
shareholders.”
ENDS
Enquiries
Syncona Limited
Tel: +44 (0) 20 7611 2031
Siobhan Weaver
Tulchan
Communications
Tel: +44 (0) 207 353 4200
Martin Robinson, Lisa Jarrett-Kerr, Sheebani Chothani
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Copies of this press release, a company results presentation, and other
corporate information can be found on Syncona’s website at:
www.synconaltd.com
Forward-looking statements – this announcement contains certain
forward-looking statements with respect to the portfolio of investments of
Syncona Limited. These statements and forecasts involve risk and uncertainty
because they relate to events and depend upon circumstances that may or may
not occur in the future. There are a number of factors that could cause actual
results or developments to differ materially from those expressed or implied
by these forward-looking statements
About Syncona:
Syncona is a leading FTSE250 company focused on investing in and building
global leaders in life science. Our vision is to deliver transformational
treatments to patients in truly innovative areas of healthcare while
generating attractive returns for shareholders. Our current investment
portfolio consists of seven high quality investee companies in life science
and a leading range of fund investments.
We seek to partner with the best, brightest and most ambitious minds in
science to build globally competitive businesses. We are established leaders
in gene therapy, cell therapy and advanced diagnostics, and focus on
delivering dramatic efficacy for patients in areas of high unmet need.
Our funds portfolio seeks to generate superior returns by investing in long
only and alternative investment funds. This represents a productively deployed
evergreen funding base, which enables us to take a long-term approach to
investing in life science as we target the best new opportunities and support
our existing portfolio investee companies to grow and succeed.
Syncona is aligned with two of the premium charitable funders in UK science,
the Wellcome Trust, original founder of Syncona, and Cancer Research UK, both
of which are significant shareholders in our business. We make a donation of
0.3 per cent of Net Asset Value to a range of charities each year.
Chairman’s statement
I am pleased to report strong performance and continued progress for the six
months to 30 September 2017.
Significant positive momentum
NAV per share increased by 16.7 per cent 4 on a total return basis and
Syncona now has assets of £1,032.2 million, or 156.4p per share (March 2017:
£895.2 million; 136.0p per share).
Within our life science portfolio a number of significant financial and
operational milestones were achieved, resulting in excellent value progression
and a return of 50.6 per cent in the six months. These returns have been
complemented by a 4.1 per cent gain on our funds portfolio, which continues
its focus on generating attractive risk-adjusted returns as it transitions to
more liquid and less volatile funds and provides a strong capital base for the
life science portfolio.
Excellent progress in the evolution of Syncona’s investment strategy
Significant value progression and investment in the life science portfolio
during the period saw further evolution of our investment strategy to focus on
investing in and building global leaders in healthcare. By 30 September,
Syncona’s exposure to life science investments had increased to 44.1 per
cent of net assets, up from 25.3 per cent at 31 March 2017.
The funds and life science investment teams have worked well together to
utilise a deep, productively deployed capital pool to invest in compelling
investment opportunities in life science. This combination is an important
strategic differentiator for the business and one on which we will further
capitalise in the coming years.
Board
With the development of the investment strategy, the composition of the Board
is also evolving.
Earlier this month Rob Hutchinson joined the Board as a Non-Executive
Director. Rob brings many years of broad financial experience to the role,
having spent 28 years at KPMG and as a Fellow of the Institute of Chartered
Accountants in England and Wales. Rob will be a valuable addition to the Board
and we look forward to working with him. We expect the Board will continue
to evolve.
The future
Our vision remains to deliver transformational treatments to patients in
innovative areas of healthcare while generating superior returns for
shareholders. We are delighted with the delivery of significant achievements
in our life science portfolio and the excellent value progression delivered
this half. We have made a very a strong start towards the delivery of our
strategy and look forward to reporting back to shareholders at the end of the
year.
Jeremy Tigue, Chairman, Syncona Limited
22 November 2017
Report from CEO of Syncona Investment Management Limited
Syncona has delivered a very strong start to our first year as a combined
business. It has been pleasing to see our strategy of building global leaders
in life science gather pace, supported by our deep, productively deployed pool
of long term capital.
