REG-Syncona Limited: Syncona Limited Full Year Results 2018
14/06/2018 07:05
14 June 2018
Syncona Limited
Final Results for the Year Ended 31 March 2018
Syncona invests in innovative areas of healthcare, taking a long-term view and
a significant ownership stake while working in deep partnership with our
companies to build global leaders in life science.
Strong returns and NAV increase with positive performance across the Company
in the year
* Net assets at year end of £1,055.8 million, 158.9 1 p per share, a total
return of 18.7 per cent
* 57.2 per cent return from life science portfolio driven by financing events
in Nightstar and Autolus and positive progress in Blue Earth
* Fund investments valued at £465.1 million, generating a return of 7.5 per
cent and providing a deep pool of capital which supported the deployment of
£125.2 million into new and follow on life science investments
* Dividend of 2.3p declared (2017: 2.3p); charitable donation of £4.75
million
Significant operational and financial performance in our portfolio companies
* Blue Earth Diagnostics (Blue Earth), our PET imaging agent company,
continued to deliver strong performance with US unit sales of Axumin of 3700
in Q3 FY2018 and 5000 in Q4 FY2018 and became profitable during the period.
* Autolus, our T cell immunotherapy company, completed a US$80m Series C
financing at a material uplift and is currently pursuing a proposed IPO on
NASDAQ
* Nightstar, our gene therapy company targeting inherited forms of blindness,
completed a US$45 million Series C financing and a successful IPO on NASDAQ
raising US$86 million
* Three portfolio companies, Nightstar, Autolus and Freeline commenced
important clinical trials. Including Nightstar’s pivotal study in
Choroideremia commenced post year end, we now have eight Phase 1/2 trials and
one pivotal Phase 3 across our clinical pipeline
* Strong progress across the portfolio developing and scaling manufacturing
and delivery processes and platforms, and advancing product pipelines
Expanded global leadership position in gene therapy
* Establishment of two new companies with Syncona as sole institutional
investor:
* Orbit BioMedical founded through the acquisition of the leading surgical
platform for sub-retinal delivery from Janssen Biotech, Inc, an enabling asset
for Syncona’s retinal gene therapy companies. Syncona committed $12 million
to the business and has an 80 per cent ownership stake
* Creation of SwanBio, a gene therapy company focused on neurological
disorders and the central nervous system. Syncona committed $23 million in a
Series A financing, for 72 per cent ownership
* These two new businesses take our AAV gene therapy platform to five
companies; Nightstar, Freeline, Gyroscope, SwanBio and Orbit Biomedical
* This platform covers the major tissue compartments where gene therapy has
proof of concept; the eye, liver and central nervous system, making it one of
the most comprehensive coordinated AAV gene therapy platforms globally
Outlook – well positioned to continue to deliver strong progress
Syncona has a differentiated business model, with a deep pool of capital
supporting our ambition of delivering transformational treatments to patients
and capturing superior returns for shareholders by building the next
generation of healthcare companies.
Our life science portfolio is on plan to deliver strong strategic progress
over the next year. Our portfolio companies are well placed to continue to
progress towards key milestones and the delivery of their development plans
and, in the case of our established business Blue Earth, we expect continued
positive sales progress this year. Many of our remaining portfolio companies
are currently engaged in or will soon enter clinical trials, with an important
period ahead over the next two to three years. Specifically, within the next
12 months we are anticipating:
* Initial Phase 1/2 data from five clinical trials; Autolus (Multiple Myeloma,
paediatric ALL and adult DLBCL), Nightstar (XLRP), Freeline (Haemophilia
B)
* Two new clinical trials expected to commence in Gyroscope and Autolus
We continue to see strong opportunities for new investments, both in areas
like cell and gene therapy where we are strategically positioned and beyond as
we seek to create a portfolio of no more than 15-20 high quality portfolio
companies in transformational areas of science that we can support over the
long-term. In line with this, we expect to continue executing financings in
both new and existing companies at varying stages of the development cycle.
Martin Murphy, CEO, Syncona Investment Management Limited, said:
“This year we have seen our differentiated strategy continuing to deliver
positive performance across the business, with strong NAV progression. Our
ability to create, invest in, and build global leaders in life science is
underpinned by our evergreen funding base which enables us to take a flexible
approach with control over how we manage our portfolio.
Syncona’s partnership approach has driven strong financial and operational
progress in the year, delivering significant value progression across the
portfolio. Nightstar, Autolus and Freeline all commenced clinical trials –
with Nightstar completing an IPO on NASDAQ just four years after Syncona
founded the company. Our Established business, Blue Earth, continued to
deliver strong sales and became the first Syncona founded company to reach
profitability during the period.
This year Syncona also greatly strengthened its leadership position in gene
therapy, including the establishment of two new companies, and we now have one
of the broadest, high-quality, co-ordinated gene therapy platforms globally.
We look forward to helping these businesses fulfil their potential in
delivering truly transformational treatment to patients, and value to our
shareholders.”
ENDS
Enquiries
Syncona Limited Tel: +44 (0) 20 7611 2031
Siobhan Weaver, Annabel Clay
Tulchan Communications Tel: +44 (0) 207 353 4200
Martin Robinson, Lisa Jarrett-Kerr
About Syncona:
Syncona is a leading FTSE250 healthcare 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 superior returns for shareholders.
We seek to partner with the best, brightest and most ambitious minds in
science to build globally competitive businesses.
We take a long-term view, underpinned by a deep pool of capital, and are
established leaders in the development of genetic medicine, particularly gene
and cell therapy. We focus on delivering dramatic efficacy for patients in
areas of high unmet need.
Copies of this press release, a company results presentation, and other
corporate information can be found on the company 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
Valuation movements in period (£m):
Company 31 Mar 2017 Value (£m) Net invest- ment in period (£m) Valuat- ion change (£m) 31 Mar 2018 value (£m) % NAV Valuat- ion basis Fully diluted owner- ship stake (%) Focus area
Life science portfolio companies
Established
Blue Earth 108.4 6.0 72.4 186.8 17.7 rDCF 89 Advanced diagnostics
Maturing
Nightstar 34.2 25.6 64.7 124.5 11.8 Quoted 42 Gene therapy
Autolus 31.2 38.1 15.8 85.1 8.1 PRI 38 Cell therapy
Freeline 18.0 18.0 - 36.0 3.4 Cost 74 Gene therapy
Developing
Gyroscope 5.0 6.0 - 11.0 1.0 Cost 78 Gene therapy
Orbit Biomedical - 8.4 0.2 8.6 0.8 Cost 80 Surgical devices 2
Achilles 2.8 3.8 - 6.6 0.6 Cost 69 Cell therapy
SwanBio - 4.9 - 4.9 0.5 Cost 72 Gene therapy
Life science investments
CRT Pioneer Fund 21.8 9.0 - 30.8 2.9 Third-party N/A
CEGX 5.2 - 4.6 9.8 0.9 PRI 9
Endocyte - 4.0 5.0 9.0 0.9 Quoted 2
Syncona Collaborations - 1.4 - 1.4 0.1 Cost 100
SUB-TOTAL 226.6 125.2 162.7 514.5 48.7
Fund investments 582.8 (135.8) 18.1 465.1 44.1
Cash 86.3 - - 85.2 8.1
Other net liabilities (0.5) - (9.0) (0.9)
TOTAL 895.2 - - 1,055.8 100
Chairman’s statement
I am pleased to report on a year of strong performance and progress. NAV per
share increased from 135.8p to 158.9 p 3 , an 18.7 per cent total return 4 ,
and Syncona ended the year with net assets of £1,055.8 million (31 March
2017: £895.2 million).
Strong performance and significant strategic progress
Our life science portfolio continues to generate strong growth, delivering a
57.2 per cent return in the year, driven by a combination of strong commercial
progress and a number of positive financing rounds at significant uplifts. At
the same time, our fund investments continue to perform well, delivering a 7.5
per cent return. We have integrated the fund investments team, with Arabella
Cecil joining Syncona Investment Management Limited as Head of Fund
Investments, and made good progress in repositioning our fund investments to
focus on liquidity and downside protection. This deep pool of capital provides
a robust capital base to support our life science investment programme and is
an important differentiator for our strategy of investing in life science over
the long-term.
Dividend and charitable donations
The Board has declared a final dividend of 2.3p per share (2017: 2.3p per
share). We will be reviewing our dividend policy over the next 12 months as
Syncona moves further towards becoming predominantly invested in life science.
Our annual charitable donation remains an important part of our corporate
social responsibility. The BACIT Foundation is currently in the process of
changing its name to The Syncona Foundation, reflecting its continued close
connection to the Company, and we look forward to maintaining our strong
relationship. We have been pleased to again contribute £4.75 million in 2018
to charities in the fields of healthcare, particularly cancer, and beyond.
This takes our total charitable donations since inception to £22.8 million.
Our funding is a significant source of income for the charities we support,
and we are very pleased to have been able to assist them to continue the
important work that they do.
Board evolution continues
Rob Hutchinson joined the Board in November 2017. Rob brings broad financial
experience, having spent 28 years at KPMG. He became Chair of the Audit
Committee on 1 April 2018. Gian Piero Reverberi joined on 1 April 2018 and
brings over 20 years’ experience in the commercialisation of novel therapies
through various roles at Vanda Pharmaceuticals, Shire and Eli Lilly. On 1
April 2018 Nick Moss became Senior Independent Director, having stepped down
as Chair of the Audit Committee at the end of the financial year.
I am very grateful to all my colleagues for their contribution and support,
and welcome new colleagues to the Board. I am certain that their skills will
prove invaluable as Syncona embarks on its next stage of growth and
development. We will continue to evolve the Board over the coming years as
Syncona increases its exposure to life science.
The future
Syncona’s vision is to deliver transformational treatments to patients in
innovative areas of healthcare while generating superior returns for
shareholders.
We have a high-quality portfolio of life science companies and a strong
capital base. The challenges we pursue when we invest in life science are not
simple or easy given we often target complex diseases with devastating
symptoms or outcomes. Some of our efforts will not succeed, but in those
companies that do, we have the potential to dramatically change patient lives
while generating significant value for shareholders. We have an expert
multi-disciplined team, a highly selective investment strategy and a long-term
approach that underpins our vision of building the next generation of
healthcare companies. The future is very exciting.
As always, we are grateful for the continued hard work and dedication of our
team in delivering significant progress across the portfolio. I would like to
also thank the BACIT team for the substantial contribution they have made to
the Company since it listed in 2012.
We are grateful for your continued support over the past year and look forward
to updating you further in the year to come.
Jeremy Tigue
14 June 2018
Report from CEO of Syncona Investment Management Limited
2018 has been another very positive year for Syncona. We have made strong
progress developing our existing life science companies and completed
selective new investments in a small number of promising opportunities, in
line with our focused strategy to build global leaders in healthcare.
A year of strong progress in our portfolio companies
We have made positive commercial, operational and development progress across
the life science portfolio this year, including a number of significant
valuation uplifts. At the year end, our life science portfolio was valued at
£514.5 million, increasing in value by £162.7 million and generating a
return of 57.2 per cent 5 .
We founded our most mature company, Blue Earth, in 2014, supporting it through
development to the successful commercial launch of its lead product, Axumin.
As at year end, the company had dosed over 15,000 patients, with revenues of
£35.9 million over the 12 months to 31 March 2018, and is now a profitable
business. This is a remarkable achievement just two years following launch and
four years since Syncona founded the company.
Blue Earth’s success has been enabled by both high-quality execution and by
the clear patient impact Axumin demonstrates in the recurrent prostate cancer
setting, with over 61 per cent of patients who receive an Axumin scan having
their treatment path changed, a very meaningful result in the context of these
patients 6 . Post the year end, Blue Earth also took an important step to
extend its leadership position in the field, acquiring an exclusive worldwide
licence to a high-quality, broad family of Prostate Specific Membrane Antigen
(PSMA)-targeted radiohybrid agents which are expected to play an important
role in the detection of prostate cancer in the future.
Beyond Blue Earth, we have seen three of our portfolio companies, Autolus,
Nightstar and Freeline, commence important clinical trials, which now total
eight Phase 1/2 trials and one Pivotal Phase 3 across our clinical pipeline,
including Nightstar’s pivotal trial in Choroideremia commenced post year
end. These are critical steps for our companies and the outcomes of these
programmes in the clinic will be the ultimate determinant of whether our
companies succeed in delivering transformational treatments to patients. We
also made a number of exciting new investments which provide Syncona with
options for future growth.
A capital model fit for a long-term approach to building global leaders
Syncona has a differentiated business model which combines a deep pool of
capital with an expert team and a focused portfolio of high potential life
science companies. This combination means that we have flexibility and control
to take a long-term view when supporting our companies over the timeframes
they need to succeed, and can own significant ownership stakes through the
development cycle.
The success of Blue Earth, a business founded and solely funded by Syncona,
demonstrates the benefits of having our own deep pool of capital, allowing us
the flexibility to retain sole ownership where it makes strategic sense for us
to do so. Equally the external financing rounds conducted this year
demonstrate the benefits of our model and the quality of the companies Syncona
builds, including a Series C financing and successful NASDAQ IPO in Nightstar,
and a Series C financing round in Autolus, all of which were conducted at
significant uplifts.
We believe this flexibility and control differentiates Syncona and allows us
to capture value over the long-term.
The next wave in healthcare is here and we are well placed to benefit.
What was particularly notable over the last year was the clear and unequivocal
arrival of what Syncona describes as the ‘Third Wave’ – the next
generation of treatments using cell and gene therapies which, we believe, will
provide significant opportunities to address currently intractable diseases,
and whose emergence will change the dynamics of the healthcare market over the
coming decades.
While these therapies have been in development for several decades, industry
and regulators have now recognised that these treatments are ready to be
delivered to patients, with the first cell and gene therapies approved in the
United States, two in the field of oncology and one targeting a genetic form
of blindness.
This is a very positive development for Syncona, as we recognised the
potential for cell and gene therapies in 2012 and have since created a
portfolio of seven companies in these areas; two cell therapy companies,
Autolus and Achilles, and five gene therapy companies, Nightstar, Freeline,
Gyroscope and our newly founded companies SwanBio and Orbit Biomedical. We
have systematically invested across all aspects required to deliver
high-quality, consistent therapies at commercial scale. Today, we believe we
have one of the largest and highest quality ‘Third Wave’ portfolios on a
global basis.
These developments represent a unique opportunity to participate in a
potential once-in-a-generation shift in healthcare. If we execute well,
Syncona can be at the forefront of a new wave of potentially curative
therapies for many diseases, which today have no or limited treatment options.
A differentiated approach to capitalise on the opportunity
Syncona is well placed to capitalise on these trends, given our differentiated
position in the market. We do not try to be all things to all people – we
invest with discipline and focus on a select range of opportunities. Our
guiding principles are:
* We are hands on and long-term investors. Our skill is not just in
identifying the highest quality emerging science, but in partnering with
founders to create companies and build teams capable of translating science
into clinical and patient realities
* We make high conviction investment decisions where we see a sufficient,
data-grounded probability of success.
* We focus on what will be meaningful for patients: we do not believe there is
a future for incremental innovation in healthcare. The products we deliver to
market must be differentiated and make a real difference to the treatment of
disease for the patient, the physician, and for the payers who fund such
treatments
An important period ahead
The next two to three years will be extremely important for Syncona as our
portfolio companies progress through clinical trials. We are expecting initial
data on a number of these trials over the next 12 months. We believe our
companies are well placed to execute well through their planned clinical and
regulatory development, but these processes involve significant risk.
We continue to see strong opportunities for new investments. In particular, as
a result of our strong reputation in ‘Third Wave’ areas, we have seen our
opportunity set expand globally, as demonstrated by our first US-based
investments in the area, in Orbit Biomedical and SwanBio. We will also
continue to invest outside the ‘Third Wave’ space in areas where we have
deep expertise and can replicate the Syncona model; to take a significant
ownership stake in the company that we can own at least to commercialisation,
to work in deep partnership with those portfolio companies such that we can
enhance their chances of success, and to target areas of dramatic efficacy
where we can deliver transformational treatments to patients.
We have a differentiated business model through which we are seeking to
capture superior returns for shareholders, targeting 15 per cent IRR through
the cycle. Our deep pool of capital supports our ambition of delivering
transformational treatments to patients and building the next generation of
healthcare companies.
Martin Murphy, CEO, Syncona Investment Management Limited
14 June 2018
Life Science Portfolio review
The portfolio performed strongly during the year, meeting or exceeding the key
operational and financial milestones set out at the beginning of the year.
