Audited Results for the year ended 31 March 2012

NEWS RELEASE 31 May 2012 The Biotech Growth Trust PLC Audited Results for the year ended 31 March 2012 The Biotech Growth Trust PLC (Company Registration Number 3376377) today announces audited results for the year ended 31 March 2012. Year Year ended ended 31 March 31 March % 2012 2011 change Net asset value per share 250.9p 186.0p 34.9% Share price 236.0p 166.0p 42.2% Discount of share price to net asset value per share 5.9% 10.8% n/a NASDAQ Biotechnology Index (sterling adjusted) (Benchmark) 801.1 647.9 23.6% Ongoing charges* 1.2% 1.2% - *Please see page 51 of the 2012 Annual Report and Financial Statements For and on behalf of Frostrow Capital LLP - Company Secretary 31 May 2012 - ENDS - The following are attached: * Performance Summary * Chairman's Statement * Review of Investments * Portfolio Focus * Income Statement * Statement of Changes in Equity * Statement of Financial Position * Statement of Cash Flows * Notes to the Financial Statements * Notice of Annual General Meeting * Glossary of Terms For further information please contact: Alastair Smith, Frostrow Capital LLP 020 3 008 4911 Mark Pope, Frostrow Capital LLP 020 3 008 4913 Jo Stonier, Quill PR 020 7 466 5066 Emma Wallis, Quill PR 020 7 466 5053 PERFORMANCE SUMMARY YEAR ENDED 31 MARCH FIVE YEAR PERFORMANCE RECORD 2007 2008 2009 2010 2011 2012 Net asset value per 117.1p 103.4p 136.9p 182.6p 186.0p 250.9p share Share price 109.8p 96.8p 130.5p 175.8p 166.0p 236.0p Discount of share price to net asset value per 6.2% 6.4% 4.7% 3.7% 10.8% 5.9% share NASDAQ Biotechnology Index (sterling 394.7 393.1 477.5 618.1 647.9 801.1 adjusted) CHAIRMAN'S STATEMENT " . . .The Company's net asset value per share rose by 34.9% and the share price rose by 42.2%, both handsomely outperforming the Company's benchmark . . . " PERFORMANCE Having recorded a slight fall in the Company's net asset value per share over the first half of the financial year, I am delighted to report now that returns in the second half have shown a substantial improvement. Overall, during the year ended 31 March 2012, the Company's net asset value per share rose by 34.9% and the share price rose by 42.2%, both handsomely outperforming the Company's benchmark, the NASDAQ Biotechnology Index measured in sterling terms, which rose by 23.6% over the year. The discount of the share price to net asset value per share narrowed over the year from 10.8% at 31 March 2011 to 5.9% at the year-end. After the year-end, the discount continued to narrow and at times the shares traded at a premium to their net asset value. The Company's strong performance was due in part to a number of companies in the portfolio being taken over during the year, for example Pharmasset by Gilead Sciences and Anadys Pharmaceuticals by Roche. In addition there was good positive newsflow for new drugs being developed by Pharmacyclics, VIVUS, Regeneron and Alexion. As mentioned in the Interim Report, the Company's Investment Manager (OrbiMed) won the 2011 techMARK Technology Fund Manager of the Year award for its management of the Company, which was deemed to be the best performing technology fund for the year to 30 September 2011. In addition the Company has recently been declared the Best Specialist Trust for 2011 by Investment Trust magazine. RETURN PER SHARE AND DIVIDEND The total return per share amounted to 63.6p for the year (2011: return of 3.0p), comprising a revenue deficit of 0.5p per share (2011: deficit of 0.5p) and a capital gain of 64.1p (2011: gain of 3.5p). No dividend is recommended in respect of the year ended 31 March 2012 (2011: nil). CAPITAL The Board has continued to implement its policy of active discount management and to buy back shares when necessary in the event of the market price being at a discount greater than 6% to the net asset value per share. During the year, a total of 2,714,255 shares were bought back for cancellation, at an average discount to net asset value per share of 9.6%. The cancellation of shares shrinks the capital base of the Company and it was therefore useful to be able to mitigate the shrinkage when the Company's shares moved to a premium to net asset value in April. The Company was then able to issue 275,000 new shares, at a premium of 0.5% to the prevailing net asset value per share, under the authority granted at the 2011 Annual General Meeting. THE BOARD Professor Dame Kay Davies, CBE and Andrew Joy became Directors of the Company in March of this year. The Board is very pleased to welcome two new Directors of such high calibre and they will undoubtedly enhance the direction of the Company's affairs. Having been Chairman of the Board since the launch of the Company in 1997, I have decided to retire at the conclusion of this year's Annual General Meeting. It has been a great pleasure and a privilege to be a member of such an exceptionally strong board for so many years. Each director has brought some special skill or knowledge to our table and the directors together have worked as a united team. I am personally most grateful for the support of every one of my colleagues but I hope I may be allowed to record my special thanks to John Gordon who has regularly gone far beyond the call of his duties as Deputy Chairman and Senior Independent Director. Lord Waldegrave of North Hill will succeed me as Chairman at the end of the Annual General Meeting on 12 July 2012. The Company will therefore be in the best possible hands. OUTLOOK We continue to believe that the outlook for the biotechnology sector is strong due, in large part, to the increased pace of merger and acquisition activity ("M&A") in the sector. The portfolio is well positioned to benefit not only from this M&A activity but also from continued drug development and positive news flow. Our focus remains on the selection of stocks with strong prospects for capital enhancement and we firmly believe that the long term investor in our sector will be well rewarded. ANNUAL GENERAL MEETING The Annual General Meeting of the Company will be held at the Barber-Surgeons' Hall, Monkwell Square, Wood Street, London EC2Y 5BL on Thursday, 12 July 2012 at 12.30 pm, and we hope as many shareholders as possible will attend. This will be an opportunity to meet the Board and to receive a presentation from our Investment Manager. JOHN SCLATER, CVO CHAIRMAN 31 MAY 2012 ORBIMED CAPITAL LLC - INVESTMENT MANAGER OrbiMed Capital LLC, based in New York, is an investment manager focused exclusively on the healthcare sector, with approximately U.S.$6 billion in assets under management as at 31 March 2012 across a range of funds, including investment trusts, hedge funds and private equity funds. OrbiMed's investment management activities were founded in 1989 by Samuel D. Isaly. INVESTMENT STRATEGY The Biotech Growth Trust's objective is to seek capital appreciation through investment in the worldwide biotechnology industry principally by investing in emerging biotechnology companies. Consistent with this mandate, OrbiMed has invested the majority of the Company's assets in emerging biotechnology companies with the remainder invested in major biotechnology companies. The portfolio comprised 42 holdings as at 31 March 2012. OrbiMed makes investments worldwide - in North America, Europe, and the Far East. Geographic allocation is in line with the geographic distribution of investment opportunities, with a majority of the Company's investments in companies based in North America. OrbiMed takes a bottom-up approach to stock selection based on intensive proprietary research. Stock selection is based on rigorous financial analysis, exhaustive scientific review, frequent meetings with company management and consultations with physicians and other industry experts. OrbiMed seeks to invest in emerging biotechnology companies with strong management teams, innovative products in development, and sufficient financial resources to develop those products. For major biotechnology companies, OrbiMed looks for strong management teams, healthy organic growth from current products and deep pipelines to fuel future growth. The attainment of profitability frequently acts as a significant catalyst for biotech share price appreciation. As a result, OrbiMed believes superior returns can be achieved by investing in emerging biotechnology companies two to three years prior to sustainable profitability. Companies that become profitable benefit from greater analyst research coverage, a wider institutional investor base and reduced clinical development risk (since profitability typically coincides with a product approval and launch). OrbiMed generally seeks to exit its investments when the wider investor community starts to value the newly profitable biotechnology company in excess of its anticipated future growth. Risk management is conducted via position size limits, geographic diversification and an appropriate weighting between major and emerging biotechnology. OrbiMed maintains adequate portfolio liquidity by limiting the Company's ownership to 15% of an individual company's equity (at the time of investment) and by strictly limiting the Company's exposure to direct unquoted companies to 10% of the portfolio at the time of acquisition. THE ORBIMED TEAM OrbiMed's investment professionals possess a combination of extensive scientific, medical, and financial expertise. The following five individuals represent the portfolio management team for the Company: Samuel D. Isaly, is a founder and the Managing Partner of OrbiMed. Sam has been active in global healthcare investing and analysis since 1968 when he joined Chase Manhattan Bank in New York. During his career, Sam has been a pharmaceutical analyst with Merrill Lynch, Legg Mason and SocGen Swiss International. Sam created OrbiMed's asset management business in 1989 through OrbiMed's predecessor organisation, Mehta and Isaly. Sam has a BA in Economics from Princeton University and a M.Sc. (Econ.) from The London School of Economics. Sven H. Borho, CFA, is a founding General Partner of OrbiMed. Sven is a portfolio manager for OrbiMed's public equity funds and he heads the firm's trading team. He started his career in 1991 when he joined Mehta and Isaly as a Senior Analyst covering European pharmaceutical firms and biotechnology companies worldwide. Sven studied business administration at Bayreuth University in Germany and received a M.Sc. (Econ.) from The London School of Economics; he is a citizen of both Germany and Sweden. Carl L. Gordon, Ph.D, CFA, is a founding General Partner of OrbiMed and co-Head of Private Equity. Carl is active in both private equity and small-capitalisation public equity investments. He was a senior biotechnology analyst at Mehta and Isaly from 1995 to 1997. He was a Fellow at The Rockefeller University from 1993 to 1995. Carl received a Ph.D. in Molecular Biology from the Massachusetts Institute of Technology. His doctoral work involved studies of protein folding and assembly. He received a Bachelors degree from Harvard College. Geoffrey C. Hsu, CFA, is a General Partner of OrbiMed, having joined in 2002 as a public biotechnology analyst. Prior to joining OrbiMed, he worked as a financial analyst in the healthcare investment banking group at Lehman Brothers. Geoffrey received his AB degree summa cum laude from Harvard University and holds an MBA from Harvard Business School. Prior to business school, he spent two years studying medicine at Harvard Medical School. Richard D. Klemm, Ph.D, CFA, is a Public Equity Partner of OrbiMed, having joined in 2000 as a public biotechnology analyst. He completed a Ph.D. from the Massachusetts Institute of Technology in Molecular Biology in 2000. Richard has published scientific articles in the fields of DNA replication and transcription. He received a BA from the University of California, Berkeley in 1994 with majors in molecular and cell biology and economics. REVIEW OF INVESTMENTS "…we remain confident about the prospects for the Biotechnology sector. Innovation is occurring at a record pace, valuation levels are still modest by historical standards and M&A activity will drive share prices higher." PERFORMANCE REVIEW We are pleased to report that the Company's net asset value per share increased by 34.9% during the year. The Company significantly outperformed the benchmark index, the NASDAQ Biotechnology Index (measured on a sterling adjusted basis), which rose 23.6% during the year. The Company's share price rose 42.2% during the period as the discount to net asset value per share narrowed to 5.9% at 31 March 2012. The top contributors to performance in the portfolio during the fiscal year were Pharmasset, Pharmacyclics, VIVUS, and Regeneron Pharmaceuticals. Pharmasset was acquired by Gilead Sciences (also held in the portfolio) at an 89% premium for its class-leading hepatitis C virus (HCV) polymerase inhibitor in phase III development, PSI-7977. Shares in Pharmacyclics advanced due to clinical progress for its Bruton's tyrosine kinase (BTK) inhibitor for hematological cancers. Additionally the company signed a lucrative partnership with Johnson & Johnson to develop and commercialise the drug. VIVUS received a vote in favour of approval from a U.S. Food and Drug Administration (" FDA") advisory committee for its obesity drug, Qnexa, sending the shares up 78%. We expect the drug to be approved later this year. Regeneron received FDA approval for Eylea, a drug to treat wet-AMD (a leading cause of blindness). The drug has had a robust launch in its first few months on the market. Illumina, K-V Pharmaceuticals, and Targacept were the principal detractors from performance in the portfolio during the year. Illumina saw its sequencing revenue soften due to weakening demand from academic customers. K-V Pharmaceuticals experienced disappointing sales for Makena, their hormone treatment to prevent preterm births. Targacept's lead compound, TC-5214, failed in its pivotal trials in depression. SUB - SECTOR REVIEW: Major Biotechnology The Company maintains a healthy weighting in each of the four major biotechnology stocks (Amgen, Celgene, Gilead Sciences, and Biogen Idec). We have traditionally viewed these names as value plays because the stocks have traded over the past few years at historically low price earnings (P/E) ratios that we believe underestimate the companies' growth prospects. Several events over the past fiscal year have begun transforming these "value stocks" into growth stories again. For example, in April 2011, Biogen Idec surprised investors by announcing better-than-expected efficacy results for their oral multiple sclerosis drug BG-12. We believe BG-12's profile as a safe effective oral medication will allow it to take a significant share of the existing U.S.$12 billion worldwide market for multiple sclerosis therapies, most of which consist of injectable drugs that cause flu-like side effects. Another major biotechnology company whose growth prospects have been reinvigorated recently is Gilead Sciences. At close to a 9% weight, Gilead was our most favoured name in major biotechnology during the fiscal year because we felt investors were not giving the company enough credit for its follow-on combination pills to treat HIV. In November 2011, the company announced the U.S.