A remarkable period for new ‘Third Wave’ technologies
The past six months have seen remarkable landmarks in the development of
emerging ‘Third Wave’ technologies such as cell and gene therapy. These
therapies have the potential to transform care in a range of devastating
diseases through highly precise treatments tailored to the individual patient.
In many cases they offer the potential for cure through a single, one off
treatment. With the milestone approval of the first two CAR-T therapies in the
United States, which harness the power of a patient’s own T-cells to fight
cancer, during the period, it is now clear that these treatments are going to
become commercial and, more importantly, patient realities.
When we formed Syncona in 2012 we took a high conviction view on emerging
clinical data that these therapies were going to drive the next wave of
innovation in healthcare. We developed deep domain expertise, allowing us to
select the best scientific opportunities and build a portfolio of high quality
companies in these areas. These companies are now making very positive
progress and have the opportunity, should they continue to execute well, to be
global leaders in the cell and gene therapy space. This process is
representative of Syncona’s strategy; to identify promising areas of cutting
edge science and build companies which we can support over the long term as
they seek to take their products to market.
Portfolio highlights demonstrate the benefits of our company building approach
In this context we delivered positive progress in our life science portfolio
during the half. We saw Nightstar, a gene therapy company which Syncona
founded four years ago, conduct an US$86 million listing on NASDAQ supported
by a wide range of leading global investors. At the end of the period
Nightstar was trading at US$19.20 per share, a premium of almost 40 per cent
to its listing price capitalising the business at US$550 million,
demonstrating the potential the market sees in this business. Nightstar is now
a step closer to achieving its ambition of becoming the global leader for the
treatment of inherited retinal disease through gene therapy. The business is
on track to start its pivotal trial, the last before a potential approval, in
its lead indication of choroideremia in early 2018. Consistent with our
strategy of maintaining significant ownership stakes in our portfolio
companies, we look forward to continuing to take an active role in supporting
Nightstar’s success so that the business might ultimately be able to deliver
its potentially transformative treatments to patients.
We also saw our CAR-T cell therapy company Autolus reach a significant
milestone, becoming a clinical stage company with the commencement of three
clinical trials in its two lead programmes. While the CAR-T space is now a
competitive field, we believe Autolus is differentiated by its extensive cell
programming capabilities and its efficient, scalable manufacturing platform.
These factors provide it with the opportunity to deliver programmes which are
either first in class or best in class.
Autolus also completed a significant US$80 million Series C funding round at a
substantial valuation uplift, led by Syncona as the founding shareholder and
supported by leading global institutional investors. With the recent approval
of two CAR-T products by the US Food and Drug Administration and significant
corporate activity in the space, it is now clear that CAR-T will become an
important commercial reality in the haematological cancer field.
These examples demonstrate the strength of our business model, which combines
an expert approach to company building with a deep pool of capital and a
long-term ownership approach. We believe this enables us to hire highly
motivated, expert teams to lead our businesses. Through our model we hope to
deliver transformational treatments to patients in areas of high unmet medical
need and secure value throughout the cycle for our shareholders.
Significant progress delivered with an important period ahead
Our life science companies have delivered a significant amount of progress
this half, benefitting from five years of development since the foundation of
Syncona in 2012. 2018 will be an important year for the business as we see a
number of our portfolio companies commence or progress clinical trials or
approach other key milestones which will require them to execute well and
which, if successful, will enable the progression of their therapies to
market. We are pleased with the early strong momentum in the portfolio and
look forward to continuing to support our companies to succeed.
Martin Murphy, CEO, Syncona Investment Management Limited
22 November 2017
Finance review
Syncona’s core focus is on investing in and building global leaders in life
science, with its investment programme funded and underpinned by its funds
portfolio.
As the investment portfolio evolves, the weighting to life science investments
will increase as our companies develop and new and follow-on investments are
made. The liquidity provided by our funds portfolio is a strategic
differentiator. Whilst we expect the overall weighting to this part of our
portfolio to reduce as a percentage of the portfolio over time, we anticipate
that it will remain a bedrock of our funding model, providing us with the
confidence to take a long-term view in the financing of our life sciences
investments.