Over the course of the year we made significant steps towards our development
and commercialisation plans for our existing portfolio companies. We made a
number of new investments, particularly in the areas of ‘Third Wave’
modalities where we have deep expertise and have reinforced our leadership
position in this space. As at 31 March 2018, our life science portfolio
consisted of eight portfolio companies and four investments and was valued at
£514.5 million.
The companies in our life science portfolio are categorised in three stages.
Established companies are those that are marketing their products, Maturing
companies have made significant development progress towards market approval
for their product and Developing companies are earlier stage, focused on
establishing differentiated platforms, management teams and capabilities to
progress their products through the full regulatory approval path.
Beyond Syncona’s portfolio companies, where we typically have a significant
ownership stake and are a founder with significant operational influence, we
also have a number of life science investments which represent good
opportunities to generate returns for shareholders or provide promising
options for the future and are aligned in areas where Syncona has domain
knowledge.
Established companies:
Blue Earth Diagnostics
Blue Earth was established by Syncona in 2014 when Axumin, then in clinical
development, was licensed from GE Healthcare with the ambition of building a
world-leading prostate cancer imaging company, developing molecular imaging
technologies to reliably inform diagnosis and treatment decisions.
Blue Earth has had another positive year, delivering a strong commercial
launch. More than 15,000 patients have now received an Axumin scan since the
product was launched commercially. Revenues during the 2018 financial year
were £12.4 million in the first half, increasing to £23.5 million in the
second half, and the business reached profitability during the period.
Quarter since launch Units sold (US)
1 (Q3 FY2017) 200
2 (Q4 FY2017) 800
3 (Q1 FY2018) 1800
4 (Q2 FY2018) 2500
5 (Q3 FY2018) 3700
6 (Q4 FY2018) 5000
Importantly, Blue Earth’s FALCON trial during the year showed that in over
61 per cent of cases, patients undergoing an Axumin scan will have a ‘change
in management’ in the way their disease is treated. This is a significant
achievement and demonstrates that the product is having a real impact for
patients and their physicians, which is our overarching aim in all our life
science investments.
Axumin’s presence expanded across markets during the year. After securing
approval for Axumin from the European Medicines Agency in May 2017, the
business signed new distribution agreements covering 14 European countries and
began conducting early sales in its first market, Austria. Distribution and
coverage in the United States has continued to expand through Blue Earth’s
successful partnership with Siemens PETNET, increasing from 14 active sites to
19 out of a possible 31 over the course of the year.
The business has also continued to focus on extending its leadership position
in the prostate imaging market. It continues to make good progress towards a
label extension for Axumin in glioma, a form of brain cancer, in 2018 and,
following the year end, also signed an exclusive worldwide licence to a
high-quality, broad family of PSMA-targeted radiohybrid agents for prostate
cancer imaging. This represented an opportunity to expand Blue Earth’s
portfolio in prostate cancer imaging to new areas of high unmet need, such as
early stage primary prostate cancer patients where Axumin is not used.
Looking forward, we expect Blue Earth to maintain a positive sales trajectory.
The business is focused on continuing to increase Axumin’s coverage and
penetration and will begin work on its PSMA asset development, aiming to file
an Investigational New Drug Application and complete Phase 1/2 work in 2019.
Maturing Companies
Nightstar Therapeutics:
Nightstar utilises gene therapy to develop products for inherited forms of
blindness and is pursuing a pipeline of retinal gene therapy programmes. Its
lead product is for Choroideremia, a progressive blinding condition for which
there are no alternative therapies.
Nightstar had a successful year as a business. In particular, it became the
first Syncona-founded company to progress to the public markets, on a timeline
which we believe to be one of the fastest from founding to listing on NASDAQ
for a UK biotech company.
Operationally, the business progressed its preclinical pipeline and its Phase
1/2 trial in its second programme of X-linked Retinitis Pigmentosa, another
progressive blinding condition for which there are no available therapies.
Importantly, the business commenced its pivotal Phase 3 trial (NSR-REP1) in
Choroideremia on schedule in April 2018, post year end, with Phase 3 being the
last step before potential product approvals. The primary endpoint being
assessed in the trial is the proportion of patients with an at least 15 letter
gain 7 in visual acuity at month 12 (High-Dose vs. Control). Nightstar
expects to complete enrolment of the Phase 3 trial in the first half of 2019
with the one year follow-up results expected in 2020.
The business is expecting to publish initial efficacy and safety data in
X-linked Retinitis Pigmentosa in 2018 and will progress preclinical work for
the next programmes in its pipeline as it seeks to achieve its ambition of
becoming the global leader in retinal gene therapy.
Autolus:
Autolus is a biopharmaceutical company developing next-generation programmed T
cell therapies for the treatment of cancer. The business engineers precisely
targeted, controlled and highly active T cell therapies that are designed to
recognise and break down the defence mechanisms of cancer cells and eliminate
them. Autolus believes its treatments have the potential to offer cancer
patients substantial benefits over the existing standard of care, including
the potential for cure in some patients.
Autolus made significant progress this year, including licensing new clinical
stage programmes (AUTO1 in paediatric ALL and AUTO1 in adult ALL) and
announcing the AUTO6 program in neuroblastoma (a partnered programme with
Cancer Research UK). It commenced new clinical trials including in its three
existing programmes of Multiple Myeloma (AUTO2), paediatric ALL (AUTO3), DLBCL
(AUTO3), and in adult ALL (AUTO1). The business is progressing these
programmes through the clinic rapidly, with data expected to begin reading out
from this year.
In September 2017, Autolus conducted a US$80 million Series C investment round
at a significant valuation uplift. The business announced post year end that
it had filed for a proposed initial public offering in the United States, the
process of which remains ongoing.
Freeline:
Freeline is a gene therapy company focused on liver expression for chronic
systemic diseases. The business met a significant milestone during the year,
with the first patient dosed in its lead programme in Haemophilia B, a rare,
lifelong monogenic disease which causes prolonged or spontaneous bleeding
episodes primarily in the brain, muscles and weight-bearing joints.
We believe the business is well placed to execute on its vision. It has a
proprietary capsid which draws on founder Amit Nathwani’s ground-breaking
work in gene therapy of the liver published in 2011 in the New England Journal
of Medicine which showed safe, effective and sustainable expression, and which
has informed the competitive landscape since. We believe the Freeline
treatments have the potential to be best in class for the delivery of
liver-targeted therapy.
Syncona seeks to build its portfolio companies ambitiously, and in line with
this aim Freeline has systematically invested in, and built, an
industry-leading, commercial scale AAV manufacturing platform and a
world-class team with extensive track records in gene therapy, clinical
translation and global drug approvals. The company is led by Anne Prener,
formally Vice President, Clinical Research Haemotology and Global Therapeutic
Area Head of Haematology at Baxalta, who commenced as CEO in July 2017.
Initial data from the Phase 1/2 trial in Haemophilia B is anticipated within
12 months, while the business has identified and is working on its next
programmes in other systemic diseases.
Developing companies
Gyroscope is the second Syncona-founded retinal gene therapy company, and our
first gene therapy company seeking to move beyond rare monogenic disorders
into prevalent diseases impacting significantly larger sized patient markets.
The business was founded by Syncona in May 2016 after it saw an opportunity to
apply gene therapy to the complement system, a part of the immune system, in
the development of Dry Age Related Macular Degeneration (dry AMD), the leading
cause of irreversible blindness in the developed world. The business has an
ambition to become the leading gene therapy company in retinal inflammation.
During the year the business made significant progress building out its
operations and team, including appointing Soraya Bekkali as CEO. Soraya joined
from Lysogene, a clinical-stage gene therapy company, where she was SVP Chief
Medical Officer, and prior to this was Global Head of Ophthalmology Business
Unit at Sanofi, where she led Sanofi’s ophthalmology strategy towards ocular
gene therapy.
The company is expecting to dose its first patient in its lead programme in
one of the most severe forms of dry AMD this year, and will nominate the
candidate for the second programme over the next 12 months.
Achilles, our second cell therapy company which is focused on immunotherapy to
treat lung cancer, also made good progress during the year, demonstrating
pre-clinical product viability, and the company will progress towards clinical
studies in 2019. Syncona Managing Partner, Iraj Ali, replaced Chris Ashton,
who retired as CEO of the business and a Syncona partner in late 2017. Iraj
will lead Achilles through the next phase of its business plan.
Finally, SwanBio and Orbit Biomedical are Syncona’s newly founded gene
therapy businesses. SwanBio is a gene therapy company focused on the
development and commercialisation of genetically defined therapies for the
treatment of neurological disorders. Orbit has the potential to transform the
accuracy, safety and consistency of delivering therapeutics, including gene
therapies, to the sub-retinal space with its proprietary device, minimally
invasive surgical technique and state-of-the-art-training. The businesses
provide Syncona with further scale and breadth in AAV gene therapy where we
have a leading position. They will focus this year on recruiting further
members of the team and establishing and building out their operations.
Life science investments:
CEGX progressed well and completed a $27.5 million financing round post year
end. Given Syncona’s relatively low ownership stake in the business
(previously 12 per cent, 9 per cent following the investment round), we regard
our holding in CEGX as an investment. In this context we remain supportive of
the business, but did not participate in the financing round. Following the
round, Syncona’s investment is valued at £9.8 million, a £4.6 million
uplift to the previous holding value.
The CRT Pioneer Fund has now completed its new asset investment period, with
12 opportunities in the portfolio. Syncona contributed a net £9.0 million
during the year, with a further £19.3 million of commitments remaining.
During the year we acquired a two per cent holding in Endocyte (ECYT), a
NASDAQ-listed biotech company with a potential product for late-stage prostate
cancer. We viewed the company as fundamentally undervalued and invested a
total of £4.0 million, which was valued at £9.0 million at year end. While
not the core of what we do, Endocyte operates in therapeutic areas where we
have deep domain expertise, allowing us a high level of confidence in the
investment. Following the year end, we sold £4.1 million worth of shares,
recovering the cost of our original investment, while retaining a holding of
1.4 per cent.
Finally, we entered into a new collaboration agreement (Syncona
Collaborations) with Edinburgh University to fund a two-year programme into a
promising new potential use of cell therapy to treat an area of chronic
disease. Should initial pre-clinical work prove promising, we have the option
to form a new company to progress the development of these innovations.
Outlook
Our portfolio companies are well placed to continue to execute their
development plans and, in the case of Blue Earth, we expect continued positive
sales progress.
We have a number of important milestones approaching. Autolus, Nightstar and
Freeline are now in clinical trials and the next year will be crucial for
these businesses, as well as for Gyroscope, which is expected to move to
clinical stage. Specifically, in the next 12 months we anticipate:
- Initial Phase 1/2 data in five clinical trials: Autolus (Multiple
Myeloma, paediatric ALL and adult DLBCL), Nightstar (XLRP), Freeline
(Haemophilia B)
- Two new clinical trials expected to commence in Gyroscope and
Autolus
All of our portfolio companies have first class management teams and are
operating in areas of high unmet medical need and we believe they are in a
strong position to navigate clinical and regulatory processes, but the pathway
ahead of them is not without risk.
Our new portfolio company investments in Orbit Biomedical and SwanBio are
exciting new opportunities completed in line with Syncona’s disciplined
approach to creating a portfolio of no more than 15-20 companies in
transformative areas of science that we can support over the long-term,
ultimately seeking to deliver transformational treatments for patients in
areas of high unmet need.
After founding these new companies in AAV Gene Therapy, we are now reaching
critical mass, with what we believe to be one of the most comprehensive
co-ordinated AAV Gene Therapy programmes and platforms globally.
Finally, we continue to see strong opportunities for new investments, both in
the ‘Third Wave’ and beyond.
In short, we have a high-quality portfolio that is well positioned to continue
to progress towards their key milestones and development plans. We are
strategically positioned in the increasingly important area of cell and gene
therapy, have a strong pipeline of opportunities and remain focused on
delivering transformational treatment to patients.
Chris Hollowood, Chief Investment Officer, Syncona Investment Management
Limited
14 June 2018
Finance review
Syncona has made significant progress in the year and delivered strong NAV
progression. We continue to demonstrate 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 science portfolio.
Performance driven by significant progress in our life science portfolio
At 31 March 2018, Syncona had net assets of £1,055.8 million, or 158.9p per
share (2017: £895.2 million – 135.8p per share) 8 , reporting a total
return of 18.7 per cent( 9 ) in the year with performance driven by a 57.2 per
cent growth from life science portfolio, underpinned by a 7.5 10 per cent
return from fund investments.
Within our life science portfolio, performance has primarily been driven by
the valuation increases of a number of our established and maturing portfolio
companies, in particular Blue Earth, Nightstar and Autolus. Together these
increases added £152.9 million to the value of the portfolio. The most
material of these uplifts, Blue Earth, was valued at £186.8 million at the
year end, an increase of £72.4 million in the year, as the business moved
into profitability following the continued strong commercial performance of
Axumin, and the licencing of a new PSMA agent. The valuation movement in both
Nightstar and Autolus was driven by financing events, with Nightstar
successfully completing a Series C investment round and an IPO on NASDAQ and
Autolus completing a Series C fundraising in the year.
Valuation policy
The valuation of investments is conducted in accordance with International
Private Equity and Venture Capital Valuation Guidelines. At 31 March 2018, the
life science investments were valued at cost, Price of Recent Investment, rDCF
or quoted basis. In the case where Syncona is the sole institutional investor
and substantive clinical data which is material to Syncona has been generated
in life science portfolio companies, we will use input from an independent
valuations advisor in its determination of the fair value of investments. The
fund investments are valued by reference to third-party pricing.
Investment cashflow in line with guidance
During the year, gross investment into life science investments was £127.2
million (net investment of £125.2 million), funding four new and seven
follow-on investments, and in line with prior year guidance of £75 million to
£150 million. Whilst the absolute level of drawdowns will be dependent on our
investment pipeline, our current expectation is that the Company will continue
to invest between £75 million to £150 million in new and existing life
science investments over the next 12 months.
Liquidity profile £m
Net Cash 76.2
< 1 month 203.7
1-3 months 51.0
3-12 months 150.2
> 12 months 60.2
TOTAL 541.3
Uncalled commitments reflect new investments and financing rounds
Uncalled commitments stood at £72.0 million at the year end, of which £47.1
million relate to milestone payments associated with the life science
portfolio and £19.3 million to the CRT Pioneer Fund. These payments are
typically linked to the relevant portfolio company achieving key strategic and
development goals over the next 24 months. The remainder of the uncalled
commitments relate to fund investments.
Strong capital base and significant liquidity in fund investments
Syncona has a strong capital base with net cash resources of £76.2
million( 11 ) and £465.1 million of further liquidity in fund investments.
Fund investments £m
Opening value 12 582.8
Redemptions (220.3)
Reinvestment 84.5
Movement in unrealised gain on hedge 1.1
Unrealised gain on fund investments 17.0
Closing value 465.1
During the year, Syncona’s life science and fund investment teams worked
increasingly closely together to support the key goal of meeting the capital
requirements of the life science business. Over this time, the fund
investments’ parameters have evolved to focus on liquidity and capital
preservation and the underlying investments are transitioning towards funds
that are less correlated to equity markets and are typically more liquid than
in the past. In line with this, over the 12 months a number of allocations to
long-only funds were redeemed in favour of hedged strategies.
The portfolio of fund investments is invested with 18 managers across 23 funds
and focuses on managers with track records of containing downside volatility
through portfolio construction or nimble repositioning and active management
of underlying holdings, or both. The fund investments represent a productively
deployed capital base, generating attractive risk-adjusted returns, which can
be drawn upon to support Syncona’s life science investment programme.
Importantly, this capital base gives us flexibility and control over the
choice and timing of life science investments.
Strategy £m value % of NAV % of funds investments % change in weighting in 12 months
Equity hedge funds 214.2 20.3 46.1 7.9
Equity funds 117.8 11.2 25.3 1.2
Fixed income and credit funds 67.7 6.5 14.6 -0.5
Other strategies 39.3 3.7 8.4 2.5
Global macro funds 24.6 2.3 5.3 -7.9
Commodities - - - -3.5
Unrealised FX hedge 1.5 0.1 0.3 0.3
TOTAL 465.1 44.1 100.0 0.0
The 7.5 per cent return from the fund investments was predominantly driven by
the long-biased elements of the portfolio, with both equity hedge funds and
equity funds producing strong constant currency returns of 9.9 per cent and
13.6 per cent respectively. The remainder of the portfolio is invested in
fixed income and credit funds, which generated a constant currency return of
3.5 per cent and Global Macro funds, which made a small negative contribution
to performance on a constant currency basis of -0.4 per cent. Other
strategies, which include infrastructure, private equity and credit, generated
a constant currency return of 20.7 per cent, benefitting from a number of
strong realisations.