$11 billion acquisition of Pharmasset for its HCV drug. We believe the drug is one of the most potent HCV treatments in development today and should accelerate Gilead's earnings growth in 2015 and beyond. Celgene is another major biotechnology company with a number of pipeline events this year, including a potential label expansion in Europe for their multiple myeloma treatment Revlimid and phase III data for apremilast in psoriasis and psoriatic arthritis. While patent issues on Revlimid continue to overhang the stock, we believe Revlimid's use in additional cancers and pipeline developments should allow the company to continue to perform. Lastly, Amgen, the world's largest biotechnology company, continues to represent compelling value because it has a comparable P/E to the large pharmaceutical sector despite having better growth prospects. Amgen announced a dividend for the first time in April 2011 and continues to buy back shares with its significant cash flow. The company is embarking on an aggressive acquisition strategy in emerging markets and a CEO change anticipated for May 2012 could lead the company in a new strategic direction. Aside from Biogen Idec, whose shares made a big upward move in April, most of the major biotechnology companies were range-bound for the first 8 months of the fiscal year and did not begin outperforming until December 2011. We remain generally bullish on the major biotechnology names. Mid - Capitalisation Emerging Biotechnology The mid-capitalisation biotechnology space is mainly composed of companies that are in the early stages of product launch, or those with late-stage clinical assets. In 2011, several key new products showed slower than expected sales, such as Benlysta for lupus and Krystexxa for gout. Investors became hesitant about holding stocks through the early phases of a drug launch, causing underperformance in many mid-capitalisation names. However, in early 2012 Regeneron reported strong initial performance for the launch of Eylea, and InterMune reported good initial uptake of Esbriet in Europe. This changed sentiment, leading to positive share price performance for a number of companies launching new drugs. Incyte is one of our favourite new product launch stories for 2012, and initial performance has been strong. On the development front, several late stage companies in the portfolio had positive news that drove strong share price appreciation. Medivation announced positive phase III results for MDV3100 for prostate cancer. We expect the drug to compete well against Johnson & Johnson's Zytiga, which was recently approved in the same indication. Ariad Pharmaceuticals reported positive phase III data for Ponatinib for Chronic Myelogenous Leukemia (CML). We expect Ponatinib to quickly penetrate the refractory CML market and gradually move upstream to front-line treatment, which is a multi-billion dollar market. Merger and acquisition ("M&A") activity increased in the sector in late 2011/early 2012. Late-stage emerging companies are typically in the "sweet spot" for acquisitions. With the increase in M&A and the improved sentiment for product launches, we remain bullish on mid-capitalisation biotechnology companies. Small - Capitalisation Emerging Biotechnology The small capitalisation biotechnology space is historically the area which generates most of the portfolio's outperformance. We seek to identify companies with promising opportunities in early clinical trials and hold the stocks as the drug candidates progress through development. For example, Pharmasset (our top performer in the past year) was added to the portfolio in 2009 when only early data was available on their compounds. The clinical data consistently beat expectations, culminating with the company's acquisition by Gilead in late 2011. Pharmacyclics shares, first purchased in early 2010, appreciated dramatically during the year as more data became available for its BTK inhibitor, ibrutinib. The compound has demonstrated impressive activity against chronic lymphocytic leukemia and mantle cell lymphoma. We exited the shares in early 2012 as the valuation appears full. We will continue to invest our energies to identify the most promising early stage companies which offer tremendous upside potential. Life Science Tools/Diagnostics Companies in the life science tools sector sell the equipment, reagents, and machines necessary for biotechnology research and development. These companies typically deliver steady earnings growth at a reasonable valuation, with much of the growth recently coming from emerging markets like China. During the summer of 2011, the tools companies experienced a broad selloff with the rest of the market. The group continued to be under pressure as debate about the U.S. government's debt ceiling heightened investor concerns about possible budget cuts to the National Institutes of Health (NIH), one of the major funding sources for research and development spending. Since the beginning of 2012, concerns about NIH spending have abated somewhat, leading to a rebound in the shares. Major advances in gene sequencing have occurred over the past couple of years, leading to faster and less costly ways to sequence the human genome. While it took U.S.$3 billion to sequence the first human genome in 2000, it now only takes U.S.$3,000 to accomplish the same feat today. The Company held shares in two leading companies in the gene sequencing space during the fiscal year, Illumina and Life Technologies. We exited our Illumina position due to some disappointing financial results during the year. We remain bullish though over the long-term about the application of gene sequencing to clinical diagnostics. We also hold Affymetrix, a company specialising in gene arrays and cytogenetics, as a value play and potential takeout candidate. The company has just appointed a new CEO known for his operational excellence who we believe can turn around the company. On a selective basis, your Company also invests in specialty diagnostics companies such as Exact Sciences. Exact Sciences is developing a genetic-based stool test for colorectal cancer screening. The company reported positive data for their test at a medical conference in November 2011. The test has very high cancer detection sensitivity and has the added benefit of being able to detect pre-cancerous lesions. We believe this could be a transformative test for the colorectal cancer detection market and expect a launch in 2013. Rising Therapeutic Classes The discovery of new drug targets or therapeutic approaches often leads to a flurry of new drug development in particular therapeutic areas. HCV is a recent example of such a surge in activity from both biotechnology and large pharmaceutical companies. In 2011, the first two direct acting antiviral drugs were approved, and dozens of drug candidates are in clinical trials. HCV has also been a significant area of investment in the portfolio over the past few years and its investments in "pure-play" HCV companies Pharmasset, Anadys, and Idenix accounted for about a third of the performance during the fiscal year. Because of the importance of this therapeutic area to the sector and the Company's outperformance, we have prepared a more detailed discussion of the evolving HCV treatment landscape (please see "Hepatitis C: From Hope to Cure" beginning on page 9 of the 2012 Annual Report and Financial Statements). Below we highlight three other therapeutic areas that are advancing rapidly: prostate cancer, B-cell malignancies and myelofibrosis: Prostate cancer patients are typically treated initially with hormonal therapies and then with chemotherapy after hormone therapies fail. Recently there have been five new agents which have been shown to extend the lives of advanced cancer patients - Provenge from Dendreon, Zytiga from Johnson & Johnson, MDV3100 from Medivation, Jetvana from Sanofi, and Alpharadin from Algeta and Bayer. Note that four of the five therapies were originated by biotechnology companies and only one was originated by a large pharmaceutical company (Zytiga was developed by Cougar Biotechnology, a former portfolio holding, before it was acquired by Johnson & Johnson in 2009). This highlights the theme that we have mentioned previously that innovation is increasingly being driven by biotechnology companies rather than large pharmaceutical companies. In 2012, it will be important to understand how these new therapeutic options should be sequenced to maximize the benefit to the patients. We are currently invested in Medivation, Dendreon, and Algeta in the prostate cancer space. There are several interesting new targeted therapies for B-cell malignancies such as non-Hodgkin's lymphoma (NHL) and chronic lymphocytic leukemia (CLL). Rituxan was the first targeted agent for NHL and CLL, and has now reached over U.S.$6 billion in annual sales, showing the large potential for targeted agents in this space. Understanding of the molecular pathways of activation and proliferation of B-cells has generated new targets to treat these diseases. Specifically PI3 kinase delta (PI3K-delta) and BTK are attractive targets to block NHL and CLL cells with relatively little toxicity. There are currently small molecule drugs targeting each of these pathways entering phase III development, GS-101, a PI3K-delta inhibitor from Gilead and ibrutinib, a BTK inhibitor from Pharmacyclics. Phase II data have been impressive for both compounds, and both should become significant drugs. Following these leaders, Celgene and Infinity have targeted inhibitors in phase I trials. Myelofibrosis is a progressive scarring of the bone marrow which disrupts the formation of normal blood cells and typically causes severe and symptomatic splenomegaly, and eventually causes death. Several years ago it was discovered that myelofibrosis patients often harbour activating mutations in the JAK2 gene. Therefore inhibitors of JAK2 could have a role in treating the diseases. At the end of 2011, Incyte (owned in the portfolio) received approval for its JAK inhibitor, Jakafi. We believe that this product will exceed expectations, particularly due to the long duration of therapy expected for these patients. Several other companies are developing competing agents including Sanofi, YM Biosciences, and Cell Therapeutics. We are monitoring this field closely, but thus far it appears that Jakafi's profile is best-in-class. OUTLOOK We have commented in prior years about the ongoing potential for M&A activity as a key catalyst for the sector. The pace of M&A has increased with the acquisitions of Pharmasset by Gilead, Anadys (also a portfolio holding) by Roche, Micromet by Amgen, Inhibitex by Bristol-Myers Squibb, and Ardea by AstraZeneca. Additionally there have been bids for Illumina by Roche and for Human Genome Sciences by GlaxoSmithKline. This recent activity highlights the valuation disconnect between companies' market capitalisations and their perceived value by potential strategic acquirors. Although the recent appreciation of the sector has narrowed this gap, we believe that many compelling opportunities remain. In particular we favour companies with marketed or significantly de-risked late stage products that are unencumbered. Acquisition candidates within the portfolio include Ariad Pharmaceuticals, VIVUS, Incyte, Onyx Pharmaceuticals, and Actelion. With regards to health care policy, the validity of the U.S. health care reform law passed in 2010 has been challenged by 26 states. Specifically, the states argue that the individual mandate (a requirement for all citizens to purchase health insurance or pay a penalty) is unconstitutional. The Supreme Court heard the challenge in late March and the Justices appear more likely than not to reject the reform law. Their final verdict is due in June. We have argued that the changes enacted by the new law are manageable, and that the increase in individuals with healthcare coverage should outweigh the demands placed on industry (industry fees, Medicaid rebates, etc.). However, if the law is overturned, we would expect an initial positive reaction for biotechnology and pharmaceutical stocks. Overall we remain confident about the prospects for the biotechnology sector. Innovation is occurring at a record pace, valuation levels are still modest by historical standards, and M&A activity will drive share prices higher. SVEN BORHO ORBIMED CAPITAL LLC INVESTMENT MANAGER 31 MAY 2012 PRINCIPAL CONTRIBUTORS TO AND DETRACTORS FROM NET ASSET VALUE PERFORMANCE FOR THE YEAR TO 31 MARCH 2012 Contribution for the year to Contribution 31 March 2012 per share £'000 (pence)* Top Five Contributors Pharmasset 15,012 23.6 Pharmacyclics 6,267 9.8 VIVUS 5,417 8.5 Regeneron Pharmaceuticals 3,037 4.8 Alexion Pharmaceuticals 3,023 4.7 51.4 Top Five Detractors Illumina (3,057) (4.8) K-V Pharmaceutical (2,297) (3.6) Targacept (1,539) (2.4) Human Genome Sciences (1,501) (2.4) Insmed (1,312) (2.1) (15.3) *Based on 63,666,908 ordinary shares being the weighted average number of shares in issue during the year ended 31 March 2012. Source: Frostrow Capital LLP PORTFOLIO FOCUS "The Hepatitis C virus (HCV) is a growing global health problem, with an estimated 160 million individuals chronically infected worldwide…we expect the market for HCV therapies to increase to approximately U.S.$10 billion by 2018." HEPATITIS C: FROM HOPE TO CURE This year we would like to highlight the HCV space, as it has been a hotbed of scientific innovation over the past several years. It has also been an important investment theme in the portfolio and a major contributor to performance, particularly within the past fiscal year. HCV is a growing global health problem, with an estimated 160 million individuals chronically infected worldwide. It is a leading cause of liver cirrhosis and liver cancer and it is the leading reason for liver transplantation. Globally about 350,000 people die from HCV related liver disease each year. The market has unusual dynamics because of the long latency period from the time individuals are first infected and the time they become symptomatic (can be over 20 years). The majority of HCV cases remain undiagnosed. Most of the infected individuals were exposed to the virus through blood transfusions before 1992 (when screening for HCV in the blood supply became routine). Currently the incidence of newly infected patients is low in the developed world, with the majority infected though needle sharing. However, a significant increase in HCV treatment is expected as patients first infected in the 80's and 90's progress to being symptomatic and require treatment. The historical market for HCV therapies has been approximately U.S.$2.5 billion. With more patients being diagnosed and more patients seeking treatment due to the availability of more effective, tolerable, and convenient drug regimens, we expect the market for HCV therapies to increase to approximately U.S.