The Biotech Growth Trust PLC - Annual Financial Report
(the Company)
Annual Results for the Year Ended
The statements below are extracted from the Company’s annual report for the year ended
The Annual Report will be submitted to the
Company Secretary
0203 709 8734
FINANCIAL HIGHLIGHTS
as at
815.9p 754.0p £221.2m Net asset value per share* Share price Shareholders’ funds* 2024: 1,078.9p 2024: 995.0p 2024: £361.3m (24.4%) (24.2%) (6.0%) Net asset value per share Share price Benchmark† (total return)^ (total return)^ 2024: 5.0% 2024: 26.5% 2024: 27.1% 7.6% 1.1% 73.0% Discount of share price to net asset Ongoing Charges^ Active Share**^ value per share^ 2024: 1.2% 2024: 66.6% 2024: 7.8%
^ Alternative Performance Measure (see glossary)
† NASDAQ Biotechnology Index (total return, net of withholding tax, sterling adjusted)
* IFRS Measure
** Source: Morningstar
CHAIR’S STATEMENT
INTRODUCTION AND RESULTS
During the year ended
The first half of the year showed promising signs of recovery, supported by favourable interest rate decisions in the
Investor sentiment weakened further due to inflationary pressures, uncertainty around
In response to the heightened volatility and market uncertainty, our Portfolio Manager reduced our gearing from 9.1% at the start of the year, so that the Company was ungeared at the end of the year. Gearing detracted 1.6% from the Company’s NAV total return during the year.
The Company has not invested in any new private companies during the year and at the year end, private investments comprised only 1.0% of the portfolio.
The majority of the Company’s assets are denominated in
The Company has maintained a small exposure to Chinese biotechnology companies. The challenging macroeconomic, geopolitical, and regulatory landscape has kept valuations of Chinese biotech companies subdued. However, our Portfolio Manager sees
It is frustrating that, after a difficult period, our Portfolio Manager’s investment strategy had started to yield results, only for macroeconomic developments to derail the recovery. The Board acknowledges that recent performance has been disappointing and is committed to ensuring that appropriate measures are taken to address the challenges we face. As part of our ongoing oversight, we have engaged extensively with the Portfolio Manager and will soon make our biennial visit to their offices in
Our confidence is reinforced by our portfolio which encompasses a diverse selection of biotech companies developing groundbreaking and high-potential technologies. I encourage you to read OrbiMed’s Review to find out more about the key investment themes and the pioneering companies driving innovation in each area.
CAPITAL STRUCTURE
The Company’s share price total return was -24.2% (2024: +27.1%). The share price discount to the NAV per share narrowed marginally from 7.8% at the start of the Company’s financial year to 7.6% at the year end. The Company’s shares traded at a discount throughout the year, leading to the repurchase of 6,374,607 shares, at an average discount of 8.7% to the Company’s cum income NAV per share at the time, at a total cost of £57.4 million. Buying back these shares at a discount generated an uplift of 1.9% to the NAV over the year, which is in excess of our annual operating expenses.
Shareholders will be aware that the Company pursues an active discount management policy, buying back shares when the discount of the Company’s share price to its NAV per share is higher than 6% (under normal market conditions). In
The proposal was approved by shareholders with over 99% of the votes received in favour of the renewal. Therefore the Company has been able to continue the operation of the discount management policy. Since the renewed authority will expire at the conclusion of the Company’s forthcoming AGM, in line with usual practice the Company will ask shareholders to renew the authority again at the AGM in July.
At the year end there were 27,112,591 shares in issue and the share price traded at a 7.6% discount to the cum income NAV per share. As we have previously commented, the shares can trade at a discount wider than 6% for a period, particularly in volatile or muted markets such as those we have experienced recently. However, the Company remains committed to protecting a 6% share price discount over the longer term. Since the year end, a further 883,594 shares have been bought back for cancellation and at the time of writing the share price discount stands at 8.5%.
CAPITAL REDUCTION
The Company has built up a substantial share premium account (£79.9 million) owing to historic share issuance and a capital redemption reserve (£16.7 million) from share buybacks. These accounts are non-distributable. The Companies Act 2006 permits the Company to cancel the share premium account and the capital redemption reserve and transfer the amounts so cancelled to a special distributable reserve following approval by shareholders and the
Accordingly, the Board is proposing Special Resolution 12 at the forthcoming AGM, which seeks shareholder approval to cancel the amount standing to the credit of the current share premium account and the capital redemption reserve, following which the Company will make an application to the Court to obtain its approval of the cancellation and the creation of an equivalent distributable reserve.
RETURN AND DIVIDEND
The revenue return per share was 0.0p (2024: 0.3p). This reflects the low yield generated from the biotechnology sector and, in particular, the small and mid-capitalisation companies in this sector that comprise much of the portfolio.
As a result, no dividend is recommended in respect of the year ended
BOARD CHANGES
In September we were delighted to announce the appointment of
On behalf of the Board, I would like to extend our sincere gratitude to Julia for her outstanding service as Chair of the Audit Committee. Throughout her tenure, Julia has demonstrated exceptional dedication, integrity, and expertise, playing a vital role in maintaining the Board’s rigorous financial oversight and governance. We also express our appreciation to David for his invaluable contributions during his time on the Board. As a distinguished political figure with a strong commitment to life sciences, David has brought unique insights and understanding of policy and innovation in the sector to the Board.
We extend our best wishes to Julia and David in their future endeavours and thank them for their lasting impact on the Company.
PERFORMANCE FEE
There is currently no provision within the Company’s NAV for any performance fee payable at a future calculation date. The arrangements for performance fees are described in detail on page 51 of the Annual Report but I would highlight that it is dependent on the long-term outperformance of the Company: any outperformance has to be maintained for 12 months after the relevant calculation date and only becomes payable to the extent that the outperformance gives rise to a total fee greater than the total of all performance fees paid to date. This ensures that a performance fee is not payable for any outperformance that contributes to recovery of prior performance.
CONTINUATION OF THE COMPANY
The Company’s articles of association provide that every five years there will be a continuation vote at the AGM. Accordingly, a resolution seeking shareholders’ approval for the Company to continue as an investment trust is included in the Notice of AGM beginning on page 105 of the Annual Report.
The Board firmly believes that it is in the best long-term interests of shareholders to vote in favour of the continuation of the Company, despite its recent underperformance. While acknowledging the challenges faced by the Company, we remain confident in the underlying fundamentals and long - term prospects of the sector in which we invest. Recent market conditions have been particularly challenging, but there are clear indications of recovery and growth potential that we are well-positioned to capture.
As the Company's performance has been particularly volatile in the last year, should shareholders vote in favour of the Company's continuation in July, the Board will propose a one-off, interim continuation vote at the AGM in 2028, two years before the next regular vote is scheduled. This additional vote will provide an earlier opportunity for shareholders to reassess the Company's progress and determine whether the Portfolio Manager's investment strategy – based on the anticipated recovery in the biotech sector – is delivering the expected results.
In the meantime, I would highlight that the Company's discount management policy enables shareholders to realise their investment at a relatively small discount to NAV at any time.
We encourage shareholders to support the continuation of the Company as we navigate this challenging phase for the sector, upholding strong governance to protect shareholder interests and pursuing improved returns as market conditions evolve.
ANNUAL GENERAL MEETING
The Company’s AGM will be held at the Barber-Surgeons’ Hall,
I very much look forward to seeing as many shareholders as possible. For those investors who are not able to attend the meeting in person, a video recording of the Portfolio Manager’s presentation will be uploaded to the website after the meeting. Shareholders can submit questions in advance by writing to the Company Secretary at info@frostrow.com.
I encourage all shareholders to exercise their right to vote at the AGM. The Board strongly encourages shareholders to register their votes online in advance. Registering your vote in advance will not restrict you from attending and voting at the meeting in person should you wish to do so, but ensures your vote is registered if you are no longer able to attend on the day. The votes on the resolutions to be proposed at the AGM will be conducted on a poll. The results of the proxy votes will be published immediately following the conclusion of the AGM by way of a stock exchange announcement and on the Company’s website: www.biotechgt.com.
OUTLOOK
The biotech sector continues to be a dynamic and rapidly evolving space, with developments in science and technology translating into groundbreaking clinical advancements and innovations which are reshaping the future of healthcare. The sector presents compelling investment opportunities, reinforcing our confidence in its long-term growth potential.
In the short term, macroeconomic and geopolitical uncertainties, including trade tensions, regulatory developments, and general market volatility, will present challenges. In addition, these broader economic conditions may adversely influence investors’ risk appetites. Despite these risks, we remain optimistic about the sector’s ability to generate long-term value through scientific and technological breakthroughs.
Chair
HISTORIC PERFORMANCE FOR THE FIVE YEARS ENDED 31 MARCH
2021 2022 2023 2024 2025
Net asset value per share total 55.1% (33.8%) (11.0%) 26.5% (24.4%)
return*^
Share price total return*^ 75.2% (37.0%) (12.8%) 27.1% (24.2%)
Benchmark return* 25.1% (7.4%) 5.4% 5.0% (6.0%)
Net asset value per share 1,446.4p 957.8p 852.6p 1,078.9p 815.9p
Share price 1,426.0p 898.0p 783.0p 995.0p 754.0p
Discount of share price to net asset 1.4% 6.2% 8.2% 7.8% 7.6%
value per share^
Ongoing charges (excluding performance 1.1% 1.1% 1.1% 1.2% 1.1%
fees)^
Gearing/(net cash)^ 6.8% 8.4% 7.8% 9.1% (3.8%)
*
Source:
^ Alternative Performance Measure (see glossary).
INVESTMENT PORTFOLIO
INVESTMENTS HELD AS AT
Fair value % of
Security Country/Region # £’000 investments
Argenx* Netherlands 17,602 8.1
Gilead Sciences USA 17,137 7.8
Neurocrine Biosciences USA 11,671 5.3
Amgen USA 10,666 4.9
CG oncology USA 9,612 4.4
Avidity Biosciences USA 9,312 4.3
Alnylam Pharmaceuticals USA 9,181 4.2
Akeso China 8,741 4.0
Tarsus Pharmaceuticals USA 8,674 4.0
Xenon Pharmaceuticals Canada 8,300 3.8
Ten largest investments 110,896 50.8
Amicus Therapeutics USA 7,266 3.3
Ionis Pharmaceuticals USA 6,550 3.0
Vertex Pharmaceuticals USA 6,120 2.8
Axsome Therapeutics USA 5,786 2.6
Cytokinetics USA 5,299 2.5
Compass Therapeutics USA 5,257 2.4
Vir Biotechnology USA 4,578 2.1
Edgewise Therapeutics USA 4,528 2.1
Rhythm Pharmaceuticals USA 4,404 2.0
Tyra Biosciences USA 4,171 1.9
Twenty largest investments 164,855 75.5
Scholar Rock Holding USA 3,788 1.7
Agios Pharmaceuticals USA 3,697 1.7
Dyne Therapeutics USA 3,501 1.6
Krystal Biotech USA 3,277 1.5
Forte Biosciences˜ USA 3,238 1.5
Immatics Germany 2,510 1.2
Cullinan Therapeutics USA 2,441 1.1
Exact Sciences USA 2,430 1.1
Structure Therapeutics USA 2,319 1.1
ADC Therapeutics Switzerland 2,312 1.1
Thirty largest investments 194,368 89.1
Akero Therapeutics USA 2,214 1.0
C4 Therapeutics USA 2,157 1.0
Insmed USA 1,692 0.8
Corbus Pharmaceuticals Holdings USA 1,623 0.7
Instil Bio USA 1,554 0.7
Trevi Therapeutics USA 1,288 0.6
Engene Holdings Canada 1,281 0.6
Nkarta USA 1,171 0.5
SpringWorks Therapeutics USA 1,033 0.5
Amylyx Pharmaceuticals USA 952 0.4
Forty largest investments 209,333 95.9
New Horizon Health** China 920 0.4
OrbiMed Asia Partners**† Asia 893 0.4
Vera Therapeutics USA 781 0.4
Suzhou Basecare Medical China 745 0.4
Kezar Life Sciences USA 706 0.3
Bicara Therapeutics USA 667 0.3
Enliven Therapeutics USA 631 0.3
Zai Lab China 596 0.3
Korro Bio USA 434 0.2
Fate Therapeutics USA 420 0.2
Fifty largest investments 216,126 99.1
Alto Neuroscience USA 418 0.2
Gracell Biotechnologies CVR**^ China 381 0.2
LakeShore Biopharma China 245 0.1
Prelude Therapeutics USA 206 0.1
Repare Therapeutics Canada 38 –
StemiRNA Therapeutics** China – –
Imara** USA – –
Total investments 217,414 99.7
OTC equity swaps – financed
Swaps China 8,286 3.8
Less: Gross exposure on financed swaps (7,541) (3.5)
Total OTC Swaps 745 0.3
Total investments including OTC Swaps 218,159 100.0
All of the above investments are equities unless otherwise stated. Please refer to the glossary for a definition of financed swaps.
# Primary listing
* Includes Argenx ADR (see glossary) amounting to £11,180,000
˜ Includes Forte Warrants £2,704,000
** Unquoted
† Partnership interest
^ Contingent Value Right (see glossary)
PORTFOLIO BREAKDOWN
Fair value % of
Investments £’000 investments
Quoted
Equities 215,220 98.7
215,220 98.7
Unquoted
Equities 1,301 0.6
Partnership interest 893 0.4
2,194 1.0
Derivatives
OTC equity swaps 745 0.3
Total investments 218,159 100.0
PERFORMANCE ATTRIBUTION FOR THE YEAR ENDED
Contribution to total returns % % Benchmark return (6.0) Portfolio Manager’s contribution (17.6) Portfolio total return (23.6) Gearing (1.6) Management fee and other expenses (1.1) Share buybacks 1.9 Total (0.8) Return on net assets (24.4)
PORTFOLIO MANAGER’S REVIEW
PORTFOLIO MANAGER’S REVIEW
The Company’s NAV per share declined 24.4% during the fiscal year ended
Despite this performance, our conviction in superior returns for the Company going forward is as high as ever, based on unprecedented low valuations, continued strong innovation in the sector, an even more constructive
Macro factors continued to have an outsized influence on the performance of the Company during the fiscal year, despite these strong industry fundamentals. The first half of the fiscal year witnessed a gradual recovery in biotech valuations consistent with our expectations, but unexpected turbulence in the aftermath of Donald Trump’s election in November cut the recovery short and caused a significant drop in share prices in the second half of the fiscal year.
The fiscal year began with a pullback in valuations in
Unfortunately, the second half of the fiscal year brought a number of surprises that derailed the nascent biotech recovery. In October, a strong employment report and a higher-than-expected inflation reading sent 10-year
In December, the Fed cut interest rates by a quarter point but also said it anticipated fewer rate cuts in 2025 than investors were expecting given the continued strength of the
In January, the biotech sector had a strong month as three biotech M&A transactions were announced, including Johnson & Johnson’s
While biotech is largely insulated from the impact of tariffs, the prospect of potential tariffs still diminished investor enthusiasm for the biopharmaceutical sector generally. The month of March brought further weakness in the broader markets due to concerns about President Trump’s tariff policies and a possible economic slowdown in the
A constellation of macro factors—persistently elevated 10-year interest rates, a slower-than-expected pace of Fed interest rate cuts, and concerns about
The portfolio, which is overweight small and mid-cap companies relative to the Benchmark, was hit especially hard by these recent developments. We cut our leverage down to close to zero in February and March to help manage through the general market volatility. Figure 1 (on page 11 of the Annual Report) shows the average performance of stocks in the Benchmark classified into three market cap categories: large-cap, mid-cap, and small-cap. Mid-cap and small-cap stocks significantly underperformed large-cap stocks during the fiscal year. As shown in Figure 1, the Company was overweight small and mid-cap stocks at the beginning of the review period. That positioning was largely maintained throughout the fiscal year, with a mild shift from small-caps to large and mid-caps as macro conditions worsened. The significant decline in small-cap performance, in particular during the final three months of the year, significantly impaired the portfolio’s relative performance versus the Index.
Additionally, we witnessed a significant disparity in performance between biotech companies that already have product revenue (commercial stage) versus those that are pre-revenue (development stage). Figure 2 (on page 12 of the Annual Report) is a graph showing the relative performance of two baskets of stocks put together by Morgan Stanley: a commercial biotech basket consisting of 60 biotech companies with product revenue, and a clinical stage basket consisting of 163 pre-revenue biotech names. We note the dramatic underperformance of the pre-revenue names, especially in the latter half of the fiscal year, which contributed to an almost 40% relative underperformance of the clinical stage basket versus the commercial basket over the course of the fiscal year. Because the Company has more exposure to pre-revenue names than the Benchmark (46% vs 28%), as shown in the tables in Figure 2, this also acted as a significant headwind to relative performance.