Performance
The portfolio as a whole generated a return of 19.8 per cent in the six
months. Performance was driven by the 50.6 per cent return from our life
sciences portfolio, following strong value progression in Nightstar and
Autolus during the period. These strong returns were underpinned by a 4.1 per
cent return from the funds portfolio. Through the cycle, we are targeting a 15
per cent net IRR on our portfolio and we are encouraged by this early strong
performance.
Valuations
Syncona continues to maintain a conservative valuation approach for all
investments, with the funds portfolio valued on a third-party basis and the
life science portfolio valued in accordance with the International Private
Equity and Venture Capital Valuation Guidelines.
Life sciences portfolio valuation basis 30 September 17 31 March 17
Quoted 38% -
Discounted cash flow 26% 48%
Price of recent investment 21% 31%
Cost 10% 11%
Adjusted third-party 5% 10%
In September, Nightstar listed on NASDAQ, and the valuation for the business
moved from a price of recent investment to a quoted basis. At 30 September
2017, Nightstar was valued at £174.6 million and the valuation will fluctuate
with both the movement in Nightstar’s share price and the foreign currency
exchange rate.
Cash flows and liquidity
Syncona continues to have a strong capital base with cash balances of £36.1
million (March 2017: £86.3 million) and £552.0 million (March 2017: £582.4
million) of liquidity in the funds portfolio.
During the six months, the funds portfolio continued to transition to more
liquid and less volatile investments. A total of £113.4 million of
redemptions were made, of which £66.6 million was redeployed into the funds
portfolio. The remainder was used, alongside existing cash balances, to
support the £91.6 million 5 of follow-on investments into our existing life
science portfolio.
Looking ahead, we would anticipate holding a prudent level of cash resources
on hand. We anticipate cash balances to typically be above those held at 30
September 2017.
The absolute level of drawdowns from our cash and liquidity resources will be
dependent on our life science investment pipeline. Our expectation remains
that Syncona will invest up to £150 million in new and existing life science
investments this financial year.
Liquidity profile 30 September 17 31 March 17
Cash £36.1m £86.3,m
< 1 month £220.7m £161.7m
1-3 months £85.3m £137.5m
3-12 months £198.7m £237.3m
> 12 months £47.3m £45.9m
Expenses
Our ongoing charges ratio for the six months was 1.44 per cent (March 2017:
0.72 per cent). The ongoing charges ratio includes charges paid to the
Investment Manager (BACIT UK) and the Investment Advisor (Syncona Investment
Management Limited).
Charitable donations
Total charitable donations of £2.4 million (March 2017: £4.8 million) were
accrued during the half, to be split equally between The Institute of Cancer
Research and The BACIT Foundation (for onward distribution to the nominated
charities). Including these donations, since launch the Company has now made
charitable donations of more than £20.5 million.
Uncalled commitments
Uncalled commitments stood at £86.2 million at 30 September 2017, of which
£38.8 million relate to milestone payments associated with the life science
portfolio. These payments are linked to the relevant company achieving key
strategic and development goals over the next 24 months.
Uncalled Commitment
Life Science Portfolio:
Milestone payments to portfolio companies £38.8m
CRT Pioneer Fund £26.1m
Fund Portfolio £21.3m
TOTAL £86.2m
Foreign exchange
During the period, Autolus and Nightstar conducted funding rounds in US
dollars, resulting in £263.6 million of the life science portfolio now being
denominated in US dollars, none of which was hedged. Within the funds
portfolio, £270.7 million was denominated in US Dollars, of which 69.4 per
cent was hedged and £69.3 million was denominated in Euros, all of which was
hedged. At 30 September 2017, the unrealised gain on the associated forward
contracts was £4.0 million (March 2017: £0.4 million).
Appointment of Alternative Investment Fund Manager (AIFM)
We expect Syncona Investment Management Limited to be appointed as the
Company’s AIFM before the end of 2017.
John Bradshaw, Chief Financial Officer, Syncona Investment Management Limited
22 November 2017
Life science portfolio review
Syncona’s life science portfolio made excellent strategic and financial
progress during the first half of the 2018 financial year. We remain at the
forefront of the revolution in ‘Third Wave’ technologies such as cell and
gene therapy, with five of our seven portfolio companies operating in these
areas.