$10 billion by 2018. Until last year the standard of care for HCV treatment has been daily doses of ribavirin, a weak nonspecific antiviral agent, combined with a weekly injection of peg-interferon, which activates the immune system and impedes viral replication. The majority of patients (genotype 1) receive a 12 month course of therapy (about 30% of patients have easier to treat forms of the virus, genotypes 2&3, that only require 6 months). Unlike other chronic viral infections like HIV, HCV can be completely eradicated so patients can be cured by therapy. However, with peg-interferon and ribavirin only 40-50% of patients are cured. Furthermore the regimen is poorly tolerated. Many patients experience side effects, such as fatigue, flu-like symptoms, anemia and even severe depression. As a result, many HCV infected patients decline to receive this drug regimen or prematurely discontinue treatment. The mechanisms of action for both peg-interferon and ribavirin are poorly defined and likely somewhat indirect. The identification and characterisation of the hepatitis C virus opened new avenues to rationally developing drugs that could directly block the replication of the virus. The proteins that are most amenable for drug development include the HCV protease (an enzyme that cuts the core HCV protein into its active components), the HCV polymerase (an enzyme that directly copies the viral genome, both "nucleotide" and "non-nucleotide" inhibitors are possible), and the protein "NS5A" (the specific function is not well defined). Note the parallels to HIV, as polymerase and protease inhibitors become the core components of combination treatment regimens. The table below shows the direct acting antiviral drugs currently in clinical development organised by stage and class. Nucleotide Non-nucleotide Polymerase Polymerase Stage Protease NS5A Inhibitors Inhibitors Inhibitors Inhibitors Approved Incivek (Vertex) None None None Victrelis (Merck) Phase TMC435 (Tibotec/ Dadatasvir GS-7977 (Gilead) None III Medivir) (Bristol-Myers Squibb) BI201335 (Boehringer Ingelheim) Vaniprevir (Merck) Phase II ACH-1625 ABT-267 (Abbott) IDX184 (Idenix) ABT-333 (Achillion) (Abbott) Asunaprevir GS-5885 (Gilead) Mericitabine ABT-072 (Bristol-Myers (Roche) (Abbott) Squibb) BMS-791325 GSK2336805 INX-08189 ANA598 (Roche) (Bristol-Myers (GlaxoSmithKline) (Bristol-Myers Squibb) Squibb) Danoprevir (Roche) BI207127 GS-9256 (Gilead) (Boehringer Ingelheim) GS-9451 (Gilead) Filibuvir (Pfizer) ABT-450/r (Abbott VX-222 and Enanta) (Vertex) MK-5172 (Merck) Tegobuvir (Gilead) Phase I ACH-2684 AZD7295 ALS-2200 (Vertex) GS-9669 (Achillion) (AstraZeneca) (Gilead) PPI-461 (Presidio) ALS-2158 (Vertex) TMC649128 PPI-668 (Presidio) (Tibotec/ Medivir) IDX719 (Idenix) RG7432 (Roche) EDP-239 (Novartis) ACH-2928 (Achillion) The first class of direct acting antiviral drug to show promise was the protease inhibitor class. Telaprevir, developed by Vertex Pharmaceuticals, and Boceprevir, developed by Merck represent the first generation protease inhibitors. In 2005, Vertex presented proof of concept data showing that treatment of patients with Telaprevir for just 14 days lowered the level of virus in patients by an average of 25,000-fold. Despite its robust antiviral activity, Telaprevir is insufficient to cure patients on its own. The reason is viral resistance. A small sub-population of the viruses in an infected patient harbour mutations conferring resistant to Telaprevir. If a patient were treated longer term with Telaprevir, the majority of the viruses would be suppressed but eventually the patient would relapse due to the mutant virus taking over the viral population. This necessitates combination therapy. Therefore Telaprevir and Boceprevir were developed in combination with peg-interferon and ribavirin. The phase III data showed that 79% of patients treated with Telaprevir/peg-interferon/ribavirin were cured compared to 46% on peg-interferon/ribavirin alone. Importantly, about half of the patients treated were able to shorten total treatment to only 6 months instead of 12 months. Boceprevir showed similar, but slightly inferior results in its trials. Additionally, the drugs have been able to cure a significant proportion of patients that previously failed treatment with peg-interferon and ribavirin. Based on these strong results, Telaprevir and Boceprevir were approved in mid-2011 and have become the new standard of care. U.S. Telaprevir sales in its first eight months of launch were U.S.$952 million, which makes it one of the strongest drug launches ever in the biotechnology sector. Although Telaprevir and Boceprevir represent a large advance on the prior standard of care, there are still advances to be made. First, Telaprevir and Boceprevir do add additional side effects - primarily rash in the case of Telaprevir, and anemia in the case of Boceprevir. These drugs are taken every 8 hours, which can be inconvenient for patients. Although these drugs shorten treatment for many patients, shortening further, to perhaps 12 weeks would be an advantage. These regimens still include peg-interferon and ribavirin with their side effects and the inconvenience of an injection. And of course there are still roughly 20% of patients that fail to achieve cure on these regimens. Many biotechnology and large pharmaceutical companies have entered the race to generate regimens that advance beyond the first generation protease inhibitors. The "holy grail" for HCV treatment is the development of potent all-oral direct acting antiviral regimens. However it was unclear if direct acting antivirals would be sufficient to reach cure in the absence of peg-interferon. The mechanism of peg-interferon is not well characterised but it is known to activate the immune system. If activating the immune system to clear the virus is required to reach cure, it would be impossible to replicate this activity by only employing drugs that target viral replication. This concern was put to rest in early 2011. Bristol Myers tested a combination of its protease inhibitor and its NS5A inhibitor. Although most of the patients treated experienced viral breakthrough (failure on treatment), four of eleven were cured by this regimen. Although the response rate is low, this provided proof of concept for cure with direct acting antiviral regimens lacking peg-interferon and ribavirin. At this point the question became how many drugs would be required in combination regimens to achieve high cure rates. Both protease inhibitors and NS5A inhibitors readily generate resistance. In contrast, nucleotide polymerase inhibitors ("nucs") have a high barrier to resistance because mutations in the HCV genome that confer resistance to nucs also severely weaken the ability of the virus to replicate. The first generation of nucs from Roche did show a high barrier to resistance, but the potency was low. Pharmasset's PSI-7977 was the first nucleotide polymerase inhibitor to show potency on a par with protease inhibitors, but also with a high barrier to resistance. 7977 was developed in combination with ribavirin first against genotypes 2 & 3 patients (easier to treat). In late 2011, Pharmasset announced that treatment with 7977 + ribavirin for only 12 weeks cured 10 out of 10 patients. This was an important milestone and validation for the power of nucleotide polymerase inhibitors, leading to the acquisition of Pharmasset by Gilead. Doctors and investors were optimistic that this strong result in genotype 2 & 3 patients would translate to the more difficult to treat genotype 1 patients. Unfortunately however, data presented earlier this year has shown less dramatic efficacy - only 73% of the treatment naïve patients were cured and only one of ten patients previously non-responsive to peg-interferon was cured. Because ribavirin is a relatively weak antiviral, it was reasonable to assume that results would be stronger with another potent direct acting antiviral in the place of ribavirin. This was confirmed in April of this year with the release of data combining 7977 and Bristol-Myers' NS5A inhibitor, daclatasvir. 100% of patients were cured with 24 weeks of this regimen. Because Gilead also has and NS5A inhibitor, and Bristol-Myers also has a nuc, each company is expected to bring forward their own combinations, rather than collaborating in phase III. Concerning other combination regimens in development, Abbott recently released data on the combination of a protease inhibitor, a non-nucleotide polymerase inhibitor, ribavirin, and ritonavir (to boost the concentration of protease inhibitor) that showed a high cure rate (93%). So a nuc is not absolutely required, but the combination of potency and a high barrier to resistance with 7977 has the potential to simplify regimens, i.e. require fewer components. A simpler regimen would have potential advantages including convenience, tolerability and a lower chance of drug-drug interactions. As the field is rapidly moving to all-oral direct acting antiviral regimens, companies with only one molecule have been under pressure to partner or acquire complementary assets to build viable combination regimens. In addition to the acquisition of Pharmasset, Anadys was acquired by Roche in the third quarter of 2011 for U.S.$230 million, and Inhibitex was acquired by Bristol-Myers in early 2012 for U.S.$2.5 billion. Anadys, a holding in the portfolio, had a non-nucleotide polymerase inhibitor which could be combined with Roche's protease and nuc polymerase inhibitors (trials have shown that their own combination was not potent enough on its own). Inhibitex was developing a nucleotide polymerase inhibitor which appears to be a bit less potent than 7977, but the profile is otherwise strong. Within the biotechnology space, this leaves Achillion and Idenix and with unencumbered assets. Achillion has a protease inhibitor and an NS5A inhibitor. Idenix has a weak nucleotide inhibitor. The rationale for acquisition of either company is less strong than for Pharmasset or Inhibitex. However, there are several companies with a significant investment in the HCV space without broad pipelines that could have interest in these assets, e.g. Merck and Johnson & Johnson. The table below shows the estimated dates that the various combination regimens can reach the market. Currently the approaches of Gilead, Bristol-Myers and Abbott are the most advanced. It is likely that doublet regimens from Gilead and Bristol-Myers including a nucleotide polymerase inhibitor and an NS5A inhibitor will become the new standard of care by 2015 and will be able to cure the vast majority of infected patients. We believe that Gilead's regimen has the greatest potential as 7977 has the most compelling profile, and the initial data on Gilead's NS5A inhibitor is strong. 7977 could be approved in 2014 for genotypes 2 and 3, and in early 2015 for genotype 1, beating Bristol-Myers' regimen to market by roughly a quarter. Because the regimens from Gilead and Bristol-Myers are not fully characterised, there is still development risk and the competitive positioning of the field could change rapidly. However, with the number of potent drug combinations being developed, cure for all patients with HCV appears within reach. Investing in the HCV space has been profitable for the portfolio over the past few years. We first invested in Vertex shortly after the impressive proof of concept data were released for Telaprevir in 2005. Recognising that combination direct acting antiviral regimens were likely to become the future standard, we sought investments in other promising early compounds with complementary mechanisms of action that could eventually be combined. Anadys was added to the portfolio based on encouraging phase I data and a compelling valuation. As mentioned above, the company was recently acquired by Roche at a 256% premium. We invested in Pharmasset in 2009, based on promising early data and the advantageous resistance profiles of its nucs. By early 2011, the field was moving quickly toward all oral combinations based on the work of Pharmasset, Bristol-Myers, and Roche. It became clear that the window for Vertex to dominate the HCV space before it was eclipsed by combination regimens was narrowing, leading us to exit our Vertex position. Also in early 2011, we participated in a financing for Idenix. Although the profile of its nuc is less impressive than 7977, we believed that the valuation was favourable given that the nucs are likely to be a backbone of therapy, and because the intellectual property position of Idenix over the nuc class is strong. We exited this position later in the year with the stock up 98%. As mentioned in the Review of Investments, holdings in Pharmasset, Idenix and Anadys were collectively responsible for about a third of the Company's performance during the fiscal year. At this stage, we remain very optimistic about the potential of Gilead to lead in this therapeutic class; as such it is the largest overweight among the major biotechnology companies. We continue to hunt for promising opportunities in HCV and for the next future hotbeds of innovation in the sector. PORTFOLIO AS AT 31 MARCH 2012 Fair value % of Investments Country/region £'000 Investments Gilead Sciences United States 13,878 8.6 Amgen United States 10,869 6.7 Celgene United States 9,898 6.1 Questcor Pharmaceutical United States 9,084 5.6 Perrigo United States 7,617 4.7 Alexion Pharmaceuticals United States 7,003 4.3 Incyte Genomics United States 6,801 4.2 Biogen Idec United States 6,260 3.9 Life Technologies United States 5,317 3.3 Ariad Pharmaceuticals United States 4,946 3.1 Top 10 Investments 81,673 50.5 Warner Chilcott Ireland 4,771 3.0 Impax Laboratories United States 4,383 2.7 Actelion Switzerland 4,340 2.7 Onyx Pharmaceutical United States 4,245 2.6 Affymetrix United States 4,201 2.6 Regeneron Pharmaceutical United States 4,107 2.5 3SBio China 4,010 2.5 Immunogen United States 3,992 2.5 Cubist Pharmaceutical United States 3,906 2.4 Neurocrine Biosciences United States 3,831 2.4 Top 20 Investments 123,459 76.4 Exact Sciences United States 3,698 2.3 Vertex Pharmaceuticals United States 3,054 1.9 Thermo Fisher Scientific United States 3,035 1.9 Affymax United States 2,840 1.8 Shire Ireland 2,798 1.7 Fluidigm United States 2,581 1.6 Array Biopharma United States 2,352 1.5 Salix Pharmaceutical United States 2,304 1.4 BioMarin Pharmaceutical United States 2,270 1.4 VIVUS United States 2,139 1.3 Top 30 Investments 150,530 93.2 Algeta Norway 1,955 1.2 Orbimed Asia Partners L.P. Far East 1,790 1.1 (unquoted) Medivation United States 1,590 1.0 Amylin Pharmaceuticals United States 1,171 0.7 Bavarian Nordic Denmark 1,129 0.7 Endocyte United States 998 0.5 Oncothyreon United States 682 0.4 K-V Pharmaceutical United States 607 0.4 Verastem United States 467 0.3 Medivir Sweden 380 0.2 Top 40 Investments 161,299 99.7 Trius Therapeutics United States 273 0.2 Trius Therapeutics Wts 24/05/ United States 83 0.1 2016* Total Investments 161,655 100.0 All of the above investments are equities unless otherwise stated. *Warrants PORTFOLIO BREAKDOWN Fair value % of Investments £'000 Investments Equities 161,572 99.9 Warrants 83 0.1 Total Investments 161,655 100.0 REPORT OF THE DIRECTORS INCORPORATING THE BUSINESS REVIEW The Directors present their report and the audited financial statements for the year ended 31 March 2012. INTRODUCTION The Report of the Directors includes the Business Review and Corporate Governance Statement. The Business Review contains a review of the Company's business, the principal risks and uncertainties it faces and an analysis of its performance during the financial period, the position at the period end and the future business plans of the Company. To aid understanding of these areas the Board has included an analysis using appropriate Key Performance Indicators. The Business Review should be read in conjunction with the Chairman's Statement on page 3 of the 2012 Annual Report and Financial Statements, the Review of Investments on pages 5 to 8 of the 2012 Annual Report and Financial Statements and the Portfolio list on page 