ABSOLUTE VALUATIONS OF EMERGING BIOTECH RETEST UNPRECEDENTED LOWS
The dramatic drawdown in biotech performance in the second half of the fiscal year caused absolute valuations for the sector to hit new record lows. We view this recent dip as an excellent buying opportunity for emerging biotech in particular.
One objective measure we use to evaluate valuations of biotech companies is simply to compare the market caps of these companies with the net cash on their balance sheets. On this simple metric, a significant number of biotech companies are still trading at negative enterprise values (i.e. market caps below the net cash on their balance sheets).
As shown in Figure 3 (on page 13 of the Annual Report), we estimate close to 30% of the biotech universe, representing approximately 120 companies, are now trading at negative enterprise values as at
Plotting the median ratio of market cap to net cash on the balance sheet for the industry since 2001 also shows we are at the absolute bottom of historical valuations for the sector on this metric.
With many companies with active drugs trading below their cash value, we continue to believe that the small and mid-cap pre-revenue companies are the most undervalued in the biotech universe and have the most opportunity for upside. In a worst-case scenario, even if some of these companies choose to shut down operations and return cash to shareholders, this would actually deliver a positive return from current share prices in many cases. In fact, we are beginning to see more activist investors get involved in companies with negative enterprise values in order to unlock the value of their balance sheet cash.
As we have stated in previous years, the biotech sector drawdown since 2021 has been the most protracted and severe pullback we have ever seen for the sector. Ultimately, the innovation in research and development (R&D) that drives value remains intact, which underpins our confidence that a valuation recovery will occur eventually. Most of the innovation in the industry is still being driven by emerging biotech. According to IQVIA (a provider of biopharmaceutical development and data analytics services), 85% of the novel drugs launched in 2024 were initially developed by an emerging biotech company. As such, we currently plan to continue to hold a majority of our portfolio in the small and mid-cap segment, which accounts for the majority of innovation in the sector and has seen the greatest valuation contraction in the past four years.
We note that when valuations previously reached these levels, the biotech sector staged significant upward recoveries, as was the case in late 2023/early 2024.
TOP AND BOTTOM FIVE CONTRIBUTORS TO NET ASSET VALUE PERFORMANCE FOR THE YEAR TO 31
Contribution
Contribution per share
Top Five Contributors £’000 (pence)*
Gilead Sciences 8,802 27.9
Argenx SE 6,499 20.6
CytomX Therapeutics 5,380 17.1
Intra-Cellular Therapeutics 4,727 15.0
Morphic Holding 3,803 12.1
29,211 92.7
Top Five Detractors
Sarepta Therapeutics (8,890) (28.2)
Dyne Therapeutics (7,314) (23.2)
Apellis Pharmaceuticals (5,161) (16.4)
Nkarta (5,104) (16.2)
Ionis Pharmaceuticals (5,035) (16.0)
(31,504) (100.0)
*
Based on 31,514,115 shares being the weighted average number of shares in issue during the year ended
CONTRIBUTORS AND DETRACTORS
Gilead Sciences, Argenx, CytomX Therapeutics, Intra-Cellular Therapies, and
· Gilead Sciences is a diversified biopharmaceutical company developing medicines to prevent and treat life-threatening diseases, including HIV, viral hepatitis, COVID-19, and cancer. Gilead stock appreciated during the year due to strong revenue growth for its commercial HIV franchise. Additionally, Gilead announced breakthrough data from registrational studies of lenacapavir, a treatment for HIV prevention, which, if approved, has the potential to change the treatment paradigm for HIV prevention as a twice-yearly injection and drive continued growth of Gilead’s HIV franchise.
·
Argenx
is a commercial-stage, global biotech company
specialising in the development and commercialisation of therapies for autoimmune diseases. The stock’s outperformance was driven by exceptional commercial execution, with global product sales reaching
· CytomX Therapeutics is a clinical-stage company that is developing novel immuno-oncology therapies across a broad array of cancer types. Shares spiked in May after the company released a clinical update from an early-stage drug which suggested that it may be active in pancreatic cancer. We took advantage of the strength in the shares and exited the position with a significant gain.
·
Intra-Cellular Therapies
markets Caplyta, a drug approved in
the
·
Sarepta Therapeutics, Dyne Therapeutics, Apellis Pharmaceuticals, Nkarta, and Ionis Pharmaceuticals were the principal detractors for the year.
· Sarepta Therapeutics is a commercial stage biotechnology company developing and marketing a portfolio of therapies targeting neuromuscular diseases, including the gene therapy Elevidys for Duchenne muscular dystrophy. In March, Sarepta disclosed that a young man with Duchenne muscular dystrophy had passed away from acute liver failure shortly after receiving Elevidys. We exited the entire Sarepta position on the day of the news due to the uncertainty of Elevidys’ commercial outlook.
· Dyne Therapeutics is a clinical stage biotechnology company developing a pipeline in multiple neuromuscular diseases. In January, updated Phase 1 data showed its drug DYNE-101 was efficacious in myotonic dystrophy, though the level of efficacy was below investor expectations. Uncertainty around the drug’s regulatory path led to pressure on the stock.
· Apellis Pharmaceuticals is a commercial stage biopharmaceutical company developing treatments for diseases driven by overactivation of the complement system. The company’s primary revenue driver is a drug called Syfovre, a treatment for an eye disease called geographic atrophy that can cause blindness. Shares declined in the review period due to slowing market growth and competitive pressure on Syfovre sales.
· Nkarta is a clinical-stage biopharmaceutical company developing engineered natural killer cell therapies to treat autoimmune diseases and cancer. Shares declined due to a lack of catalysts in the near term, slow clinical program progression, and increasing competition from alternative modalities being developed for autoimmune diseases.
· Ionis Pharmaceuticals is a commercial stage company developing RNA therapeutics across a variety of disease areas. In January, partner Novartis announced a delay of its Phase 3 trial of pelacarsen, a lipoprotein(a) inhibitor to treat cardiovascular disease, from 2025 to the first half of 2026. The lack of other meaningful catalysts in 2025 led to continued weakness in the shares.
INNOVATION REMAINS ROBUST WITH IMPORTANT NEW FDA DRUG APPROVALS
We believe the valuation contraction we have seen in biotech over the past few years is not justified given the strong innovation that continues in the sector.
The FDA approved 59 new drugs in 2024, including a large number of first-in-class drugs. These new therapies generally provide benefit to patients who have little or no therapeutic options or are superior to previously available therapies. Some examples of drugs approved in 2024 that were either the first-ever drug approved to treat a particular disease or the first with a novel mechanism of action are listed below. We favour investing in companies developing first-in-class agents with limited competition.
· Ojemda is the first therapy to treat relapsed or refractory paediatric low-grade glioma harbouring a BRAF fusion or rearrangement, a rare form of brain cancer in children. In clinical studies, Ojemda was able to shrink tumours in over 50% of children with this form of glioma. The drug was developed and is marketed by Day One Biopharmaceuticals.
· Anktiva was approved as the first immunotherapy to be used in combination with standard of care to treat high risk non-muscle invasive bladder cancer. Anktiva, developed by ImmunityBio, provides a therapeutic alternative to the traditional surgical option of removing the bladder.
· Xolremdi was the first therapy approved to treat WHIM syndrome, a rare immunodeficiency disorder. While the market potential for this indication is small, X4 Pharmaceuticals intends to develop the therapy in other more prevalent immunodeficiencies.
· Rytelo , developed by Geron, is the first and only oligonucleotide telomerase inhibitor approved for myelodysplastic syndrome, a type of cancer where the blood marrow produces abnormal cells.
·
Yorvipath
is currently the only drug to treat
hypoparathyroidism on the market.
·
Niktimvo
was developed by Syndax Pharmaceuticals
and is co-marketed with
· Revuforj , also developed by Syndax Pharmaceuticals, is the first therapy for relapsed or refractory acute leukemia with KMT2A translocations. This specific type of leukemia has a poor prognosis when treated with traditional chemotherapy.
· Crenessity , developed by Neurocrine Biosciences, is the first and only therapy approved to treat classic congenital adrenal hyperplasia (CAH), a rare endocrine disorder associated with dysregulated hormone production from the adrenal glands. The treatment addresses both cortisol deficiency as well as excess androgen production, the classic hallmarks of CAH.
· Tryngolza , developed by Ionis Pharmaceuticals, is the first therapy to treat familial chylomicronaemia syndrome, a rare disease where patients suffer from ultra-high triglyceride levels.
SIGNIFICANT SCIENTIFIC AND MEDICAL BREAKTHROUGHS DURING THE REVIEW PERIOD
New drugs like the ones listed above do not make it to market without years of clinical testing and scientific investigation. We focus on assets with best-in-class efficacy and safety for an unmet medical need with a financially large addressable market. Below are a few of the significant scientific and medical breakthroughs during the year for some companies held in the portfolio as at
·
Akeso
, a Chinese biotech company partnered with US
company Summit Therapeutics, presented its HARMONI-2 trial results at the 2024
· Gilead Sciences released data from two groundbreaking studies with its twice-a-year injection lenacapavir for the pre-exposure prevention of HIV infections. In the trials, lenacapavir prevented 100% and 99.9% of HIV infections in individuals engaging in high-risk behaviour. The drug is under review at global health agencies, and we expect it to be approved and available later in 2025.
·
Insmed
released positive
· Scholar Rock released its Phase 3 SAPPHIRE data in patients with spinal muscular atrophy (SMA) for its monoclonal antibody, apitegromab. This was the first drug to show a benefit in SMA patients on top of standard of care therapies. Apitegromab is under regulatory review and should be approved later in 2025.
·
Akero Therapeutics
announced its 96-week Phase 2b
SYMMETRY trial for efruxifermin which showed a reversal of compensated cirrhosis due to MASH, a condition characterised by accumulation of excess fat in the liver. No other drug tested to date has been able to show an improvement in fibrosis in this late-stage liver disease.
· Avidity Biosciences released Phase 1/2 data for del-brax, a novel siRNA bound to a monoclonal antibody for the treatment of facioscapulohumeral muscular dystrophy (FSHD), a genetic disorder characterised by progressive muscle weakness. Del-brax was the first drug to demonstrate muscle function improvement in FSHD, a condition that currently has no approved therapies. Avidity has begun a Phase 3 trial for del-brax and if successful, it could become the first approved therapy to treat FSHD.
· Axsome Therapeutics released Phase 3 data for its drug AXS-05 showing efficacy in the treatment of Alzheimer’s disease agitation, a condition of restlessness and anxiety found in Alzheimer’s patients. This is the first non-antipsychotic to show a benefit in this hard-to-treat patient population. Axsome plans to file the drug for approval in the second half of 2025, and we would expect it to be available to patients in 2026.
We look at all therapeutic areas and we are seeing promising advancements across multiple therapeutic categories.
Some of the areas we currently find particularly attractive for investment include:
Orphan/Rare Disease
Under the FDA Orphan Drug Act of 1983, a disease affecting fewer than 200,000 Americans is considered an orphan disease. Companies developing therapies for these diseases have both regulatory and commercial advantages relative to those developing therapies for more prevalent diseases. The FDA awards orphan drugs seven years of regulatory exclusivity upon approval, during which time the FDA is prohibited from approving another marketing application for the same drug for the same disease, regardless of the orphan drug’s intellectual property. The FDA will also offer economic incentives to orphan drug developers, often waiving the fee for filing a new drug application. Commercial advantages of orphan drugs include the fact that a relatively small salesforce is typically required to promote such drugs given that these diseases are generally treated by a concentrated number of specialists. Insurance plans and government payors also tend not to heavily negotiate pricing for orphan drugs given the small number of patients affected, allowing companies to charge a significant price per patient. Lastly, patient groups for orphan diseases tend to be well organised, so patients are well-educated about upcoming treatments and will actively seek them once they are approved. Several of the drugs we highlighted above that were approved or had significant data in the year are for rare orphan diseases. Given the regulatory and commercial advantages of orphan disease companies, we have found many of them to be attractive investment opportunities. Some examples of biotech companies focused on orphan diseases held in the portfolio as at 31
·
Vertex Pharmaceuticals
– Vertex is a large profitable
biotech company that is the leader in developing and commercialising drugs for the treatment of cystic fibrosis. The company has commercialised five therapies which have revolutionised the lives of people suffering from cystic fibrosis, generating over
· Argenx – Argenx developed and commercialised Vyvgart, an antibody therapy, for the treatment of two rare immune-mediated neurological disorders: generalized myasthenia gravis and chronic inflammatory demyelinating polyneuropathy. Success of the product drove Argenx to profitability in 2024. Argenx is also conducting multiple pivotal trials in other rare diseases.
· Rhythm Pharmaceuticals – Rhythm has developed and launched Imcivree for Bardet-Biedl syndrome, a rare genetically driven severe obesity disorder. Recently, the company announced positive Phase 3 data for Imcivree for the treatment of acquired hypothalamic obesity, a larger but still orphan indication.
· Agios Pharmaceuticals – Agios has developed and commercialised Pyrukynd, a first-in-class oral pyruvate kinase activator, for rare hematologic diseases. Pyrukynd is currently approved for the treatment of haemolytic anaemia in adults with pyruvate kinase deficiency. Over the course of 2024, Agios released two positive Phase 3 studies for Pyrukynd for the treatment of thalassemia, a more common but still rare disorder. Agios is also studying Pyrukynd in a Phase 3 trial for the treatment of sickle cell disease, an even larger but still rare disease.
Cardiovascular Disease
Cardiovascular disease is the leading cause of death in
· Alnylam Pharmaceuticals – Alnylam has developed and marketed four products based on its RNA interference technology. In early 2025, Alnylam’s drug Amvuttra received a label expansion for the treatment of cardiomyopathy due to transthyretin-mediated amyloidosis. The drug had been shown in clinical studies to reduce the frequency of heart-related deaths, hospital stays, and urgent heart failure visits.
· Cytokinetics has a pipeline of late-stage cardiovascular drugs. Its lead asset aficamten had positive Phase 3 data for the treatment of symptomatic obstructive hypertrophic cardiomyopathy. The drug is currently under review by global regulatory authorities with an expected approval in the second half of 2025.
· Edgewise Therapeutics develops novel therapeutics for muscle disease, including the heart, the most important muscle in the body. Edgewise recently released Phase 2 data for its drug EDG-7500 for the treatment of hypertrophic cardiomyopathy, a genetic condition where the heart muscle becomes abnormally thickened, making it harder for the heart to pump blood effectively.
Bispecific Antibody Therapies for Cancer
Bispecific antibodies are an emerging technology that is being utilised for the treatment of cancer. Bispecific antibodies are capable of binding to two different antigens simultaneously (in contrast to monoclonal antibodies, which can only bind to one antigen). One of the arms of the antibody targets an antigen which is specific to a cancer cell while the other arm activates an immune cell to target the tumour and kill it. To date, a handful of bispecific antibodies have been developed and marketed using this approach. Some examples of biotech companies held in the portfolio as at
· Amgen , a large cap biotech company that develops and commercialises drugs across a wide range of therapeutic categories. Amgen has two bispecifics to treat cancer and a third in late-stage clinical development. Blincyto was the first bispecific antibody on the market and is approved for the treatment of acute lymphoblastic leukemia. Imdelltra was the first bispecific approved to treat a solid tumour and is approved for the treatment of late-stage small cell lung cancer. Amgen’s third bispecific antibody, xaluritamig is in multiple Phase 3 trials to treat prostate cancer.
·
Akeso
, a Chinese biotechnology company developing
ivonescimab, a bispecific targeting VEGF/PD1, across multiple solid tumours. In 2024, the company shared multiple data sets where ivonescimab showed superiority over Merck’s Keytruda in non-small cell lung cancer. Akeso has licensed the ex-Chinese rights to the molecule to US based Summit Therapeutics. Ivonescimab has an initial approval to treat a specific type of lung cancer in
· Immatics , which is focused on developing drugs that target the T cell receptor to generate a specific response against solid tumours. Immatics has two bispecifics in early-stage development against various solid tumours, including head & neck cancer and melanoma. We expect Immatics to share an update on both programs in 2025.
· Vir Biotechnology is developing T cell engager bispecifics for cancer utilizing its PRO-XTEN double masking technology, which reduces the risk of side effects of the drugs. Vir has shared exciting early data for two compounds, one targeting breast and colon cancer and a second targeting prostate cancer. The XTEN mask technology hides the active component of the bispecific and activates the bispecific only when it is in the tumour microenvironment, limiting toxicity while enabling a higher and more potent dose of drug to be delivered to the tumour.
As shown in Figure 5 (on page 19 of the Annual Report), the Company has exposure to a wide range of cutting-edge technologies in biotech.
DECLINE IN BIOTECH FINANCINGS CREATES NEW OPPORTUNITIES FOR INVESTORS TO GENERATE OUTSIZED RETURNS
The sharp contraction in valuations over the past six months has curtailed financing activity in the sector, as shown in Figure 6 (on page 20 of the Annual Report). Quality companies that have shown good proof-of-concept for their drugs have still seen healthy investor demand for their follow-on offerings. In contrast, earlier stage companies that have not yet demonstrated proof-of-concept for their drug candidates have had a much more challenging time securing financing on attractive terms.