Life science portfolio as at 30 September 2017
Company £m value Syncona ownership 6 % of life science portfolio % of NAV Valuation basis
Established
Blue Earth Diagnostics £116.9 90% 25.7% 11.3% DCF
Maturing
Nightstar £174.6 42% 38.4% 16.9% Quoted
Autolus £89.0 38% 19.6% 8.6% PRI
Developing
Freeline Therapeutics £31.0 74% 6.8% 3.0% Cost
Gyroscope Therapeutics £7.8 78% 1.7% 0.8% Cost
Achilles Therapeutics £6.6 66% 1.4% 0.6% Cost
CEGX £5.2 12% 1.1% 0.6% PRI
CRT Pioneer Fund £24.1 64% 5.3% 2.3% Adj. Third-Party
DCF – Discounted Cash Flow; PRI – Price of Recent Investment
Portfolio performance
The portfolio generated a 50.6 per cent return in the period since 31 March
2017. The increase was driven in particular by significant financing events in
Nightstar and Autolus, both of which were delivered at substantial valuation
uplifts for Syncona in the six month period.
Established companies
Blue Earth Diagnostics (Blue Earth)
Blue Earth is a molecular imaging diagnostics company focused on the
development and commercialisation of novel PET imaging agents to inform
clinical management and guide care for cancer patients.
During the period the business continued its positive trajectory in the launch
of Axumin, its product for the diagnosis of recurrent prostate cancer. Units
sold increased to 1800 and 2500 in the second and third quarters of 2017
respectively, a significant increase from 200 units and 800 units in the first
launch quarters (4Q16 and 1Q17 7 ). We are encouraged by strong reordering
rates and robust organic growth at launched sites, providing confidence in the
rollout to new areas as the business seeks to increase its coverage across the
US in a measured way. Expansion of Axumin supply is ongoing through the
addition of new manufacturing sites and increased utilisation of existing
sites, with 17 sites active at period end, up from 14 in March 2017.
In Europe, Blue Earth received approval from the European Commission to market
Axumin in May. The European market is more fragmented and represents a more
challenging reimbursement environment than the US, that will require country
specific rollout plans. Blue Earth made excellent progress on this front,
signing four manufacturing and distribution agreements covering 14 countries.
Commercial sales commenced in two initial countries in September and October
and will be rolled out across other markets in due course.
During the period Blue Earth also presented the UK Axumin Change in Management
FALCON study at the 2017 ASTRO Annual Meeting. The study measured the extent
to which physicians opted to change the treatment provided to their patients
after Axumin was used to identify the location of their recurrent prostate
cancer. Recruitment to the trial was halted early based on a successful
interim analysis, with initial results demonstrating that 61.2 per cent of
patients had their clinical management changed following an Axumin scan,
representing overwhelming efficiency as defined by the protocol.
While it remains early days for a complex product launch of this nature, we
are very pleased with the results so far and remain positive about the
prospects for Blue Earth.
Maturing companies
Nightstar
Nightstar utilises gene therapy to develop products for inherited forms of
blindness which have no available therapies. During the period Nightstar
conducted two major financing events, a US$45 million Series C financing round
in June and an oversubscribed US$86 million NASDAQ IPO in September. Both
rounds were conducted at significant valuation uplifts and Syncona invested in
both financings consistent with its strategy of maintaining significant
ownership stakes in its businesses. As a result of these activities, the value
of Syncona’s stake in the business increased from £34.2 million to £174.6
million during the period.
Both financings were supported by leading institutional investors, testament
to the quality and potential of the business. The IPO places Nightstar amongst
the leading global biotech companies operating at the forefront of the gene
therapy field, a remarkable achievement just four years after being founded by
Syncona on the basis of early academic data.
The business also continued to progress its high-quality pipeline of seven
programmes in mono-genetic retinal disorders, having licensed a further
programme from Oxford in Stargadt disease following the period end. The
business is on track to commence its Phase III pivotal clinical trial in its
lead programme of choroideremia in the first half of next year, and expects
initial data from its second programme in X-linked Retinitis Pigmentosa during
2018. Its third programme in Best Vitelliform Macular Dystrophy is targeting
initiating a clinical trial in 2019.