12 of the 2012 Annual Report and Financial Statements. BUSINESS AND STATUS OF THE COMPANY The Company is registered as a public limited company and is an investment company within the terms of Section 833 of the Companies Act 2006 (`the Act'). Its shares are listed on the Official List of the UK Listing Authority and traded on the main market of the London Stock Exchange which is a regulated market as defined in Section 1173 of the Act. The Company has received approval from HM Revenue & Customs as an authorised investment trust under Sections 1158 and 1159 of the Corporation Tax Act 2010 ("CTA 2010"), for the year ended 31 March 2011. This approval is subject to there being no subsequent enquiry under corporation tax self-assessment. In the opinion of the Directors, the Company continues to direct its affairs so as to enable it to qualify for such approval. CONTINUATION OF THE COMPANY A resolution was passed at a General Meeting of the Company held on 4 December 2009, that the Company continue as an investment trust for a further five year period (from the Annual General Meeting held in 2010). In accordance with the Company's Articles of Association, shareholders will have an opportunity to vote on the continuation of the Company at the Annual General Meeting in 2015 and every five years thereafter. INVESTMENT OBJECTIVE AND BENCHMARK The Company seeks capital appreciation through investment in the worldwide biotechnology industry, principally by investing in emerging biotechnology companies. Performance is measured against the NASDAQ Biotechnology Index (sterling adjusted). INVESTMENT POLICY In order to achieve its investment objective, the Company invests in a diversified portfolio of biotechnology (principally emerging biotechnology companies) and related securities on a worldwide basis. Investment Limitations and Guidelines The Board seeks to manage the Company's risk by imposing various investment limits and restrictions: The Company will not invest more than 10% of its gross assets in other closed ended investment companies (including investment trusts) listed on the London Stock Exchange, except where the investment companies themselves have stated investment policies to invest no more than 15% of their 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%, in aggregate, of the value of the gross assets of the Company 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 portfolio in any one individual stock at the time of acquisition. The largest 30 quoted stocks will normally represent at least 50% of the quoted portfolio. The majority of the emerging biotechnology companies that the Company will invest in are likely to be companies with a market capitalisation of less than US$3 billion that have undergone an IPO (Initial Public Offering) but as yet are unprofitable. They will typically be focused on drug research and development, with their valuations driven by profitable developments, clinical trial results and partnerships. The Company will not invest more than 10% of the portfolio in direct unquoted investments at the time of acquisition. This limit does not include any investment in private equity funds managed by the Investment 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 OrbiMed Capital LLC, the Company's Investment Manager, or an affiliate thereof. The Company's gearing policy is to borrow up to a maximum of £15 million. The Company's borrowing requirements are met through the utilisation of a loan facility, repayable on demand, provided by Goldman Sachs & Co. New York. This facility can be drawn down at the discretion of the Investment Manager. Up to 5% of the Company's portfolio, at the time of acquisition, can be invested in India. Exposure to be gained through the use of swaps. Compliance with the Board's investment limitations and guidelines is monitored continuously by Frostrow Capital LLP ("Frostrow" or the "Manager") and OrbiMed Capital LLC ("OrbiMed" or the "Investment Manager") and is reported to the Board on a monthly basis. DIVIDEND 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. PERFORMANCE In the year to 31 March 2012, the Company's net asset value per share increased by 34.9% compared to a rise of 23.6% in the Company's benchmark, the NASDAQ Biotechnology Index (sterling adjusted). The Company's share price increased by 42.2% in the same period. The Review of Investments on pages 5 to 8 of the 2012 Annual Report and Financial Statements includes a review of the principal developments during the year, together with information on investment activity within the Company's portfolio. RESULTS AND DIVIDEND The results attributable to shareholders for the year and the transfer to reserves are shown on page 32 of the 2012 Annual Report and Financial Statements. No dividend is proposed in respect of the year ended 31 March 2012 (2011: nil). KEY PERFORMANCE INDICATORS ("KPIs") The Board assesses its performance in meeting the Company's objective against the following Key Performance Indicators: Net asset value return Share price return Stock contribution analysis Share price premium/discount to net asset value per share Ongoing charges Benchmark and peer group performance Repurchase of own shares As indicated, the management of the portfolio has been delegated to the Investment Manager and management, administration, company secretarial and marketing services have been delegated to the Manager. Each provider is responsible to the Board which is ultimately responsible to the shareholders for performing against, inter alia, the above KPIs within the terms of their respective agreements by utilising the capabilities of the experienced professionals within each firm. PRINCIPAL RISKS AND THEIR MITIGATION The Company's assets consist principally of listed equities; its main area of risk is therefore market-related. The specific key risks faced by the Company, together with the Board's mitigation approach, are as follows: i) Objective and Strategy - The Company becomes unattractive to investors. The Board reviews regularly the Company's investment objective and investment guidelines in the light of investor sentiment monitoring closely whether the Company should continue in its present form. The Board also considers the size of the Company to ensure that it has sufficient critical mass. The Board, through the Manager and the Investment Manager, holds regular discussions with major shareholders. A continuation vote is to be held at the Annual General Meeting in 2015 and every five years thereafter. Each month the Board receives a report which monitors the investments held in the portfolio compared against the Benchmark Index and the investment guidelines. Additional reports and presentations are regularly presented to investors by the Company's Manager, Investment Manager and Corporate Stockbroker. ii) Level of discount/premium - The level of discount/premium can fluctuate. The Board undertakes a regular review of the level of discount/premium and consideration is given to ways in which share price performance may be enhanced, including the effectiveness of marketing and share buy-backs, if considered appropriate. The Board has implemented an active discount management policy, buying back the Company's shares for cancellation if the market price is at a discount greater than 6% to the net asset value per share. Shareholders should note that it remains possible for the share price discount to net asset value per share to be greater than 6% at times as the share price continues to be influenced by overall supply and demand for the Company's shares in the secondary market. In addition, the volatility of the net asset value per share in an asset class such as biotechnology is also a factor. The average month end share price discount during the year was 7.0%. The making and timing of any share buy-backs is at the absolute discretion of the Board. iii) Portfolio Performance - Investment performance may not be meeting shareholder requirements. The Board reviews regularly investment performance against the Benchmark and against the Company's peer group. The Board also receives regular reports that show an analysis of performance compared to other relevant indices. The Investment Manager provides an explanation of significant stock selection decisions and an overall rationale for the make-up of the portfolio. The Investment Manager discusses current and potential investment holdings with the Board on a regular basis. iv) Operational and Regulatory - A breach of Sections 1158 and 1159 of the Corporation Tax Act 2010 could lead to the Company being subject to tax on capital gains, whilst a serious breach of other regulatory rules may lead to suspension from the Stock Exchange or to a qualified Audit Report. Other control failures, either by the Manager, the Investment Manager or any other of the Company's service providers, may result in operational and/or reputational problems, erroneous disclosures or loss of assets through fraud, as well as breaches of regulations. All transactions and income and expenditure forecasts are reviewed by the Board at each Board Meeting. The Board considers regularly all major risks, the measures in place to control them and the possibility of any other risks that could arise. The Board also ensures that satisfactory assurances are received from service providers. The Compliance Officer of the Manager and Investment Manager produce regular reports for review at the Company's Audit and Management Engagement Committee meetings and are available to attend such meetings in person if required. v) Market Price Risks - Uncertainty about future prices of financial instruments held. The Board meets on a quarterly basis during the year and on an ad hoc basis if necessary. At each meeting the Directors consider the asset allocation of the portfolio in order to minimise the risk associated with particular countries, sectors, or instruments. The Investment Manager has responsibility for selecting investments in accordance with the Company's investment objective and seeks to ensure that investment in individual stocks falls within acceptable risk levels. vi) Liquidity Risk - Ability to meet funding requirements when they arise. The Investment Manager has constructed the portfolio so that funds can be raised at short notice if required. vii) Shareholder Profile - Activist shareholders whose interests are not consistent with the long-term objectives of the Company may be attracted onto the shareholder register. The Manager provides a shareholder analysis at every Board Meeting so that the Board can give consideration as to any action required; this is in addition to regular reporting by the Company's Stockbroker. The Board has implemented an active discount management policy as mentioned in (ii) above. viii) Currency Risk - Movements in exchange rates could adversely affect the performance of the portfolio. A significant proportion of the Company's assets is, and will continue to be, invested in securities denominated in foreign currencies, in particular U.S. dollars. As the Company's shares are denominated and trade in sterling, the return to shareholders will be affected by changes in the value of sterling relative to those foreign currencies. The Board has made clear the Company's position with regard to currency fluctuations which is that it does not currently hedge against currency exposure. ix) Loan Facility - The provider of the Company's loan facility may no longer be prepared to lend to the Company. Both the Board and the Investment Manager are kept fully informed of any likelihood of the withdrawal of the loan facility so that repayment can be effected in an orderly fashion. x) Credit Risk - The Company's assets can be held by Goldman Sachs & Co. New York as collateral for the loan provided by them to the Company. Such assets taken as collateral may be used, loaned, sold, rehypothecated or transferred by Goldman Sachs & Co. New York, although the Company maintains the economic benefits from ownership of those assets. Goldman Sachs & Co. New York may take up to 140% of the value of the outstanding loan as collateral. The Company is protected, such protection being equal to the net assets held by Goldman Sachs & Co. New York, by SEC rules and U.S. legislation. Assets held by Goldman Sachs & Co. New York, as custodian, that are not used as collateral, are held in segregated client accounts. Further information on financial instruments and risk, as required by IAS 7, can be found in note 13 to the financial statements beginning on page 41 of the 2012 Annual Report and Financial Statements. LOAN FACILITY The Company's borrowing requirements are met through the utilisation of a loan facility, repayable on demand, provided by Goldman Sachs & Co. New York. SHARE CAPITAL As part of the package of measures adopted in 2005 by the Board to improve the attraction of the Company's shares to new investors and also to provide the prospect of a sustained improvement in the rating of the Company's shares, an active discount management policy was implemented to buy back shares if the market price is at a discount greater than 6% to net asset value per share. As at 31 March 2012, the discount was 5.9%,within the stated target of 6%. It remains possible, however, for the discount to be greater than 6% at times as the share price continues to be influenced by overall supply and demand for the Company's shares in the secondary market. In addition, the volatility of the net asset value per share in an asset class such as biotechnology is also a factor. The average month end share price discount during the year was 7.0%. The making and timing of any share buy-back remains at the absolute discretion of the Board. Authority to buy back up to 14.99% of the Company's issued share capital is sought at each Annual General Meeting. During the year a total of 2,714,255 shares was bought back for cancellation representing 4.2% of the issued share capital at the beginning of the year. The purchases were made at prices ranging between £1.6458 and £2.1657 per share at a cost of £5,206,000 (including expenses) and at an average discount of 9.6% to the net asset value per share. Subsequent to the year end to 31 May 2012 a further 19,079 shares were repurchased for cancellation at a cost of £47,000 (including expenses). In addition, 275,000 new shares were issued raising £681,000 of new funds for the Company. As at the date of this report there were 62,496,347 shares in issue. PROSPECTS The Company's Investment Manager is optimistic regarding the outlook for the biotechnology sector due, in part, to the increase in the pace of merger and acquisition activity. This activity has highlighted the valuation disconnect between companies' market capitalisations and their perceived value by potential strategic acquirers. Although the recent appreciation of the sector has narrowed this gap, they believe that many compelling opportunities remain. They are also optimistic about healthcare policy in the U.S. where reform law passed in 2010 has been challenged by a large number of states. The Investment Manager believes that the proposed changes enacted by the new law are manageable, and that the increase in individuals with healthcare coverage should outweigh the demands placed on industry. However, if the law is overturned, they expect an initial positive reaction for biotechnology and pharmaceutical stocks. The Alternative Investment Fund Managers Directive came into force in July 2011 and is required to be implemented into national legislation by July 2013. Companies then have until July 2014 to obtain the relevant authorisation. Currently, European regulators are preparing the more detailed rules and UK regulators are considering how to implement the rules in the UK. The Board is keeping developments here under close review. HMRC's regulations on the modernisation of investment trust tax rules have been finalised and were approved by Parliament in December 2011. The new regime became effective for this Company from 1 April 2012. INVESTMENT MANAGEMENT Investment Management Agreement: The Investment Manager receives a periodic fee equal to 0.65% p.a. of the Company's net asset value. The Investment Management Agreement may be terminated by either party giving notice of not less than 12 months. The Investment Manager under the terms of the Agreement provides, inter alia, the following services: seeking out and evaluating 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 policy of the Company. The proportion of the Company's assets committed for investment in OrbiMed Asia Partners L.P., a limited partnership managed by OrbiMed Asia G.P., L.P., an affiliate of the Company's Investment Manager, is excluded from the Investment Management fee calculation. Performance Fee: Dependent on the level of long term outperformance of the Company, the Investment Manager and the Manager are entitled to the payment of a performance fee. The performance fee is calculated by reference to the amount by which the Company's net asset value (`NAV') performance has outperformed the NASDAQ Biotechnology Index (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 30 June 2005. The performance fee amounts to 16.5% of any outperformance over the benchmark, the investment manager receiving 15% and the manager receiving 1.5% respectively. Provision is also made within the daily NAV per share calculation as required and in accordance with generally accepted accounting standards. 