IPO activity, shown in blue, remains minimal given the current valuations in the marketplace. Many private companies are opting to raise funds through additional private rounds rather than go public at record low valuations. As at
One positive consequence of the diminished financing environment is that investors have more leverage in securing attractive deal terms when financing a biotech company that is close to running out of cash. We will continue to selectively take advantage of these financing opportunities.
CHINESE BIOTECH EMERGING AS A SIGNIFICANT SOURCE OF INNOVATION
Ever since the Chinese government made developing a domestic biotechnology industry a national priority in 2015 as part of its 10-year “Made in China” plan, the Chinese biotech industry has significantly advanced its ability to develop innovative biotech therapeutics.
Chinese biotech companies have shown their ability to develop drugs faster and cheaper than their Western counterparts, and they are rapidly approaching the drug development productivity of
As shown in Figure 7 (on page 21 of the Annual Report), the Chinese biopharmaceutical industry now accounts for 30% of Phase 1-3 clinical trial starts worldwide, exceeding all of
Five to ten years ago, many of the biotech drug candidates produced by Chinese biotech were “me-too” versions of Western drugs that did not offer any efficacy or safety advantage. Now, Chinese companies are increasingly developing completely novel drugs and first-in-class molecules that have never been seen in the West. The most telling sign of this advance in innovation is the fact that many large pharmaceutical companies have in-licensed innovative molecules from Chinese biotech companies in the recent past (see Figure 8 below). Western biopharmaceutical companies licensing innovative assets from
Upfront Milestones
Date Asset Target Licensor Licensee ($mm) ($mm)
7-Jan-24 RNAi multiple Argo Biopharma Novartis 185 3,980
3-Apr-24 Acquisition ProfoundBio Genmab 1,800 –
23-May-24 Molecular N/A Degron Takeda NA 1,200
glues Therapeutics
27-May-24 ADCs multiple MediLink BioNTech 25 1,800
14-Jun-24 FG-M701 TL1A FutureGen AbbVie 150 1,560
14-Jun-24 Olverembatinib BCR-ABL1 Ascentage Pharma Takeda 100 1,200
13-Aug-24 CN201 CD3/CD19 TCE Curon Merck 700 600
Biopharmaceutical
30-Sep-24 RGT-419B CDK2/4 Regor Roche 850 –
Therapeutics
7-Oct-24 YS2302018 Lp(a) CSPC AstraZeneca 100 1,920
Pharmaceuticals
17-Oct-24 Botanical N/A Chengdu Baiyu Novartis 70 1,100
cancer SM
30-Oct-24 CBM1A46 CD3/CD19/CD20 Chimagen GlaxoSmithKline 300 550
Biosciences
12-Nov-24 Acquisition Biotheus BioNTech 800 150
15-Nov-24 LM-299 PD-1/VEGF LaNova Medicines Merck 588 2,700
18-Dec-24 HS-10535 Oral GLP-1R Hansoh Pharma Merck 112 1,900
agonist
2-Jan-25 IBI3009 DLL3 ADC Innovent Roche 80 1,000
Biologics
13-Jan-25 SIM0500 GPRC5D/BCMA/CD3 Simcere Zaiming AbbVie – 1,055
21-Mar-25 Biospecifics strategic Harbour BioMed AstraZeneca 175 4,400
collaboration
24-Mar-25 UBT251 GLP-1/GIP/ GCGR United Novo Nordisk 200 1,800
Laboratories
25-Mar-25 HRS-5346 Lp(a) Jiangsu Hengrui Merck 200 1,770
Figure 8
China’s ascendance in biotechnology has not gone unnoticed by the US government. In early April, the
REGULATORY ENVIRONMENT MAY BECOME EVEN MORE FAVOURABLE THAN BEFORE
The biotech sector was weak in the latter part of the fiscal year in part due to growing investor concerns that staff cuts at the FDA could lead to delays in the approvals of new drugs. We believe the concerns over potential regulatory delays are exaggerated. The HHS has expressly stated that any staff cuts will not affect the drug review process, which is largely paid for by industry user fees rather than by the government. Thus far, most of the expected approvals since Kennedy’s appointment as head of HHS have occurred on time. Conversations with biotech management teams have also not indicated any detrimental impact on regulatory timelines.
We believe the Trump administration is pro-innovation and would like to speed up new drug approvals rather than delay them. Figure 9 (on page 22 of the Annual Report) is a graph showing new drug approvals at the FDA since 2016. We would note that in 2017, when Trump took office during his first term as President, he expressly stated that he wanted to speed up the approval of new drugs and reduce the regulatory burden on companies. That policy resulted in over a doubling in new drug approvals in 2017 compared to 2016. That elevated pace of drug approvals continued through his first term and into the Biden administration. We see no evidence that Trump has changed his view on having a constructive FDA regulatory process that speeds up the introduction of new drugs to the market.
Supporting this view is the announcement in April by the new FDA Commissioner
M&A ACTIVITY EXPECTED TO ACCELERATE
One of the longstanding drivers of biotech sector performance has been M&A activity. Emerging biotech companies rarely stay independent over the long term; at some point, they are acquired by a larger strategic player. Figure 10 (on page 23 of the Annual Report) shows the company announced M&A transactions for publicly traded biotech companies since the beginning of 2018. M&A was generally strong throughout 2023 and the early part of 2024 before tapering off for the balance of 2024. We attribute the reduced M&A activity in the latter part of 2024 to four factors: 1) acquirors were still digesting the acquisitions they had already made so were not prepared to make new ones; 2) acquirors were waiting for the results of the Presidential election, which would impact the tax implications for companies contemplating acquisitions as well as
Our conversations with investment bankers indicate that strategic interest in acquiring biotech companies remains strong among large pharmaceutical companies, in large part due to the expected loss of exclusivity for many of their blockbuster products by the end of this decade (as shown in Figure 11 on page 24 of the Annual Report). Pharmaceutical companies have an urgent need to make acquisitions that can replace the lost revenue from the patent expirations of those blockbuster products.
However, Trump’s recent tariff announcements, including an upcoming pharmaceutical tariff that has yet to be announced, have increased uncertainty among large pharmaceutical companies about what their financial situation may be in the near future. Trump has also discussed closing the tax advantages for pharmaceutical companies that choose to domicile their manufacturing and intellectual property in ex-US locations like
Uncertainty about these policies has likely contributed to a temporary pause in biotech M&A activity. Because the cost of goods sold for pharmaceuticals is generally very low (less than 10% in many cases), any tariff on drugs should theoretically not have a dramatic impact on pharmaceutical margins. Any tariffs that are enacted should also have a minimal impact on biotech companies. Pre-revenue companies will have time to structure their commercial manufacturing operations in an optimal way to minimise the impact of tariffs prior to generating product revenue. If Trump succeeds in lowering the US corporate tax rate from 21% to 15%, the benefits of offshoring pharmaceutical manufacturing become less compelling regardless.
Once there is greater clarity on Trump’s pharmaceutical tariffs and economic policies, we believe M&A activity will resume for the balance of this calendar year.
While most of the M&A activity will be larger pharmaceutical companies acquiring smaller biotech, we also expect an uptick in large-scale M&A activity by pharmaceutical companies. During the
BIG PHARMA PATENT CLIFF DRIVES BIOTECH M&A
Over
2024
Company Drug US Loss of Exclusivity
(Projected) Global Sales
($bn)
Merck Keytruda 2028 $29.4
Bristol Myers Squibb & Pfizer Eliquis 2026 $13.3
Johnson & Johnson Stelara 2025 $10.3
Johnson & Johnson Darzalex 2029 $11.6
Bristol Myers Squibb Opdivo 2028 $9.3
AbbVie Humira 2023 $8.9
Abbvie & Johnson & Johnson Imbruvica 2027 $4.4
Pfizer Ibrance 2027 $4.3
Figure 11
Source:
The Company did benefit directly from three M&A transactions during the fiscal year because of holdings in the target companies at the time of the acquisition announcement:
·
Eli Lilly’s acquisition of
·
Lundbeck’s acquisition of
·
Johnson & Johnson’s acquisition of Intra-Cellular Therapies for
Several of the holdings in the portfolio would make attractive acquisition candidates, so we expect to continue to benefit directly from M&A activity.
STRATEGY AND OUTLOOK
With the recent downturn, our conviction in the prospects for biotech remains as bullish as ever. Innovation and scientific progress in the industry remain robust, and we believe the regulatory environment is poised to become even more constructive for the biotech industry as Trump executes his pro-business agenda. Contrary to investor fears, we believe the Trump administration is pro-innovation and ultimately wants more drugs approved as expeditiously as possible.
Merger and acquisition activity, which has been on a temporary pause as potential acquirors await greater clarity on Trump’s tax and tariff policies, should resume robustly for the balance of this year. Even in an environment of slowing economic growth, biotech has historically outperformed other sectors of the economy, as drug demand is less sensitive to economic conditions. We believe the impact of pharmaceutical tariffs and inflation should have minimal impact on the biotech sector. Commercial biotech companies have typically been able to increase their prices in line with inflation each year.
We expect a majority of the portfolio will continue to be invested in small and mid-cap biotech companies, since they are the most undervalued (trading at record lows) and are most likely to benefit from M&A activity. Additionally, we will maintain some exposure to
Portfolio Manager
BUSINESS REVIEW
The Strategic Report contains a review of the Company’s business model and strategy, an analysis of its performance during the financial year and its future developments, as well as details of the principal risks and challenges it faces.
Its purpose is to inform shareholders and help them to assess how the Directors have performed their duty to promote the success of the Company. The Strategic Report contains certain forward-looking statements. These statements are made by the Directors in good faith based on the information available to them up to the date of this report. Such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying such forward-looking information.
BUSINESS MODEL
The purpose of the Company is to achieve long-term growth in its shareholders' wealth by providing a vehicle for investors to gain exposure to a portfolio of worldwide biotechnology companies, through a single investment.
The Company’s strategy is to create value for shareholders by addressing its investment objective. As an externally managed investment trust, all of the Company's day-to-day management and administrative functions are outsourced to service providers. As a result, the Company has no executive directors, employees or internal operations.
The Company employs
The Board is responsible for all aspects of the Company’s affairs, including setting the parameters for and monitoring the investment strategy as well as the review of investment performance and policy.
The Company is an investment company within the meaning of Section 833 of the Companies Act 2006 and has been approved by
INVESTMENT OBJECTIVE AND POLICY
The Company seeks capital appreciation through investment in the worldwide biotechnology industry.
In order to achieve its investment objective, the Company invests in a diversified portfolio of shares and related securities in biotechnology companies on a worldwide basis.
In connection with the investment policy, the following guidelines apply:
·
The Company will not invest more than 10%, in aggregate, of the value of its gross assets in other closed ended investment companies (including investment trusts) listed on the
-- The Company will not invest more than 15%, in aggregate, of the value of
its gross assets in other closed ended investment companies (including
investment trusts) listed on the London Stock Exchange .
-- The Company will not invest more than 15% of the value of its gross
assets in any one individual stock at the time of acquisition.
-- The Company will not invest more than 10% of the value of its gross
assets in unquoted investments at the time of acquisition. This limit
includes any investment in private equity funds managed by the Portfolio
Manager or any affiliates of such entity.
-- The Company may invest or commit for investment a maximum of U.S.$15
million , after the deduction of proceeds of disposal and other returns
of capital, in private equity funds managed by the Portfolio Manager, or
any affiliates thereof.
-- The Company’s borrowing policy is that borrowings will not exceed 20% of
the value of the Company’s net assets. Any loan facility in place from
time to time may be drawn by the Portfolio Manager overseen by the AIFM.
-- The Company may be unable either to invest directly or invest
efficiently in certain countries or share classes. In these
circumstances, the Company may gain exposure by investing indirectly
through swaps or other derivative instruments where it is more efficient
to do so. Exposure to underlying investments thus obtained will count
towards and be subject to the investment limits set out above. Further,
where the Company invests via swaps or derivatives for such a purpose,
exposure to these financial instruments will count towards and be
subject to the limits on the use of derivatives and equity swaps set out
below.
-- In line with the Investment Objective, derivatives are employed, when
appropriate, in an effort to enhance returns and to improve the
risk-return profile of the Company’s portfolio. The Board has set the
following limits within which derivative exposures are managed:
-- Derivative transactions (excluding equity swaps) can be used to mitigate
risk and/or enhance return and will be restricted to an aggregate net
exposure of 5 per cent. of the value of the gross assets measured at the
time of the relevant transaction;
-- Equity swaps may be used for efficient portfolio management purposes and
aggregate net counterparty exposure through a combination of derivatives
(as set out in the previous bullet point) and equity swap transactions
is restricted to 12 per cent. of the value of the gross assets of the
Company at the time of the transaction.
In accordance with the requirements of the
INVESTMENT STRATEGY
The achievement of the Investment Objective has been delegated to OrbiMed by Frostrow (as AIFM) under the Board’s and Frostrow’s supervision and guidance.
Details of OrbiMed’s investment strategy and approach are set out in the Portfolio Manager’s Review. While performance is measured against the Benchmark, the Board encourages OrbiMed to manage the portfolio without regard to the Benchmark and its make-up.
While the Board’s strategy is to allow flexibility in managing the investments, in order to manage investment risk it has imposed various investment, gearing and derivative guidelines and limits, within which Frostrow and OrbiMed are required to manage the investments, as set out in the Investment Policy.
PERFORMANCE MEASUREMENT
The Board measures OrbiMed's performance against the NASDAQ Biotechnology Index (total return, net of withholding tax, sterling adjusted). The Board also monitors the Company's performance against its peer group.
DIVIDEND POLICY
The Company invests with the objective of achieving capital growth and it is expected that dividends, if any, are likely to be small. The Board intends only to pay dividends on the Company’s shares to the extent required in order to maintain the Company’s investment trust status.
No dividends were paid or declared during the year (2024: None).
CONTINUATION OF THE COMPANY
An opportunity to vote on the continuation of the Company is given to shareholders every five years. The next such continuation vote will be proposed at the AGM to be held in July. Please see the Chair's Statement and the Notice of AGM for further information.
COMPANY PROMOTION
The Company has appointed Frostrow to provide marketing and investor relations services, in the belief that a well - marketed investment company is more likely to grow over time, have a more diverse, stable list of shareholders and its shares will trade closer to the net asset value per share over the long term. Frostrow actively promotes the Company in the following ways:
Engaging regularly with institutional investors, discretionary wealth managers and a range of execution-only platforms: Frostrow regularly meets with institutional investors, discretionary wealth managers and execution-only platform providers to discuss the Company’s strategy and to understand any issues and concerns, covering both investment and corporate governance matters;
Making Company information more accessible: Frostrow works to raise the profile of the Company by targeting key groups within the investment community, holding periodic investment seminars, commissioning and overseeing PR output and managing the Company’s website and wider digital offering, including Portfolio Manager videos and social media;
Disseminating key Company information: Frostrow performs the Investor Relations function on behalf of the Company and manages the investor database. Frostrow produces all key corporate documents, distributes monthly fact sheets, annual and half yearly reports and updates from OrbiMed on the portfolio and market developments; and
Monitoring market activity, acting as a link between the Company, shareholders and other stakeholders: Frostrow maintains regular contact with sector broker analysts and other research and data providers, and conducts periodic investor perception surveys, liaising with the Board to provide up-to-date and accurate information on the latest shareholder and market developments.
KEY PERFORMANCE INDICATORS (KPIs)
The Board assesses the Company’s performance in meeting its objective against the following KPIs:
-- net asset value total return;
-- share price total return;
-- share price discount to net asset value per share; and
-- ongoing charges.
A full description of the Company’s performance is provided in the Chair’s Statement and the Portfolio Manager’s Review. The KPIs have not changed from the prior year:
NET ASSET VALUE PER SHARE TOTAL RETURN^
The Directors regard the Company’s net asset value per share total return as being the overall measure of value generated by the Portfolio Manager over the long term. The Board considers the principal comparator to be the NASDAQ Biotechnology Index (total return, net of withholding tax, sterling adjusted). OrbiMed’s investment style is such that performance is likely to deviate from that of the Benchmark.
During the year under review, the Company’s net asset value per share total return was (24.4%), underperforming the Benchmark by 18.4% (2024: 26.5%, outperforming the Benchmark by 21.5%). Since OrbiMed’s date of appointment (19
SHARE PRICE TOTAL RETURN^
The Directors also regard the Company’s share price total return to be a key indicator of performance. This reflects the Company's share price growth which the Board recognises is important to investors.