Autolus
Autolus is a clinical-stage biopharmaceutical company focused on the
development and commercialisation of next generation CAR-T cell therapies for
the treatment of cancer. Autolus continued to make progress establishing a
leading position in the CAR-T field during the period, commencing three
clinical trials for Multiple Myeloma, paediatric ALL and adult DLBCL, with
products it believes have the potential to be first or best in class. Autolus
is focused on progressing these programmes through the clinic rapidly, with
initial data expected to begin reading out from 2018.
In September, Autolus conducted an US$80 million Series C investment round at
a significant valuation uplift for Syncona. Syncona led the round, which was
supported by leading global institutional investors. The funds will be used to
advance Autolus’ clinical-stage pipeline while building an efficient,
scalable manufacturing platform to bring its CAR T-cell therapies rapidly and
successfully to market
Autolus anticipates commencing clinical trials of its T-cell Lymphoma program
in the first half of 2018 as well as advancing several programmes targeting
solid tumours through preclinical development during the year. We believe
Autolus is well positioned to compete with global competitors in the CAR-T
field and look forward to continuing to support the business.
Developing companies
Our Developing companies have continued to work towards executing their plans
and delivering key milestones during the period.
Gyroscope, our second retinal gene therapy company, appointed Dr Soraya
Bekkali as Chief Executive Officer. Soraya brings over 20 years’ industry
experience with a specific focus in the fields of gene therapy and
ophthalmology, and will also serve as Chief Medical Officer of the business.
Gyroscope also publicly launched its business, revealing that it is developing
genetically defined therapies for retinal diseases linked to an unbalanced
complement system, a part of the immune system and that Age-related Macular
Degeneration (AMD) is the first disease being targeted. AMD is the most common
cause of blindness in the industrialised world. This is an emerging new
application of gene therapy conceived by Syncona due to its deep experience in
the field. Gyroscope is expected to commence clinical trials during 2018.
Freeline, a third gene therapy company which is focused on the development of
curative therapies for haemophilia and other debilitating disorders, appointed
Anne Prener as Chief Executive Officer. Anne has extensive experience in drug
development and commercialisation with a specific focus on gene therapy and
rare diseases. From 2014 to 2016 she served as Vice President, Clinical
Research Haematology and Global Therapeutic Area Head of Haematology at
Baxalta. During her tenure, three new major product approvals in both the US
and EU were secured along with a significant advancement in Baxalta’s
haematology portfolio including gene therapy for haemophilia. The business is
seeking to validate its clinical and manufacturing platform during 2018.
Achilles, our preclinical immunotherapy company, also made strong progress
during the period making important breakthroughs which have provided further
confidence in the key scientific premise of the business. We remain positive
on the opportunities for the business which is meeting key milestones as
planned. Finally, CEGX, a pioneer in the field of epigenetics, generated new
data during the period which is now under analysis by the business and further
plans are underway.
CRT Pioneer Fund
The CRT Pioneer Fund is managed by Sixth Element Capital and invests in
oncology focused assets. The fund has a pipeline agreement with Cancer
Research UK under which it has a right of first review of certain CRUK drug
discovery projects. At 30 September 2017, Syncona’s ownership stake in the
fund equalled 64.1 per cent and was valued at £24.1 million, comprising a
portfolio of 11 investments in early stage drug discovery opportunities.
Outlook
Looking ahead, we continue to believe our portfolio companies are well
positioned to execute on their clear and ambitious plans, and we look forward
to continuing to support them to do so. We are leaders in ‘Third Wave’
technologies which are enjoying positive sentiment because of the
ever-increasing amount of positive clinical data in the field. This will be a
critical year for a number of our businesses as they enter clinical trials
which we hope will generate the positive data required for them to move
forward with their therapies. We continue to see opportunities to add to our
portfolio and will make new investments where the quality of the opportunity
meets the high bar set by the remainder of our portfolio companies.
Chris Hollowood, Chief Investment Officer, Syncona Investment Management
Limited
22 November 2017
Funds portfolio review
The funds portfolio has continued to deliver attractive risk-adjusted returns,
generating a return of 4.1 per cent 8 over the six months. Unsurprisingly,
given continued rising asset prices in the period, performance was driven by
the long-biased elements of the portfolio, with the portfolio’s exposure to
both long-only and hedge funds contributing to overall growth.