Top 10 fund investments
Fund Strategy Asset Class % of NAV
The SFP Value Realization Fund Long-bias Equities 3.6
Polar UK Absolute Equity Fund Hedge Equities 3.5
Maga Smaller Companies UCITS Hedge Equities 3.0
Polygon European Equity Opportunity Hedge Equities 3.0
Polar Capital Japan Alpha Long-bias Equities 3.0
AKO Global UCITS Fund Hedge Equities 2.8
Sinfonietta Hedge Macro 2.3
Portland Hill Hedge Equities 2.3
Majedie UK Equity Long-bias Equities 2.2
Permira V Long-bias Private equity 2.1
Since the year end, a further £19.7 million has been redeemed from long-only
strategies and £13.2 million invested into hedged strategies 13 . The
portfolio’s weighting to hedged strategies will continue to increase as we
transition the portfolio away from more directional long-only funds towards
strategies more suited to our current investment parameters. We expect to have
substantially completed this repositioning in the current financial year.
Revised arrangements for the management of the fund investments expected to
deliver significant cost savings
Towards the end of the financial year we announced revised arrangements for
the management of the fund investments, including an agreement with BACIT to
terminate its Investment Management Agreement (IMA) and for Arabella Cecil
(former CIO of BACIT) to join SIML as Head of Fund Investments. In
consideration for the significant early cessation of the IMA, Syncona paid a
fee to BACIT of £3.8 million.
These arrangements came into effect on 1 April 2018. They are expected to
deliver significant cost savings to Syncona over the life of the original
BACIT agreement and will reduce the maximum management fees incurred by the
Company to 1.1 per cent of NAV per annum, from 1.19 per cent.
Expenses
Our ongoing charges ratio for the year was 1.01 per cent 14 , and included
fees paid to SIML and BACIT of £7.6 million, or 0.79 per cent of NAV. This
year’s ongoing charges ratio compares to 0.72 per cent in 2017, with the
increase reflecting a full year of costs associated with the management of the
life science portfolio. Allowing for the costs associated with the Company’s
Long-Term Incentive Plan, ongoing charges increased to 1.58 per cent (2017:
0.72 per cent).
Long-Term Incentive Plan
The strong performance of the life science portfolio has significantly
exceeded the 15 per cent growth hurdle 15 for the Company’s Long-Term
Incentive Plan (“LTIP”). The LTIP scheme vests on a straight-line basis
over a four-year period with awards settled in cash and Syncona shares. At the
year end the total liability for the cash settled element was revalued at
£5.4 million and the number of shares in the Company that could potentially
be issued increased by 4,620,436 shares, taking the fully-diluted number of
shares to 664,572,526. Further details on the LTIP can be found in the
Remuneration Report in the Annual Report and in notes 2 and 13.
Dividend
The Company has declared a dividend of 2.3p per share (2017: 2.3p per share).
The Board will review the dividend policy over the next 12 months as Syncona
moves further towards becoming predominantly invested in life science. The
dividend will be paid on 30 July 2018 and will be paid as a scrip dividend,
unless shareholders elect to receive the dividend in cash. The ex-dividend
date will be 21 June 2018 and the record date 22 June 2018.
Foreign exchange
At the year end we continue to hold the Company’s foreign exchange exposure
in its life science portfolio unhedged. Within the portfolio of fund
investments we continue to hedge all of the euro-denominated share classes,
and 69.5 per cent of the exposure to US Dollar-denominated share classes and
cash balances. At the year end, the unrealised gain on the associated forward
contracts was £1.5 million.
Recent events
In May 2018 Syncona’s portfolio company Autolus announced that it had filed
for a proposed initial public offering in the United States. An amended
registration statement published on 8 June 2018 disclosed an indicative
pricing range for the proposed offering of U.S.$15.00 – U.S.$17.00 per ADS.
This would represent an increase in value of Syncona’s current shareholding
in Autolus (compared to the 31 March 2018 sterling holding value) of £51.6
million – £69.9 million 16 (7.8p – 10.5p per share). Syncona has
indicated an interest in purchasing ADSs in the offering, subject to agreement
with the underwriters.
John Bradshaw, Chief Financial Officer, Syncona Investment Management Limited
14 June 2018
SYNCONA LIMITED
GROUP PORTFOLIO STATEMENT
As at 31 March 2018
% of
Group
Fair Value NAV
£'000 2018
Life Science Portfolio
Life Science Companies
Blue Earth Diagnostics Limited 186,828 17.6
Nightstar Therapeutics plc 124,492 11.8
Autolus Limited 85,117 8.1
Freeline Therapeutics Limited 36,000 3.4
Companies of less than 1% of NAV 51,299 4.9
Total Life Science Companies ((1)) 483,736 45.8
CRT Pioneer Fund ((2)) 30,807 2.9
Total Life Science Portfolio ((3)) 514,543 48.7
Fund Investments
Equity Hedge Funds
Polar UK Absolute Equity 36,862 3.5
Maga Smaller Companies UCITS 31,680 3.0
Polygon European Equity Opportunity 31,570 3.0
AKO Global UCITS 29,035 2.8
Portland Hill 24,036 2.3
Sagil Latin American Opportunities 18,775 1.8
Doric Asia Pacific 14,718 1.4
Man GLG Pan-European Growth 12,966 1.2
Funds of less than 1% of NAV 14,563 1.4
214,205 20.4
Equity Funds
The SFP Value Realisation 37,719 3.6
Polar Capital Japan Alpha 31,412 2.9
Majedie UK Focus 25,460 2.4
Majedie UK Equity 23,245 2.2
117,836 11.1
Fixed Income and Credit Funds
Polygon Convertible Opportunity 18,575 1.8
WyeTree RRETRO 16,837 1.6
CG Portfolio Dollar 16,070 1.6
Funds of less than 1% of NAV 16,261 1.5
67,743 6.5
Global Macro Funds
Sinfonietta 24,550 2.3
24,550 2.3
Other Strategies
Permira V 21,941 2.1
Infracapital Partners II 15,142 1.4
Funds of less than 1% of NAV 2,174 0.2
39,257 3.7
Open forward currency contracts 1,511 0.1
Total Fund Investments ((2)) 465,102 44.1
Other Net Assets
Cash and cash equivalents ((4)) 85,182 8.1
Charitable donations (4,752) (0.5)
Other assets and liabilities (4,312) (0.4)
Total Other Net Assets 76,118 7.2
Total Net Asset Value of the Group 1,055,763 100.0
Valuation basis Percentage of the investment portfolio
Cost 7%
Price of recent investment 10%
Discounted cash flow 19%
Quoted 14%
Third party 50%
CRT Pioneer Fund 3%
Fund investments 47%
(1) The fair value of Syncona Holdings Limited amounting to £488,347,516 is
comprised of investments in life science companies of £483,736,053, other net
assets of £689,232 in Syncona Holdings Limited, other net assets of
£1,449,330 in Syncona Portfolio Limited and investment in Syncona Investment
Management Limited of £2,472,901.
(2) The fair value of the investment in Syncona Investments LP Incorporated
amounting to £576,174,499 is comprised of the investment in the fund
investments of £465,102,003 (including the open forward currency contracts of
£1,511,499), the investment in the CRT Pioneer Fund of £30,807,446, cash of
£78,712,400 and other net assets of £1,552,650.
(3) The life science portfolio of £514,543,499 consists of life science
investments totalling £483,736,053 held by Syncona Holdings Limited and the
CRT Pioneer Fund of £30,807,446 held by Syncona Investments LP Incorporated.
(4) Total cash held by the Group is £85,182,499. Of this amount £981,053 is
held by Syncona Limited, and £78,712,400, £2,472,015 and £3,017,031 are
held by Syncona Investments LP Incorporated, Syncona Portfolio Limited and
Syncona Investment Management Limited respectively. Cash held by Syncona
Investments LP Incorporated, Syncona Portfolio Limited and Syncona Investment
Management Limited is not shown in Syncona Limited’s Consolidated Statement
of Financial Position.
See note 1 for a description of Syncona Holdings Limited and Syncona
Investments LP Incorporated.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 March 2018
2018
Notes Revenue Capital Total
£'000 £'000 £'000
Investment income
Other income 7 28,747 - 28,747
Total investment income 28,747 - 28,747
Net gains on financial assets at fair value through profit or loss 8 - 167,694 167,694
Total gains - 167,694 167,694
Expenses
Charitable donation 9 4,752 - 4,752
General expenses 10 18,858 - 18,858
Total expenses 23,610 - 23,610
Profit for the year 5,137 167,694 172,831
Earnings per Ordinary Share 15 0.78p 25.43p 26.21p
The total columns of this statement represent the Group’s Consolidated
Statement of Comprehensive Income, prepared in accordance with International
Financial Reporting Standards as adopted by the European Union and
interpretations adopted by the International Accounting Standards Board.
Whilst the Company is not a member of the Association of Investment Companies
(the “AIC”), the supplementary revenue and capital columns are both
prepared under guidance published by the AIC.
The profit for the year is equivalent to the “total comprehensive income”
as defined by IAS 1 Presentation of Financial Statements (‘IAS 1’). There
is no other comprehensive income as defined by IFRS.
All the items in the above statement derive from continuing operations.
For the year ended 31 March 2017
2017
Notes Revenue Capital Total
£'000 £'000 £'000
Investment income
Other income 7 14,561 - 14,561
Total investment income 14,561 - 14,561
Net gains on financial assets at fair value through profit or loss 8 - 71,375 71,375
Total gains - 71,375 71,375
Expenses
Charitable donation 9 4,752 - 4,752
General expenses 10 3,893 - 3,893
Total expenses 8,645 - 8,645
Profit for the year 5,916 71,375 77,291
Earnings per Ordinary Share -basic 15 1.28p 15.44p 16.72p
The total columns of this statement represent the Group’s Consolidated
Statement of Comprehensive Income, prepared in accordance with International
Financial Reporting Standards as adopted by the European Union and
interpretations adopted by the International Accounting Standards Board.
Whilst the Company is not a member of the Association of Investment Companies
(the “AIC”), the supplementary revenue and capital columns are both
prepared under guidance published by the AIC.
The profit for the year is equivalent to the “total comprehensive income”
as defined by IAS 1 Presentation of Financial Statements (‘IAS 1’). There
is no other comprehensive income as defined by IFRS.
All the items in the above statement derive from continuing operations.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 March 2018
2018 2017
Notes £'000 £'000
ASSETS
Non-current assets
Financial assets at fair value through profit or loss 11 1,064,521 896,469
Current assets
Bank and cash deposits 981 105
Trade and other receivables 12 5,445 4,772
Total assets 1,070,947 901,346
LIABILITIES AND EQUITY
Non-current liabilities
Share based payments 13 4,450 46
Current liabilities
Share based payments 13 943 -
Payables 14 9,791 6,062
Total liabilities 15,184 6,108
EQUITY
Share capital 15 763,016 760,327
Distributable capital reserves 292,747 134,911
Total equity 1,055,763 895,238
Total liabilities and equity 1,070,947 901,346
Total net assets attributable to holders of Ordinary Shares
1,055,763 895,238
Number of Ordinary Shares in Issue 15 659,952,090 658,387,407
Net assets attributable to holders of
Ordinary Shares (per share) 15 £1.60 £1.36
Diluted Shares (per share) 15 £1.59 £1.36
The audited Consolidated Financial Statements were approved on 14 June 2018
and signed on behalf of the Board of Directors by:
Jeremy Tigue Chairman Rob Hutchison Non-Executive Director
CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS ATTRIBUTABLE TO HOLDERS OF
ORDINARY SHARES
Share Capital Revenue
capital reserves reserves Total
Notes £'000 £'000 £'000 £'000
As at 31 March 2016 406,208 66,037 - 472,245
Total comprehensive income for the year - 71,375 5,916 77,291
Transactions with shareholders:
Share based payments - - 46 46
Scrip dividend shares issued during the year 1,801 - - 1,801
Distributions - (2,501) (5,962) (8,463)
Issuance of shares 357,054 - - 357,054
Share issue costs (4,736) - - (4,736)
As at 31 March 2017 760,327 134,911 - 895,238
Total comprehensive income for the year - 167,694 5,137 172,831
Transactions with shareholders:
Share based payments 13 - - 148 148
Scrip dividend shares issued during the year 15 2,689 - - 2,689
Distributions 16 - (9,858) (5,285) (15,143)
As at 31 March 2018 763,016 292,747 - 1,055,763
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 March 2018
Notes 2018 £'000 2017 £'000
Cash flows from operating activities
Profit for the year 172,831 77,291
Adjusted for:
Gains on financial assets at fair value through profit or loss 8 (167,694) (71,375)
Operating cash flows before movements in working capital 5,137 5,916
(Increase)/decrease in other receivables (673) 23
Increase in other payables 3,729 1,177
Net cash generated from operating activities 8,193 7,116
Cash flows from investing activities
Purchase of financial assets at fair value through profit or loss (114,133) (169,235)
Return of capital contribution 119,270 4,000
Net cash generated from/(used in) investing activities 5,137 (165,235)
Cash flows from financing activities
Issuance of shares - 169,581
Share issue costs - (4,736)
Distributions 16 (12,454) (6,662)
Net cash (used in)/generated from financing activities (12,454) 158,183
Net increase in cash and cash equivalents 876 64
Cash and cash equivalents at beginning of year 105 41
Cash and cash equivalents at end of year 981 105
Supplemental disclosure of non-cash investing and financing activities:
Investments purchased by issue of shares - (187,473)
Issue of shares 15 2,689 189,274
Scrip dividend shares issued during the year 15 (2,689) (1,801)
Net non-cash investing and financing activities - -
Cash held by the Company and its subsidiaries other than its portfolio
companies (“Syncona Group Companies”) is disclosed in the portfolio
statement.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 March 2018
1. GENERAL INFORMATION
Syncona Limited (the “Company”) is incorporated in Guernsey as a
registered closed-ended investment company. The Company’s Ordinary Shares
were listed on the premium segment of the London Stock Exchange on 26 October
2012 when it commenced its business.
In December 2016, shareholders approved the expansion of the Company’s
investment policy and the acquisition of Syncona Partners LLP, a portfolio of
life science investments, together with its investment management team. As
part of the transaction, the Company also acquired Cancer Research UK’s
partnership interest in the Cancer Research Technologies Pioneer Fund LP
(“CRT Pioneer Fund”).
The Company makes its life science investments through Syncona Holdings
Limited (the “Holding Company”). The Company makes its fund investments
through Syncona Investments LP Incorporated (the “Partnership”). The
general partner of the Partnership is Syncona GP Limited (the “General
Partner”), a wholly-owned subsidiary of the Company. Syncona Limited and
Syncona GP Limited are collectively referred to as the “Group”.
On 12 December 2017 Syncona Investment Management Limited (“SIML”), a
subsidiary, was appointed as the Company’s Alternative Investment Fund
Manager (“Investment Manager”) replacing BACIT (UK) Limited (“BACIT”)
which became a sub-delegate to the Investment Manager on the same date. On
31 March 2018 the sub-delegate relationship between the Company, SIML and
BACIT was terminated.
The investment objective and policy is set out in the Directors’ Report.
2. ACCOUNTING POLICIES
The following accounting policies have been applied consistently in dealing
with items which are considered to be material in relation to the Group’s
financial statements:
Preliminary announcement
The financial information contained in this preliminary announcement does not
constitute full accounts as defined in the Companies (Guernsey) Law, 2008 and
has been extracted from the statutory accounts for the year ended 31 March
2018. The auditors have issued an unqualified report on these statutory
accounts. The Company expects to publish full financial statements that
comply with IFRS in July 2018
This announcement has been prepared using recognition and measurement
principles of IFRS as endorsed for use in the European Union (IFRS). This
announcement does not contain sufficient information to comply with IFRS.
The same accounting and presentation policies were used in the preparation of
the statutory accounts for the year ended 31 March 2017.
Basis of preparation
The Consolidated Financial Statements have been prepared under the historical
cost basis, except for investments and derivatives held at fair value through
profit or loss, which have been measured at fair value.
Going Concern
The financial statements are prepared on a going concern basis. The
Company’s net assets currently consist of securities and cash amounting to
£1,055.8 million (31 March 2017: £895.2 million) of which 31.4%
(31 March 2017: 43.1%) are readily realisable within three months in normal
market conditions, and uncalled commitments to underlying investments and
funds amounting to £72.0 million (31 March 2017: £108.0 million).