During the year under review the Company’s share price total return was (24.2%) (2024: 27.1%). Since OrbiMed’s date of appointment (
SHARE PRICE (DISCOUNT)/PREMIUM TO NET ASSET VALUE PER SHARE^
The Board regularly reviews the level of the discount/ premium of the Company’s share price to the net asset value per share and considers ways in which share price performance may be enhanced, including the effectiveness of marketing, share issuance and buybacks, where appropriate. The Board has a discount control policy in place, the aim of which is to prevent the level of the share price discount to the net asset value per share exceeding 6%. Shareholders should note, however, that it remains possible for the discount to be greater than 6% for a period of days or indeed longer, particularly in volatile or muted markets. However, the Company remains committed to protecting a 6% share price discount over the longer term. 6,374,607 shares were repurchased by the Company during the year (2024: 5,205,221).
^ Alternative Performance Measure (See glossary).
When the Company's shares trade at a premium to the net asset value per share, new shares can be issued at a premium to the net asset value per share.
The Board believes that the benefits of issuing new shares in such conditions are as follows:
-- to fulfil excess demand in the market in order to help manage the
premium at which the Company’s shares trade to net asset value per
share;
-- to provide a small enhancement to the net asset value per share of
existing shares through new share issuance at a premium to the estimated
net asset value per share;
-- to grow the Company, thereby spreading operating costs over a larger
capital base, which should reduce the ongoing charges ratio; and
-- to improve liquidity in the market for the Company’s shares.
As the Company's shares traded at a discount to the net asset value per share throughout the year, no new shares were issued during the year (2024: Nil).
The volatility of the net asset value per share in an asset class such as biotechnology is a factor over which the Board has no control. The making and timing of any share buybacks or share issuance is at the absolute discretion of the Board.
ONGOING CHARGES^
Ongoing charges represent the costs that the Company can reasonably expect to pay from one year to the next, under normal conditions. The Board continues to be conscious of expenses and seeks to maintain a sensible balance between high quality service and costs. The Board therefore considers the ongoing charges ratio to be a KPI and reviews the figure on a regular basis.
As at
^ Alternative Performance Measure (see glossary).
RISK MANAGEMENT
The Board is responsible for managing the risks faced by the Company. Through delegation to the Audit Committee, the Board has established procedures to manage risk, to review the Company’s internal control framework and to establish the level and nature of the principal risks the Company is prepared to accept in order to achieve its long-term strategic objective. The Audit Committee has carried out a robust assessment of the principal and emerging risks with the assistance of Frostrow (the AIFM). A risk management process has been established to identify and assess risks, their likelihood and the possible severity of their impact. Further information is provided in the Audit Committee Report. These principal risks are set out below with a high level summary of their management through mitigation.
PRINCIPAL RISKS AND UNCERTAINTIES MANAGEMENT/MITIGATION
MARKET RISK (Increased)
To an extent, this risk is accepted as
being inherent to the Company's
activities. However, the Board has set
limits in the investment policy which
ensure the portfolio is diversified.
Compliance with the limits and
guidelines contained in the Company’s
investment policy is monitored daily by
Frostrow and OrbiMed and reported
monthly to the Board.
The Company’s portfolio is exposed to
fluctuations in market prices (changes OrbiMed report at each Board meeting on
in broad market measures, individual the Company’s performance including the
security prices and foreign exchange impact of wider market trends and
rates) in the biotechnology sector and events.
the regions in which it invests, which
may result in a reduction in assets due The Portfolio Manager spreads
to market falls and higher volatility. investment risk over a wide portfolio
of investments. At the year end the
The biotechnology sector has Company’s portfolio comprised
historically been more volatile than investments in 57 companies.
other equity sectors, reflecting
factors inherent in biotech companies, As part of its review of the going
including emerging technologies, concern and long-term viability of the
uncertainty of drug approval outcomes, Company, the Board considers the
regulatory and pricing policy. sensitivity of the portfolio to changes
in market prices and foreign exchange
More generally, geopolitical and rates (see note 15 to the financial
economic uncertainties have affected statements) and the ability of the
markets globally and are likely to Company to liquidate its portfolio if
continue to do so. These include the the need arose. Further details are
instability caused by the new included in the Going Concern and
administration in the USA , including Viability Statements.
the consequences of trade wars and
tariffs, the continued impact of the The Board monitors and challenges the
war in Ukraine and the effect of Portfolio Manager's awareness of
sanctions against Russia , tensions emerging climate change risks and the
between the US/West and China , and resources they have devoted to
conflicts in the Middle East . Broad assessing climate risks.
economic risks include prolonged
inflation and elevated interest rates, The Board is conscious that climate
slowing global economic growth and the change poses a general risk to the
fear or presence of recession. investment environment and, through
discussions with the Portfolio Manager,
New regulations designed to combat has noted that the biotechnology
climate change and uncertainties industry is not a major contributor to
associated with shifts in population greenhouse gas emissions. For this
and resource availability/ demand may reason, the Portfolio Manager does not
also have an impact on global markets. consider climate change to be a
In addition, climate change events material ESG consideration when
could have an impact on the business engaging with investee companies.
models of the portfolio companies and However energy management is noted as a
their operations. material concern in the wider
healthcare and pharmaceutical sectors,
and this forms part of OrbiMed’s ESG
monitoring.
In light of the significant market
volatility experienced during the year,
both in general and in the
biotechnology sector in particular, the
Directors consider that this risk has
increased.
PORTFOLIO PERFORMANCE (Increased)
The Portfolio Manager has
responsibility for selecting
investments in accordance with the
Investment Objective and Policy and
seeks to ensure that investments in
individual stocks fall within
acceptable risk levels.
Investment performance may not achieve To manage this risk, the Board:
the Investment Objective and the value
of the investments held in the -- reviews and challenges, at each
portfolio may fall materially out of Board meeting, reports from
line with the sector. OrbiMed which cover portfolio
composition, asset allocation,
The Portfolio Manager’s approach is concentration and performance;
expected to lead to performance that -- reviews investment performance
will deviate from comparators, over the long term against the
including both market indices and other Benchmark and the Company's
investment companies investing in the peer group; and
biotechnology sector. -- formally reviews
OrbiMed's appointment,
including their
performance, service
levels and contractual
arrangements, each
year.
In view of the Company's volatile
performance during the year, the Board
considers that this risk has increased.
SHARE PRICE PERFORMANCE (Increased)
To manage this risk, the Board:
-- regularly reviews the level of
the share price
discount/premium to the net
asset value per share and
considers ways in which share
price performance may be
enhanced, including the
effectiveness of marketing and
investor relations services,
new share issuance and share
buybacks, as appropriate;
-- has implemented a discount
management policy, buying back
the Company’s shares when the
The Company’s share price fluctuates in level of the share price
accordance with supply and demand and discount to the net asset value
may not reflect the underlying net per share exceeds 6% (in normal
asset value of the shares; where the market conditions);
share price is less than the underlying -- may issue shares at a premium
NAV per share, the difference is known to the net asset value per
as the 'discount'. Poor share price share to help prevent a share
performance may attract activist price premium reaching too high
shareholders and/or result in a level;
increasing buybacks which over time may -- engages with shareholders at
significantly reduce the Company's the AGM, investor meetings and
assets. seminars, and other events;
-- reviews an analysis of the
shareholder register at each
Board meeting and is kept
informed of shareholder
sentiment by the AIFM and the
Company's corporate
stockbroker; and
-- regularly discusses the
Company’s future development
and strategy with the Portfolio
Manager and the AIFM.
Given the Company's share price
performance and the rate of share
buybacks over the past year, the
Directors believe this risk has
increased.
CYBER RISK (Increased)
The Board relies on controls in place
at OrbiMed, Frostrow, J.P. Morgan, MUFG
Corporate Markets and other third-party
service providers.
Cyber crime may lead to the disruption The Audit Committee reviews the
or failure of systems covering dealing, internal controls reports of the
trade processing, administrative principal service providers, as well as
services, financial and other their data storage and information
operational functions. security arrangements.
The Board noted that new cyber threats
are constantly emerging, as described
in the Emerging Risks section.
Accordingly, the Directors consider
that this risk has increased.
KEY PERSON RISK (No change)
The Board manages this risk by:
-- appointing OrbiMed, who in turn
have appointed Geoff Hsu and
Josh Golomb to manage the
Company’s portfolio. Mr Hsu and
Mr Golomb are supported by a
team of researchers and
analysts dedicated to the
biotechnology sector;
-- receiving reports from OrbiMed
The risk that the individuals at each Board meeting, which
responsible for managing the Company’s include any significant changes
portfolio may leave their employment or in the make-up of the team
may be prevented from undertaking their supporting the Company;
duties. -- meeting the wider team at
OrbiMed’s offices and
encouraging the participation
of the wider OrbiMed team in
investor updates; and
-- delegating to the Management
Engagement Committee the
responsibility to perform an
annual review of the service
received from OrbiMed,
including, inter alia, the team
supporting the portfolio
managers and their succession
plans.
VALUATION RISK (Decreased)
Unquoted investments comprised 1.0% of
the Company's portfolio at the year
end. Any directly held unquoted
investments are valued by an
independent, third-party valuation
agent. The Board has established a
Pursuant to the Investment Policy, the Valuation Committee to review the
Company may invest up to 10% of its valuations of the unquoted investments
gross assets in unquoted investments at and the methodologies used in the
the time of acquisition. The valuation valuations. The valuations are
of unquoted assets involves a degree of recommended to the Committee by
subjectivity and there is a risk that Frostrow, the Company's AIFM, following
proceeds received on the disposal of review by its own valuations committee.
unquoted holdings may prove to be The Valuation Committee makes
significantly lower than the value at recommendations to the Board, as
which the investment is held in the appropriate. Further information can be
Company’s portfolio. found in the Audit Committee Report and
note 1 to the financial statements.
As the proportion of unquoted
investments reduced significantly
during the year, the Board considers
that this risk has decreased.
COUNTERPARTY RISK (No change)
The most significant counterparty to
which the Company is exposed is J.P.
Morgan Securities LLC (J.P. Morgan),
the Custodian and Prime Broker, which
is responsible for the safekeeping of
the Company’s assets and provides the
loan facility to the Company. As part
of the arrangements with J.P. Morgan
they may take assets as collateral up
to 140% of the value of the loan drawn
down. The assets taken as collateral by
J.P. Morgan may be used, loaned, sold,
rehypothecated or transferred. The
level of the Company's gearing is at
the discretion of the AIFM and the
Board and the loan can be repaid at any
time, at which point the assets taken
as collateral will be released back to
the Company. Any of the Company’s
assets taken as collateral are not
covered by the custody arrangements
provided by J.P. Morgan.
The Company is exposed to credit risk J.P. Morgan is a registered
arising from the use of counterparties. broker-dealer and is accordingly
If a counterparty were to fail, the subject to limits on rehypothecation
Company could be adversely affected imposed by the U.S. Securities and
through either a delay in settlement or Exchange Commission (SEC). In the event
a loss of assets. of J.P. Morgan’s insolvency, the
Company may be unable to recover in
full assets held by it as Custodian or
held as collateral.
The risk is managed through the
selection of a financially stable
counterparty, limitations on the use of
gearing and reliance on the SEC's
robust regulatory regime. In addition,
the Board monitors the credit rating of
J.P. Morgan.
J.P. Morgan is also subject to regular
monitoring by J.P. Morgan Europe
Limited , the Depositary, and the Board
receives regular reports from the
Depositary.
During the year the Company entered
into swap transactions with Goldman
Sachs International.
Further information can be found in
note 15 to the financial statements.
OPERATIONAL DISRUPTION (No change)
To manage these risks, the Board (in
some cases the Audit Committee):
-- periodically meets
representatives from the
Company's key service providers
to gain a better understanding
of their control environment,
and the processes in place to
mitigate any disruptive events;
-- receives a monthly report from
As an externally managed investment Frostrow, which includes, inter
trust, the Company is reliant on the alia, confirmation of
systems of its service providers for compliance with applicable laws
dealing, trade processing, and regulations;
administration, financial and other -- reviews the internal control
functions. If such systems were to fail reports and key policies
or be disrupted (including, for (including disaster recovery
example, as a result of a pandemic, procedures and business
war, network disruption or simply poor continuity plans) of its
performance/ controls) this could service providers;
prevent accurate reporting of the -- maintains a risk matrix with
Company’s financial position or lead to details of risks to which the
a failure to comply with applicable Company is exposed, the
laws, regulations and governance approach to managing those
requirements and/or to a financial risks, the key controls and the
loss. frequency of the controls
operation;
-- receives updates on pending
changes to the regulatory and
legal environment and progress
towards the Company’s
compliance with such changes;
and
-- has considered the increased
risk of cyber-attacks and
received reports and assurance
from its service providers
regarding the information
security controls in place.
* See glossary.
EMERGING RISKS
The Directors have carried out a robust assessment of the Company’s emerging risks and the procedures in place to identify emerging risks are described below.
The Audit Committee reviews a risk schedule at each of its three meetings during the year. Emerging risks are discussed in detail as part of this process and also throughout the year to try to ensure that emerging (as well as established) risks are identified and, so far as practicable, mitigated.
NEW MARKET RISKS
During the year, the Audit Committee identified and discussed emerging elements of market risk such as the instability caused by the new administration in the
NEW CYBER RISKS
The Committee observed that cyber risks continue to evolve, with new threats emerging at an accelerated pace, as demonstrated by a series of high-profile cyber attacks in the retail sector.
These risks will continue to be monitored and managed as set out in the Market Risk and Cyber Risk descriptions above.
GOING CONCERN
The financial statements have been prepared on a going concern basis. The Directors consider this is the appropriate basis as the Company has adequate resources to continue in operational existence until at least
The Company's shareholders are asked every five years to vote for the continuation of the Company and this will be put to shareholders at this year's AGM. The Board has recommended that shareholders vote in favour of the continuation of the Company and believes it is reasonable to expect that the vote will pass. Furthermore, the result of the continuation vote will not affect the Company's ability to meet its liabilities as they fall due.
Based on the information available to the Directors at the date of this report, including the results of these stress tests, the conclusions drawn in the Viability Statement below, the Company’s current cash balances, and the liquidity of the Company’s investments, the Directors are satisfied that the Company has adequate financial resources to continue in operation until at least
VIABILITY STATEMENT
The Directors have carefully assessed the Company’s position and prospects as well as the principal risks and have formed a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the next five financial years.
To make this assessment and in reaching this conclusion, the Audit Committee has considered the Company’s financial position, its ability to liquidate its portfolio and meet its liabilities as they fall due and, in particular, notes the following:
-- The portfolio is principally comprised of investments traded on major
international stock exchanges. Based on recent market volumes 97.4% of
the current portfolio could be liquidated within 30 trading days and
97.0% in seven trading days. There is no expectation that the nature of
the investments held within the portfolio will be materially different
in future.
-- The Board has considered the viability of the Company under various
scenarios, including periods of acute stock market and economic
volatility, and concluded that it would expect to be able to ensure the
financial stability of the Company through the benefits of having a
diversified portfolio of (mostly) listed and realisable assets. As
illustrated in note 15 to the financial statements, the Board has
considered other price risk (the sensitivity of the value of
shareholders' funds to changes in the fair value of the Company's
investments), foreign currency sensitivity (the sensitivity to changes
in key exchange rates to which the portfolio is exposed) and interest
rate sensitivity (the sensitivity to changes in market interest rates).
-- With an ongoing charges ratio of 1.1%, the expenses of the Company are
predictable and modest in comparison with the assets and there are no
capital commitments foreseen which would alter that position.
-- The Company has a short-term bank facility which can be used to meet its
liabilities. Details of the Company’s current liabilities are set out in
note 12 to the financial statements.
-- The Company has no employees. Consequently it does not have redundancy
or other employment related liabilities or responsibilities.
The Audit Committee, as well as considering the potential impact of the Company’s principal risks and various severe but plausible downside scenarios, has made the following assumptions in considering the Company’s longer-term viability:
-- There will continue to be demand for investment trusts;
-- The Company invests principally in the securities of listed companies
traded on international stock exchanges to which investors will wish to
continue to have exposure;
-- Shareholders will vote for the continuation of the Company at the Annual
General Meeting to be held in July. The Company's shareholders are asked
every five years to vote for the continuation of the Company. At the
current time, the Directors believe they have a reasonable expectation
that the next vote will be passed;
-- The closed-ended nature of the Company means that, unlike open-ended
funds, it does not need to realise investments when shareholders wish to
sell their shares;
-- The Company will continue to be able to fund share buybacks when
required. The Company bought back 6,374,607 ordinary shares in the year
under review at a total cost of £57.4 million and experienced no problem
with liquidity in doing so. It had shareholders’ funds in excess of £221
million at the year end; and
-- The long-term performance of the Company will continue to be
satisfactory.
STAKEHOLDER INTERESTS AND BOARD DECISION-MAKING (SECTION 172 OF THE COMPANIES ACT 2006)
The following disclosure, which is required by the Companies Act 2006 and the AIC Code of Corporate Governance, describes how the Directors have had regard to the views of the Company’s stakeholders in their decision-making.