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 out-performance of the portfolio over the benchmark as at the quarter end date; and (ii) The cumulative out-performance of the portfolio 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. During the year performance fee amounts totalling £284,000 were paid (year ended 31 March 2011: £517,000). At 31 March 2012 £1,640,000 was accrued. No fees crystallised at that date (year ended 31 March 2011: nil). The proportion of the Company's assets invested in OrbiMed Asia Partners L.P. is excluded from the performance fee calculation. MANAGEMENT Company Management, Company Secretarial and Administration Services Agreement: The Manager receives a periodic fee equal to 0.30% per annum of the Company's market capitalisation, plus a fixed amount equal to £60,000 per annum*. The notice period in the Company Management, Company Secretarial and Administration Agreement with the Manager is not less than 12 months. Termination can be at the instigation of either party. *This figure has been fixed for a period of three years from 1 April 2010. The Manager, under the terms of the Agreement provides, inter alia, the following services: marketing and shareholder services; administrative services; advice and guidance in respect of corporate governance requirements; maintaining adequate accounting records in respect of Company dealing, investments, transactions, dividends and other income, the income account, statement of financial position and cash books and statements; preparation and dispatch of the audited annual, and the unaudited interim, report and financial statements and interim management statements; and attending to general tax affairs where necessary. INVESTMENT MANAGER AND MANAGER EVALUATION AND RE-APPOINTMENT The performance of the Investment Manager and the Manager is reviewed continuously by the Audit and Management Engagement Committee with a formal evaluation being undertaken each year. As part of this process, the Committee monitors the services provided by the Investment Manager and the Manager and receives regular reports and views from them. The Committee 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 Committee reviewed the appropriateness of the appointment of the Investment Manager and the Manager in February 2012 with a recommendation being made to the full Board. The Board believes the continuing appointment of the Investment Manager and the Manager, under the terms described above and on the previous page, is in the interests of shareholders as a whole. In coming to this decision, it also took into consideration the following additional reasons: the quality and depth of experience allocated by the Investment Manager to the management of the portfolio and the level of performance of the portfolio in absolute terms and also by reference to the benchmark index; and the quality and depth of experience of the company management, company secretarial, administrative and marketing team that the Manager allocates to the management of the Company. GOING CONCERN The Directors believe that it is appropriate to adopt the going concern basis in preparing the accounts as the assets of the Company consist mainly of securities that are readily realisable and, accordingly, the Company has adequate financial resources to continue in operational existence for the foreseeable future. CREDITORS PAYMENT POLICY Terms of payment are negotiated with suppliers when agreeing settlement details for transactions. While the Company does not follow a formal code, it is the Company's continuing policy to pay amounts due to creditors as and when they become due. There were no creditors in respect of goods or services supplied at the year end (2011: nil). SOCIAL, ENVIRONMENTAL AND ETHICAL POLICY The Company's primary objective is to achieve long term capital growth through investment in the worldwide biotechnology industry, principally by investing in emerging biotechnology companies. The Directors recognise that this should be done in a responsible way but they believe that the Company would be in breach of its fiduciary duties to shareholders if investment decisions were based solely on social, ethical or environmental considerations. The Company encourages a positive approach to corporate governance and engagement with companies. INDIVIDUAL SAVINGS ACCOUNTS The Company's shares are eligible to be held in the stocks and shares component of an ISA or Junior ISA, subject to applicable annual subscription limits (£ 11,280 for an ISA and £3,600 for a Junior ISA for the 2012/2013 tax year). Investments held in ISAs or Junior ISAs will be free of UK tax on both capital gains and income. The opportunity to invest in Ordinary Shares through an ISA is restricted to certain UK resident individuals aged 18 or over. Junior ISAs are available for UK resident children aged under 18 and born before 1 September 2002 or after 2 January 2011. Sums received by a shareholder on a disposal of Ordinary Shares held within an ISA or Junior ISA will not count towards the shareholder's annual limit. Individuals wishing to invest in Ordinary Shares through an ISA should contact their professional advisers regarding their eligibility as should individuals wishing to invest through a Junior ISA for children under 18 years old. DIRECTORS Directors of the Company, all of whom served throughout the year, except as noted, are as follows: John Sclater, CVO, (Chairman) Sven Borho Professor Dame Kay Davies, CBE (appointed on 15 March 2012) Paul Gaunt Dr John Gordon Andrew Joy (appointed on 15 March 2012) Peter Keen Lord Waldegrave of North Hill DIRECTORS' INTERESTS The beneficial interests of the Directors and their families in the Company were as set out below: Shares of 25p each 31 March 31 March 2012 2011 John Sclater, CVO 25,000 25,000 Sven Borho 236,218 236,218 Professor Dame Kay Davies, CBE* - - Paul Gaunt - - Dr John Gordon 70,000 70,000 Andrew Joy* - - Peter Keen 45,000 45,000 Lord Waldegrave of North Hill 58,716 58,716 *Appointed as a director on 15 March 2012. On 14 May 2012, Mr Andrew Joy purchased 25,000 shares in the Company. Other than the foregoing, there have been no changes to the Directors' interests in the Company's shares between the end of the year and the date of this report. None of the Directors was granted or exercised rights over shares during the year. Sven Borho is a partner at OrbiMed, the Company's Investment Manager, which is party to the Investment Management Agreement with the Company and receives fees as described on pages 17 and 18 of the 2012 Annual Report and Financial Statements. A number of the partners at OrbiMed have a minority financial interest amounting in total to 20% in Frostrow Capital LLP, the Company's Manager. DIRECTORS' FEES A report on Directors' Remuneration is set out on pages 29 and 30 of the 2012 Annual Report and Financial Statements. DIRECTORS' & OFFICERS' LIABILITY INSURANCE COVER Directors' & officers' liability insurance cover was maintained by the Board during the year ended 31 March 2012. SUBSTANTIAL SHAREHOLDINGS As at 31 March 2012 the Company was aware of the following interests in the shares of the Company, which exceeded 3% of the issued share capital. % of Issued Beneficial share shareholder Registered holder No. of capital shares Newton Investment Various Nominees 9,925,878 15.90 Management Baillie Gifford & Co. BNY (OCS) Nominees/Sec Services 8,235,999 13.20 Nominees East Riding of Yorkshire Nortrust Nominees 6,143,000 9.84 Council Reliance Mutual Insurance HSBC Global Custody Nominee Society (UK)/ State Street Nominees 3,322,450 5.32 JP Morgan Asset Management Chase Nominees/Bank of New York 3,257,010 5.22 Nominees M&G Investment Management Various Nominees 2,792,225 4.47 Hansa Capital Mellon Nominees (UK)/State 2,338,415 3.75 Street Nominees/Lynchwood Nominees Legal & General Investment Various Nominees 2,256,328 3.62 Management AUDITORS Grant Thornton UK LLP have indicated their willingness to continue to act as Auditors to the Company and a resolution for their re-appointment will be proposed at the forthcoming Annual General Meeting. 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 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. AWARENESS OF RELEVANT AUDIT INFORMATION So far as the Directors are aware, there is no relevant audit information of which the Auditors are unaware. The Directors have taken all steps they ought to have to make themselves aware of any relevant audit information and to establish that the Auditors are aware of that information. CORPORATE GOVERNANCE A formal statement on Corporate Governance is set out on pages 23 to 27 of the 2012 Annual Financial Statements and forms part of this Report of the Directors. 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, Capita Registrars, or to the Company directly. COMPANY SHARE INFORMATION The following disclosures are made in accordance with paragraph 13 of Schedule 7 to the Large and Medium Sized Companies and Group (Accounts and Reports) Regulations 2008: Capital structure The Company's capital structure is summarised on the inside front cover. Voting rights in the Company's shares Details of the voting rights in the Company's shares at the date of this Annual Report are given in note 9 to the Notice of Annual General Meeting on page 47 of the 2012 Annual Report and Financial Statements. NOTICE PERIOD FOR GENERAL MEETINGS At last year's Annual General Meeting, a special resolution was passed allowing general meetings of the Company to be called on a minimum notice period provided for in the Companies Act 2006. For meetings other than annual general meetings this is a period of 14 clear days. The Board believes that it should continue to have the flexibility to convene general meetings of the Company (other than annual general meetings) on 14 clear days' notice. The Board is therefore proposing Resolution 14 as a special resolution to approve 14 clear days as the minimum period of notice for all general meetings of the Company other than annual general meetings. The notice period for annual general meetings will remain 21 clear days. The authority, if given, will lapse at the next Annual General Meeting of the Company after the passing of this resolution. ANNUAL GENERAL MEETING The formal Notice of Annual General Meeting is set out on pages 45 to 48 of the 2012 Annual Financial Statement Resolutions relating to the following items of special business will be proposed at the forthcoming Annual General Meeting: (a) Authority to allot shares Ordinary Resolution 11 gives the Directors authority to allot new shares, otherwise than by a pro rata issue to existing shareholders, up to an aggregate nominal amount of £1,562,408 such amount being equivalent to 10% of the issued share capital at 31 May 2012 and representing 6,249,634 shares of 25p each. Such issues would only be made at prices greater than the prevailing net asset value ("NAV") per share thereby increasing the assets underlying each share and spread administrative expenses, other than those charged as a percentage of assets, over a greater number of shares. (b) Disapplication of pre-emption rights Special Resolution 12 seeks shareholder approval for the disapplication of pre-emption rights in respect of the allotment of shares or the sale by the Company of shares pursuant to a rights issue or a sale equivalent or similar to a rights issue for cash up to an aggregate nominal value of £1,562,408. No such allotment will be made at less than the prevailing NAV per share (as determined in the absolute discretion of the Directors). (c) Authority to repurchase shares Special Resolution 13 seeks shareholder approval for the Company to have the power to repurchase its own shares. The Board believes that the ability of the Company to purchase its own shares in the market will potentially benefit all shareholders of the Company. The repurchase of shares at a discount to the underlying NAV would enhance the NAV of the remaining shares. At the Annual General Meeting the Company will seek shareholder approval to repurchase up to 9,368,202 shares, representing approximately 14.99% of the Company's issued share capital (the maximum permitted under the Listing Rules) at a price that is not less than 25p a share (the nominal value of each share) and not more than the higher of (a) 105% of the average of the middle market quotations for the five business days preceding the day of purchase; and (b) the higher of the price of the last independent trade in shares and the highest then current independent bid for shares on the London Stock Exchange. The decision as to whether to repurchase any shares will be at the absolute discretion of the Board. Shares repurchased under this authority will be cancelled. (d) General meetings Special Resolution 14 seeks shareholder approval to hold general meetings (other than annual general meetings) at 14 clear days' notice. The authorities being sought under resolutions 11, 12, 13 and 14 will last until the conclusion of the next Annual General Meeting or, if less, a period of 15 months. BY ORDER OF THE BOARD FROSTROW CAPITAL LLP COMPANY SECRETARY 31 MAY 2012 STATEMENT OF DIRECTORS' RESPONSIBILITIES Company law in the United Kingdom requires the Directors to prepare financial statements for each financial year. The Directors are responsible for preparing the financial statements in accordance with applicable law and regulations. In preparing these financial statements, the Directors have: selected suitable accounting policies and applied them consistently; made judgments and estimates that are reasonable and prudent; followed applicable international accounting standards; and prepared the financial statements on a going concern basis. The Directors are responsible for keeping adequate accounting records which 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 as in force from time to time. 