Accordingly, the Company has adequate financial resources to continue in
operational existence for 12 months following the approval of the financial
statements. Hence, the Directors believe that it is appropriate to continue to
adopt the going concern basis in preparing the Consolidated Financial
Statements.
Basis of consolidation
The General Partner is consolidated in full; the Company and the General
Partner consolidated form “the Group”.
The results of the General Partner during the year are included in the
Consolidated Statement of Comprehensive Income from the effective date of
incorporation. The financial statements of the General Partner are prepared in
accordance with United Kingdom Accounting Standards. Where necessary,
adjustments are made to the financial statements of the General Partner to
bring the accounting policies used into line with those used by the Group.
During the year, no such adjustments have been made. All intra-group
transactions, balances and expenses are eliminated on consolidation.
Entities that meet the definition of an investment entity under IFRS 10
‘Consolidated Financial Statements’ are held at fair value through profit
or loss in accordance with IAS 39 ‘Financial Instruments: Recognition and
Measurement’. Syncona Investments LP Incorporated and Syncona Holdings
Limited both meet the definition of Investment Entities as described in note
3.
Financial instruments
Financial assets and derivatives are recognised in the Group’s Consolidated
Statement of Financial Position when the Group becomes a party to the
contractual provisions of the instrument.
Financial assets are classified into the following categories: financial
assets at fair value through profit or loss, loans and receivables. The
classification depends on the nature and purpose of the financial assets and
is determined at the time of initial recognition. All regular way purchases or
sales of financial assets are recognised and derecognised on a trade date
basis. Regular way purchases or sales are purchases or sales of financial
assets that require delivery of assets within the timeframe established by
regulation or convention in the marketplace.
Financial liabilities are classified as other financial liabilities.
Financial assets at fair value through profit or loss (“investments”)
Investments purchased are initially recorded at fair value, being the
consideration given and excluding transaction or other dealing costs
associated with the investment. Gains and losses on investments sold are
recognised in the Statement of Comprehensive Income in the period in which
they arise. The appropriate classification of the investments is determined at
the time of the purchase and is re-evaluated on a regular basis.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or
determinable payments that are not quoted in an active market. The carrying
amounts, being cost, shown in the Consolidated Statement of Financial Position
approximate the fair values due to the short term nature of these loans and
receivables. The Group did not hold any loans throughout the year.
Forward currency contracts
Forward foreign currency contracts are derivative contracts and as such are
recognised at fair value on the date on which they are entered into and
subsequently remeasured at their fair value. Fair value is determined by rates
in active currency markets. Whilst the Group holds no forward currency
contracts, forward currency contracts are held by the Partnership.
Other financial liabilities
Other financial liabilities include all other financial liabilities other than
those designated as financial liabilities at fair value through profit or
loss. The Group’s other financial liabilities include payables. The carrying
amounts shown in the Consolidated Statement of Financial Position approximate
the fair values due to the short term nature of these other financial
liabilities.
Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount
reported in the Consolidated Statement of Financial Position if, and only if,
there is a currently enforceable legal right to offset the recognised amounts
and there is an intention to settle on a net basis, or to realise assets and
settle the liabilities simultaneously.
Fair Value – life science portfolio
The Group’s investments in life science companies are, in the case of quoted
companies, valued based on bid prices in an active market as at the reporting
date.
In the case of the Group’s investments in unlisted companies, the fair value
is determined in accordance with the International Private Equity and Venture
Capital (“IPEVC”) Valuation Guidelines. These include the use of recent
arm’s length transactions, Discounted Cash Flow (“DCF”) analysis and
earnings multiples. Wherever possible, the Group uses valuation techniques
which make maximum use of market-based inputs. Accordingly, the valuation
methodology used most commonly by the Group is the Price of Recent Investment
(“PRI”).
The following considerations are used when calculating the fair value of
unlisted life science companies:
* Cost – Where an investment has been made recently it is valued on a cost
basis unless there is objective evidence that it has been impaired or
increased in value since the investment was made, such as observable data
suggesting a change of the financial, technical, or commercial performance of
the underlying investment or, where the Group considers that cost is no longer
relevant, the Group carries out an enhanced assessment based on comparable
companies, transactions and milestone analysis.
* PRI – The Group considers that fair value estimates, which are based
entirely on observable market data, are of greater reliability than those
based on assumptions and, accordingly, where there has been any recent
investment by third parties, the price of that investment generally provides a
basis of the valuation. The length of period for which it remains appropriate
to use the price of recent investment depends on the specific circumstances of
the investment and the stability of the external environment.
* Marketable quoted securities – Any investments which are marketable
securities quoted on an investment exchange are valued at the relevant bid
price at the close of business on the relevant date.
* Other valuation techniques – Where the life science investment management
team is unable to value an investment on a cost or PRI basis, or there is
objective evidence that a change in fair value has occurred since a relevant
transaction, then it employs one of the alternative methodologies set out in
the IPEVC Valuation Guidelines such as DCF or price-earnings multiples. DCF
involves estimating the fair value of an investment by calculating the present
value of expected future cash flows, based on the most recent forecasts in
respect of the underlying business. Given the difficulty involved with
producing reliable cash flow forecasts for seed, start-up and early-stage
companies, as described above, the DCF methodology will generally be used in
the event that a life science company is in the final stages of clinical
testing prior to regulatory approval or has filed for regulatory approval
where other metrics are considered less reliable.
* Independent Advisor – The Group’s determination of the fair values of
certain investments took into consideration multiple sources including
management and publicly available information and publications and including
certain input from independent advisors L.E.K. Consulting LLP (“L.E.K.”),
who has undertaken an independent review of certain investments and has
assisted the Group with its valuation of such investments. The review was
limited to certain limited procedures that we identified and requested it to
perform within an agreed limited scope. The investments covered in the review
were Achilles Therapeutics Limited, Autolus Limited, Blue Earth Diagnostics
Limited, Freeline Therapeutics Limited and Gyroscope Limited.
As with any review of investments these can only be considered in the context
of the limited procedures and agreed scope defining such review and are
subject to assumptions which may be forward looking in nature and subjective
judgements. Upon completion of such limited agreed procedures, L.E.K.
estimated an independent range of fair values of those investments subjected
to the limited procedures. In making such a determination the Group considered
the review as one of multiple inputs in the determination of fair value. The
limited procedures within the agreed scope and limited by the information
reviewed did not involve an audit, review, compilation or any other form of
verification, examination or attestation under generally accepted auditing
standards and was based in the review of multiple defined sources. The Group
is responsible for determining the fair value of the investments, and the
agreed limited procedures in the review performed to assist the Group in its
determination are one element of and are supplementary to the inquiries and
procedures that the Group is required to undertake to determine the fair value
of the said investments for which management is ultimately responsible.
Fair Value – fund investments
Investments in underlying funds – The Group’s investments in underlying
funds are ordinarily valued using the values (whether final or estimated) as
advised to the Investment Manager by the managers, general partners or
administrators of the relevant underlying fund. The valuation date of such
investments may not always be coterminous with the valuation dates of the
Company and in such cases the valuation of the investments as at the last
valuation date is used. The net asset value reported by the administrator may
be unaudited and, in some cases, the notified asset values are based upon
estimates. The Group or the Investment Manager may depart from this policy
where it is considered such valuation is inappropriate and may, at its
discretion, permit any other method of valuation to be used if it considers
that such method of valuation better reflects value generally or in particular
markets or market conditions and is in accordance with good accounting
practice. In the event that a price or valuation estimate accepted by the
Group or by the Investment Manager in relation to an underlying fund
subsequently proves to be incorrect or varies from the final published price
by an immaterial amount, no retrospective adjustment to any previously
announced Net Asset Value or Net Asset Value per Share will be made.
Derecognition of financial instruments
A financial asset is derecognised when: (a) the rights to receive cash flows
from the financial asset have expired, (b) the Group retains the right to
receive cash flows from the financial asset, but has assumed an obligation to
pay them in full without material delay to a third party under a “pass
through arrangement”; or (c) the Group has transferred substantially all the
risks and rewards of the financial asset, or has neither transferred nor
retained substantially all the risks and rewards of the financial asset, but
has transferred control of the financial asset.
A financial liability is derecognised when the contractual obligation under
the liability is discharged, cancelled or expired.
Commitments
Through its investment in the Holding Company and the Partnership, the Group
has outstanding commitments to investments that are not recognised in the
Consolidated Financial Statements. Refer to note 21 for further details.
Share Based Payments
Certain employees of SIML participate in equity incentive arrangements under
which they receive awards of Management Equity Shares (“MES”) in Syncona
Holdings Limited above a base line value set out at the date of award. The MES
are not entitled to dividends but any dividends or capital value realised by
the Group in relation to the Holding Company are taken into account in
determining the value of the MES. If an individual remains in employment for
the applicable vesting period, they then have the right to sell 25% of their
vested MES to the Company each year. The price is determined using a formula
stipulated in the Articles of Association (“Articles”) of Syncona Holdings
Limited.
The Group’s policy is to settle half of the proceeds (net of expected taxes)
in Company shares which must be held for at least 12 months, with the balance
paid in cash. Consequently, the arrangements are deemed to be partly an
equity-settled share based payment scheme and partly a cash-settled share
based payment scheme under IFRS 2 in the Consolidated Financial Statements of
the Group.
The fair value of the MES at the time of the initial subscription is
determined by an independent third-party valuer in accordance with IFRS 2
‘Share based payments’ and taking into account the particular rights
attached to the MES as described in the Articles. The external valuer is
supplied with detailed financial information relating to the relevant
businesses. Using this information, the fair value is measured using a
probability-weighted expected returns methodology, which is an appropriate
future-orientated approach when considering the fair value of shares that have
no intrinsic value at the time of issue. The approach replicates that of a
binomial option pricing model. In this case, the expected future payout to the
MES was made by reference to the expected evolution of the Holding Company’s
value for the companies as a whole, as provided by management, including
expected dividends and other realisations which is then compared to the base
line value. This is then discounted into present value terms adopting an
appropriate discount rate. The “capital asset pricing methodology” was
used when considering an appropriate discount rate to apply to the payout
expected to accrue to the MES on realisation.
When MES are granted, a share based payment charge is recognised in the
Consolidated Statement of Comprehensive Income equal to the fair value at that
date, spread over the vesting period, with an amount credited to the share
based payments reserve in respect of the equity-settled proportion and to
non-current liabilities in respect of the cash-settled proportion (see below).
In its own financial statements, the Company records a capital contribution to
the Holding Company equal to the aggregate amount.
When the Company issues new shares to acquire the MES, the fair value of the
MES is credited to share capital.
To the extent that the Company expects to pay cash to acquire the MES, the
fair value of the MES is recognised as a non-current liability in the Company.
The fair value is established at each balance sheet date and recognised in the
Consolidated Statement of Comprehensive Income throughout the vesting period,
based on the proportion vested at each Statement of Financial Position date
and adjusted to reflect subsequent movements in fair value up to the date of
acquisition of the MES by the Company.
The fair value paid to acquire MES (whether in shares in the Company or cash)
will result in an increase in the carrying value of the Holding Company by the
Company.
Income
All income is accounted for on an accruals basis and is recognised in the
Consolidated Statement of Comprehensive Income. Income is further discussed in
note 7.
Expenses
Expenses are accounted for on an accruals basis. Expenses incurred on the
acquisition of investments at fair value through profit or loss are charged to
the Consolidated Statement of Comprehensive Income in capital. All other
expenses are charged to the Statement of Comprehensive Income in revenue.
Charitable donations are accounted for on an accruals basis and are recognised
in the Consolidated Statements of Comprehensive Income. Expenses directly
attributable to the issuance of shares are charged against capital and
recognised in the Consolidated Statement of Changes in Net Assets Attributable
to Holders of Ordinary Shares.
Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and demand deposits. Cash
equivalents are short-term, highly liquid investments that are readily
convertible to known amounts of cash and which are subject to insignificant
changes in value.
Translation of foreign currency
Items included in the Group’s Consolidated Financial Statements are measured
using the currency of the primary economic environment in which it operates
(the “functional currency”). The Consolidated Financial Statements are
presented in Sterling (£), which is the Group’s functional and
presentational currency.
Transactions in currencies other than Sterling are translated at the rate of
exchange ruling at the date of the transaction. Monetary assets and
liabilities denominated in foreign currencies at the date of the Consolidated
Statement of Financial Position are translated into Sterling at the rate of
exchange ruling at that date.
Foreign exchange differences arising on retranslation are recognised in the
Consolidated Statement of Comprehensive Income. Non-monetary assets and
liabilities that are measured in terms of historical cost in a foreign
currency are translated using the rate of exchange at the date of the
transaction.
Non-monetary assets and liabilities denominated in foreign currencies that are
stated at fair value are retranslated into Sterling at foreign exchange rates
ruling at the date the fair value was determined.
Standards, amendments and interpretations not yet effective
At the date of approval of these Consolidated Financial Statements, the
following standards and interpretations, which have not been applied in these
Consolidated Financial Statements, were in issue but not yet effective:
IFRS 9 – Financial instruments: Classification and measurement (effective
accounting periods starting on or after 1 January 2018)
IFRS 15 – Revenue from Contracts with Customers (effective accounting
periods starting on or after 1 January 2018)
IFRS 16 – Leases (effective accounting periods starting on or after
1 January 2019)
IFRS 9 ‘Financial Instruments’ addresses the classification, measurement
and derecognition of financial assets and liabilities. It replaces the
multiple classification and measurement models in IAS 39 and is effective for
reporting periods beginning on or after 1 January 2018. Material Financial
Instruments have been reviewed and it is not anticipated that there will be a
material impact on the Group Financial Statements.
IFRS 15 ‘Revenue from Contracts with Customers’ was published in May 2016
and specifies how and when to recognise revenue as well as requiring entities
to provide users of financial statements with more informative, relevant
disclosures. The standard provides a single, principles based five-step model
to be applied to all contracts with customers. IFRS 15 is effective for annual
reporting periods beginning on or after 1 January 2018. Material revenue
streams have been reviewed and it is not anticipated that there will be a
material impact on timing of recognition or gross up for principal/agent
considerations.
IFRS 16 ‘Leases’ introduces a comprehensive model for the identification
of lease arrangements and accounting treatments for both lessors and lessees.
Distinctions of operating leases (off balance sheet) and finance leases (on
balance sheet) are removed for lessee accounting, and is replaced by a model
where a right-of-use asset and a corresponding liability have to be recognised
for all leases by lessees except for short-term leases and leases of low value
assets. Material leases have been reviewed and it is not anticipated that
there will be a material impact on the Group’s financial statements.
Presentation of the Statement of Comprehensive Income
In order to better reflect the activities of an investment company and in
accordance with guidance issued by the Association of Investment Companies,
supplementary information which analyses the Statement of Comprehensive Income
between items of a revenue and capital nature has been presented alongside the
Statement of Comprehensive Income.
3. SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS
The preparation of the Group’s Consolidated Financial Statements requires
management to make judgements, estimates and assumptions that affect the
application of accounting policies and the reported amounts of assets,
liabilities, income and expenses at the reporting date. However, uncertainties
about these assumptions and estimates, in particular relating to underlying
investments of private equity investments and the life science investments
could result in outcomes that require a material adjustment to the carrying
amount of the assets or liabilities affected in future periods.
Judgements
In the process of applying the Group’s accounting policies, management has
made the following judgements, which have the most significant effect on the
amounts recognised in the Financial Statements:
Fair Value – life science portfolio
In the case of the Group’s investments in unlisted companies, the fair value
is determined in accordance with the International Private Equity and Venture
Capital (“IPEVC”) Valuation Guidelines. These include the use of recent
arm’s length transactions, Discounted Cash Flow (“DCF”) analysis and
earnings multiples. Wherever possible, the Group uses valuation techniques
which make maximum use of market-based inputs. Accordingly, the valuation
methodology used most commonly by the Group is the Price of Recent Investment
(“PRI”).
The key judgement relates to whether there is objective evidence that suggests
the investment has been impaired or increased in value due to observable data,
technical, or commercial performance.
Where the Group is the sole institutional investor and until such time as
substantial clinical data has been generated investment will be valued at Cost
or PRI. Once substantial clinical data has been generated the Group will use
input from an independent valuations advisor to assist in the determination of
fair value. What constitutes substantial data is a matter of judgement and
will vary depending on the specifics of each investment. It is expected that
moving from a Cost basis to another valuation technique would have a
significant impact on the valuation, however it is not possible to provide
meaningful sensitivity at this stage.
Functional currency
As disclosed in note 2, the Group’s functional currency is Sterling.