As an externally managed investment trust, the Company has no employees, customers, operations or premises. Therefore, the Company’s key stakeholders (other than its shareholders) are considered to be its service providers. The need to foster good business relationships with the service providers and maintain a reputation for high standards of business conduct are central to the Directors’ decision-making as the Board of an externally managed investment trust.
STAKEHOLDER GROUP HOW THE BOARD HAS ENGAGED WITH THE COMPANY’S
STAKEHOLDERS
The Board’s key mechanisms of engagement with investors
include:
· The Annual and Half-yearly Reports
· The Annual General Meeting
· The Company’s website which hosts reports, articles
and insights, monthly fact sheets and video interviews
with the Portfolio Manager
· The Company’s distribution list which is maintained by
Frostrow and is used to communicate with shareholders on
a regular basis
Investors · Online and in person seminars with presentations from
the Portfolio Manager
· One-to-one investor meetings
The AIFM and the Portfolio Manager, on behalf of the
Board, completed a programme of investor relations
throughout the year, reporting to the Board on the
feedback received. This includes meetings with wealth
managers and independent financial advisers, as well as
preparing the documents and organising the events listed
above. The Board aims for at least one Director to
attend the in person and online events at which the
Portfolio Manager presents to investors. In addition,
the Chair met with a number of the Company’s
shareholders.
The Board met regularly with the Portfolio Manager
throughout the year, both formally at quarterly Board
meetings and informally, as required. The Board engaged
primarily with key members of the portfolio management
team, discussing the Company’s overall performance as
Portfolio Manager well as developments at individual portfolio companies
and wider macroeconomic developments.
The Management Engagement Committee reviewed the
performance of the Portfolio Manager and the terms and
conditions on which they are engaged.
The Board met regularly with the AIFM, representatives
of which attend every quarterly Board meeting to provide
updates on risk management, accounting, administration,
corporate governance and marketing matters.
The Management Engagement Committee reviewed the
performance of all the Company’s service providers,
receiving feedback from Frostrow in their capacity as
AIFM and Company Secretary. The AIFM, which is
responsible for the day-to-day operational management of
Other Service Providers the Company, meets and interacts with the other service
providers including the Depositary, Custodian and
Registrar, on behalf of the Board, on a daily basis.
This can be through email, one-to-one meetings and/or
regular written reporting.
The Audit Committee reviewed the quality and
effectiveness of the audit and recommended to the Board
that it be proposed to shareholders that BDO LLP (BDO)
be re-appointed as Auditor. The Audit Committee also met
with BDO to review the audit plan and set their
remuneration for the year.
KEY AREAS OF ENGAGEMENT MAIN DECISIONS AND ACTIONS TAKEN
The Board and the Portfolio Manager
provided updates via RNS, the Company’s
website, the distribution list and the
usual financial reports and monthly
fact sheets.
The Board continued to monitor share
price movements closely. When the
discount of the share price to the net
asset value per share exceeded 6%, the
Company sought to buy back shares in
the market. As a result, 6,374,607
Investors shares were bought back during the
year. Having nearly exhausted the
-- Ongoing dialogue with authority granted at the 2024 AGM, the
shareholders concerning the Board asked shareholders to renew the
strategy of the Company, Company's authority to buy back shares
performance and the portfolio. in the market at a General Meeting held
-- Share price on 27 February 2025 . Shareholders
performance. approved the proposal.
-- Operation of the discount
management policy The Board proposed that the Company's
-- Portfolio performance benchmark should change from the
measurement capital return to the total return
-- The continuation of the Company version of the NASDAQ Biotechnology
Index. Shareholders approved the
proposal at a General Meeting held on
18 July 2024 .
The Chair spoke to a number of
shareholders regarding the proposed
continuation of the Company ahead of
the vote to be held at the 2025 Annual
General Meeting. The Board recommends
that shareholders vote in favour of the
continuation of the Company.
The Board agreed that high standards of
research had been maintained and the
Portfolio Manager’s strategy had been
implemented consistently. It was noted
that short-term performance had
Portfolio Manager suffered largely as a result of
macro-economic reasons, however the
· Portfolio composition, performance, Board agreed that the Portfolio
outlook and business updates. Manager's investment process remained
robust. Therefore, the Board concluded
· The Portfolio Manager’s system of that it was in the interests of
internal controls and investment risk shareholders for OrbiMed to continue in
management. their role as Portfolio Manager.
The Audit Committee concluded that the
Portfolio Manager’s internal controls
were satisfactory. Please refer to the
Audit Committee Report for further
information.
The Board concluded that it was in the
interests of shareholders for Frostrow
to continue in their role as AIFM.
Other Service Providers
The Board agreed that the Company’s
-- The promotion and marketing other service providers continued to
strategy of the Company. perform satisfactorily and should
-- Service providers’ internal continue in their roles.
controls.
-- The effectiveness of the audit The Board approved the Audit
and the Auditor’s Committee’s recommendation to propose
reappointment. to shareholders that BDO LLP be
-- The terms and conditions under re-appointed as the Company’s auditor
which the Auditor is engaged. for a further year. Please refer to the
Audit Committee Report and the Notice
of AGM for further information.
ENVIRONMENTAL, SOCIAL, COMMUNITY AND HUMAN RIGHTS MATTERS
As an externally managed investment trust, the Company does not have any employees or maintain any premises, nor does it undertake any manufacturing or other physical operations itself. All its operational functions are outsourced to third party service providers. Therefore, the Company has no material, direct impact on the environment or any particular community and, as a result, the Company itself has no environmental, human rights, social or community policies.
Under the
The Board believes that consideration of environmental, social and governance (ESG) factors is important and has the potential to protect and enhance investment returns. The Portfolio Manager’s investment criteria ensure that ESG factors are integrated into their investment process and best practice in this area is encouraged by the Board. The Portfolio Manager engages with the Company’s underlying investee companies in relation to their corporate governance practices and the development of their policies on social, community and environmental matters.
The Board is committed to carrying out the Company’s business in an honest and fair manner with a zero-tolerance approach to bribery, corruption, and tax evasion. As such, policies and procedures are in place to prevent this. In carrying out the Company’s activities, the Board aims to conduct itself responsibly, ethically and fairly. The Board’s expectations are that the Company’s principal service providers have appropriate governance policies in place.
PERFORMANCE AND FUTURE DEVELOPMENTS
A review of the Company’s year, its performance and the outlook for the Company can be found in the Chair’s Statement and in the Portfolio Manager’s Review.
The Company’s overall strategy remains unchanged.
By order of the Board
Company Secretary
REPORT OF THE DIRECTORS
The Directors present this Annual Report on the affairs of the Company together with the audited financial statements and the Independent Auditor’s Report for the year ended
COMPANY MANAGEMENT
ALTERNATIVE INVESTMENT FUND MANAGER
Frostrow, under the terms of its AIFM agreement with the Company (the AIFM Agreement) provides, inter alia , the following services:
· delegation (subject to the oversight of Frostrow and the Board) of the portfolio management function to OrbiMed;
· investment portfolio administration and valuation;
· risk management services;
· marketing and shareholder services;
· share price discount and premium management services;
· administrative and secretarial services;
· advice and guidance in respect of corporate governance requirements;
· maintenance of the Company’s accounting records;
· preparation and dispatch of annual and half yearly reports and monthly fact sheets;
· ensuring compliance with applicable legal and regulatory requirements; and
· maintenance of the Company’s website.
Under the terms of the AIFM Agreement, Frostrow is entitled to receive a periodic fee equal to 0.30% per annum on the Company’s market capitalisation up to £500m, 0.20% on market capitalisation above £500m to £1bn and 0.10% on market capitalisation over £1bn.
Either party may terminate the AIFM Agreement on not less than 12 months’ notice.
PORTFOLIO MANAGER
OrbiMed, under the terms of its portfolio management agreement with the AIFM and the Company (the Portfolio Management Agreement) provides, inter alia, the following services:
· the seeking out and evaluating of investment opportunities;
· recommending the manner by which monies should be invested, disinvested, retained or realised;
· advising on how rights conferred by the investments should be exercised;
· analysing the performance of investments made; and
· advising the Company in relation to trends, market movements and other matters which may affect the investment objective and policy of the Company.
OrbiMed receives a periodic fee equal to 0.65% per annum of the Company’s net asset value. The proportion of the Company’s assets committed for investment in
The Portfolio Management Agreement may be terminated by the Company, Frostrow or the Portfolio Manager giving notice of not less than 12 months.
PERFORMANCE FEE
The Portfolio Manager is entitled to the payment of a performance fee which is dependent on the long-term performance of the Company. The performance fee is calculated by reference to the amount by which the Company’s NAV has outperformed the NASDAQ Biotechnology Index (total return, net of withholding tax, sterling adjusted), the Company’s benchmark index.
The fee is calculated quarterly by comparing the cumulative performance of the Company’s NAV with the cumulative performance of the Benchmark since the commencement of the performance fee arrangement on
In order to ensure that only sustained outperformance is rewarded, at each quarterly calculation date any performance fee is based on the lower of:
(i) the cumulative outperformance of the NAV over the Benchmark as at the quarter end date; and
(ii) the cumulative outperformance of the NAV over the Benchmark as at the corresponding quarter end date in the previous year.
In addition, a performance fee only becomes payable to the extent that the cumulative outperformance gives rise to a total fee greater than the total of all performance fees paid to date. No performance fees were paid during the year and as at the date of this report, there is no provision for future payments (see note 3 to the financial statements for further details).
The proportion of the Company’s assets invested in
DEPOSITARY, CUSTODIAN AND PRIME BROKER
The Company has appointed
The Depositary has delegated the custody and safekeeping of the Company’s assets to
Under the terms of a Delegation Agreement, liability for the loss of the Company’s financial instruments held in custody by
AIFM AND PORTFOLIO MANAGER EVALUATION AND RE-APPOINTMENT
The performance of the AIFM and the Portfolio Manager is reviewed by the Board with a formal evaluation being undertaken by the Management Engagement Committee (the MEC) each year. As part of this process, the Board monitors the services provided by the AIFM and the Portfolio Manager and receives regular reports and views from them. The Board also receives comprehensive performance measurement reports to enable it to determine whether or not the performance objectives set by the Board have been met. The MEC reviewed the appointment of the AIFM and the Portfolio Manager in
The Board believes the continuing appointment of the AIFM and the Portfolio Manager is in the interests of shareholders as a whole. In coming to this decision, the Board took into consideration the following reasons:
– the quality and depth of experience allocated by the Portfolio Manager to the management of the portfolio and the level of performance over the long term, both in absolute terms and relative to the Benchmark. The Board recognises that performance has been challenging in the shorter term, but retains its confidence in the investment process, which it believes is robust;
– the quality and depth of experience of the company management, company secretarial, administrative and marketing team that the AIFM allocates to the management of the Company; and
– the terms of the AIFM and Portfolio Management Agreements, in particular the level and method of remuneration and the notice period, and the comparable arrangements of a group of the Company's peers.
On the recommendation of the MEC, the Board resolved that both the AIFM and the Portfolio Manager should continue to be appointed on the same terms and conditions set out above.
LOAN FACILITY
The Company’s borrowing requirements are met through the utilisation of a loan facility, repayable on demand, provided by
* See glossary.
SHARE CAPITAL
At
At the start of the year under review, the Directors had shareholder authority to issue up to 3,724,702 shares on a non-pre-emptive basis and, having utilised a proportion of the authority granted at the 2023 AGM, to buy back up to 3,399,019 shares in the market. At the Company’s AGM held on
No new shares were issued during the year. In total, 6,374,607 shares were repurchased during the year and cancelled; there are no shares held in
The giving of powers to issue or buy back the Company’s shares requires the relevant resolution to be passed by shareholders. Proposals for the renewal of the Board’s authorities to issue and buy back shares are detailed in the Notice of AGM.
There are no restrictions concerning the transfer of securities in the Company; no special rights with regard to control attached to the securities; no restrictions on voting rights; no agreements between holders of securities regarding their transfer known to the Company; and no agreements which the Company is party to that might affect its control following a successful takeover bid.
ANNUAL GENERAL MEETING
THE FOLLOWING INFORMATION TO BE CONSIDERED AT THE FORTHCOMING ANNUAL GENERAL MEETING IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION.
If you are in any doubt about the action you should take, you should seek advice from your stockbroker, bank manager, solicitor, accountant or other financial adviser authorised under the Financial Services and Markets Act 2000 (as amended). If you have sold or transferred all of your ordinary shares in the Company, you should pass this document, together with any other accompanying documents, including the form of proxy, at once to the purchaser or transferee, or to the Stock broker, bank or other agent through whom the sale or transfer was effected, for onward transmission to the purchaser or transferee.
The Company’s AGM will be held at the Barber-Surgeons' Hall,
In particular, resolutions relating to the following items of business will be proposed at the forthcoming AGM.
Resolution 9 Authority to allot shares
Resolution 10 Authority to disapply pre-emption rights
Resolution 11 Authority to buy back shares
Resolution 12 Authority to apply to the court to cancel the Company's share premium account and capital redemption reserve in order to increase the Company's distributable reserves
Resolution 13 Authority to hold General Meetings (other than the AGM) on at least 14 clear days’ notice
Resolution 14
The full text of the resolutions can be found in the Notice of AGM.
DIRECTORS
DIRECTORS’ FEES
A report on Directors’ Remuneration and the Directors’ Remuneration Policy are set out on pages 63 to 67 of the Annual Report.
DIRECTORS’ & OFFICERS’ LIABILITY INSURANCE COVER
Directors’ & Officers’ liability insurance cover was maintained by the Board during the year ended
DIRECTORS’ INDEMNITIES
As at the date of this report, indemnities are in force between the Company and each of its Directors under which the Company has agreed to indemnify each Director, to the extent permitted by law, in respect of certain liabilities incurred as a result of carrying out his/her role as a Director of the Company. The Directors are also indemnified against the costs of defending any criminal or civil proceedings or any claim by the Company or a regulator as they are incurred provided that where the defence is unsuccessful the Director must repay those defence costs to the Company. The indemnities are qualifying third party indemnity provisions for the purposes of the Companies Act 2006.
A copy of each deed of indemnity is available for inspection at the Company’s registered office during normal business hours and will be available for inspection at the Annual General Meeting.
SUBSTANTIAL INTERESTS IN SHARE CAPITAL
As at
Number of
shares held % held
Rathbones 2,061,139 5.0%
Brewin Dolphin 1,779,234 4.6%
This table reflects those shareholders who have notified the Company of a substantial interest in its shares when they have crossed certain thresholds and may not reflect their current holding. The table does not reflect the full range of investors in the Company. The shareholder register is principally comprised of private wealth managers and retail investors owning their shares through a variety of online platforms.
After the year end, on
FINANCIAL INSTRUMENTS
The Company’s financial instruments comprise its portfolio, including derivative instruments, cash balances, debtors and creditors that arise directly from its operations, such as sales and purchases awaiting settlement, accrued income and the loan facility. The financial risk management and policies arising from its financial instruments are disclosed in note 15 to the financial statements.
RESULTS AND DIVIDEND
The results attributable to shareholders for the year and the transfer from reserves are shown in the financial statements. No dividend is proposed in respect of the year ended
ALTERNATIVE PERFORMANCE MEASURES
The financial statements set out the required statutory reporting measures of the Company’s financial performance. In addition, the Board assesses the Company’s performance against a range of criteria which are viewed as particularly relevant for investment trusts, which are summarised above and explained in greater detail in the Strategic Report, under the heading ‘Key Performance Indicators’. The Directors believe that these measures enhance the comparability of information between reporting periods and aid investors in understanding the Company's performance.
The measures used for the year under review are consistent with the prior year.
Definitions of the terms used and the basis of their calculation are set out in the glossary.
AWARENESS AND DISCLOSURE OF RELEVANT AUDIT INFORMATION
So far as each of the Directors is aware, there is no relevant audit information (as defined in the Companies Act) of which the Company’s auditors are unaware.
Each of the Directors has taken all the steps that he or she ought to have taken as a Director in order to make himself or herself aware of any relevant audit information (as defined) and to establish that the Company’s auditors are aware of that information.
The above confirmation is given and should be interpreted in accordance with the provision of Section 418(2) of the Companies Act 2006.
POLITICAL AND CHARITABLE DONATIONS
The Company has not made in the past and does not intend in the future to make political or charitable donations.
MODERN SLAVERY ACT 2015
The Company does not provide goods or services in the normal course of business, and as a financial investment vehicle, does not have customers. Therefore, the Directors do not consider that the Company is required to make a statement under the Modern Slavery Act 2015 in relation to slavery or human trafficking. The Company’s suppliers are typically professional advisers and the Company’s supply chains are considered to be low risk in this regard.
ANTI-BRIBERY AND CORRUPTION POLICY
The Board has a zero-tolerance approach to instances of bribery and corruption. Accordingly, it expressly prohibits any Director or associated persons, when acting on behalf of the Company, from accepting, soliciting, paying, offering or promising to pay or authorise any payment, public or private, in the
A copy of the Company’s anti-bribery and corruption policy can be found on its website at www.biotechgt.com. The policy is reviewed annually by the Audit Committee.