At 30 September 2017, the funds portfolio was valued at £552.0 million 9
(March 2017: £582.8 million) and was invested in 30 underlying funds across
21 managers.
Funds portfolio
Opening portfolio £582.8m
Redemptions (£113.4m)
Reinvestment £66.6m
Movement in unrealised gain on hedge £3.5m
Gain on portfolio £12.5m
Closing portfolio £552.0m
Portfolio transition to more liquid funds in strategies with a lower
volatility profile
Following the expansion of Syncona’s investment policy in December 2016, we
have continued to transition the portfolio’s investments to ones that are
typically more liquid and are less correlated to equity markets, redeeming
some allocations to more directional or long-only strategies in favour of
long/short hedge funds, which may at any time proactively adjust exposure to
equity markets, depending on their outlook and market sentiment.
During the six months, £113.4 million of redemptions were made, of which
£66.6 million was reinvested into funds with the remainder deployed into the
life science portfolio or held in cash. In particular, the portfolio’s
allocation to commodities was redeemed in total and its exposure to a number
of funds that have historically proved to be more volatile was reduced. We
expect to have substantially completed the repositioning of the portfolio by
the end of 2018.
Portfolio construction – focus on containing correlation to a market
correction
We are focused on investing with proven managers who have demonstrated an
ability to contain downside volatility through portfolio construction or
nimble repositioning and active management of underlying holdings, or both. At
30 September 2017, 58 per cent of the portfolio was allocated to hedge funds
and the portfolio’s construction is driven by the degree to which the
managers’ skill sets deliver performance that has a low correlation to
equity markets and can limit the portfolio exposure to market dislocations.
Rising markets increases portfolio’s exposure to equities
Looking across the portfolio at both our long-only and hedged strategies, our
underlying managers’ outlook and relative confidence in equity markets
continued to improve, and we estimate the portfolio ended the period 65 per
cent net long in equity equivalents. This reflects the expansion of our
underlying managers’ long books with rising markets, rather than
re-allocation of capital to long-only strategies at the portfolio level, and
is at the top of the 37 per cent to 65 per cent range since inception and
compares to 57 per cent at the end of March 2017.
Foreign exchange – reduction in unhedged US$ exposure
The funds portfolio continues to hedge out substantially all exposure to Euro
denominated share classes, and around three-quarters of its exposure to US
Dollar denominated share classes. Overall, 15.1 per cent of the
portfolio’s value at the period end was in unhedged US Dollar share classes.
As we report in Sterling, and the US Dollar weakened from US$1.25 to US$1.34
over the six months, while the realised and unrealised gain on the
portfolio’s foreign exchange hedges made a £9.1 million 10 contribution to
performance in the period, the unhedged element detracted approximately £2.6
million or 0.5 per cent from the portfolio performance during the period.
Portfolio strategies
Strategy £m value % of NAV % of the funds portfolio % change in weighting in six months
Equity hedge funds £233.1 22.6 42.2 +4.1
Equity funds £153.8 14.9 27.9 +3.8
Fixed income and credit funds £68.9 6.7 12.5 -2.6
Global macro funds £57.3 5.6 10.4 -2.8
Other strategies £34.9 3.4 6.3 +0.4
Commodities - - - -3.5
Unrealised FX hedge £4.0 0.4 0.7 +0.6
TOTAL £552.0 53.6 100.0 -
Equity hedge funds
The portfolio’s weighting to equity hedge funds increased to 42.2 per cent
in the six months, reflecting an increase in our allocation to this strategy
and strong performance, with the long-bias elements of these strategies
continuing to drive value. The managers within this strategy have track
records of modest correlation to equity markets. In aggregate, funds in this
strategy produced a constant currency return of 4.7 per cent in the six
months.
Equity funds
Rising equity markets have continued to provide a tail-wind for our
investments in long-only equity funds, with the UK, Japanese and Russian funds
outperforming their respective benchmarks in the six months. In aggregate,
funds in this strategy produced a return of 10.5 per cent in constant
currencies, with the small increase in the portfolio’s weighting to
long-only funds reflecting performance rather than a meaningful increase in
our allocation.