Sterling is the currency in which the Group measures its performance and
reports its results. Ordinary Shares are denominated in Sterling and dividends
are paid in Sterling. The Directors believe that Sterling best represents the
functional currency, although the Group has significant exposure to other
currencies as described in note 19.
Entities that meet the definition of an investment entity within IFRS 10 are
required to measure their subsidiaries, other than those that provide
investment services to the Group, at fair value through profit or loss rather
than consolidate them.
Assessment as investment entity
The criteria which define an investment entity are as follows:
* An entity that obtains funds from one or more investors for the purpose of
providing those investors with investment services;
* An entity that commits to its investors that its business purpose is to
invest funds solely for returns from capital appreciation, investment income
or both; and
* An entity that measures and evaluates the performance of substantially all
of its investments on a fair value basis.
The Company meets the criteria as follows:
The Company is a closed-ended investment company and has a number of investors
who pool their funds to gain access to the Company’s investment services and
investment opportunities to which they might not have had access individually.
The Company, being listed on the London Stock Exchange, obtains funding from a
diverse group of external shareholders.
The key judgement relates to whether the business purpose of the Company is
consistent with that of an investment entity. The Company has the intention to
realise the constituents of each of its investment classes. Some investments
are held long term, but for each investment there is an intention to exit the
investment at a price and timing that is deemed suitable to the Group.
The Holding Company and the Partnership both measure and evaluate the
performance of substantially all of their investments on a fair value basis.
The fair value method is used to represent the Company’s performance in its
communication to the market, including investor presentations. In addition,
the Company reports fair value information internally to the Board of
Directors, who use fair value as a significant measurement attribute to
evaluate the performance of its investments.
The IFRS 10 investment entity exemption requires investment entities to hold
subsidiaries that are themselves investment entities, at fair value through
profit or loss. As the Holding Company and the Partnership meet the criteria
of investment entities, they and their underlying subsidiaries have not been
consolidated by the Group.
Estimates and assumptions
The Group’s investments consist of its investments in the Holding Company
and the Partnership, both of which are classified as fair value through profit
or loss and are valued accordingly, as disclosed in note 2. The key source of
estimation uncertainty is related to the valuation of the Holding Company’s
life science investments, the investment in the CRT Pioneer Fund and the
Partnership’s private equity investments.
The life science portfolio is very illiquid. Many of the companies are early
stage investments and privately owned. Accordingly, a market value can be
difficult to determine. The accounting policy for all investments is described
in note 2 and the fair value of all investments is described in note 20. In
the case where Syncona is the sole institutional investor and substantive
clinical data has been generated, Syncona will use input from an independent
valuations advisor in its determination of the fair value of investments. It
is expected that using input from an independent valuation advisor may have an
impact on the valuation, however it is not possible to provide meaningful
sensitivity at this stage.
As at the year end, none of the Partnership’s underlying investments have
imposed restrictions on redemptions. However, underlying managers often have
the right to impose such restrictions. The Directors believe it remains
appropriate to estimate their fair values based on NAV as reported by the
administrators of the relevant investments.
The Directors believe that such NAV represents fair value because
subscriptions and redemptions in the underlying investments occur at these
prices at the Consolidated Statement of Financial Position date, where
permitted.
The Share based payment charge is an estimate linked to the future valuation
of the Holding Company. The Holding Company holds life science investments
whose valuation is a source of estimation as set out above.
4. OPERATING SEGMENTS
The Group is made up of two main components, the “life science portfolio”
and the “fund investments”. The Board has considered the requirements of
IFRS 8 ‘Operating Segments’, and is of the view that the Group’s
activities form two segments under the standard, the life science portfolio
and the fund investments. The life science portfolio and the fund investments
are managed on a global basis and accordingly, no geographical disclosures are
provided.
The Board, as a whole, has been determined as constituting the chief decision
maker of the Group. The key measure of performance used by the Board to assess
the Group’s performance and to allocate resources is the total return based
on the NAV per share, as calculated under IFRS.
Life science portfolio
The underlying investments in this segment are those whose activities focus on
developing products to deliver transformational treatments to patients.
Details of the underlying assets are shown in the Portfolio Statement.
Fund investments
The underlying assets in this segment are investments in a diversified
portfolio of hedge, equity and long-term alternative investment funds across
multiple asset classes.
Details of the underlying assets are shown in the Portfolio Statement.
Information about Reporting Segments
The following provides detailed information for the Group’s two reportable
segments for the year ended 31 March 2018:
As at 31 March 2018 Life Science Portfolio Fund Investments Unallocated (1) Total
£'000 £'000 £'000 £'000
Revenue - - 28,747 28,747
Capital growth 162,933 4,761 - 167,694
Expenses - - (23,610) (23,610)
Net Assets 514,543 465,102 76,118 1,055,763
As at 31 March 2017 Life Science Portfolio Fund Investments Unallocated (1) Total
£'000 £'000 £'000 £'000
Revenue - - 14,561 14,561
Capital growth 24,801 46,574 - 71,375
Expenses - - (8,645) (8,645)
Net Assets 226,554 582,371 86,313 895,238
(1)Revenue as explained in note 7 is unrelated to either segment’s
performance. Expenses include the dividends, donations and expenses for the
year, which are not appropriate to allocate by segment. Unallocated net assets
are primarily made up of cash and is unrelated to either segment’s
performance.
The net assets of each segment can be agreed to the Portfolio Statement. The
capital growth can be agreed to the Statement of Comprehensive Income.
5. INVESTMENT IN SUBSIDIARIES AND ASSOCIATES
The Company meets the definition of an investment entity in accordance with
IFRS10. Therefore, with the exception of the General Partner, the Company does
not consolidate its subsidiaries and indirect associates, but rather
recognises them as financial assets at fair value through profit or loss.
Directly owned subsidiaries
Subsidiary Principal place of business Principal Activity % Interest (1)
Syncona GP Limited Guernsey General Partner 100%
Syncona Holdings Limited Guernsey Portfolio management 100%
Syncona Investments LP Incorporated Guernsey Portfolio management 100%
There are no significant restrictions on the ability of subsidiaries to
transfer funds to the Company.
Indirect interests in subsidiaries
Indirect subsidiaries Principal place of business Immediate parent Principal activity % Interest (1)
Syncona Discovery Limited UK Syncona Investments LP Inc Portfolio management 100%
Syncona Portfolio Limited Guernsey Syncona Holdings Limited Holding company 100%
Syncona IP Holdco Limited UK Syncona Portfolio Limited Portfolio management 100%
Syncona Investment Management Limited UK Syncona Holdings Limited Portfolio management 100%
Syncona Collaboration (E) Limited UK Syncona Portfolio Limited Research 100%
Blue Earth Diagnostics Limited UK Syncona Portfolio Limited Advanced diagnostics 90%
Gyroscope Therapeutics Limited UK Syncona Portfolio Limited Gene therapy 82%
Orbit Biomedical Limited UK Syncona Portfolio Limited Surgical devices 80%
Freeline Therapeutics Limited UK Syncona Portfolio Limited Gene therapy 78%
SwanBio Limited UK Syncona Portfolio Limited Gene therapy 66%
Indirect associates Principal place of business Immediate parent Principal activity % Interest (1)
Achilles Therapeutics Limited UK Syncona Portfolio Limited Cell therapy 49%
Nightstar Therapeutics plc UK Syncona Portfolio Limited Gene therapy 42%
Autolus Limited UK Syncona Portfolio Limited Cell therapy 41%
Cambridge Epigenetix Limited UK Syncona Portfolio Limited Advanced diagnostics 14%
(1) Based on undiluted issued share capital and excluding the MES issued by
Syncona Holdings Limited (see note 13).
6. TAXATION
The Company and the General Partner are exempt from taxation in Guernsey under
the provisions of The Income Tax (Exempt Bodies) (Guernsey) Ordinance, 1989
and have both paid an annual exemption fee of £1,200 (31 March 2017:
£1,200).
The General Partner is incorporated and tax resident in Guernsey, its
corporate affairs being managed solely in Guernsey. Having regard to the
non-UK tax residence of the General Partner and the Company, and on the basis
that the Partnership is treated as transparent for UK and Guernsey tax
purposes and that the Partnership’s business is an investment business and
not a trade, no UK tax will be payable on either the General Partner’s or
the Company’s shares of Partnership profit (save to the extent of any UK
withholding tax on certain types of UK income such as interest).
Some of the Group’s underlying investments may be liable to tax, although
the tax impact is not expected to be material to the Group.
7. INCOME
The Group’s income relates to cash transfers from the Partnership which are
used for paying costs and dividends of the Group. Cash transferred from the
Partnership to the Group for the purposes of investment in the Holding company
is not regarded as income.
During the year, income received from the Partnership amounted to £28,746,812
(31 March 2017: £14,561,043) of which £4,757,729 (31 March
2017: £4,755,378) remained receivable at 31 March 2018. The receivable
reflects the charitable donation of the Group.
8. NET GAINS ON FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
The net gains on financial assets at fair value through profit or loss arise
from the Group’s holdings in the Holding Company and the Partnership.
2018 2017
£'000 £'000
Net gains from: The Holding Company 8.a 162,933 24,801
The Partnership 8.b 4,761 46,574
167,694 71,375
8.a Movements in the Holding Company:
2018 2017
£'000 £'000
Residual income from liquidated subsidiaries 726 -
Expenses (44) (36)
Net expense of Syncona Portfolio Limited (52) -
Foreign currency losses on life science investments (435) -
Movement in unrealised gains on life science investments at fair value through profit or loss 162,738 24,837
Net gains on financial assets at fair value through profit or loss 162,933 24,801
8.b Movements in the Partnership:
2018 2017
£'000 £'000
Investment income 1,821 1,333
Rebates and donations 2,355 2,035
Expenses (236) (303)
Realised gains on financial assets at fair value through profit or loss 43,670 7,324
Movement in unrealised (losses)/gains on financial assets at fair value through profit or loss (26,744) 72,143
Gains/(losses) on forward currency contracts 20,370 (23,368)
(Losses)/gains on foreign currency (7,728) 1,971
Gains on financial assets at fair value through profit or loss 33,508 61,135
Distributions (28,747) (14,561)
Net gains on financial assets at fair value through profit or loss 4,761 46,574
9. CHARITABLE DONATIONS
The Group has an obligation to make a donation to charity of 0.3% of the total
NAV of the Company calculated on a monthly basis. For the years ending
31 March 2017, 31 March 2018 and 31 March 2019 the Group has agreed that
the charitable donations will not be less than £4,751,608. Any amount paid in
excess of 0.3% of the total NAV of the Group in those years will be recovered
by reducing the charitable donations in subsequent years if the NAV of the
Group rises above £1,583,869,333. Half of the donation is made to The
Institute of Cancer Research (“ICR”) and the other half to The Syncona
Foundation. The Syncona Foundation grants those funds to charities in
proportions determined each year by Shareholders of the Group.
During the year, accrued charitable donations amounted to £4,751,608
(31 March 2017: £4,751,608). As at 31 March 2018, £4,751,608 (31 March
2017: £4,751,608) remained payable.
10. GENERAL EXPENSES
2018 2017
£'000 £'000
Directors' fees 219 87
Auditor's remuneration 34 33
Share based payments 5,494 92
Termination expense 3,800 -
Other expenses 9,311 3,681
18,858 3,893
Auditor’s remuneration includes audit fees in relation to the Group of
£34,351 (31 March 2017: £33,350). Total audit fees paid by the Group and
the Syncona Group Companies for the year ended 31 March 2018 totalled
£128,923 (31 March 2017: £105,750). Additional fees paid to the auditor
were; £20,000 which relates to work performed at the interim review
(31 March 2017: £15,000) and other non-audit fees of £6,500
(31 March 2017: £110,650).
The Management Expense Contribution, payable by the Group to BACIT was
calculated as 0.19% of NAV per annum. On 31 March 2018, the Investment
Management Agreement between the Company and BACIT was terminated in
consideration for a cash payment of £3,800,000, as discussed in note 17.
During the year ended 31 March 2018, fees of £1,826,719 (31 March 2017:
£1,093,533) were charged by BACIT to the Group and £155,933 (31 March 2017:
£488,010) remained payable at the year end.
Other expenses include fees paid to the Investment Manager of £7,604,364. See
note 17 for further details.
Further details of the Share based payments can be found in note 13.
11. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
2018 2017
£'000 £'000
The Holding Company 11.a 488,347 205,787
The Partnership 11.b 576,174 690,682
1,064,521 896,469
11.a The net assets of the Holding Company:
Wholly owned subsidiaries Life science investments 2018
Total
£'000 £'000 £'000
Cost of the Holding Company's investments at the start of year 689 179,790 180,479
Purchases during the year 120,091 - 120,091
Realised gain on transfer of assets - 24,940 24,940
Transfer of life science investments 204,730 (204,730) -
Cost of the Holding Company's investments at the end of the year 325,510 - 300,570
Net unrealised gain on investments at the end of the year 162,148 - 187,088
Fair value of the Holding Company's investments at the end of the year 487,658 - 487,658
Other net current assets 689 - 689
Financial assets at fair value through profit or loss at the end of the year 488,347 - 488,347
Wholly owned subsidiaries Life science investments 2017
Total
£'000 £'000 £'000
Cost of the Holding Company's investments at the start of incorporation - - -
Purchases during the period 689 179,790 180,479
Cost of the Holding Company's investments at the end of the period 689 179,790 180,479
Net unrealised (loss)/gain at the end of the period (103) 24,940 24,837
Fair value of the Holding Company's investments at the end of the period
586 204,730 205,316
Other net current assets 74 - 471
Financial assets at fair value through profit or loss at the end of the period 660 204,730 205,787
The realised gain on transfer of assets relates to the transfer of the life
science investments to Syncona Portfolio Limited.
11.b The net assets of the Partnership:
2018 2017
£'000 £'000
Cost of the Partnership's investments at the start of the year 460,046 388,412
Purchases during the year 95,524 136,197
Sales during the year (209,070) (60,804)
Return of capital (13,177) (11,083)
Net realised gains on disposals during the year 43,670 7,324
Cost of the Partnership's investments at the end of the year 376,993 460,046
Net unrealised gains on investments at the end of the year 117,405 144,149
Fair value of the Partnership's investments at the end of the year 494,398 604,195
Open forward currency contracts 1,511 437
Cash and cash equivalents 78,712 86,204
Other net current assets/(liabilities) 1,553 (154)
Financial assets at fair value through profit or loss
at the end of the year 576,174 690,682
12. TRADE AND OTHER RECEIVABLES
2018 2017
£'000 £'000
Investment income receivable 4,758 4,755
Prepayments 687 17
5,445 4,772
13. SHARE BASED PAYMENTS
Share based payments are associated with awards of Management Equity Shares
(“MES”) in the Holding Company, relevant details of which are set out in
note 2.
The total cost recognised in the Consolidated Statement of Comprehensive
Income is shown below:
2018 2017
£'000 £'000
Charge relating to issue of new MES 4 92
Charge relating to previously issued MES 292 -
Charge related to revaluation of the liability for cash settled share awards 5,199 -
Total 5,494 92
Amounts recognised in the consolidated Statement of Financial Position,
representing the carrying amount of liabilities arising from share based
payments transactions are shown below:
2018 2017
£'000 £'000
Share based payments - current 943 -
Share based payments - non-current 4,450 46
Total 5,393 46
When a participant elects to realise vested MES by sale of the MES to the
Company, half of the proceeds (net of anticipated taxes) will be settled in
shares of the Company, with the balance settled in cash.
The fair value of the MES is established via external valuation as set out in
note 2. Vesting is subject only to the condition that employees must remain in
employment at the vesting date. Each MES is entitled to share equally in value
attributable to the Holding Company above the applicable base line value,
provided that the applicable hurdle value of 15% growth in the value of the
Holding Company above the base line value at the date of award has been
achieved.
The fair value of awards made in the year ended 31 March 2018 was £11,776
(31 March 2017: £648,000). This represents 557,639 new MES issued (31 March
2017: 27,785,324).
The number of MES outstanding is shown below:
2018 2017
Outstanding at start of the year 27,785,324 -
Awarded in the year 557,639 27,785,324
Lapsed (678,054) -
Outstanding at end of the year 27,664,909 27,785,324
Weighted average remaining contractual life of outstanding MES, years 2.75 3.74
Vested MES at the year end 6,781,629 -
Realisable MES at the year end 1,695,407 -
At 31 March 2018, if all MES were realised the number of shares issued in the
Company, as a result would be 4,616,622 (31 March 2017: 1,087,495).