CRIMINAL FINANCES ACT 2017
The Board has a zero-tolerance approach to the criminal facilitation of tax evasion. A copy of the Company’s policy on preventing the facilitation of tax evasion can be found on the Company’s website www.biotechgt.com. The policy is reviewed annually by the Audit Committee.
GLOBAL GREENHOUSE GAS EMISSIONS
The Company is an investment trust, with neither employees nor premises, nor has it any financial or operational control of the assets it owns. It has no greenhouse gas emissions to report from its operations, nor does it have responsibility for any other emissions producing sources under the Companies Act 2006 (Strategic Reports and Directors’ Reports) Regulations 2013 or the Companies (Directors’ Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018, including those within the Company’s underlying investment portfolio. The Company consumed less than 40,000 kWh of energy during the year and therefore is exempt from the disclosures required under the Streamlined Energy and Carbon Reporting criteria.
COMMON REPORTING STANDARD (CRS)
CRS is a global standard for the automatic exchange of information commissioned by the
CORPORATE GOVERNANCE
The Corporate Governance Report forms part of the Report of the Directors.
NOMINEE SHARE CODE
Where shares are held in a nominee company name and where the beneficial owner of the shares is unable to vote in person, the Company nevertheless undertakes:
· to provide the nominee company with multiple copies of shareholder communications, so long as an indication of quantities has been provided in advance; and
· to allow investors holding shares through a nominee company to attend general meetings, provided the correct authority from the nominee company is available.
Nominee companies are encouraged to provide the necessary authority to underlying shareholders to attend the Company’s general meetings.
BENEFICIAL OWNERS OF SHARES – INFORMATION RIGHTS
Beneficial owners of shares who have been nominated by the registered holder of those shares to receive information rights under section 146 of the Companies Act 2006 are required to direct all communications to the registered holder of their shares rather than to the Company’s registrar, MUFG Corporate Markets, or to the Company directly.
SECURITIES FINANCIAL TRANSACTIONS REGULATION (SFTR) DISCLOSURE
Securities financing transactions (SFTs) include repurchase transactions, securities or commodities lending and securities or commodities borrowing, buy-sell back transactions or sell-buy back transactions and margin lending transactions. Whilst the Company does not engage in such SFTs it does engage in Total Return Swaps (TRS). The Company’s exposure to TRS can be found on the Company’s website www.biotechgt.com.
The Board has made due diligence enquiries of the service providers that process the Company's shareholder data, to ensure the Company's compliance with the
Amendment of the Company’s Articles of Association requires a special resolution to be passed by shareholders.
There are no changes proposed this year.
By order of the Board
Company Secretary
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law, the Directors are required to prepare the financial statements in accordance with
In preparing these financial statements, the Directors are required to:
· select suitable accounting policies and then apply them consistently;
· make judgements and accounting estimates that are reasonable and prudent;
·
state whether they have been prepared in accordance with
· prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business; and
· prepare a directors’ report, a strategic report and directors’ remuneration report which comply with the requirements of the Companies Act 2006.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006.
They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are responsible for ensuring that the Annual Report and financial statements, taken as a whole, are fair, balanced, and understandable and provide the information necessary for shareholders to assess the Company's position, performance, business model and strategy.
WEBSITE PUBLICATION
The Directors are responsible for ensuring the Annual Report and the financial statements are made available on a website. Financial statements are published on the Company’s website in accordance with legislation in the
RESPONSIBILITY STATEMENT OF THE DIRECTORS IN RESPECT OF THE ANNUAL REPORT
We confirm that to the best of our knowledge:
·
the financial statements have been prepared in accordance with the applicable set of accounting standards and give a true and fair view of the assets, liabilities, financial position and the return of the Company for the year ended
· the Annual Report includes a fair review of the development and performance of the business and the financial position of the Company, together with a description of the principal risks and uncertainties that they face.
The Directors consider the Annual Report, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company’s position and performance, business model and strategy.
On behalf of the Board
Chair
INCOME STATEMENT
FOR THE YEAR ENDED
2025 2024
Revenue Capital Total Revenue Capital Total
Notes £’000 £’000 £’000 £’000 £’000 £’000
Income 2 1,111 – 1,111 1,203 – 1,203
(Losses)/gains on
investments held at fair 8 – (77,090) (77,090) – 79,143 79,143
value through profit or
loss
Foreign exchange losses – (1,553) (1,553) – (621) (621)
AIFM and Portfolio 3 (143) (2,729) (2,872) (153) (2,917) (3,070)
management fees
Other expenses 4 (771) (16) (787) (742) (39) (781)
Profit/(loss) before
finance costs and 197 (81,388) (81,191) 308 75,566 75,874
taxation
Finance costs 5 (66) (1,259) (1,325) (56) (1,059) (1,115)
Profit/(loss) before 131 (82,647) (82,516) 252 74,507 74,759
taxation
Taxation 6 (145) – (145) (159) – (159)
(Loss)/profit for the (14) (82,647) (82,661) 93 74,507 74,600
year
Basic and diluted
earnings/(loss) per 7 0.0p (262.3)p (262.3)p 0.3p 206.7p 207.0p
share
The Company does not have any income or expenses which are not included in the (loss)/profit for the year. Accordingly the “(loss)/profit for the year” is also the “total comprehensive (loss)/profit for the year”, as defined in IAS 1 (revised) and no separate Statement of Other Comprehensive Income has been presented.
The “Total” column of this statement represents the Company’s Income Statement, prepared in accordance with
The accompanying notes are an integral part of this statement.
STATEMENT OF FINANCIAL POSITION
AS AT
2025 2024
Notes £’000 £’000
Non current assets
Investments held at fair value through profit or loss 8 217,414 394,712
Derivative – OTC equity swaps 8, 9 745 42
218,159 394,754
Current assets
Other receivables 10 17 14,535
Cash and cash equivalents 11 8,453 2,131
8,470 16,666
Total assets 226,629 411,420
Current liabilities
Other payables 12 5,423 2,575
Loan 15 – 47,078
Derivative – OTC equity swaps 8, 9 – 460
5,423 50,113
Net assets 221,206 361,307
Equity attributable to equity holders
Ordinary share capital 13 6,778 8,371
Share premium account 79,951 79,951
Capital redemption reserve 16,652 15,059
Capital reserve 17 118,804 258,891
Revenue reserve (979) (965)
Total equity 221,206 361,307
Net asset value per share 14 815.9p 1,078.9p
The financial statements were approved by the Board on
Chair
The accompanying notes are an integral part of this statement.
STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED
Ordinary Share Capital
Share premium redemption Capital Revenue
capital account reserve reserve reserve Total
Notes £’000 £’000 £’000 £’000 £’000 £’000
At 1 April 2024 8,371 79,951 15,059 258,891 (965) 361,307
Net loss for the – – – (82,647) (14) (82,661)
year
Repurchase of own
shares for (1,593) – 1,593 (57,440) – (57,440)
cancellation
At 31 March 2025 13, 14 6,778 79,951 16,652 118,804 (979) 221,206
FOR THE YEAR ENDED
Ordinary Share Capital
Share premium redemption Capital Revenue
capital account reserve reserve reserve Total
Notes £’000 £’000 £’000 £’000 £’000 £’000
At 1 April 2023 9,684 79,951 13,746 227,968 (1,058) 330,291
Net profit for the – – – 74,507 93 74,600
year
Repurchase of own
shares for (1,313) – 1,313 (43,584) – (43,584)
cancellation
At 31 March 2024 13, 14 8,371 79,951 15,059 258,891 (965) 361,307
The accompanying notes are an integral part of this statement.
See note 17 for details of the amounts of reserves available for distribution.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED
2025 2024
Notes £’000 £’000
Operating activities
(Loss)/profit before taxation* (82,516) 74,759
Finance costs 1,325 1,115
Losses/(gains) on investments held at fair value 8 75,033 (80,669)
through profit or loss
Foreign exchange losses 1,553 621
Decrease/(increase) in other receivables 10 (6)
(Decrease)/increase in other payables (347) 98
Taxation paid 6 (145) (159)
Net cash outflow from operating activities (5,087) (4,241)
Investing activities
Purchases of investments and derivatives (429,202) (350,835)
Sales of investments and derivatives 545,050 373,176
Net cash inflow from investing activities 115,848 22,341
Financing activities
Repurchase of own shares for cancellation (54,483) (43,913)
Finance costs – interest paid (1,325) (1,115)
(Repayment)/drawdown of the loan facility (48,484) 26,287
Net cash outflow from financing activities (104,292) (18,741)
Net increase/(decrease) in cash and cash equivalents 6,469 (641)
Cash and cash equivalents at start of year 2,131 2,772
Effect of movement in foreign exchange rates on cash (147) –**
and cash equivalents
Cash and cash equivalents at end of year† 11 8,453 2,131
* Includes dividends received during the year of £964,000 (2024: £1,080,000) and deposit interest of £147,000 (2024: £123,000).
† Collateral cash held at Goldman Sachs £1,553,000 (2024: £2,131,000) and cash held in a liquidity fund £6,913,000 (2024: nil).
** 2024: impact immaterial.
CHANGES IN NET DEBT ARISING FROM FINANCING ACTIVITIES
2025 2024
£’000 £’000
Balance as at 1 April 47,078 20,170
(Repayment)/drawdown of the loan facility (48,484) 26,287
Foreign exchange losses 1,406 621
Loan balance at 31 March – 47,078
The accompanying notes are an integral part of this statement.
NOTES TO THE FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
(A) BASIS OF PREPARATION
The financial statements of the Company have been prepared in accordance with
The material accounting policies adopted are set out below.
The financial statements have been prepared under the historical cost convention, except for the measurement at fair value of investments. Where presentational guidance is set out in the Statement of Recommended Practice (the SORP) for
Going concern
The Directors are required to make an assessment of the Company’s ability to continue as a going concern and have concluded that the Company has adequate resources to continue in operational existence until at least
In making this assessment, the Directors have considered a wide variety of emerging and current risks to the Company, as well as the mitigation strategies that are in place. The Board has also reviewed stress-testing and scenario analyses prepared by the AIFM. The stress tests and scenario analyses considered the effect of various downturns, based on historic bear markets, on the asset value and expenses of the Company. The tests modelled the impact of decreases of up to 50% on the value of the investment portfolio.
These tests are carried out as an arithmetic exercise, which can apply equally to any set of circumstances in which asset value and income are significantly impaired. It was concluded that even in an extreme downside scenario, the Company would be able to continue to meet its liabilities as they fell due. Whilst the economic future is uncertain, the opinion of the Directors is that there is no foreseeable downside scenario that would threaten the Company’s ability to continue to meet its liabilities as they fall due. The Company’s shareholders are asked every five years to vote for the continuation of the Company and this will be put to shareholders at this year’s AGM. The Board has recommended that shareholders vote in favour of the continuation of the Company and believes it is reasonable to expect that the vote will pass. Furthermore the result of the continuation vote will not affect the Company’s ability to pay its liabilities as they fall due.
Based on the information available to the Directors at the time of this report, including the results of the stress tests and scenario analyses, and having taken account of the liquidity of the investment portfolio, the Company’s cash flow and borrowing position, the Directors are satisfied that the Company has adequate financial resources to continue in operation until at least
The Company’s financial statements are presented in sterling and all values are rounded to the nearest thousand pounds (£’000) except when otherwise indicated.
Judgements and key sources of estimation and uncertainty
The preparation of the financial statements requires the Directors to make judgements, estimates and assumptions that affect the amounts reported for assets and liabilities as at the Statement of Financial Position date and the amounts reported for revenues and expenses during the year. However, the nature of estimation means that actual outcomes could differ from those estimates. In the process of applying the Company’s accounting policies, the Directors have made the following estimate which are immaterial in the current year:
Fair value of the unquoted investments estimate
The Board has established a Valuation Committee to review the valuations and the valuation methodologies of the Company’s unquoted investments. The Board has approved the valuations of the unquoted investments on the recommendation of the Valuation Committee.
The unquoted investment in
The investment in New Horizon Health has been classed as unquoted due to the suspension of trading activity following the delay in the issuance of the company’s Annual Report for 2023. It has been valued by Kroll, an independent valuer, using the probability-weighted expected returns methodology (PWERM). Under the PWERM, fair value is determined through consideration of the values of the investment under a range of scenarios. Each scenario is assigned a probability, with the value of the investment reflecting the sum of each scenario’s valuation weighted by the probability of its occurrence. The valuations have been approved by the Board on the recommendation of the Valuation Committee.
The investment in Gracell Biotechnologies Contingent Value Rights (CVR) has also been valued by Kroll. Gracell’s CVRs have been valued using the PWERM, discounted for the lack of marketability.
(B) INVESTMENTS
Investments are recognised and de-recognised on the trade date.
As the Company’s business is investing in financial assets with a view to profiting from their total return in the form of dividends or increases in fair value, investments are classified as fair value through profit or loss (FVTPL) and are initially recognised at fair value. The Company manages and evaluates the performance of these investments on a fair value basis in accordance with its investment strategy, and information about the investments is provided internally on this basis to the Board.
Investments classified at fair value through profit or loss, which are quoted investments, are measured at subsequent reporting dates at fair value which is either the bid or the last trade price, depending on the convention of the exchange on which it is quoted.
In respect of unquoted investments, or where the market for a financial instrument is not active, fair value is established by using valuation techniques which may include using weighted expected returns, reference to the current fair value of another instrument that is substantially the same, discounted cash flow analysis and option pricing models, inline with IPEV guidelines. Where there is a valuation technique commonly used by market participants to price the instrument and that technique has been demonstrated to provide reliable estimates of prices obtained in actual market transactions, that technique is utilised.
Transfers between levels of fair value hierarchy are deemed to have occurred at the date of the event or change in circumstances that caused the transfer.
Gains and losses on disposal and fair value changes are also recognised in the Income Statement.
(C) PRESENTATION OF INCOME STATEMENT
In order to better reflect the activities of an investment trust company, and in accordance with guidance issued by the AIC, supplementary information which analyses the Income Statement between items of a revenue and capital nature has been presented alongside the Income Statement. Net revenue is the measure the Directors believe appropriate in assessing the Company’s compliance with certain requirements set out in section 1158 of the Corporation Tax Act 2010. The requirements are to distribute net revenue but only so far as there are positive revenue reserves.
(D) INVESTMENT INCOME
Dividends receivable on equity shares are recognised on the ex-dividend date. Where no ex-dividend date is quoted, dividends are recognised when the Company’s right to receive payment is established. Foreign dividends are grossed up at the appropriate rate of withholding tax, with the withholding tax recognised in the taxation charge.
Dividends from investments in unquoted shares and securities are also recognised when the Company’s right to receive payment is established.
Income from fixed interest securities is recognised on a time appointment basis so as to reflect the effective interest rate.
In deciding whether a dividend should be regarded as a capital or revenue receipt, the Company reviews all relevant information as to the reasons for and sources of the dividend on a case by case basis depending upon the nature of the receipt.
Special dividends of a revenue nature are recognised through the revenue column of the Income Statement. Special dividends of a capital nature are recognised through the capital column of the Income Statement.
(E) EXPENSES AND FINANCE COSTS
All expenses are accounted for on an accruals basis. Expenses are charged through the Income Statement as follows:
-- transaction costs on the acquisition or disposal of an investment are
charged to the capital column of the Income Statement;
-- expenses are charged to the capital column of the Income Statement where
a connection with the maintenance or enhancement of the value of the
investment can be demonstrated, and accordingly:
-- during the year, AIFM and Portfolio Management fees are charged 95% to
the capital column of the Income Statement as the Directors expect that
in the long term virtually all of the Company’s returns will come from
capital;
-- during the year, loan interest is charged 95% to the capital column of
the Income Statement as the Directors expect that in the long term
virtually all of the Company’s returns will come from capital.
-- performance fees are charged 100% to the capital column of the Income
Statement. Performance fees are recognised as a liability of the Company
when they crystallise and become due for payment. Details of the
performance fee are set out on pages 51 and 52 of the Annual Report; and
-- all other expenses are charged to revenue column of the Income
Statement.
(F) TAXATION
In line with the recommendations of the SORP, the allocation method used to calculate tax relief on expenses presented against capital returns in the supplementary information in the Income Statement is the “marginal basis”. Under this basis, if taxable income is capable of being offset entirely by expenses presented in the revenue column of the Income Statement, then no tax relief is transferred to the capital column.
Investment trusts which have approval under Section 1158 Corporation Tax Act 2010 are not liable for taxation on capital gains.
Current tax is provided at the amounts expected to be paid or recovered.
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the Balance Sheet liability method. Deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the Income Statement, except when it relates to items charged or credited directly to equity, or Other Comprehensive Income (OCI), in which case the deferred tax is also dealt with in equity or OCI respectively.