Fixed income and credit funds
Inflation expectations declined as did the US Dollar against Sterling, both of
which negatively impacted the value of the portfolio’s TIPs holding. This
partially detracted from the positive progress made by the remaining
investments within our credit strategies. In aggregate fixed income and credit
funds made a 2.5 per cent contribution on a constant currency basis.
Global macro funds
The portfolio has a 10.4 per cent weighting to global macro funds, primarily
invested in two long/short funds, one global and one focused on Asia Pacific.
The portfolio’s allocation to macro funds is intended to serve as a hedge
for its long-only equity book and in aggregate these funds made a small
positive contribution to performance in the six months.
Other strategies
Other Strategies accounted for 6.3 per cent of the portfolio and include
infrastructure, private equity and credit. Realisations activity and
valuation uplifts continued to drive strong performance across these funds,
generating an aggregate return of 9.2 per cent in constant currencies in the
period.
Commentary on the portfolio after period end
Since the period end, asset prices have continued to rise on the back of a
growing market consensus of an economic scenario of sustainable growth and
moderate inflation. Against this, the scale of global debt burdens constrains
central bankers’ abilities to raise interest rates without the risk of
triggering a recession and, in this context, we remain cautious about the
ability of markets to absorb the risks which are building within the system.
Whilst the portfolio’s current long bias means that it should continue to
benefit from rising asset prices, we believe its significant allocation to a
number of hedge fund managers, who have in the past weathered market
volatility well, position the portfolio to react to any changes in market
sentiment. We remain confident in our managers’ ability to generate
attractive risk-adjusted returns through the cycle.
BACIT (UK) Limited Investment Team
22 November 2017
Principal Risks and Uncertainties
The principal risks and uncertainties facing the Company for the second half
of the financial year are substantially the same as those disclosed in the
Report and Accounts for the year ended 31 March 2017. These include:
* · Life science portfolio
- Investment risk
- General, commercial, technological and clinical risks
- Dominance of portfolio by a few larger investments and/or
sector focus
- Market risk – realising investment portfolio companies
- Market risk – political and economic uncertainty
* · Funds portfolio
- Investment risk
* · Operational
- Failure to attract or retain key personnel
- Financing risk
- Systems and controls
* · Legal and regulatory
- Changes in law and regulations may adversely affect the
Company
Statement of Directors’ Responsibilities
Going Concern
The factors likely to affect the Company’s ability to continue as a going
concern were set out in the Report and Accounts for the year ended 31 March
2017. As at 30 September 2017, there have been no significant changes to these
factors. Having reviewed the Company’s forecasts and other relevant
evidence, the Directors have a reasonable expectation that the Company has
adequate resources to continue in operational existence for the foreseeable
future. Accordingly, they continue to adopt the going concern basis in
preparing the half-yearly financial statements.
Statement of Directors’ Responsibilities
The directors confirm that the interim financial statements have been prepared
in accordance with IAS 34 as adopted by the European Union and that the
business review includes a fair review of the information required by DTR
4.2.7 and DTR 4.2.8, namely:
- an indication of important events that have occurred during the
first six months of the financial year and their impact on the interim
financial statements, and a description of the principal risks and
uncertainties for the remaining six months of the financial year; and
- material related-party transactions in the first six months of the
financial year and any material changes in the related-party transactions
described in the last annual report.
The Directors of Syncona Limited are listed in the Syncona Limited Report &
Accounts for the year ended 31 March 2017, with the exception of Peter Hames
who stepped down at the AGM on 8 September 2017. Rob Hutchinson was appointed
as a non-executive Director on 1 November 2017. A list of current directors is
maintained on the Syncona Limited website:
http://www.synconaltd.com/people/board.
Jeremy Tigue, Chairman, Syncona Limited
22 November 2017
Independent Review Report to Syncona Limited
We have been engaged by the Company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 30
September 2017 which comprises the Consolidated Statement of Comprehensive
Income, Consolidated Statement of Financial Position, Consolidated Statement
of Changes in Net Assets Attributable to Holders of Ordinary Shares,
Consolidated Statement of Cash Flows and related notes 1 to 15. We have read
the other information contained in the half-yearly financial report and
considered whether it contains any apparent misstatements or material
inconsistencies with the information in the condensed set of financial
statements.