14. PAYABLES
2018 2017
£'000 £'000
Charitable donations payable 4,752 4,752
Management fees payable 852 952
Termination expense payable 3,800 -
Other payables 387 358
9,791 6,062
15. SHARE CAPITAL
A. Authorised Share Capital
The Company is authorised to issue an unlimited number of shares, which may
have a par value or no par value. The Company is a closed-ended investment
company with an unlimited life.
As the Company’s Shares have no par value, the share price consists solely
of share premium and the amounts received for issued shares are recorded in
share capital in accordance with The Companies (Guernsey) Law, 2008.
2018 2017
£'000 £'000
Ordinary Share Capital
Balance at the start of the year 760,327 406,208
Issued during the year - 357,054
Scrip dividend shares issued during the year 2,689 1,801
Share issue costs - (4,736)
Balance at the end of the year 763,016 760,327
2018 2017
Ordinary Share Capital Shares Shares
Balance at the start of the year 658,387,407 384,665,158
Issued during the year - 272,248,622
Scrip dividend shares issued during the year 1,564,683 1,473,627
Balance at the end of the year 659,952,090 658,387,407
In December 2016, the Group acquired a portfolio of life science investments
for £176,899,998 (134,883,720 Ordinary Shares), together with interest in the
CRT Pioneer Fund for £10,572,360 (8,061,273 Ordinary Shares). At the same
time, the Company raised £169,581,708 (129,303,629 Ordinary Shares) in new
capital from new and existing investors. In total, £357,054,066 (272,248,622
Ordinary Shares) in new Ordinary Shares were issued at a price of 131.15p, a
1.35% premium to NAV per share at the time.
In August 2017, further £2,688,751 (1,564,683 Ordinary Shares) in new
Ordinary Shares were issued at a price of 171.84p as a result of the 2017
scrip dividend.
B. Capital reserves
Gains and losses from investments held during the year, including exchange
differences, are recognised in Capital Reserves.
C. Earnings per Share
The calculations for the earnings per share attributable to the Ordinary
Shares of the Company are based on the following data:
2018 2017
Earnings for the purposes of earnings per share £172,831,499 £77,291,393
Basic weighted average number of shares 659,356,224 462,399,882
Basic revenue earnings per share 0.78p 1.28p
Basic capital earnings per share 25.43p 15.44p
Basic earnings per share 26.21p 16.72p
Diluted weighted average number of shares 663,980,947 463,487,377
Diluted revenue earnings per share 0.77p 1.28p
Diluted capital earnings per share 25.26p 15.40p
Diluted earnings per share 26.03p 16.68p
D. NAV per Share
2018 2017
Net assets for the purposes of NAV per share £1,055,763,499 £895,238,499
Ordinary Shares in issue 659,952,090 658,387,407
NAV per share 159.98p 135.97p
Diluted number of Shares 664,572,526 659,474,902
Diluted NAV per share 158.86p 135.75p
16. DISTRIBUTION TO SHAREHOLDERS
The Company may pay a dividend at the discretion of the Board.
During the year ended 31 March 2018, the Company declared and paid a dividend
of 2.3p per share amounting to £15,142,910 (31 March 2017: £8,462,633)
relating to the year ended 31 March 2017 (31 March 2016). The dividend was
comprised of £12,454,159 cash (31 March 2017: £6,662,132) and a scrip
dividend of £2,688,751 (31 March 2017: £1,800,501).
See note 23 for details of the 2018 dividend.
17. RELATED PARTY TRANSACTIONS
The Group has various related parties; life sciences investments held by the
Holding Company, the Investment Manager, the Company’s Directors and The
Syncona Foundation.
Life Science Investments
The Group makes equity investments in some life science investments where it
retains control. The Group has taken advantage of the investment entity
exception as permitted by IFRS 10 and has not consolidated these investments,
but does consider them to be related parties. The total amounts included for
investments where the Group has control are set out below:
2018 2017
£'000 £'000
Investments with control 248,728 131,415
The Group makes other equity investments where it does not have control but
may have significant influence through its ability to participate in the
financial and operating policies of these companies, therefore the Group
considers them to be related parties. The total amounts included for
investments where the Group has significant influence are set out below:
2018 2017
£'000 £'000
Investments with significant influence 226,025 73,315
During the year SIML, an indirectly held subsidiary of the Company, charged
the life science investments a total of £340,189 in relation to Directors’
fees.
Investment Manager
Until 12 December 2017 BACIT was the Group’s Investment Manager, on which
date BACIT became a sub-delegate to SIML. Throughout the year, BACIT charged
the Group an annual fee of 0.19% of NAV per annum.
With effect from 12 December 2017, SIML became the Investment Manager of the
Group. SIML is an indirectly held subsidiary of the Company.
For the year ended 31 March 2018 SIML was entitled to receive an annual fee
of up to 1.00% of NAV per annum. On 31 March 2018 the fee payable to SIML
increased from that date to a maximum of 1.10% of NAV per annum.
2018 2017
£'000 £'000
Amounts paid to BACIT 5,627 1,094
Amounts paid to SIML 5,778 1,680
On 31 March 2018, the sub-delegate relationship between the Company, SIML and
BACIT was terminated in consideration for a cash payment of £3,800,000, which
is included in the £5,627,000 above.
Company Directors
At the year end the Company had six Directors, all of whom served in a
Non-Executive capacity. The Directors Jeremy Tigue, Nick Moss and Rob
Hutchinson also serve as Directors of the General Partner. Thomas Henderson is
also a director of BACIT.
Nigel Keen is Chairman of the Investment Manager and receives a fee of
£125,000 per annum, payable by the Investment Manager, in respect of his
services to the Investment Manager.
Peter Hames resigned as a Director on 8 September 2017 and Rob Hutchinson was
appointed as a Director on 1 November 2017.
Directors’ fees for the year to 31 March 2018, including outstanding
Directors’ fees at the end of the year, are set out below.
2018 2017
£'000 £'000
Directors' fees for the year 219 87
Payable at end of year - 38
For further details please refer to the remuneration report.
The Syncona Foundation
50% of the charitable donations made by the Company are made to The Syncona
Foundation. The Syncona Foundation was incorporated in England and Wales on
17 May 2012 as a private company limited by guarantee, with exclusively
charitable purposes and holds the Deferred Share in the Company. The amount
donated to The Syncona Foundation during the year ended 31 March 2018 was
£2,375,804 (31 March 2017: £2,375,804).
18. FINANCIAL INSTRUMENTS
In accordance with its investment objectives and policies, the Group holds
financial instruments which at any time may comprise the following:
• securities and investments held in accordance with the investment
objectives and policies;
• cash and short-term receivables and payables arising directly from
operations; and
• derivative instruments including forward foreign currency contracts.
The financial instruments held by the Group are comprised principally of the
investments in the Holding Company and the Partnership.
Details of the Group’s significant accounting policies and methods adopted,
including the criteria for recognition, the basis of measurement and the basis
on which income and expenses are recognised, in respect of its financial
assets and liabilities are disclosed in note 2.
2018 2017
£'000 £'000
Financial assets designated at fair value through profit or loss
The Holding Company 488,347 205,787
The Partnership 576,174 690,682
Total financial assets designated at fair value
through profit or loss 1,064,521 896,469
Financial assets designated at amortised cost
Bank and cash deposits 981 105
Other financial assets 4,758 4,755
Total financial assets designated at amortised cost 5,739 4,860
Financial liabilities designated at amortised cost
Share based payments (5,393) (46)
Other financial liabilities (9,791) (6,062)
Net financial assets 1,055,076 895,221
The financial instruments held by the Group’s underlying investments are
comprised principally of life science investments, hedge, equity, long-term
alternative investment funds and cash.
The table below analyses the carrying amounts of the financial assets and
liabilities held by the Holding Company by category as defined in IAS 39 –
“Financial Instruments: Recognition and Measurement”.
2018 2017
£'000 £'000
Financial assets designated at fair value through profit or loss
Listed investments 133,475 -
Unlisted investments 350,261 204,730
Investment in Subsidiaries 2,472 586
Receivable 726 505
Total financial assets designated at fair value
through profit or loss 486,934 205,821
Financial assets designated at amortised cost
Other financial assets 1,450 -
Financial liabilities designated at amortised cost
Other financial liabilities (37) (34)
Net financials assets of the Holding Company 488,347 205,787
The table below analyses the carrying amounts of the financial assets and
liabilities held by the Partnership by category as defined in IAS 39 –
“Financial Instruments: Recognition and Measurement”.
2018 2017
£'000 £'000
Financial assets designated at fair value through profit or loss
Listed investments 166,677 161,590
Unlisted investments 327,721 442,605
Unrealised gains on open forward foreign currency contracts 1,511 437
Total financial assets designated at fair value
through profit or loss 495,909 604,632
Financial assets designated at amortised cost
Other financial assets 85,084 90,873
Financial liabilities designated at amortised cost
Other financial liabilities (4,819) (4,823)
Net financial assets of the Partnership 576,174 690,682
19. FINANCIAL RISK MANAGEMENT AND ASSOCIATED RISKS
Capital Risk Management
The Group’s objectives when managing capital include the safeguarding of the
Group’s ability to continue as a going concern in order to provide returns
for shareholders and benefits for other stakeholders and to maintain an
optimal capital structure to reduce the cost of capital.
The Group does not have externally-imposed capital requirements.
The Group may incur indebtedness for the purpose of financing share
repurchases or redemptions, making investments (including as bridge finance
for investment obligations), satisfying working capital requirements or to
assist in payment of the Charitable Donation, up to a maximum of 20% of the
NAV at the point of obtaining debt. The Group may utilise gearing for
investment purposes if, at the time of incurrence, it considers it prudent and
desirable to do so in light of prevailing market conditions. There is no
limitation on indebtedness being incurred at the level of the underlying
investments.
Financial Risk Management
The Group is exposed to a variety of financial risks as a result of its
activities. These risks include market risk (including market price risk,
foreign currency risk and interest rate risk), credit risk and liquidity risk.
These risks have existed throughout the year and the Group’s policies for
managing them are summarised below.
The risks below do not reflect the risks of the underlying investment
portfolios of the financial assets at fair value through profit or loss. The
Group has very significant indirect exposure to a number of risks through the
underlying portfolios of the investment entities. This is in line with the
strategy of the Group in order to achieve capital gains. There is no mechanism
to “control” these risks without considerably prejudicing return
objectives.
Due to the lack of transparency in many of the underlying assets it is not
possible to quantify or hedge the impact of these risks on the portfolio as
each investment entity may have complex and changing risk dynamics that are
not easily observable or predictable. These risks will include extensive
interest, foreign exchange and other market risks which are magnified by
significant gearing in many cases, resulting in increased liquidity and return
risk.
Syncona Limited
Syncona Limited is exposed to financial risks through its investments in the
Holding Company and the Partnership. The risks and policies for managing them
are set out in the sections below.
The Holding Company
Market price risk
The Holding Company invests in early stage life science companies that
typically have limited products in development, any problems encountered in
development may have a damaging effect on that company’s business and the
value of the investment.
This is mitigated by the employment of highly experienced personnel and the
performance of extensive due diligence prior to investment.
Foreign currency risk
Foreign currency risk represents the potential loss or gain on the life
science investments future income streams and the potential loss or gain on
investments made in US Dollars by the Holding Company’s underlying
investments.
2018 2017
£'000 £'000
10% increase 21,186 11,437
10% decrease (25,893) (13,980)
Interest rate risk
Interest rate risk is negligible in the Holding Company as minimal cash and no
debt is held.
Credit risk
The equity investments in life science companies are highly illiquid and
cannot be recovered from the investee. The investments are held for the long
term and will typically be realised through the sale of the companies
concerned, whether in a private transaction or through the public markets.
Liquidity risk
Liquidity risk is the risk that the financial commitments made by the Holding
Company are not able to be met as they fall due. The Holding Company holds
minimal cash and has no access to debt and instead relies on liquidity from
the Partnership. The liquidity risk associated with the Partnership is set out
in the Partnership section below.
The table below details the Holding Company’s liquidity analysis for its
financial assets and liabilities.
Within 1 month 1 to 3 months 3 to 12 months Greater than 12 months 2018
Total
£'000 £'000 £'000 £'000 £'000
Financial assets at fair value
through profit or loss 8,983 - - 478,675 487,658
Receivables - - 726 - 726
Payables (37) - - - (37)
Total 8,946 - 726 478,675 488,347
Percentage 1.8% - 0.2% 98.0% 100.0%
Within 1 month 1 to 3 months 3 to 12 months Greater than 12 months 2017
Total
£'000 £'000 £'000 £'000 £'000
Financial assets at fair value
through profit or loss - - - 205,316 205,316
Receivables - 108 - 397 505
Payables (34) - - - (34)
Total (34) 108 - 205,713 205,787
Percentage - - - 100.0% 100.0%
The Partnership
Market price risk
The overall market price risk management of each of the holdings of the
Partnership is primarily driven by their respective investment objectives. The
Investment Manager assesses the risk in the Partnership’s portfolio by
monitoring exposures, liquidity, and concentrations of the underlying funds’
investments, in the context of the historic and current volatility of their
asset classes, and the Investment Manager’s risk appetite.
The maximum risk resulting from financial instruments is generally determined
by the fair value of underlying funds. The overall market exposure as at
31 March 2018 is shown in the Consolidated Statement of Financial Position.
The financial instruments are sensitive to market price risk; any increase or
decrease in market price will have an equivalent effect on the market value of
the financial instruments.
Foreign currency risk
Foreign currency risk represents the potential loss or gain the Partnership
may suffer through holding foreign currency assets in the face of foreign
exchange movements. The Partnership’s treatment of currency transactions is
set out in note 2 to the Consolidated Financial Statements under
“Translation of foreign currency” and “Forward currency contracts”.
Currency risk exists in the underlying investments, the analysis of which is
not feasible.
The investments of the Partnership are denominated in US Dollars, Euros,
Swedish Krona and Sterling. The Partnership’s functional and presentation
currency is Sterling; hence the Consolidated Statement of Financial Position
may be significantly affected by movements in the exchange rates between the
foreign currencies previously mentioned. The Investment Manager may manage
exposure to Euro and US Dollar movements by using forward foreign currency
contracts to hedge exposure to investments in Euro and US Dollar denominated
share classes.
As at 31 March 2018, the Partnership had two open forward foreign currency
contracts (31 March 2017: three).
Mark to Market 2018 Unrealised
Sell Buy Equivalent gain
£'000 £'000 £'000 £'000
Sterling/Euro Forward Currency Contract
Settlement date 11 July 2018 € 80,000 71,156 70,361 795
Sterling/USD Forward Currency Contract
Settlement date 11 July 2018 $247,000 176,070 175,354 716
Total unrealised gain as at 31 March 2018 1,511
Mark to Market 2017 Unrealised
Sell Buy Equivalent (loss)/gain
£'000 £'000 £'000 £'000
Sterling/Euro Forward Currency Contract
Settlement date 25 May 2017 € 88,200 75,058 75,519 (461)
Sterling/USD Forward Currency Contract
Settlement date 14 September 2017 $7,000 5,600 5,575 25
Sterling/USD Forward Currency Contract
Settlement date 14 September 2017 $245,000 196,005 195,132 873
Total unrealised gain as at 31 March 2017 437
The following tables present the Partnership’s assets and liabilities in
their respective currencies, converted into the Group’s functional currency.
2018
USD EUR GBP SEK Total
£'000 £'000 £'000 £'000 £'000
Financial assets at fair value through profit or loss
208,040 58,943 225,241 2,174 494,398
Bank and cash deposits 44,489 8,174 26,039 10 78,712
Trade and other receivables 172 13 6,187 - 6,372
Unrealised (losses)/gains on forward currency contracts
(175,354) (70,361) 247,226 - 1,511
Payables - - (4,819) - (4,819)
77,347 (3,231) 499,874 2,184 576,174
2017
USD EUR GBP SEK Total
£'000 £'000 £'000 £'000 £'000
Financial assets at fair value through profit or loss
322,325 79,977 199,606 2,287 604,195
Bank and cash deposits 2,745 1,798 81,579 82 86,204
Trade and other receivables 340 13 4,316 - 4,669
Unrealised (losses)/gains on forward currency contracts
(200,707) (75,519) 276,663 - 437
Payables - - (4,823) - (4,823)
124,703 6,269 557,341 2,369 690,682
Foreign currency sensitivity analysis
The table below details the sensitivity of the Partnership’s NAV to a 10%
change in the Sterling exchange rate against the US Dollar, Euro and Swedish
Krona with all other variables held constant. The sensitivity analysis
percentage represents the Investment Manager’s assessment, based on the
foreign exchange rate movements over the relevant period and of a reasonably
possible change in foreign exchange rates.