(G) FUNCTIONAL AND PRESENTATION CURRENCY
The financial information is shown in sterling, being the Company’s presentation currency. In arriving at the functional currency the Directors have considered the following:
(i) the primary economic environment of the Company;
(ii) the currency in which the original capital was raised;
(iii) the currency in which distributions would be made;
(iv) the currency in which performance is evaluated; and
(v) the currency in which the capital would be returned to shareholders on a break up basis.
The Directors have also considered the currency to which the underlying investments are exposed and liquidity is managed.
The Directors are of the opinion that sterling best represents the functional currency.
(H) RESERVES
Ordinary share capital
-- represents the nominal value of the issued share capital.
Share premium account
-- represents the surplus of net proceeds received from the issue of new
shares over the nominal value of such shares. The Share premium account
is non-distributable.
Capital redemption reserve
-- a transfer will be made to this reserve on cancellation of the Company’s
own shares purchased, equal to the nominal value of the shares. This
reserve is non-distributable.
Capital reserves
The following are credited or charged to the capital column of the Income Statement and then transferred to the Capital Reserve:
-- gains or losses on disposal of investments;
-- exchange differences of a capital nature;
-- expenses allocated to this reserve in accordance with the above
policies;
-- increases and decreases in the valuation of investments held at
year-end; and
-- shares which have been bought back by the Company for cancellation.
Realised Capital Reserves, including the unrealised gains/losses from investments readily convertible to cash, are distributable by way of a dividend.
Revenue reserve
-- reflects all income and expenditure recognised in the revenue column of
the Income Statement. Amounts standing to the credit of the Revenue
Reserve are distributable by way of dividend.
(I) OPERATING SEGMENTS
IFRS 8 requires entities to define operating segments and segment performance in the financial statements based on information used by the Board of Directors. The Directors are of the opinion that the Company is engaged in a single segment of business, being the investment business. The results published in this report therefore correspond to this sole operating segment.
(J) FINANCIAL INSTRUMENTS INCLUDING DERIVATIVE FINANCIAL INSTRUMENTS
Financial assets and financial liabilities are recognised on the Statement of Financial Position when the Company becomes a party to the contractual provisions of the instrument. Financial assets are derecognised when the Company’s contractual right to the cash flows from the asset expires or substantially all the risks and rewards of ownership are transferred. Financial liabilities are derecognised when the contractual obligation is discharged, with gains and losses recognised in the income statement.
The Company uses derivative financial instruments, namely equity swaps. All derivative instruments are valued initially, and at subsequent reporting dates, at fair value in the Statement of Financial Position.
The equity swaps are accounted for as non-current assets or current liabilities.
(K) CASH AND CASH EQUIVALENTS
Cash and cash equivalents are defined as cash in hand, demand deposits and short-term deposits with a maturity of three months or less, highly liquid investments readily convertible to known amounts of cash and subject to insignificant risk of changes in value.
(L) ADOPTION OF NEW AND REVISED STANDARDS
Standards and amendments to existing standards effective
The Company has applied the following standards and amendments for the first time for its annual reporting period commencing
-- Classification of Liabilities as current or non-current – Amendments to
IAS 1 presentation of Financial Statements.
This amendment did not have any impact on the amounts recognised in either current or prior years.
New standards, amendments and interpretations effective after
The below new amendment and interpretations will become effective for annual periods beginning after
-- IAS 21 – Lack of exchangeability(effective 1 January 2025 ). The IASB
issued amendments to IAS 21 The Effects ofChanges in Foreign Exchange
Rates to specify how an entity should assess whether a currency is
exchangeable and how it should determine a spot exchange rate when
exchangeability is lacking. The amendments also require disclosure of
information that enables users of its financial statements to understand
how the currency not being exchangeable into the other currency affects,
or is expected to affect, the entity’s financial performance, financial
position and cash flows.
-- IFRS 18 – Presentation and disclosure in financial statements(effective
1 January 2027 ). The IASB issued IFRS 18,which replaces IAS 1
Presentation of Financial Statements. IFRS 18 introduces new
requirements for presentation within the statement of profit or loss,
including specified totals and subtotals. Furthermore, entities are
required to classify all income and expenses within the statement of
profit or loss into one of five categories: operating, investing,
financing, income taxes and discontinued operations, whereof the first
three are new. It also requires disclosure of newly defined
management-defined performance measures, subtotals of income and
expenses, and includes new requirements for aggregation and
disaggregation of financial information based on the identified ‘roles’
of the primary financial statements and the notes.
-- IFRS 9 and IFRS 7 – Classification and measurement of financial
instruments(effective 1 January 2026).The Amendments address the
following:
-- The classification of financial assets.
-- Provide guidance on the assessment of whether contractual cash flows are
consistent with a basic lending arrangement. It is primarily to address
stakeholder concerns on the classification of financial assets with
environmental, social and corporate governance (ESG) and similar
features.
-- Financial assets with non-recourse features: Clarify for a financial
asset has non-recourse features if an entity’s ultimate right to receive
cash flows is contractually limited to the cash flows generated by
specified assets.
-- Contractually linked instruments: Clarify the characteristics of
contractually linked instruments and some transactions that may contain
multiple debt instruments and appear to have the characteristics of
contractually linked instruments are in fact lending arrangements
structured to provide enhanced credit protection to the creditor.
-- Derecognition of liabilities settled through electronic payment systems:
When settling a financial liability in cash using an electronic payment system, it is permitted that an entity to deem the financial liability to be discharged before the settlement date if it meets certain specified criteria.
-- Disclosures:
Amend IFRS 7 Financial Instruments: Disclosures to introduce disclosure requirements related to investments in equity instruments designated at fair value through other comprehensive income and contractual terms that could change the amount of contractual cash flows.
These amendments are not expected to have a material effect on the financial statements of the Company, but the Board will continue to assess the impact.
2. INCOME
2025 2024
£’000 £’000
Investment income
Overseas dividend income 964 1,080
Other income
Deposit interest 147 123
Total income 1,111 1,203
3. AIFM AND PORTFOLIO MANAGEMENT FEES
2025 2024
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
AIFM fee – Frostrow Capital LLP 43 820 863 47 886 933
Portfolio management fee – 100 1,909 2,009 106 2,031 2,137
OrbiMed Capital LLC
143 2,729 2,872 153 2,917 3,070
During the financial year ended
As at
Further details of the AIFM, portfolio management fee and the performance fee basis can be found in the Report of the Directors.
4. OTHER EXPENSES
2025 2024
Total Total
£’000 £’000
Directors’ emoluments 199 177
Fees payable to the Company’s auditor for the audit of the Company’s 52 52
financial statements
Registrar fees 45 36
Depositary fees 52 48
Marketing and PR costs 86 71
Legal and professional fees^ 32 61
Broker fees 63 43
Listing fees 35 39
Printing costs 30 33
Other costs 177 182
Total expenses charged to Revenue 771 742
Professional fees charged to Capital* 16 39
Total expenses 787 781
^ Includes quarterly valuation fees in relation to the valuation of the unquoted investments.
* Professional fees in respect of acquisition of unquoted and pre-IPO investments.
Details of the amounts paid to Directors are included in the Directors’ Remuneration Report.
5. FINANCE COSTS
2025 2024
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Loan interest 66 1,259 1,325 56 1059 1,115
66 1,259 1,325 56 1,059 1,115
6. TAXATION
(A) FACTORS AFFECTING TOTAL TAX CHARGE FOR YEAR
Approved investment trusts are exempt from tax on capital gains made within the company.
The tax assessed for the year is higher than the standard rate of corporation tax in the
2025 2024
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Net profit/(loss) before 131 (82,647) (82,516) 252 74,507 74,759
taxation
Corporation tax at 25% 33 (20,662) (20,629) 63 18,627 18,690
(2024:25%)
Effects of:
Non-taxable loss/(gains) on – 19,661 19,661 – (19,631) (19,631)
investments
Non-taxable overseas (241) – (241) (270) – (270)
dividends
Overseas tax suffered 145 – 145 159 – 159
Expenses charged to capital (17) – (17) (14) – (14)
available to be utilised
Excess expenses unused 225 1,001 1,226 221 1,004 1,225
Total taxation for the year 145 – 145 159 – 159
(see note 6(b))
(B) ANALYSIS OF CHARGE IN THE YEAR:
2025 2024
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Overseas tax suffered 145 – 145 159 – 159
Total taxation for the year 145 – 145 159 – 159
(C) PROVISION FOR DEFERRED TAX
No provision for deferred taxation has been made in the current or prior year.
The Company has not provided for deferred tax on capital profit or losses arising on the revaluation or disposal of investments, as it is exempt from tax on these items because of its status as an investment trust company.
At
A deferred tax asset of £23,312,000 (25% tax rate) (2024: £22,111,000 (25% tax rate)) arising as a result of these excess management expenses and other losses has not been recognised because the Company is not expected to generate sufficient taxable income in future periods in excess of the available deductible expenses. Given the composition of the Company’s portfolio, it is not likely that this asset will be used in the foreseeable future and therefore no asset has been recognised in the financial statements.
7. BASIC AND DILUTED EARNINGS/(LOSS) PER SHARE
2025 2024
Revenue Capital Total Revenue Capital Total
pence pence pence pence pence pence
Earnings/(loss) per share 0.0p (262.3)p (262.3)p 0.3p 206.7p 207.0p
The total loss per share of 262.3p (2024: profit of 207.0p) is based on the total loss attributable to equity shareholders of £82,661,000 (2024: earning of £74,600,000).
The revenue loss per share 0.0p (2024: profit of 0.3p) is based on the revenue loss attributable to equity shareholders of £14,000 (2024: earnings of £93,000). The capital loss per share of 262.3p (2024: earnings of 206.7p) is based on the capital loss attributable to equity shareholders of £82,647,000 (2024: profit of £74,507,000).
The total loss per share is based on the weighted average number of shares in issue during the year of 31,514,115 (2024: 36,041,496).
There are no dilutive instruments issued by the Company (2024: none).
8. INVESTMENTS
As at
2025 2024
Derivative Derivative
Financial Financial
Quoted Instruments Quoted Instruments
Investments Unquoted – Net Total Investments Unquoted – Net Total
£’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000
Opening book 354,597 16,268 – 370,865 392,482 14,341 – 406,823
cost
Opening
investment 24,977 (1,130) (418) 23,429 (55,520) 5,926 (1,202) (50,796)
holding gains/
(losses)
Valuation at 1 379,574 15,138 (418) 394,294 336,962 20,267 (1,202) 356,027
April
Movement in
the year
Purchases at 429,394 46 – 429,440 342,843 1,952 – 344,795
cost
Sales proceeds (533,092) – 2,550* (530,542) (388,521) (71) 1,395* (387,197)
Transfer from (859) (13,408) – (14,267) – – – –
Transfer into 13,408 859 – 14,267 – – – –
Net movement
in
investment (73,205) (441) (1,387) (75,033) 88,290 (7,010) (611) 80,669
holding
(losses)/gains
Valuation at 215,220 2,194 745 218,159 379,574 15,138 (418) 394,294
31 March
Closing book
cost at 31 292,352 5,001 – 297,353 354,597 16,268 – 370,865
March
Investment
holding (77,132) (2,807) 745 (79,194) 24,977 (1,130) (418) 23,429
(losses)/gains
at 31 March
Valuation at 215,220 2,194 745 218,159 379,574 15,138 (418) 394,294
31 March
* Sale of financed equity swaps.
The sales proceeds of £530,542,000 (2024: £387,197,000) includes transaction costs of £1,240,000 (2024: £814,000). The book cost of these investments when they were purchased was £502,952,000 (2024: £380,753,000).
These investments have been revalued over time and until they were sold any unrealised gains/loss were included in the fair value of these investments.
Fair Value Measurement – Transfers Between Levels of the Fair Value Hierarchy
During the year ended
Transfers from Level 1 to Level 3
-- An investment in New Horizon Health with a fair value of £859,000 was
transferred from Level 1 to Level 3.
Transfers from Level 3 to Level 1
-- An investment in Lexicon Pharmaceuticals with a fair value of £1,948,000
was transferred from Level 3 to Level 1.
-- An investment in XtalPi with a fair value of £11,460,000 was transferred
from Level 3 to Level 1.
Reasons for Transfers
-- New Horizon Health was transferred from Level 1 to Level 3 following the
delisting of its shares from the public stock exchange. As a result,
quoted market prices were no longer available, and the investment
valuation became reliant on significant unobservable inputs.
-- Lexicon Pharmaceuticals was transferred from Level 3 to Level 1 due to
the conversion of Series A convertible preference shares into ordinary
shares. The resulting ordinary shares are actively traded on a
recognised stock exchange, providing observable market prices.
-- XtalPi was transferred from Level 3 and Level 1 following its initial
public offering on the Hong Kong Stock Exchange in June 2024 . The
listing provided readily available quoted prices in an active market,
justifying its reclassification to Level 1.
Policy for Determining the Timing of Transfers
Transfers between levels of the fair value hierarchy are recognised at the beginning of the reporting period during which the change in circumstances or market conditions occurred. This policy is applied consistently to all transfers, in accordance with the requirements of IFRS 13.95.
(LOSSES)/GAINS ON INVESTMENTS
2025 2024
£’000 £’000
(Losses)/gains on investments (75,033) 80,669
Transaction costs (2,057) (1,526)
(Losses)/gains on investments held at fair value through profit (77,090) 79,143
or loss
The total transaction costs for the year were £2,057,000 (
9. DERIVATIVE FINANCIAL INSTRUMENTS
2025 2024
£’000 £’000
Fair value of OTC equity swaps (assets) 745 42
Fair value of OTC equity swaps (liabilities) – (460)
745 (418)
(See note 1(J) for further details).
10. OTHER RECEIVABLES
2025 2024
£’000 £’000
Future settlements – sales – 14,508
Prepayments and accrued income 17 27
17 14,535
11. CASH AND CASH EQUIVALENTS
2025 2024
£’000 £’000
Money market funds 6,913 –
Current asset investments 6,913 –
Cash at bank 1,540 2,131
Cash and cash equivalents 8,453 2,131
12. OTHER PAYABLES
2025 2024
£’000 £’000
Future settlements – purchases 405 167
Amounts due to brokers in respect of shares repurchased by the 4,336 1,379
Company for cancellation
Other creditors and accruals 682 1,029
5,423 2,575
13. ORDINARY SHARE CAPITAL
2025 2024
Number of Number of
Shares Shares
Allotted, issued and fully paid at 1 April 2024 33,487,198 38,737,419
Shares bought back for cancellation during the year (6,374,607) (5,250,221)
At 31 March 2025 27,112,591 33,487,198
2025 2024
£’000 £’000
Allotted, issued and fully paid shares of 25p 6,778 8,371
During the year 6,374,607 shares were bought back for cancellation for a consideration of £57,440,000 (2024: 5,250,221 shares were bought back for a consideration of £43,584,000).
14. NET ASSET VALUE PER SHARE
2025 2024
Net asset value per share 815.9p 1,078.9p
The net asset value per share is based on the net assets attributable to equity shareholders of £221,206,000 (2024: £361,307,000) and on 27,112,591 (2024: 33,487,198) shares in issue at
15. RISK MANAGEMENT POLICIES AND PROCEDURES
As an investment trust, the Company invests in equities and other investments for the long term in order to achieve its investment objective. In pursuing its investment objective, the Company is exposed to a variety of risks that could result in either a reduction or increase in the Company’s net assets or profits.
The Company’s financial instruments comprise securities and other investments, cash balances, debtors and creditors and a loan facility that arise directly from its operations (for example, in respect of sales and purchases awaiting settlement).
The main risks the Company faces from its financial instruments are (i) market price risk (comprising currency risk, interest rate risk and other price risk (i.e. changes in market prices other than those arising from interest rate or currency risk)), (ii) liquidity risk and (iii) credit risk. The Board also considers (iv) fair value measurement and (v) capital management.
The Board reviews and agrees policies regularly for managing and monitoring each of these risks.
OTC EQUITY SWAPS
The Company uses OTC equity swap positions to gain access to Chinese markets where the Company is not locally registered to trade directly. These swaps are revalued daily reflecting changes in the market value of the underlying equity. At the year end the Company held OTC equity swap contracts in InventisBio and Jiangsu Hengrui Pharmaceutical, these contracts were held with Goldman Sachs as the counterparty. See glossary for further details.
1. MARKET PRICE RISK:
The Company’s portfolio is exposed to fluctuations in market prices in the biotechnology sector and the regions in which it invests. Market-wide uncertainties which have recently caused increased volatility in the markets include the war in
The Company’s portfolio is exposed to market price fluctuations which are monitored by the AIFM and the Portfolio Manager in pursuance of the investment objective. Further information on the composition of the portfolio is set out on page 8 and 9 of the Annual Report.
This market risk comprises three elements – foreign currency risk, interest rate risk and other price risk.