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 Report of the Directors and other information included in the Annual Report is prepared in accordance with company law in the United Kingdom. They are also responsible for ensuring that the Annual Report includes information required by the Listing Rules of the Financial Services Authority. The financial statements are published on the Company's website (website address: www.biotechgt.com) and on the Manager's website (website address: www.frostrow.com). The maintenance and integrity of these websites, so far as it relates to the Company, is the responsibility of the Manager. The work carried out by the Auditors does not involve consideration of the maintenance and integrity of these websites and, accordingly, the Auditors accept no responsibility for any changes that have occurred to the financial statements since they were initially presented on these websites. Visitors to the websites need to be aware that legislation in the United Kingdom governing the preparation and dissemination of the financial statements may differ from legislation in their jurisdiction. The Directors, whose details can be found on page 13 of the Annual Report and Financial Statements, confirm that to the best of their knowledge the financial statements, within the Annual Report, have been prepared in accordance with applicable accounting standards, give a true and fair view of the assets, liabilities, financial position and the return for the year ended 31 March 2012, and that the Chairman's Statement, Review of Investments and the Report of the Directors include a fair review of the information required by 4.1.8R to 4.1.11R of the FSA's Disclosure and Transparency Rules. ON BEHALF OF THE BOARD JOHN SCLATER, CVO CHAIRMAN 31 MAY 2012 CORPORATE GOVERNANCE This Corporate Governance Statement forms part of the Report of the Directors COMPLIANCE The Board has considered the principles and recommendations of the AIC Code of Corporate Governance ("AIC Code") by reference to the AIC Corporate Governance Guide for Investment Companies ("AIC Guide"), both of which can be found on the AIC website www.theaic.co.uk. The AIC Code, as explained by the AIC Guide, addresses all the principles set out in the UK Corporate Governance Code (the "UK Governance Code") as well as setting out additional principles and recommendations on issues that are of specific relevance to the Company. The Board considers that reporting against the principles and recommendations of the AIC Code, and by reference to the AIC Guide (which incorporates the UK Governance Code), provides better information to shareholders. A copy of the UK Governance Code can be found at www.frc.org.uk. The Board considers that it has managed its affairs throughout the year ended 31 March 2012 in compliance with the recommendations of the AIC Code and the relevant provisions of the UK Governance Code, except as set out below: the role of the chief executive; executive directors' remuneration; and the need for an internal audit function. For the reasons set out in the AIC Guide, and in the preamble to the AIC Code, the Board considers these provisions are not relevant to the position of the Company, being an externally managed investment trust. The Company has therefore not reported further in respect of these provisions. In view of its non-executive nature, the Board considers that it is not appropriate for the Directors to be appointed for a specified term as recommended by provision B.7.1 of the UK Corporate Governance Code and principle 3 of the AIC Code. The Directors have agreed to adopt the provision contained in both the UK Corporate Governance Code and the AIC Code that all Directors of the Company will stand for annual election. John Sclater, the Chairman of the Company, will not be seeking re-election at this years' Annual General Meeting. INTERNAL AUDIT As the Company delegates to third parties its day-to-day operations and has no employees, the Board has determined that there are no requirements for an internal audit function. The Board reviews annually whether a function equivalent to an internal audit is needed and it will continue to monitor its systems of internal controls in order to provide assurance that they operate as intended. BOARD INDEPENDENCE, COMPOSITION AND TENURE The Board, chaired by John Sclater who is responsible for leadership of the Board and for ensuring its effectiveness in all aspects of its role, currently consists of eight non-executive Directors. The Directors' biographical details, set out on page 13 of the 2012 Annual Report and Financial Statements, demonstrate a breadth of investment, commercial and professional experience. Dr John Gordon has been designated as the Senior Independent Director, who can act as a sounding board for the Chairman and also acts as an intermediary for the other Directors when necessary. The Directors review their independence annually. Sven Borho is a Founding General Partner of OrbiMed, the Company's Investment Manager, and is not considered to be an Independent Director. Mr Sclater, Dr Gordon, Mr Gaunt, Lord Waldegrave of North Hill and Mr Keen have all served on the Board for over nine years. The Board subscribes to the view expressed within the AIC Code that long-serving Directors should not be prevented from forming part of an independent majority. It does not consider that a Director's tenure necessarily reduces his ability to act independently and, following formal performance evaluations, believes that each of those Directors is independent in character and judgement and that there are no other relationships or circumstances which are likely to affect their judgement. Professor Dame Kay Davies, CBE and Andrew Joy were appointed as Directors with effect from 15 March 2012 and they will be seeking election at this year's Annual General Meeting. They are both considered to be independent by the Board. None of the Directors has a service contract with the Company. New Directors are appointed with the expectation that they will serve for a minimum period of three years. Any Director may resign in writing to the Board at any time. The terms of their appointment are detailed in a letter sent to them when they join the Board. These letters are available for inspection at the offices of the Company's Manager and will be available at the Annual General Meeting. When a new Director is appointed to the Board, they are provided with all relevant information regarding the Company and their duties and responsibilities as a Director. In addition, a new Director will also spend time with representatives of the Manager and Investment Manager in order to learn more about their processes and procedures. The Chairman also regularly reviews the training and development needs of each Director. The Board also receives regular briefings from, amongst others, the Auditors and the Company Secretary regarding any proposed developments or changes in laws or regulations that could affect the Company and/or the Directors. THE BOARD'S RESPONSIBILITIES The Board is responsible for efficient and effective leadership of the Company and has reviewed the schedule of matters reserved for its decision. The Board meets at least on a quarterly basis and at other times as necessary. The Board is responsible for all aspects of the Company's affairs, including the setting of parameters for and the monitoring of the investment strategy and the review of investment performance and investment policy. It also has responsibility for all corporate strategy issues, dividend policy, share buy-back policy, gearing, share price and discount/premium monitoring and corporate governance matters. To enable them to discharge their responsibilities, prior to each meeting the Directors are provided, in a timely manner, with a comprehensive set of papers giving detailed information on the Company's transactions, financial position and performance. Representatives of the Manager and Investment Manager attend each Board meeting, enabling the Directors to seek clarification on specific issues or to probe further on matters of concern; a full written report is also received from the Investment Manager and the Manager at each quarterly meeting. In light of these reports, the Board gives direction to the Investment Manager with regard to the Company's investment objectives and guidelines. Within these established guidelines, the Investment Manager takes decisions as to the purchase and sale of individual investments. There is an agreed procedure for Directors, in the furtherance of their duties, to take independent professional advice if necessary at the Company's expense. The Directors have access to the advice and services of the Company Secretary, through its appointed representative, who is responsible to the Board for ensuring that Board procedures are followed. PERFORMANCE EVALUATION The Board has carried out an evaluation process for the year ended 31 March 2012, independently managed by Dr Gordon, the Senior Independent Director. This took the form of a questionnaire followed by discussions to identify how the effectiveness of its activities, including its committees, policies and processes might be improved. The results of the evaluation process were presented to and discussed by the Board and, as a result, it was agreed that the current Directors contributed effectively and that all have the skills and experience which are relevant to the leadership and direction of the Company. CONFLICT OF INTEREST On 1 October 2008 it became a statutory requirement that a Director must avoid a situation in which he or she has, or can have, a direct or indirect interest that conflicts, or possibly may conflict, with the Company's interests (a "situational conflict"). The Company's Articles of Association have been amended to give the Directors authority to approve such situations, where appropriate. It is the responsibility of each individual Director to avoid an unauthorised conflict situation arising. He or she must request authorisation from the Board as soon as he or she becomes aware of the possibility of a situational conflict arising. The Board is responsible for considering Directors' requests for authorisation of situational conflicts and for deciding whether they should be authorised. The factors to be considered will include whether the situational conflict could prevent the Director from performing his or her duties, whether it has, or could have, any impact on the Company and whether it could be regarded as likely to affect the judgment and/or actions of the Director in question. When the Board is deciding whether to authorise a conflict or potential conflict, only Directors who have no interest in the matter being considered are able to take the relevant decision, and in taking the decision the Directors must act in a way they consider, in good faith, will be most likely to promote the Company's success. The Directors are able to impose limits or conditions when giving authorisation if they think this is appropriate in the circumstances. A register of conflicts is maintained by the Company Secretary and is reviewed at quarterly Board meetings, to ensure that any authorised conflicts remain appropriate. Directors are required to confirm at these meetings whether there has been any change to their position. The Directors must also comply with the statutory rules requiring company directors to declare any interest in an actual or proposed transaction or arrangement with the Company. COMMITTEES OF THE BOARD The Board has delegated certain responsibilities and functions to committees. Copies of the full terms of reference, which clearly define the responsibilities of each committee, can be obtained from the Company Secretary, will be available for inspection at the Annual General Meeting and can be found at the Company's website at www.biotechgt.com. Following a review by the Board in 2007, it was agreed, that, due to the Board's size, the membership of the Company's Committees should comprise the whole Board (provided that a majority of the Directors present are independent). The Remuneration Committee is chaired by Dr John Gordon, the Nominations Committee is chaired by the Chairman of the Company, John Sclater, and the Audit and Management Engagement Committee is chaired by Peter Keen. In March 2011, the Board agreed that, due to his connection with the Company's Investment Manager, Sven Borho should no longer be a member of any of the Company's Committees. NOMINATIONS COMMITTEE The Nominations Committee is responsible for the Board appraisal process and for making recommendations to the Board on the appointment of new Directors. Where appropriate, each Director is invited to submit nominations and external advisers may be used to identify potential candidates. REMUNERATION COMMITTEE The level of Directors' fees is reviewed on a regular basis relative to other comparable investment companies and in the light of Directors' responsibilities. Details of the fees paid to the Directors in the year under review are detailed in the Directors' Remuneration Report on pages 29 and 30 of the 2012 Annual Report and Financial Statements. AUDIT AND MANAGEMENT ENGAGEMENT COMMITTEE The Audit and Management Engagement Committee meets at least twice a year and is responsible for the review of the interim and annual financial statements, the nature and scope of the external audit and the findings therefrom and the terms of appointment of the Auditors, including their remuneration and the provision of any non-audit services by them. In addition, the Committee is responsible for the review of the Company's financial controls and of the Management and Investment Management agreements and of the services provided by the Manager and the Investment Manager. The Audit and Management Engagement Committee meets representatives of the Manager and Investment Manager and their Compliance Officers who report as to the proper conduct of business in accordance with the regulatory environment in which the Company, Manager and Investment Manager operate. The Company's Auditors also attend meetings of this Committee at its request and report on their work procedures and their findings in relation to the Company's statutory audit. They also have the opportunity to meet with the Committee without representatives of the Manager or the Investment Manager being present. The Audit and Management Engagement Committee reviews the need for non-audit services and authorises such fees on a case by case basis, having consideration to the cost effectiveness of the services and the independence and objectivity of the Auditors. Non audit fees of £4,000 were paid to Grant Thornton UK LLP for their review of the Company's interim accounts and their review of the performance fee calculation as at 30 September 2011. The Board has concluded, on the recommendation of the Audit and Management Engagement