2018 2018 2018 2017 2017 2017
USD EUR SEK USD EUR SEK
£'000 £'000 £'000 £'000 £'000 £'000
10% increase (23,038) 221 (199) (11,337) (515) (215)
10% decrease 28,157 (271) 243 13,856 628 263
The above includes the effect of the Group’s hedging strategy.
Interest rate risk
Interest receivable on bank deposits or payable on bank overdrafts are
affected by fluctuations in interest rates, however the effect is not expected
to be material. All cash balances receive interest at variable rates. Interest
rate risk may exist in the Partnership’s underlying investments, the
analysis of which is impractical.
Credit risk
Credit risk in relation to listed securities transactions awaiting settlement
is managed through the rules and procedures of the relevant stock exchanges.
In particular settlements for transactions in listed securities are effected
by the Custodian on a delivery against payment or receipt against payment
basis. Transactions in unlisted securities are effected against binding
subscription agreements. Credit risk may exist in the Partnership’s
underlying investments, the analysis of which is impractical.
The principal credit risks for the Partnership are in relation to deposits
with banks. Northern Trust (Guernsey) Limited (“NTGL”) acts as the
principal banker to the Partnership, and as custodian of its assets. The
securities held by NTGL as Custodian are held in trust and are registered in
the name of Syncona Investments LP Incorporated. NTGL is a wholly owned
subsidiary of The Northern Trust Corporation (“TNTC”). TNTC is publicly
traded and a constituent of the S&P 500. As at 31 March 2018, TNTC has a
credit rating of A+ (31 March 2017: A+) from Standard & Poor’s and A2
(31 March 2017: A2) from Moody’s. The credit risk associated with debtors
is limited to any unrealised gains on open forward foreign currency contracts,
as detailed above and other receivables.
Liquidity risk
The Partnership is exposed to the possibility that it may be unable to
liquidate its assets as it otherwise deems advisable as the Partnership’s
underlying funds or their managers may require minimum holding periods and
restrictions on redemptions. Further, there may be suspension or delays in
payment of redemption proceeds by underlying funds or holdbacks of redemption
proceeds otherwise payable to the Partnership until after the applicable
underlying fund’s financial records have been audited. Therefore, the
Partnership may hold receivables that may not be received by the Partnership
for a significant period of time, may not accrue any interest and ultimately
may not be paid to the Partnership. As at 31 March 2018, no suspension from
redemptions existed in any of the Partnership’s underlying investments
(31 March 2017: nil).
The table below details the Partnership’s liquidity analysis for its
financial assets and liabilities. The table has been drawn up based on the
undiscounted net cash flows on the financial assets and liabilities that
settle on a net basis and the undiscounted gross cash flows on those financial
assets and liabilities that require gross settlement.
Within 1 month 1 to 3 months 3 to 12 months Greater than 12 months 2018*
Total
£'000 £'000 £'000 £'000 £'000
Financial assets at fair value
through profit or loss 172,648 44,395 99,771 177,584 494,398
Cash and cash equivalents 78,712 - - - 78,712
Trade and other receivables 6,372 - - - 6,372
Unrealised gains on forward
currency contracts - - 1,511 - 1,511
Payables (61) - - - (61)
Distribution payable - - (4,758) - (4,758)
Total 257,671 44,395 96,524 177,584 576,174
Percentage 44.7% 7.7% 16.8% 30.8% 100.0%
Within 1 month 1 to 3 months 3 to 12 months Greater than 12 months 2017*
Total
£'000 £'000 £'000 £'000 £'000
Financial assets at fair value
through profit or loss 161,664 137,494 237,344 67,693 604,195
Cash and cash equivalents 86,204 - - - 86,204
Trade and other receivables 4,669 - - - 4,669
Unrealised (losses)/gains on forward
currency contracts - (461) 898 - 437
Payables (68) - - - (68)
Distribution payable - - (4,755) - (4,755)
Total 252,469 137,033 233,487 67,693 690,682
Percentage 36.6% 19.8% 33.8% 9.8% 100.0%
*The liquidity tables above reflect the anticipated cash flows assuming notice
was given to all underlying investments as at 31 March 2018 (31 March 2017).
They include a provision for “audit hold back” which most hedge funds can
apply to full redemptions and any other known restrictions the managers of the
underlying funds may have placed on redemptions. Where there is currently no
firm indication from the underlying manager on the expected timing of the
receipt of redemption proceeds, the relevant amount is included in the
“greater than 12 months” category. The liquidity tables are therefore
conservative estimates.
20. FAIR VALUE MEASUREMENT
IFRS 13 requires the Group to establish a fair value hierarchy that
prioritises the inputs to valuation techniques used to measure fair value. The
hierarchy gives the highest priority to unadjusted quoted prices in active
markets for identical assets or liabilities (Level 1 measurements) and the
lowest priority to unobservable inputs (Level 3 measurements). The three
levels of the fair value hierarchy under IFRS 13 are set as follows:
Level 1 Quoted prices (unadjusted) in active markets for identical assets or
liabilities;
Level 2 Inputs other than quoted prices included within Level 1 that are
observable for the asset or liability either directly (that is, as prices) or
indirectly (that is, derived from prices) or other market corroborated inputs;
and
Level 3 Inputs for the asset or liability that are not based on observable
market data (that is, unobservable inputs).
The level in the fair value hierarchy within which the fair value measurement
is categorised in its entirety is determined on the basis of the lowest level
input that is significant to the fair value measurement. For this purpose, the
significance of an input is assessed against the fair value measurement in its
entirety. If a fair value measurement uses observable inputs that require
significant adjustment based on unobservable inputs, that measurement is a
Level 3 measurement. Assessing the significance of a particular input to the
fair value measurement requires judgement, considering factors specific to the
asset or liability.
The determination of what constitutes ‘observable’ requires significant
judgement by the Group. The Group considers observable data to be market data
that is readily available, regularly distributed or updated, reliable and
verifiable, and provided by independent sources that are actively involved in
the relevant market.
The following table presents the Group’s financial assets and liabilities by
level within the valuation hierarchy as at 31 March 2018 and 31 March 2017:
2018
Level 1 Level 2 Level 3 Total
Assets £'000 £'000 £'000 £'000
Financial assets at fair value
through profit or loss:
The Holding Company - - 488,347 488,347
The Partnership - - 576,174 576,174
Total assets - - 1,064,521 1,064,521
2017
Level 1 Level 2 Level 3 Total
Assets £'000 £'000 £'000 £'000
Financial assets at fair value
through profit or loss:
The Holding Company - - 205,787 205,787
The Partnership - 690,682 - 690,682
Total assets - 690,682 205,787 896,469
During the year ended 31 March 2018, the Partnership’s Level 3 assets
increased to 17.4% (31 March 2017: 9.9%) and has therefore moved from Level 2
to Level 3. This resulted in a £690,682,450 increase in Partnership assets
from Level 2 to Level 3.
The underlying assets of the Partnership and the Holding Company are shown
below.
The following table presents the Holding Company’s financial assets by level
within the valuation hierarchy as at 31 March 2018:
31 March 2018 31 March 2017 Reasonable possible shift +/- Change in valuation £'000 Relationship of inputs to value
Valuation technique Unobserved inputs Key input
Asset type Level £'000 £'000
Listed investments 1 133,475 - Publicly available share price at balance sheet date - - - - -
Price of latest funding round (investment made less than twelve 2 108,456 - Price of latest funding round Observable inputs include recent valuation by independent third party investors. This price is not actively traded.
months ago)
Wholly owned Syncona group companies 3 2,472 586 Net assets of Syncona Group Companies Unobservable inputs include management’s assessment of the Syncona Group Companies, uplift in fair value and calculations of any impairment. Syncona Group Companies are valued at net assets with any necessary adjustments for fair value.
n/a n/a - - The greater the assessment of impairment, the lower the fair value
Price of latest funding round (investment made more than twelve 3 54,977 96,315 Price of latest funding round Unobservable inputs include management’s assessment of the performance of the investee company, uplift in fair value and calculations of any impairment. For further information on valuation methodology, see note 2. The main unobservable input relates to the adjustments in fair value:
months ago)
n/a n/a - - The greater the assessment of impairment, the lower the fair value
Investments valued on discounted cash flow forecasts 3 186,828 108,415 Future earnings potential, discount for lack of marketability and Unobservable inputs include management’s assessment of the performance of the investee company and calculations of any impairment. For further information on valuation methodology, see note 2. The main unobservable input relates to assessment of the future performance of the investee:
time value of money
Assessment of the future performance of the investee Discount rate 2% 3,737 The greater the assessment of performance, the higher the fair
value
USD exchange rate 10% 18,683
486,208 205,316
The following table presents the movements in Level 3 investments of the
Holding Company for the year ended 31 March 2018:
Wholly owned 2018 2017
Life science Group
investments companies Total Total
£'000 £'000 £'000 £'000
Opening balance 204,730 586 205,316 -
Transfer from level 3 (70,545) - (70,545) -
Purchases 35,207 2,146 37,353 180,479
Gain/(loss) on financial assets at fair value through profit or loss 72,413 (260) 72,153 24,837
Closing balance 241,805 2,472 244,277 205,316
The net gain for the year included in the Consolidated Statement of
Comprehensive Income in respect of Level 3 investments in the Holding Company
held at the year end amounted to £72,152,873 (31 March 2017: £24,837,281).
During the year ending 31 March 2018, Nightstar Therapeutics plc became a
listed investment and has therefore moved from Level 3 to Level 1. This
resulted in £34,167,499 transferring from Level 3 to Level 1.
During the year ending 31 March 2018, Autolus Limited, and Cambridge
Epigenetix Limited completed new funding rounds and have therefore moved
from Level 3 to Level 2. This resulted in £36,378,947 transferring from Level
3 to Level 2.
The following table presents the Partnership’s financial assets by level
within the valuation hierarchy as at 31 March 2018:
Asset type 31 March 2018 31 March 2017 Valuation technique Unobserved inputs Key input Reasonable possible shift +/- Change in valuation £'000 Relationship of inputs to value
£'000 £'000
Listed investments 1 166,677 157,332 Publicly available share price at balance sheet date - - - - -
Listed investments 2 - 4,258 Publicly available share price at balance sheet date Inputs include current publicly available share prices however as the investments are not regularly traded at this price.
Different fair value from date of last trade and the period end n/a - - The greater the value of latest trade, the greater the fair value
Forward contracts 2 1,511 437 Publicly available exchange rates at balance sheet date Inputs include different exchange rates used at different banking institutions. IFRS 13 specifically defines forward contracts as level 2. Valuation is taken using publicly available exchange rates and calculating the asset value.
Different exchange rates at period end n/a - - The greater the GBP exchange rate, the greater the fair value
Unlisted fund investments 2 241,396 381,745 Valuation produced by fund administrator. Inputs into fund components are from observable Inputs include asset administrator’s assessment of the performance of the underlying funds. Valuation is taken from the fund administrator who has based the fund’s fair value on observable inputs of underlying assets.
inputs
n/a n/a 10% - The greater the expectation for future profits, the greater the fair value
Long-term unlisted investments 3 55,518 39,036 Valuation produced by fund administrator Inputs include asset administrator’s assessment of the performance of the underlying funds. Valuation is provided by quarterly statements from each administrator. The administrator’s valuation technique will use unobservable inputs, the main unobservable input relates to asset administrator’s inputs into the valuation:
n/a n/a 10% - The greater the expectation for future profits, the greater the fair value
CRT Pioneer Fund 3 30,807 21,824 Valuation produced by fund administrator Inputs include asset manager’s assessment of the performance of the underlying investee companies. Valuation is provided by quarterly statements from the manager. The valuation is based on cost of investments, price of latest round of investments and discounted future cash flows. The valuation by the manager is updated to comply with Syncona accounting methodology as seen in note 2. The main
unobservable input relates to the asset manager’s assessment of performance:
n/a n/a 10% - The greater the expectation for future profits, the greater the fair value
495,909 604,632
Assets classified as Level 2 investments are underlying funds fair-valued
using the latest available NAV of each fund as reported by each fund’s
administrator, which are redeemable by the Group subject to necessary notice
being given. Included within the Level 2 investments above are investments
where the redemption notice period is greater than 90 days. Such investments
have been classified as Level 2 because their value is based on observable
inputs. The Group’s liquidity analysis is detailed in note 19.
Assets classified as Level 3 investments are underlying Limited Partnerships
which are not traded or available for redemption. The fair value of these
assets is derived from quarterly statements provided by each Limited
Partnership’s administrator. The Group does not have transparency over the
inputs of this valuation.
There were no transfers between levels during the year (31 March 2017: nil).
The following table presents the movements in Level 3 investments of the
Partnership for the year ended 31 March 2018:
CRT Fund 2018 2017
Pioneer Fund investments Total Total
£'000 £'000 £'000 £'000
Opening balance 21,824 39,036 60,860 37,249
Purchases 10,973 20,954 31,927 25,014
Return of capital (1,990) (11,187) (13,177) (11,083)
Gain on financial assets at fair value through profit or loss - 6,715 6,715 9,680
Closing balance 30,807 55,518 86,325 60,860
The net gain for the year included in the Statement of Comprehensive Income in
respect of Level 3 investments of the Partnership held at the year end
amounted to £6,714,678 (31 March 2017: £9,680,448 gain).
21. COMMITMENTS AND CONTINGENCIES
The Group had the following commitments as at 31 March 2018:
2018 Uncalled commitment £’000
Life science portfolio:
Milestone payments to life science companies 47,105
CRT Pioneer Fund 19,338
Fund investments 5,575
TOTAL 72,018
There were no contingent liabilities as at 31 March 2018 (31 March 2017:
Nil).
22. RECONCILIATION OF PUBLISHED NAV TO ACCOUNTING NAV PREPARED UNDER IFRS
2018 2018
NAV NAV per share
£'000 £
Net assets reported to the London Stock Exchange 996,906 1.51
Increase in valuation of a life science investment 63,681 0.10
Increase in valuation of a late reporting fund 755 -
Adjustment to share based payments liability (1,779) -
Adjustment to accrued expenses (3,800) (0.01)
Net assets per Financial Statements 1,055,763 1.60
23. SUBSEQUENT EVENTS
These Consolidated Financial Statements were approved for issuance by the
Board on 14 June 2018. Subsequent events have been evaluated until this
date.
On 5 March 2018, Gian Piero Reverberi was appointed as Non-Executive Director
with effect from 1 April 2018. Nick Moss was appointed as Senior Independent
Director and Rob Hutchinson succeeded him as Chair of the Audit Committee with
effect from 1 April 2018.
Since 31 March 2018, Syncona Portfolio Limited, Autolus Therapeutics Limited
(to be reorganised as Autolus Therapeutics plc) (“Autolus”) has filed an
amended registration statement on Form F-1 with the U.S. Securities and
Exchange Commission (the “SEC”) in respect of the proposed initial public
offering in the United States of its American Depositary Shares (“ADSs”)
representing ordinary shares (which can be accessed through the SEC’s EDGAR
database). The amended registration statement filing states an expected
pricing range for the proposed offering of U.S.$15.00 – U.S.$17.00 per ADS,
with each ADS representing one ordinary share. At 13 June 2018 foreign
exchange rates, this would represent an increase in value of Syncona’s
current shareholding in Autolus (compared to the 31 March 2018 sterling
holding value) of £51.6 million – £69.9 million (7.8p- 10.5p per Syncona
share).
A scrip dividend for the year ended 31 March 2018 of 2.3 pence per Ordinary
Share will be paid on 30 July 2018 to those shareholders on the register of
members of the Company as at 22 June 2018.
ADDITIONAL INFORMATION
Responsibility statement
The Directors' responsibility statement below has been prepared in conjunction
with, and is extracted from, the Company’s Annual Report and Accounts for
the year ended 31 March 2018 (“2018 Annual Report”), whereas this
announcement contains extracts from the 2018 Annual Report. The
responsibility statement is repeated here solely for the purpose of complying
with DTR 6.3.5. These responsibilities are for the full 2018 Annual Report
and not the extracted information presented in this announcement or otherwise.