(a) Foreign currency risk:
The Company’s portfolio is denominated in currencies other than sterling (the Company’s functional currency, and in which it reports its results). As a result, movements in exchange rates can significantly affect the sterling value of those items.
Management of the risk
The AIFM and the Portfolio Manager monitor the Company’s exposure to foreign currencies on a continuous basis and report to the Board regularly. The Company does not hedge against foreign currency movements to manage market price risk.
The Company does not use financial instruments to mitigate the currency exposure in the period between the time that the income is included in the financial statements and its receipt.
Foreign currency exposure
At the date of the Statement of Financial Position the Company held £200,735,000 (2024: £379,359,000) of investments denominated in
Foreign currency sensitivity
The fair value of the Company’s monetary items that have foreign currency exposure at
Where the Company’s equity investments (which are not monetary items) are priced in a foreign currency they are shown separately in the analysis as to show the overall level of exposure.
2025 2024
£’000 £’000
Sterling equivalent of U.S.$ and other non-sterling exposure
Current assets 8,475 16,640
Creditors (405) (167)
Spot currency contracts (4,358) (1,406)
Loan (non-sterling) – (47,063)
Foreign currency exposure on net monetary items 3,712 (31,996)
Investments held at fair value through profit or loss including 218,159 394,294
derivative equity swap
Total net foreign currency exposure 221,871 362,298
The tables below detail the sensitivity of the Company’s profit or loss after taxation for the year (investment values) to a 10% increase and decrease in the value of sterling compared with the
The above percentages have been determined based on market volatility in exchange rates over the previous twelve months. The analysis is based on the Company’s foreign currency financial instruments held at each Statement of Financial Position date, after adjusting for an increase/decrease in the AIFM and portfolio management fees.
If sterling had weakened against the
2025 2024
£’000 £’000
Impact on revenue return – –
Impact on capital return 32,717 46,816
Total return after tax/effect on shareholders’ funds 32,717 46,816
If sterling had strengthened against the
2025 2024
£’000 £’000
Impact on revenue return – –
Impact on capital return (13,189) (26,943)
Total return after tax/effect on shareholders’ funds (13,189) (26,943)
(b) Interest rate risk:
Interest rate risk is the risk that the fair value of a financial instrument will fluctuate because of changes in market interest rates.
Interest rate exposure
The Company’s main exposure to interest rate risk is through its loan facility with
At the year end, financial assets and liabilities subject to interest rate risk were as follows:
Floating Floating
rate rate
2025 2024
£’000 £’000
Loan facility with J.P. Morgan Securities LLC – 47,078
Gross exposure on OTC equity swaps 7,540 6,308
Total liabilities subject to interest rate risk 7,540 53,386
Less cash held at Goldman Sachs and in a liquidity fund 8,453 2,131
Total net liabilities subject to interest rate risk (913) 51,255
Management of the risk
The level of borrowings is approved and monitored by the Board and the AIFM on a regular basis.
Interest rate sensitivity
The majority of the Company’s financial assets are equity shares and other investments which neither pay interest nor have a maturity date. The amount subject to interest rate risk as at
(c) Other price risk
Other price risk may affect the value of the quoted investments.
If market prices at the date of the Statement of Financial Position had been 20% higher or lower (2024: 20% higher or lower) while all other variables had remained constant, the return and net assets attributable to shareholders for the year ended
Other price risk exposure
2025 2024
Net Net
Assets Liabilities Fair Value Assets Liabilities Fair Value
£’000 £’000 £’000 £’000 £’000 £’000
Investments 217,414 – 217,414 394,712 – 394,712
OTC equity swaps 745 – 745 42 (460) (418)
218,159 – 218,159 394,754 (460) 394,294
The notional exposure of the OTC equity swaps calculated in accordance with AIFMD requirements, is £8,286,000 (2024: £5,890,000) see glossary for further details.
2. LIQUIDITY RISK:
This is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities.
Management of the risk
Liquidity risk is not significant as the majority of the Company’s assets are investments in quoted equities that are readily realisable within one week, in normal market conditions. Stress tests have been performed to understand how long the portfolio would take to realise in such situations. The Board is comfortable that in such situations the Company would be able to meet its liabilities as they fall due. Short-term funding flexibility can be achieved through the use of the bank loan facility. The maximum amount of gearing permitted by the Board is 20% of net assets which equated to £44,241,000 at the year end (2024: £72,261,000).
The Board gives guidance to the Portfolio Manager as to the maximum amount of the Company’s resources that should be invested in any one company.
Liquidity exposure and maturity
Contractual maturities of the financial liabilities as at
2025 2025 2024 2024
3 months 3 to 3 months 3 to
or less 12 months or less 12 months
£’000 £’000 £’000 £’000
Loan facility (repayable on demand) – – 47,078 –
Future settlements 405 – 167 –
Derivative – OTC equity swaps – – – 460
Other creditors and accruals 5,018 – 2,408 –
5,423 – 49,653 460
3. CREDIT RISK:
Credit risk is the risk of failure of a counterparty to discharge its obligations resulting in the Company suffering a loss.
As at
† See glossary.
Management of the risk
The risk is not significant and is managed as follows:
J.P. Morgan
-- by receiving and reviewing regular updates from the Custodian and Prime
Broker and Depository.
-- by reviewing their Internal Control reports and regularly monitor J.P.
Morgan’s credit rating. J.P. Morgan has a credit rating of Aa3
(Moody’s), A+ (S&P) and AA (Fitch).
-- by reviewing on a monthly basis assets which are available for
rehypothecation.
Other counterparties
-- by only dealing with brokers which have been approved by OrbiMed Capital
LLC and banks with high credit ratings such as Goldman Sachs
International who have a credit rating of A1 (Moody’s), A+ (S&P) and A+
(Fitch);
-- by investing in markets that mainly operate DVP (delivery versus
payment) settlement.
-- all cash balances are held with approved counterparties. J.P. Morgan is
the Custodian of the Company’s assets and all assets are segregated from
J.P. Morgan’s own assets.
At
4. FAIR VALUE MEASUREMENT
Hierarchy of investments
As required under IFRS 13 “Fair Value Measurement”, the Company has classified its financial assets designated at fair value through profit or loss using a fair value hierarchy that reflects the significance of the inputs used in making the fair value measurements. The hierarchy has the following levels:
-- Level 1 – quoted prices (unadjusted) in active markets for identical
assets or liabilities;
-- Level 2 – inputs other than quoted prices included with Level 1 that are
observable for the asset or liability, either directly (i.e. as prices)
or indirectly (i.e. derived from prices); and
-- Level 3 – inputs for the asset or liability that are not based on
observable market data (unobservable inputs).
Level 1 Level 2 Level 3 Total
As of 31 March 2025
£’000 £’000 £’000 £’000
Assets 215,220 – 2,194 217,414
Derivatives: equity swap (assets) – 745 – 745
Financial investments held at fair value through 215,220 745 2,194 218,159
profit or loss
Level 1 Level 2 Level 3 Total
As of 31 March 2024
£’000 £’000 £’000 £’000
Assets 379,574 – 15,138 394,712
Derivatives: equity swap (assets) – 42 – 42
Derivatives: equity swap (liabilities) – (460) – (460)
Financial investments held at fair value through 379,574 (418) 15,138 394,294
profit or loss
As at
At
-- New Horizon Health;
-- Gracell Biotechnology CVR; and
-- StemiRNA.
New Horizon Health has been valued by Kroll, an independent valuer, using the probability-weighted expected returns methodology (PWERM). See note 1 for further details.
Gracell Biotechnology CVR has also been valued by Kroll using the PWERM.
StemiRNA entered into liquidation during the year and is valued at zero at the year end.
Level 3 Reconciliation
Please see below a reconciliation disclosing the changes during the year for the financial assets and liabilities designated at fair value through profit or loss classified as being Level 3. There has been no transfer between fair value hierarchy levels.
2025 2024
£’000 £’000
Assets
As at 1 April 15,138 20,267
Purchase of unquoted investments 46 1,952
Sale of unquoted investment – (71)
Transfer to level 1 (13,408) –
Transfer to level 3 859 –
Net movement in investment holding gains during the year (441) (7,010)
Assets as at 31 March 2,194 15,138
FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES:
Financial assets and financial liabilities are either carried in the Statement of Financial Position at their fair value or at a reasonable approximation of fair value.
5. CAPITAL MANAGEMENT
The Company’s capital management objectives are:
-- to ensure that it will be able to continue as a going concern; and
-- to maximise the total return to its equity shareholders.
The Board’s policy is to limit gearing to a maximum of 20% of the Company’s net assets.
The capital structure of the Company consists of the equity share capital, retained earnings and other reserves shown in the Statement of Financial Position.
Shares may be repurchased by the Company as explained on pages 29 and 30 of the Annual Report.
The Company’s objectives, policies and processes for managing capital are unchanged from the preceding accounting period.
16. TRANSACTIONS WITH RELATED PARTIES AND THE MANAGERS
Related Parties
The Directors of the Company are considered to be related parties.
Details of the remuneration of the Directors of the Company can be found on page 64 of the Annual Report.
Transactions with the Managers
-- Frostrow Capital LLP
-- OrbiMed Capital LLC
Details of the relationship between the Company and
The Company holds an interest in
Three current and two former partners at
17. CAPITAL RESERVE
2025 2024
Capital Capital Reserves
Reserves
Investment Investment
holdings holdings
gains/ gains/
Other (losses) Total Other (losses) Total
£’000 £’000 £’000 £’000 £’000 £’000
At 1 April 235,358 23,533 258,891 278,564 (50,596) 227,968
Net gains/
(losses) on 25,637 (102,727) (77,090) 5,014 74,129 79,143
investments
Foreign (1,553) – (1,553) (621) – (621)
exchange losses
Expenses
charged to (4,004) – (4,004) (4,015) – (4,015)
capital
Repurchase of
own shares for (57,440) – (57,440) (43,584) – (43,584)
cancellation
At 31 March 197,998 (79,194) 118,804 235,358 23,533 258,891
Sums within the Total Capital Reserve less unrealised gains (those on investments not readily convertible to cash) are available for distribution. Investment holding gains in the table above are unrealised. The value of investments not readily convertible to cash amount to £2,194,000 (2024: £15,138,000).
18. SUBSEQUENT EVENTS
Subsequent to the Company’s year end, the net asset value per share of the Company had fallen by 3.9% from 815.9p to 784.3p
and the Company’s share price had fallen by 4.8% from 754.0p to 718.0p as at
The figures and financial information for 2024 are extracted from the published Annual Report for the year ended
The figures and financial information for 2025 are extracted from the Annual Report for the year ended
GLOSSARY OF TERMS AND ALTERNATIVE PERFORMANCE MEASURES
ACTIVE SHARE^
Active Share is expressed as a percentage and shows the extent to which a fund’s holdings and their weightings differ from those of the fund’s benchmark index. A fund that closely tracks its index might have a low Active Share of less than 20% and be considered passive, while a fund with an Active Share of 60% or higher is generally considered to be actively managed. As at
ADR
An American depositary receipt (ADR) is a negotiable security that represents securities of a foreign company and allows that company’s shares to trade in the
AIC
ALTERNATIVE INVESTMENT FUND MANAGERS DIRECTIVE (AIFMD)
Agreed by the
ALTERNATIVE PERFORMANCE MEASURE (APM)
An APM is a numerical measure of the Company’s current, historical or future financial performance, financial position or cash flows, other than a financial measure defined or specified in the applicable financial framework. In selecting these Alternative Performance Measures, the Directors considered the key objectives and expectations of typical investors in an investment trust such as the Company.
DISCOUNT OR PREMIUM^
A description of the difference between the share price and the net asset value per share. The size of the discount or premium is calculated by subtracting the share price from the net asset value per share and is usually expressed as a percentage (%) of the net asset value per share. If the share price is higher than the net asset value per share the result is a premium. If the share price is lower than the net asset value per share, the shares are trading at a discount.
As at As at
31 March 2025 31 March 2024
(pence) (pence)
Share price 754.0 995.0
Net asset value per share (see note 14 for further 815.9 1,078.9
information)
Discount of share price to net asset value per 7.6% 7.8%
share
IPO
An Initial Public Offering (IPO) is the process by which the shares of a previously private company are listed on a stock exchange for the first time. Through this process a company can raise new capital, offer an exit opportunity for private investors and founders, and enable the trading of its shares.
IPO LOCK-IN
When a company offers shares in an IPO, investors sometimes enter into a lock-in agreement preventing them from selling their shares for a specified period after the IPO.
LEVERAGE
The AIFMD leverage definition is slightly different from the Association of Investment Companies’ method of calculating gearing and is defined as follows: any method by which the AIFM increases the exposure of an AIF it manages whether through borrowing of cash or securities, or leverage embedded in derivative positions.
For the purposes of the AIFMD, leverage is any method which increases the Company’s exposure, including the borrowing of cash and the use of derivatives. It is expressed as a ratio between the Company’s exposure and its net asset value and can be calculated on a gross and a commitment method. Under the gross method, exposure represents the sum of the Company’s positions after the deduction of sterling cash balances, without taking into account any hedging and netting arrangements. Under the commitment method, exposure is calculated without the deduction of sterling cash balances and after certain hedging and netting positions are offset against each other.
Gross Commitment
Method Method
Maximum limit 130.0% 130.0%
Actual as at 31 March 2025 105.9% 102.0%
MARGINABLE SECURITIES
Marginable securities are stocks, bonds, futures or other securities capable of being traded on a Margin Account and are available for rehypothecation.
NET ASSET VALUE (NAV)
The net asset value of the Company’s assets, principally investments made in other companies and cash held, less any liabilities. The NAV is also described as “shareholders’ funds”. The NAV is often expressed in pence per share after being divided by the number of shares which have been issued. The NAV per share is unlikely to be the same as the share price, which is the price at which the Company’s shares can be bought or sold by an investor. The share price is determined by the relationship between the demand and supply of the shares in the secondary market.
(
Net cash is a measure of how much cash the Company holds, after offsetting gearing. It is expressed as a percentage of net assets (shareholders’ funds). Net cash is only shown if the Company has more cash than gearing.
Gearing represents prior charges, adjusted for net current liabilities, expressed as a percentage of net assets. Prior charges includes all loans and overdrafts for investment purposes.
31 March 31 March
2025 2024
£’000 £’000
Loan – 47,078
Cash and cash equivalents (8,453) –
Net current (assets)/liabilities (excluding loan and - (14,091)
derivatives)*
Total (8,453) 32,987
Net assets 221,206 361,307
(Net cash)/gearing (3.8%) 9.1%
* Current liabilities less current assets
NAV PER SHARE TOTAL RETURN^
A measure of how an investment company’s portfolio has performed, taking into account how the NAV per share has changed as well as any dividends that have been paid. The NAV per share return for the year ended
ONGOING CHARGES^
Ongoing charges are calculated by taking the Company’s annualised operating expenses expressed as a proportion of the average daily net asset value of the Company over the year.
The costs of buying and selling investments are excluded, as are interest costs, taxation, performance fees, cost of buying back or issuing ordinary shares and other non-recurring costs.
31 March 31 March
2025 2024
£’000 £’000
AIFM & portfolio management fees (note 3) 2,872 3,070
Other re-occurring expenses (note 4) 771 742
Total operating expenses 3,643 3,812
Average daily net assets for the year 326,317 323,811
Ongoing charges 1.1% 1.2%
OTC EQUITY SWAPS
Over-the-Counter (OTC) refers to the process of how securities are traded via a broker - dealer network, as opposed to on a centralised exchange.
An equity swap is an agreement where one party (counterparty) transfers the total return of an underlying equity position to the other party (swap holder) in exchange for a payment of the principal, and interest for financed swaps, at a set date. Total return includes dividend income and gains or losses from market movements. The exposure of the holder is the market value of the underlying equity position.
There are two main types of equity swaps:
· Funded – where payment is made on acquisition. They are equivalent to holding the underlying equity position with the exception of additional counterparty risk and not possessing voting rights in the underlying security; and
· Financed – where payment is made on maturity. As there is no initial outlay, financed swaps increase exposure by the value of the underlying equity position with no initial increase in the investments value – there is therefore embedded leverage within a financed swap due to the deferral of payment to maturity.
REHYPOTHECATION
Rehypothecation is the practice by banks and brokers of using, for their own purposes, assets that have been posted by clients as collateral for loans. The practice is regulated by the
The
SHARE PRICE TOTAL RETURN^
The standard measure of performance for an investment company, taking into account the change in share price over a period of time as well as all the dividends paid during that period. Share price total return takes into account the change in value of the underlying portfolio of the investment company and any dividends paid, as well as the discount or premium at which the shares trade, and any change in discount or premium over the period. The share price total return is calculated by taking the percentage movement from the share price as at
VARIABLE INTEREST ENTITY (VIE)
A corporate structure through which an investor can own the economic interests of shares in a company through a contractual relationship. This structure is common in
^ Alternative Performance Measure
ANNOUNCEMENT ENDS
Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.