Committee, that the Auditors continue to be independent and that their reappointment be proposed at the Annual General Meeting. The table below details the number of Board and Committee meetings attended by each Director. During the year there were four Board meetings, two Audit and Management Engagement Committee meetings, one meeting of the Nominations Committee and one meeting of the Remuneration Committee. Audit and Management Engagement Nominations Remuneration Board Committee Committee Committee Number of meetings held in 2011/ 4 2 1 1 12: John Sclater, CVO 4 2 1 1 Sven Borho^ 4 - - - Professor Dame Kay Davies, CBE+ - - - - Paul Gaunt* 4 1 1 1 Dr John Gordon 4 2 1 1 Andrew Joy+ - - - - Peter Keen 4 2 1 1 Lord Waldegrave of North Hill 4 2 1 1 All of the Directors attended the Annual General Meeting held on 14 July 2011. ^Sven Borho is not a member of any of the Company's committees. +Appointed as a Director on 15 March 2012. *Following Mr Gaunt's retirement from the Board of Worldwide Healthcare Trust PLC in July 2011, in accordance with the provisions of the AIC Code of Corporate Governance, he is considered independent and therefore rejoined the Audit and Management Engagement Committee with effect from 17 November 2011. THE BRIBERY ACT 2010 The Board has adopted 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 UK or abroad to secure any improper benefit for themselves or for the Company. The Board applies the same standards to its service providers in their activities for the Company. A copy of the Company's Anti Bribery and Corruption Policy can be found on its website at www.biotechgt.com. BOARD DIVERSITY The Company welcomes the objectives of the Davies Report to improve the performance of corporate boards by encouraging the appointment of the best people from a range of differing perspectives and backgrounds. The Company recognises the benefits of diversity on the Board, including gender, and takes this into account in its Board appointments. The Company is committed to ensuring that any director search processes actively seeks persons with the right qualifications so that appointments can be made, on the basis of merit, against objective criteria from a diverse selection of candidates. To this end the Board will continue to dedicate time to consider diversity during any director search process. INTERNAL CONTROLS In accordance with the provision C2 and C3 of the UK Corporate Governance Code, risk assessment and the review of internal controls are undertaken by the Board in the context of the Company's overall investment objective. The review covers the key business, operational, compliance and financial risks facing the Company. In arriving at its judgement of what risks the Company faces, the Board has considered the Company's operations in the light of the following factors: the nature and extent of risks which it regards as acceptable for the Company to bear within its overall business objective; the threat of such risks becoming a reality; and the Company's ability to reduce the incidence and impact of risk on its performance. Against this background, the Board has split the review of risk and associated controls into five sections reflecting the nature of the risks being addressed. These sections are as follows: corporate strategy; investment activity; published information, compliance with laws and regulations; service providers; and financial activity. The Company has appointed Frostrow Capital LLP to provide administrative services to the Company. The Company has obtained from its various service providers assurances and information relating to their internal systems and controls to enable the Board to make an appropriate risk and control assessment, including the following: details of the control environment in operation; identification and evaluation of risks and control objectives; review of communication methods and procedures; and assessment of the control procedures. The key procedures which have been established to provide internal financial controls are as follows: investment management is provided by OrbiMed Capital LLC who provide regular updates and reports to the Board. The Board is responsible for setting the overall investment policy and monitors the actions of the Investment Manager at regular Board meetings; administration, company secretarial and marketing duties for the Company are performed by Frostrow Capital LLP; custody of assets is undertaken by Goldman Sachs & Co. New York; the Board clearly defines the duties and responsibilities of their agents and advisers. The appointment of agents and advisers to the Company is conducted by the Board after consideration of the quality of the parties involved; the Board monitors their ongoing performance and contractual arrangements; mandates for authorisation of investment transactions and expense payments are set by the Board; and the Board reviews financial information produced by the Investment Manager and the Manager in detail on a regular basis. All of the Company's management functions are performed by third parties whose internal controls are reviewed by the Board or on its behalf by Frostrow Capital LLP. In accordance with guidance issued to directors of listed companies, the Directors confirm that they have carried out a review of the effectiveness of the system of internal financial control and risk management during the year, as set out above. RELATIONS WITH SHAREHOLDERS The Board reviews the shareholder register at each Board meeting. The Company has regular contact with its institutional shareholders particularly through the Manager. The Board supports the principle that the Annual General Meeting be used to communicate with private investors. The full Board attends the Annual General Meeting under the Chairmanship of the Chairman of the Board. Details of proxy votes received in respect of each resolution are made available to shareholders at the meeting and are also published on the Company's website at www.biotechgt.com. Representatives from the Investment Manager attend the Annual General Meeting and give a presentation on investment matters to those present. The Company has adopted a nominee share code which is set out overleaf. The Board receives marketing and public relations reports from the Manager to whom the marketing function has been delegated. The Board reviews and considers the marketing plans of the Manager on a regular basis. The annual and interim financial reports, the interim management statements and a monthly fact sheet are available to all shareholders. The Board considers the format of the annual and interim financial reports so as to ensure they are useful to all shareholders and others taking an interest in the Company. In accordance with best practice, the annual report, including the Notice of the Annual General Meeting, is sent to shareholders at least 20 working days before the meeting. Separate resolutions are proposed for substantive issues. EXERCISE OF VOTING POWERS The Board has delegated authority to the Investment Manager to vote the shares owned by the Company that are held on its behalf by its custodian, Goldman Sachs & Co. New York. The Board has instructed that the Investment Manager submit votes for such shares wherever possible. This accords with current best practice whilst maintaining a primary focus on financial returns. The Investment Manager may refer to the Board on any matters of a contentious nature. The Company does not retain voting rights on any shares that are subject to rehypothecation in connection with the loan facility provided by Goldman Sachs & Co. New York. ACCOUNTABILITY AND AUDIT The Statement of Directors' Responsibilities in respect of the financial statements is set out on page 22 of the 2012 Annual Report and Financial Statements. The report of the Auditor is set out on page 31 of the 2012 Annual Report and Financial Statements. The Board has delegated contractually to external agencies, including the Manager, the Investment Manager and Goldman Sachs & Co. New York, the management of the portfolio, custodial services (which includes the safeguarding of the Company's assets), the day to day marketing, accounting administration, company secretarial requirements and registration services. Each of these contracts was entered into after full and proper consideration by the Board of the quality and cost of the services offered, including the control systems in operation in so far as they relate to the affairs of the Company. The Board receives and considers regular reports from the Manager and ad hoc reports and information are supplied to the Board as required. 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; to allow investors holding shares through a nominee company to attend general meetings, provided the correct authority from the nominee company is available; and that investors in the Alliance Trust Savings Scheme or ISA are automatically sent shareholder communications, including details of general meetings, together with a form of direction to facilitate voting and to seek authority to attend. Nominee companies are encouraged to provide the necessary authority to underlying shareholders to attend the Company's general meetings. DIRECTORS' REMUNERATION REPORT FOR THE YEAR ENDED 31 MARCH 2012 The Board has prepared this report in accordance with the requirements of Section 420 to 422 of the Companies Act 2006. An ordinary resolution for the approval of this report will be put to the members at the forthcoming Annual General Meeting. The law requires your Company's Auditors to audit certain of the disclosures provided. Where disclosures have been audited, they are indicated as such. The Auditors' opinion is included in their report on page 31 of the 2012 Annual Report and Financial Statements. REMUNERATION COMMITTEE The Company has eight non-executive Directors. The whole Board, with the exception of Sven Borho, fulfils the function of a Remuneration Committee. The Board has appointed Dr John Gordon as Chairman, and the Board may utilise the services of the Company Secretary, Frostrow Capital LLP, or external advisers when they consider the level of Directors' fees. POLICY ON DIRECTORS' FEES The Board's policy is that the remuneration of Directors should reflect the responsibilities and experience of the Board as a whole. Regard will be given to fees paid by other investment trusts that are similar in size, have a similar capital structure, and have a similar investment objective. It is intended that this policy will continue for the year ending 31 March 2013 and subsequent years. The fees for the Directors are determined within the limits set out in the Company's Articles of Association, the maximum aggregate amount currently being £200,000. DIRECTORS' EMOLUMENTS FOR THE YEAR (AUDITED) The Directors who served in the year (unless where stated) received the following emoluments in the form of fees: Fees Fees 2012 2011 £'000 £'000 John Sclater, CVO (Chairman of the Board) 32 29 Sven Borho 22 20 Professor Dame Kay Davies, CBE* 1 - Paul Gaunt 22 20 Dr John Gordon (Senior Independent Director) 24 22 Andrew Joy* 1 - Peter Keen (Chairman of the Audit and Management 24 22 Engagement Committee) Lord Waldegrave of North Hill 22 20 148 133 *Appointed as a Director on 15 March 2012 DIRECTORS' SERVICE CONTRACTS It is the Board's policy that none of the Directors has a service contract. The terms of their appointment provide that Directors shall retire and be subject to election at the first Annual General Meeting after their appointment and to re-election annually thereafter. The terms also provide that a Director may resign by giving one month's notice in writing to the Board at any time and may be removed without notice and that compensation will not be due on leaving office. The Company's policy is for the Directors to be remunerated in the form of fees payable quarterly in arrears. YOUR COMPANY'S PERFORMANCE The law requires a line graph be included in the Directors' Remuneration Report comparing, for a period of five years, on a cumulative basis, the total return (assuming all dividends are reinvested) to shareholders and the total shareholder return on a notional investment made up of shares of the same kind and number as those by reference to which the NASDAQ Biotechnology Index (sterling adjusted) is calculated. (Please see below). APPROVAL The Directors' Remuneration Report on pages 29 and 30 of the 2012 Annual Report and Financial Statements was approved by the Board of Directors on 31 May 2012 and signed on its behalf by John Sclater, CVO, Chairman. REPORT OF THE INDEPENDENT AUDITOR INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF THE BIOTECH GROWTH TRUST PLC We have audited the financial statements of The Biotech Growth Trust PLC for the year ended 31 March 2012 which comprise the Income Statement, the Statement of Changes in Equity, the Statement of Financial Position, the Statement of Cash Flows and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members as a body, for our audit work, for this report, or for the opinions we have formed. RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITOR As explained more fully in the Directors' Responsibilities Statement set out on page 22 of the 2012 Annual Report and Financial Statements the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's (APB's) Ethical Standards for Auditors. SCOPE OF THE AUDIT OF THE FINANCIAL STATEMENTS A description of the scope of an audit of financial statements is provided on the APB's website at www.frc.org.uk/apb/scope/private.cfm. OPINION ON FINANCIAL STATEMENTS In our opinion the financial statements: give a true and fair view of the state of the company's affairs as at 31 March 2012 and of its profit for the year then ended; have been properly prepared in accordance with IFRS as adopted by the European Union; and have been prepared in accordance with the requirements of the Companies Act 2006. OPINION ON OTHER MATTERS PRESCRIBED BY THE COMPANIES ACT 2006 In our opinion: the part of the Directors' Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006; and the information given in the Directors' Report for the financial year for which the financial statements are prepared is consistent with the financial statements. MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION We have nothing to report in respect of the following: Under the Companies Act 2006 we are required to report to you if, in our opinion: adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or the financial statements and the part of the Directors' Remuneration Report to be audited are not in agreement with the accounting records and returns; or certain disclosures of Directors' remuneration specified by law are not made; or we have not received all the information and explanations we require for our audit. Under the Listing Rules, we are required to review: the Directors' statement, set out on page 18 of the 2012 Annual Report and Financial Statements, in relation to going concern; the part of the Corporate Governance Statement relating to the Company's compliance with the nine provisions of the UK Corporate Governance Code; and certain elements of the report to the shareholders by the Board on Directors' remuneration. JULIAN BARTLETT SENIOR STATUTORY AUDITOR FOR AND ON BEHALF OF GRANT THORNTON UK LLP STATUTORY AUDITOR, CHARTERED ACCOUNTANTS LONDON 31 MAY 2012 INCOME STATEMENT for the year