The Directors of the Company are:
Jeremy Tigue, Chairman
Tom Henderson, Non-Executive Director
Rob Hutchinson, Non-Executive Director
Nigel Keen, Non-Executive Director
Nicholas Moss, Non-Executive Director
Gian Piero Reverberi, Non-Executive Director
Ellen Strahlman, Non-Executive Director
The Directors confirm to the best of our knowledge:
1. The Financial Statements contained in the 2018 Annual Report have been
prepared in accordance with International Financial Reporting Standards, give
a true and fair view of the assets, liabilities, financial position and profit
or loss of the Group as a whole; and
2. The management report in the 2018 Annual Report including information
and details in the Strategic Report, the Corporate Governance Statements, the
Directors’ Report and the notes to the Financial Statements, provides a fair
review of the Company business and a description of the principal risks and
uncertainties facing the Company.
Principal risks and uncertainties
The execution of the Company’s investment strategy is subject to risks and
uncertainties. During the year, the Company expanded its investment policy to
include investment in early-stage life science companies. Accordingly, the
principal risks and uncertainties have been updated to reflect new risks
associated with the financing of and investment in early-stage companies.
The principal risks that the Board has identified are set out in the table
below, along with the consequences and mitigation of each risk. Further
information on risk factors is set out in note 19 above .
Life science portfolio
Description Impact Mitigation
Risk in making new investments
The Company sources life science businesses for investment. In many cases these are at a very early stage, potentially before there is any clinical evidence of effectiveness or commercially viable way to deliver the technology. Evaluating such opportunities is inherently uncertain. The Company may not realise an attractive return or, in some cases, may not realise its original cost or any value from its investment. In addition, the Company may need The Investment Manager employs highly experienced personnel who have considerable experience of building and developing early-stage life science businesses and are therefore well-positioned to evaluate the risks and opportunities. Before making any investment, the Investment Manager performs extensive due diligence covering all the major business risks, and develops an operational plan to mitigate these. This will typically involve the Investment Manager’s personnel working closely with the portfolio company, taking non-executive and at times executive roles on portfolio company boards. The Investment Manager has a robust and disciplined financing and capital allocation framework, and investments may involve seed funding or tranching to identify and mitigate early risks before proceeding with more substantial investments.
to invest significant additional time, capital and management resources in order to realise any return.
General, commercial, technological and clinical risks
The Company’s life science investments are exposed to a wide range of general, commercial, technological and clinical risks. In particular: · Negative results from, or adverse events in, clinical trials · Intellectual property may fail to be granted or may be infringed or copied · Failure of a technology platform in an early-stage company · Failure to obtain regulatory approval for new products developed · Failure to sell products profitably or in sufficient volumes · Changes in pharmaceutical pricing practices · Launch of competing products · Reputational damage · Targeted public campaigns · Latent product defects resulting in claims This risk has increased as a result of positive developments within portfolio companies, in particular that a number of them began clinical trials during the past year. All of these risks could potentially lead to a decline in the value of a portfolio company, or even lead to the portfolio company failing. In particular, clinical studies The Investment Manager employs highly experienced personnel who have considerable experience of building and developing early-stage life science businesses. The Investment Manager’s personnel work closely with portfolio companies, taking both executive and non-executive roles on portfolio company boards, monitoring progress and ensuring familiarity with issues and risks. In addition, the Investment Manager’s team can assist the management teams of the portfolio companies with arranging specialist advice, for example, communication advice to support them dealing with issues or any likely issues. Members of the portfolio companies’ management teams have significant experience in the management of clinical programmes and have dedicated internal resource to establish and monitor each of the clinical programmes in order to maximise successful outcomes. In order to diversify the risk associated with any one clinical study, portfolio companies will seek to have multiple trials in different indications.
and other tests to assess the commercial viability of a product are typically expensive, complex and time-consuming, and have uncertain outcomes. The Company has three
portfolio companies conducting clinical trials, with multiple clinical trials ongoing. If a portfolio company fails to complete or experiences delays in completing tests
for any of its product candidates, it may not be able to obtain regulatory approval or commercialise its product candidates on a timely basis, or at all. Significant
delays in any of the clinical studies to support the appropriate regulatory approvals could significantly impact the amount of capital required for the portfolio company
to achieve final regulatory approval, which in turn may impact the value of such portfolio company. A critical failure in any stage of a clinical testing programme would
probably necessitate a termination of the project and a loss of the Company’s investment.
Dominance of portfolio by a few larger investments and/or sector focus
Within its life science portfolio, the Company is seeking to build a focused portfolio of up to 20 leading life science companies. Accordingly, a large proportion of the overall value of the life science portfolio may, at any time, be accounted for by one, or a few, portfolio companies. The Company’s life science portfolio may also be focused on a small number of sub-sectors within the life science sector. Accordingly, a material proportion of the overall value of the life science investment portfolio may, at any time, be invested in a specific sub-sector. This risk has increased as a result of positive developments within portfolio companies that have resulted in the Company recognising value increases and committing further investment. If a portfolio company experiences financial or operational difficulties, fails to achieve anticipated results or, where relevant, suffers from poor stock market The Board considers the performance of its largest portfolio companies and the portfolio’s concentration on specific sub-sectors on a quarterly basis. The Investment Manager employs highly experienced personnel who have considerable experience of building and developing early-stage life science businesses. The Investment Manager’s personnel work closely with portfolio companies, taking non-executive and at times executive roles on portfolio companies’ boards, monitoring progress and ensuring familiarity with issues and risks. At 31 March 2018, the Company’s three largest investments in its life science portfolio were valued at £396.4 million, representing 37.5 per cent of the net asset value of the Company.
conditions and if, as a result, its value were to be adversely affected, this could have an adverse impact on the overall value of the life science investment portfolio.
Similarly, if the technology or technologies utilised in a specific sub-sector prove to be commercially unproductive or unsuccessful, then the value of the Company’s
investments in the respective sub-sector(s) could be negatively impacted.
Market risk – realising investment portfolio companies
Instability in equity and debt markets and/or the market’s appetite for investment in life science companies could result in an unattractive pricing for life science companies, either in public markets or through sales to financial or strategic acquirers. A lower value may be realised in the event of a sale of a portfolio company at a time when markets are unstable or have reduced appetite for life science companies. The Investment Manager, alongside each portfolio company management team, is focused on ensuring that portfolio companies have robust business models. These are expected to be attractive to strategic acquirers and public market investors, even in challenging market conditions. In addition, the Company seeks to ensure that it has sufficient liquidity to fund its portfolio companies through the cycle. It can therefore avoid being a ‘forced seller’ should market conditions be less attractive at any point in time.
Market risk – political and economic uncertainty may negatively impact the Company’s ability to achieve its strategic objectives
Political and economic uncertainty, including impacts from the EU referendum or similar scenarios, could have several potential impacts, including changes to the labour market available to the Investment Manager and underlying portfolio companies, or regulatory environment in which the Company and its investment portfolio companies operate. There could be potential risks to research funding and so the pipeline of attractive opportunities; to attracting and retaining talent and so the ability to build The Investment Manager monitors these developments, with the help of professional advisers, as appropriate, to ensure it is prepared for any potential impacts.
successful businesses in line with the plan; or to the ability to profitably commercialise new products.
Fund investments
Description Impact Mitigation
Investment risk
The Company’s fund investments are exposed to the risk that they fail to perform in line with their objectives if inappropriately invested or markets move adversely. The Any underperformance of the fund investments will have an impact on net asset value of the Company and the Company’s ability to access required liquidity. The Investment Manager employs highly experienced personnel who have considerable experience in investing in capital markets. The Investment Manager performs due diligence on potential new investments, including an assessment of investment risk and, after the investment is made, post investment monitoring of their performance. The Board reviews reports from the Investment Manager at each quarterly Board meeting, paying particular attention to the constitution of the portfolio, the performance and volatility of underlying investments and the liquidity forecast
fund investments have significant indirect exposure to risks through the underlying portfolios. Due to the lack of transparency in many of the underlying assets, it is prepared by the Investment Manager.
difficult to quantify or hedge the impact of these risks on the portfolio. These risks will include equity market, interest, foreign exchange and other market risks,
which may be magnified by significant gearing in the underlying funds.
Operational
Description Impact Mitigation
Failure to attract or retain key personnel
The expertise, due diligence, risk management skills and integrity of the staff at the Company’s Investment Manager are key to the success of the Company. The industries in which the Investment Manager operates are specialised and require highly qualified and experienced management and personnel. Given the relatively small size of the team, the execution of the Company’s investment strategy is dependent on a small number of key individuals. There is a risk that employees could be approached by other organisations or could otherwise choose to leave the Investment Manager. If the Investment Manager does not succeed in retaining skilled personnel or is unable to continue to attract all personnel necessary for the development and operation of The Investment Manager carries out regular market comparisons for staff and executive remuneration. Senior executives are shareholders in the Company and staff of the Investment Manager participate in the Syncona Long Term Incentive Plan. In addition, the Investment Manager encourages staff development and inclusion through coaching and mentoring and carries out regular objective setting and appraisals.
their business, it may not be able to execute the Company’s investment strategy successfully.
Financing risk
Financing risk and the inability to match funding to the timing of investments by the Investment Manager. Lack of funding may restrict the ability of a portfolio company in the Company’s life science portfolio to fund ongoing research and development and commercialisation The Company has a strong liquidity position and ensures that it has sufficient liquidity to fund its early-stage investment programme. The Investment Manager maintains detailed financing and capital allocation models on an ongoing basis that contain appropriate stress testing, which are reviewed on a regular basis and notified to the Board. The investment parameters for our fund investments focus on ensuring liquidity and capital preservation.
programmes and the ability of the Company to invest in new, attractive investment opportunities. This could, in some cases, result in the Investment Manager having to
seek funding for companies in the life science portfolio from third-party investors, thereby diluting the Company’s ownership of the portfolio company. In extreme cases,
it may result in the portfolio company being forced to sell off its assets or cease its development, impacting the value of the investment.
Systems and controls
The potential loss of operation of core systems or sensitive data leading to damage and disruption to the Investment Manager or Administrator’s business. Disruption of the business of the Investment Manager or Administrator. Systems and controls procedures are developed and reviewed regularly and the Board receives reports annually from the Investment Manager and Administrator on their internal controls.
Legal and regulatory
Description Impact Mitigation
Changes in law and regulations may adversely affect the Company
The Company is subject to laws and regulations of national and local governments. In particular, the Company is subject to, and is required to comply with, regulations Changes in legislation and government policy may adversely impact the ability of the Investment Manager to execute the investment strategy of the Company or result in significant additional costs being incurred. Changes to tax laws may impact the Company’s returns or the returns that shareholders may receive from the Company. The Company and the Investment Manager monitor, and respond to, changes in law and regulation, including any changes in tax or other legislation, with the support of professional advisers where appropriate.
that apply to a premium listed company on the London Stock Exchange; other EU and UK requirements that apply to funds marketed in the EU; and regulations applicable to
registered closed-ended collective investment schemes domiciled in Guernsey, as well as other requirements. The legislative and policy framework is subject to ongoing
change.
GLOSSARY
ALL
Acute lymphocytic leukaemia – a cancer of the bone marrow and blood in which
the body makes abnormal white blood cells.
AAV
Adeno-associated virus – a non-enveloped virus that can be engineered to
deliver DNA to target cells.
Axumin
Diagnostic imaging agent that can help detect and localize recurrent prostate
cancer.
BACIT
BACIT (UK) Limited.
Capital pool
Pool of funds investments plus cash less other net liabilities.
Capsid
The protein shell of a virus
Choroideremia
A rare, degenerative, X-linked genetic retinal disorder primarily affecting
males.
Company
Syncona Limited.
CRT Pioneer Fund
The Cancer Research Technologies Pioneer Fund LP. The CRT Pioneer Fund is
managed by Sixth Element Capital and invests in oncology focused assets.
CSO
Chief Scientific Officer
DLBCL
Diffuse large B-cell lymphoma – an aggressive type of blood cancer that can
arise in lymph nodes (glands) or outside of the lymphatic system.
Dry AMD
Dry age-related macular degeneration – a progressive and debilitating loss
of vision in the centre of the visual field (macula) and a very common cause
of blindness in the elderly.
Fabry’s disease
A rare genetic disease resulting from a deficiency of the enzyme
alpha-galactosidase leading to dysfunctional lipid metabolism and abnormal
glycolipid deposits.
Fund investments
The underlying investments in this segment are investments in a diversified
portfolio of hedge, equity and long-term alternative investments funds across
multiple asset classes.
General Partner
Syncona GP Limited.
Group
Syncona Limited and Syncona GP Limited are collectively referred to as the
‘Group’.
Haemophilia B
A genetic disorder caused by missing or defective Factor IX that can result in
dangerously low levels of the essential clotting protein.
Holding Company
Syncona Holdings Limited.
ICR
The Institute of Cancer Research.
Immunotherapy
A type of therapy that uses substances to stimulate or suppress the immune
system to help the body fight cancer, infection, and other diseases.
Investment Manager
BACIT held the Alternative Fund Investment Manager role until 12 December
2017. From this date, Syncona Investment Management Limited became the
Alternative Fund Investment Manager.
IRR
Internal Rate of Return.
Life science portfolio
The underlying investments in this segment are those whose activities focus on
actively developing products to deliver transformational treatments to
patients.
Lymphocytes
Specialised white blood cells that help to fight infection.
Lymphoma
A type of cancer that affects lymphocytes and lymphocyte-producing cells in
the body.
MES
Management Equity Shares.
Multiple myeloma
Blood cancer arising from plasma cells found in the bone marrow.
NAV
Net Asset Value.
NAV total return
Movement in NAV per share plus dividend per share.
Neuroblastoma
A cancer that develops from immature nerve cells found in several areas of the
body, and most commonly arises in and around the adrenal glands.
pALL / aLL
Paediatric/adult acute lymphocytic leukaemia – a cancer of the bone marrow
and blood occurring during childhood in which the body makes abnormal white
blood cells (lymphocytes).
Partnership
Syncona Investments LP Incorporated.
PET
Positron emission tomography – a type of medical imaging test, which uses a
radioactive drug to help locate and visualise certain diseases in the body.
Prostate Specific Membrane Antigen (PSMA)
A type II membrane protein which is expressed in all forms of prostate tissue.
rDCF
Risk Adjusted Discounted Cash Flow.
Return
Time Weighted Rate of Return is the method used for return calculations.
RPGR
A gene that provides instructions for making a protein that is essential for
normal vision.
SIML
Syncona Investment Management Limited.
Stargardt’s disease
A form of juvenile macular dystrophy; a rare inherited condition causing loss
of central vision.
Syncona Group companies
Subsidiaries that are 100% owned by the Group.
T cell
A type of lymphocyte white blood cell, which forms part of the immune system
and develops from stem cells in the bone marrow.
The Syncona Foundation
The BACIT Foundation was established in 2012 and will shortly change its name
to The Syncona Foundation. The Foundation distributes funds to a range of
charities, principally those involved in the areas of life science and health
care.
X-linked Retinitis Pigmentosa (XLRP)
A rare inherited X-linked recessive genetic retinal disorder primarily
affecting males and most often caused by mutations in the RPGR gene.
1 Fully diluted - please refer to note 15 in the financial statements
2 Focused on sub-retinal delivery, an enabling technology for Syncona’s
retinal gene therapy companies
3 Fully diluted – please refer to note 15 in the financial statements
4 Including 2.3p dividend paid in August 2017
5 Time Weighted Rate of Return
6 The FALCON trial was a UK-based, open-label study to evaluate the clinical
impact of fluciclovine ((18)F) PET/CT imaging on patient management decisions
in men with biochemically recurrent prostate cancer.
7 On a standardised ETDRS letter chart.
8 Fully diluted, please refer to note 15 in the financial statements
9 Including 2.3p dividend paid in August 2017
10 Including realised gain of £19.3m on foreign exchange hedge
11 Gross cash resources of £85.2m, less £9.0m of net liabilities. Of the
£85.2m gross cash resources, £1m is held by Syncona Limited. £78.7m, £2.5m
and £3.0 are held by Syncona Investments LP Incorporated, Syncona Portfolio
Limited and Syncona Investment Management Limited respectively
12 Restated to include the £582.4 million of fund investments and the £0.4
million unrealised hedge position
13 As at 31 May 2018.
14 The ongoing charges ratio includes expenses from all Syncona Group
Companies in addition to the expenses in the Group’s consolidated statement
of comprehensive income, divided by average NAV for the year. It excludes a
charge of £5.5 million (2017: £0.1 million) associated with the Syncona
Long-Term Incentive Plan and the £3.8 million termination fee paid to BACIT.
15 Excluding CRT Pioneer Fund. Participants in Syncona’s LTIP scheme are
issued Management Equity Shares (“MES”) in Syncona Holdings Limited,
relevant details of which are set out in note 2 and 13. The fair value of the
MES is established via external valuation.
16 As at exchange rates on 13 June 2018
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