This report is made solely to the Company in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 “Review of Interim
Financial Information Performed by the Independent Auditor of the Entity”
issued by the Auditing Practices Board. Our work has been undertaken so that
we might state to the Company those matters we are required to state to it in
an independent review 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 formed.
Directors’ responsibilities
The half-yearly financial report is the responsibility of, and has been
approved by, the directors. The directors are responsible for preparing the
half-yearly financial report in accordance with the Disclosure and
Transparency Rules of the United Kingdom’s Financial Conduct Authority.
As disclosed in note 2, the annual financial statements of the Group are
prepared in accordance with IFRSs as adopted by the European Union. The
condensed set of financial statements included in this half-yearly financial
report has been prepared in accordance with International Accounting Standard
34 “Interim Financial Reporting” as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed
set of financial statements in the half-yearly financial report based on our
review.
Scope of review
We conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410 “Review of Interim Financial Information
Performed by the Independent Auditor of the Entity” issued by the Auditing
Practices Board for use in the United Kingdom. A review of interim financial
information consists of making inquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other review
procedures. 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.
Conclusion
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 September 2017 is not prepared,
in all material respects, in accordance with International Accounting Standard
34 as adopted by the European Union and the Disclosure and Transparency Rules
of the United Kingdom’s Financial Conduct Authority.
Deloitte LLP
Statutory Auditor
St Peter Port, Guernsey
22 November 2017
GROUP PORTFOLIO STATEMENT
As at 30 September 2017
% of
Group
Fair Value NAV
£'000 2017
Life Science Portfolio
Life Science Companies
Nightstar Therapeutics plc 174,647 16.9
Blue Earth Diagnostics Limited 116,899 11.3
Autolus Limited 88,997 8.6
Freeline Therapeutics Limited 31,000 3.0
Companies of less than 1% of NAV 19,582 1.9
Total Life Science Companies ((1)) 431,125 41.7
CRT Pioneer Fund ((2)) 24,052 2.4
Total Life Science Portfolio ((3)) 455,177 44.1
Funds Portfolio
Equity Hedge Funds
Polygon European Equity Opportunity European event-driven equities (long/short) 39,448 3.8
Polar UK Absolute Equity UK equities 33,002 3.2
Maga Smaller Companies UCITS European equities (long/short) 30,616 3.0
AKO Global UCITS Fundamental equities (long/short) 27,449 2.7
Portland Hill Event-driven equity investments (long/short) 23,915 2.3
Sagil Latin American Opportunities Latin American equities (long/short) 15,650 1.5
Doric Asia Pacific Asia ex-Japan small caps (China, India, SE Asia, Korea) (long/short) 14,066 1.4
The S.W. Mitchell European Fund European equities (long/short) 13,618 1.3
Man GLG Pan-European Growth European high growth equities (mandate permits short) 12,722 1.2
Portland Hill European Catalyst-driven, fundamental EU equities (long/short) 10,171 1.0
Funds of less than 1% of NAV 12,440 1.2
233,097 22.6
Equity Funds
Polar Capital Japan Alpha Japanese large and mid-cap equities 41,057 3.9
The SFP Value Realisation Small and mid-cap Japanese equities (mandate permits short) 35,680 3.5
Majedie UK Equity UK equities 32,838 3.2
Majedie UK Focus UK equities 26,112 2.5
Russian Prosperity Russian equities 18,123 1.8
153,810 14.9
Fixed Income and Credit Funds
Polygon Convertible Opportunity US and European convertible arbitrage 21,816 2.1
CG Portfolio Dollar US TIPs (inflation linked government bonds) 17,201 1.7
WyeTree RRETRO US and EU subprime mortgage-backed securities 16,939 1.6
Funds of less than 1% of NAV 12,974 1.2
68,930 6.6
Global Macro Funds
Parity Value Discretionary global macro (long/short) 32,091 3.1
Sinfonietta Equities, rates, FX and commodities, with an Asian focus (long/short) 25,220 2.5
57,311 5.6
Other Strategies
Permira V Private equity, mid to large cap European buyouts 23,038 2.3
Funds of less than 1% of NAV 11,842 1.1
34,880 3.4
Open forward currency contracts 3,979 0.4
Total Funds Portfolio ((2)) 552,007 53.6
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