ended 31 March 2012 2011 Revenue Capital Total Revenue Capital Total Notes £'000 £'000 £'000 £'000 £'000 £'000 Income Investment income 2 196 - 196 69 - 69 Total income 196 - 196 69 - 69 Gains and losses on investments Gains on investments held at fair value through profit or 8 - 44,214 44,214 - 2,691 2,691 loss Exchange (losses)/gains on currency balances - (228) (228) - 402 402 Expenses Investment management, management and 3 - (3,158) (3,158) - (752) (752) performance fees Other expenses 4 (459) - (459) (398) - (398) (Loss)/profit before finance costs and taxation (263) 40,828 40,565 (329) 2,341 2,012 Finance costs 5 (19) - (19) (11) - (11) (Loss)/profit before (282) 40,828 40,546 (340) 2,341 2,001 taxation Taxation 6 (27) - (27) (1) - (1) (Loss)/profit for the (309) 40,828 40,519 (341) 2,341 2,000 year Basic and diluted (loss)/earnings per 7 (0.5)p 64.1p 63.6p (0.5)p 3.5p 3.0p share The Company does not have any income or expenses which are not included in the profit for the year. Accordingly the "profit for the year" is also the "total comprehensive income for the period", as defined in IAS 1 (revised) and no separate Statement of Comprehensive Income has been presented. All of the profit and total comprehensive income for the period is attributable to the owners of the Company. The "Total" column of this statement represents the Company's Income Statement, prepared in accordance with International Financial Reporting Standards (IFRS). The "Revenue" and "Capital" columns are supplementary to this and are prepared under guidance published by the Association of Investment Companies. All items in the above statement derive from continuing operations. The accompanying notes are an integral part of this statement. STATEMENT OF CHANGES IN EQUITY For the year ended 31 March 2012 Ordinary Share Capital share premium Special redemption Capital Revenue capital account reserve reserve reserve reserve Total £'000 £'000 £'000 £'000 £'000 £'000 £'000 At 31 March 2011 16,239 19,300 30,420 4,893 53,311 (3,345) 120,818 Net profit/(loss) - - - - 40,828 (309) 40,519 for the year Repurchase of (679) - (5,206) 679 - - (5,206) shares At 31 March 2012 15,560 19,300 25,214 5,572 94,139 (3,654) 156,131 For the year ended 31 March 2011 Ordinary Share Capital share premium Special redemption Capital Revenue capital account reserve reserve reserve reserve Total £'000 £'000 £'000 £'000 £'000 £'000 £'000 At 31 March 2010 16,490 19,298 32,021 4,642 50,970 (3,004) 120,417 Net profit/(loss) - - - - 2,341 (341) 2,000 for the year Issue costs - 2 - - - - 2 refunded Repurchase of (251) - (1,601) 251 - - (1,601) shares At 31 March 2011 16,239 19,300 30,420 4,893 53,311 (3,345) 120,818 The accompanying notes are an integral part of this statement. STATEMENT OF FINANCIAL POSITION as at 31 March 2012 2011 Notes £'000 £'000 Non current assets Investments held at fair value through profit or loss 8 161,655 128,346 Current assets Other receivables 9 213 1,161 Cash and cash equivalents - 5,691 213 6,852 Total assets 161,868 135,198 Current liabilities Other payables 10 5,737 14,380 5,737 14,380 Net assets 156,131 120,818 Equity attributable to equity holders Ordinary share capital 11 15,560 16,239 Share premium account 19,300 19,300 Special reserve 25,214 30,420 Capital redemption reserve 5,572 4,893 Capital reserve 15 94,139 53,311 Revenue reserve (3,654) (3,345) Total equity 156,131 120,818 Net asset value per share 12 250.9p 186.0p The financial statements on pages 32 to 44 of the 2012 Annual Report and Financial Statements were approved by the Board on 31 May 2012 and were signed on its behalf by: JOHN SCLATER, CVO CHAIRMAN The accompanying notes are an integral part of this statement. The Biotech Growth Trust PLC - Company Registration Number 3376377 (Registered in England) STATEMENT OF CASH FLOWS for the year ended 31 March 2012 2011 £'000 £'000 Operating activities Profit before tax 40,546 2,001 Add back interest paid 19 11 Less: gain on investments held at fair value through (44,214) (2,691) profit or loss Add: exchange losses/(gains) on currency balances 228 (402) Purchases of investments held at fair value through (164,346) (98,383) profit or loss Sales of investments held at fair value through profit or 165,582 115,677 loss Decrease/(increase) in other receivables 9 (15) Increase/(decrease) in other payables 1,783 (810) Net cash (outflow)/inflow from operating activities (393) 15,388 before interest and taxation Interest paid (19) (11) Taxation paid (27) (1) Net cash (outflow)/inflow from operating activities (439) 15,376 Financing activities Refund of issue costs - 2 Repurchase of shares (5,206) (1,600) Repayment of bank loan - (8,489) Net cash (outflow)/inflow from financing (5,206) (10,087) (Decrease)/increase in cash and cash equivalents (5,645) 5,289 Cash and cash equivalents at start of year 5,691 - Effect of foreign exchange rate changes (228) 402 Cash and cash equivalents at end of year (182) 5,691 The accompanying notes are an integral part of this statement. NOTES TO THE FINANCIAL STATEMENTS 1. ACCOUNTING POLICIES The financial statements of the Company have been prepared in accordance with International Financial Reporting Standards ("IFRS"). These comprise standards and interpretations approved by the International Accounting Standards Board ("IASB"), together with interpretations of the International Accounting Standards and Standing Interpretations Committee approved by the International Accounting Standards Committee ("IASC") that remain in effect, to the extent that IFRS have been adopted by the European Union. (a) Accounting Convention The financial statements have been prepared under the historical cost convention, except for the measurement at fair value of investments. Where presentational guidance set out in the revised Statement of Recommended Practice ("the SORP") for Investment Trust Companies produced by the Association of Investment Companies and Venture Capital Trusts ("AIC") dated January 2009 is consistent with the requirements of IFRS, the Directors have sought to prepare the financial statements on a basis compliant with the recommendations of the SORP. (b) Investments Investments are recognised and de-recognised on the trade date. As the entity's business is investing in financial assets with a view to profiting from their total return in the form of interest, dividends or increases in fair value, investments are designated as fair value through profit or loss and are initially recognised at fair value. The entity 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 designated as 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 recent arm's length market transactions between knowledgeable, willing parties, if available, reference to the current fair value of another instrument that is substantially the same, discounted cash flow analysis and option pricing models. 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. Gains and losses on disposal are also recognised in the Income Statement. The total transaction costs for the year were £597,000 (31 March 2011: £ 530,000) broken down as follows: purchase transaction costs for the year to 31 March 2012 were £295,000, (31 March 2011: £232,000), sale transaction costs were £302,000 (31 March 2011: £298,000). These costs consist mainly of commission and stamp duty. (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. In accordance with the Company's status as a UK investment company under section 833 of the Companies Act 2006, capital reserves may not be distributed by way of dividend, although may be utilised for the purposes of share buy-backs. Additionally, 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. (d) 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. Dividends and interest on investments in unquoted shares and securities are recognised when they become receivable. (e) Expenses and Finance Costs All expenses are accounted for on an accruals basis. Expenses are charged through the Income Statement as follows: • expenses which are incidental to 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; • investment management and management fees and related irrecoverable VAT are charged 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; • loan interest is charged to the Income Statement and allocated to capital as the Directors expect that in the long term virtually all of the Company's returns will come from capital; and • bank overdraft interest is charged through the Income Statement and allocated to the revenue column. (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. 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, in which case the deferred tax is also dealt with in equity. (g) Foreign Currencies The currency of the primary economic environment in which the Company operates (the functional currency) is pounds sterling ("sterling"), which is also the presentational currency of the Company. Transactions involving currencies other than sterling are recorded at the exchange rate ruling on the transaction date. At each Statement of Financial Position date, monetary items and non-monetary assets and liabilities that are fair valued, which are denominated in foreign currencies, are retranslated at the closing rates of exchange. Exchange differences arising on settlements of monetary items and from retranslating at the Statement of Financial Position date including investments and other financial instruments measured as fair value through profit or loss and other monetary items are included in the Income Statement and allocated as capital if they are of a capital nature, or as revenue if they are of a revenue nature. (h) Reserves 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 referred policies • increases and decreases in the valuation of investments held at year end Capital Redemption Reserve • a transfer will be made to this reserve on cancellation of the Company's own shares purchased Special Reserve During the financial year ended 31 March 2004 a Special Reserve was created, following the cancellation of the Share Premium account, in order to provide an increased distributable reserve out of which to purchase the Company's own shares. (i) Functional and presentational currency The financial information is shown in sterling, being the Company's presentational 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 are 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. (j) Cash and cash equivalents Cash in hand and in banks and short-term deposits which are held to maturity are carried at cost. Cash and cash equivalents are defined as cash in hand, demand deposits and short-term, highly liquid investments readily convertible to known amounts of cash and subject to insignificant risk of changes in value. Bank overdrafts that are repayable on demand, which form an integral part of the Company's cash management, are included as a component of cash and cash equivalents for the purpose of the statement of cash flows. (k) 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 investments business. The results published in this report therefore correspond to this sole operating segment. (l) Standards and amendments to published standards that are not yet effective The IASB and IFRIC have issued a number of standards and interpretations which are not effective for the year ended 31 March 2012 but are relevant for the Company. The Directors have therefore chosen not to adopt these standards early as they do not anticipate that they would have a material impact on the Company's financial statements. • IAS 27 Separate Financial Statements (effective 1 January 2013); • IAS 28 Investments in Associates and Joint Ventures (effective 1 January 2013); • IFRS 9 Financial Instruments (effective 1 January 2015); • IFRS 10 Consolidated Financial Statements (effective 1 January 2013); • IFRS 11 Joint Arrangements (effective 1 January 2013); • IFRS 12 Disclosure of Interests in Other Entities (effective 1 January 2013); • IFRS 13 Fair Value Measurement (effective 1 January 2013); • Presentation of Items of Other Comprehensive Income - Amendments to IAS 1 (effective 1 July 2012); • Deferred Tax: Recovery of Underlying Assets - Amendments to IAS 12 Income Taxes (effective 1 January 2012); • Severe Hyperinflation and Removal of Fixed Dates for First-time Adopters - Amendments to IFRS 1 (effective 1 July 2011); • Enhanced Derecognition Disclosure Requirements - Amendments to IFRS 7 (effective 1 July 2011). 2. INCOME 2012 2011 £'000 £'000 Investment income Overseas income 196 69 Total income 196 69 3. INVESTMENT MANAGEMENT, MANAGEMENT AND PERFORMANCE FEES Revenue Capital Total Revenue Capital Total 2012 2012 2012 2011 2011 2011 £'000 £'000 £'000 £'000 £'000 £'000 Investment management fee - 856 856 - 711 711 Management fee - 379 379 - 322 322 Performance fee accrued/ - 1,923 1,923 - (281) (281) (written back) - 3,158 3,158 - 752 752 Details of the performance fee basis and amounts paid during the year can be found in the Report of the Directors on pages 17 and 18 of the 2012 Annual Report and Financial Statements. 4. OTHER EXPENSES Revenue Capital Total Revenue Capital Total 2012 2012 2012 2011 2011 2011 £'000 £'000 £'000 £'000 £'000 £'000 Directors' emoluments 148 - 148 133 - 133 Frostrow's fixed fee 60 - 60 60 - 60 Auditors' remuneration for the audit of the Company's financial 24 - 24 22 - 22 statements Auditors' remuneration for review of the interim accounts and performance fee calculation 4 - 4 5 - 5 Auditor's remuneration for 3 - 3 - - - other services Broker retainer 25 - 25 25 - 25 Other including 195 - 195 153 - 153 irrecoverable VAT 459 - 459 398 - 398 Details of the amounts paid to Directors are included in the Directors' Remuneration Report on pages 29 and 30 of the 2012 Annual Report and Financial Statements. 5. FINANCE COSTS Revenue Capital Total Revenue Capital Total 2012 2012 2012 2011 2011 2011 £'000 £'000 £'000 £'000 £'000 £'000 Bank overdraft interest 19 - 19 11 - 11 19 - 19 11 - 11 6. TAXATION (a) Analysis of charge in Revenue Capital Total Revenue Capital Total the year: 2012 2012 2012 2011 2011 2011 £'000 £'000 £'000 £'000 £'000 £'000 Overseas taxation suffered 27 - 27 1 - 1 Total current taxation for 27 - 27 1 - 1 the year (see note 6b) (b) Factors affecting current 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 lower than the standard rate of corporation tax in the UK of 26% (2011: 28%). The differences are explained below: Revenue Capital Total Revenue Capital Total 2012 2012 2012 2011 2011 2011 £'000 £'000 £'000 £'000 £'000 £'000 Net (loss)/profit on ordinary activities before taxation (282) 40,828 40,546 (340) 2,341 2,001 Corporation tax at 26% (73) 10,615 10,542 (95) 655 560 (2011: 28%) Effects of: Non-taxable gains on investments held at fair value through profit or - (11,436) (11,436) - (865) (865) loss Non-taxable overseas (43) - (43) (16) - (16) dividends Overseas taxes 27 - 27 1 - 1 Excess expenses unused 114 821 935 110 210 320 Disallowed expenses 2 - 2 1 - 1 Current tax charge 27 - 27 1 - 1 (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 gains 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. The Company has not recognised a deferred tax asset of £4,655,000 (2011: £ 4,108,000) arising as a result of excess management expenses and loan relationship deficits. These excess expenses will only be utilised if the Company generates sufficient taxable income in the future. 7. BASIC AND DILUTED (LOSS)/EARNINGS PER SHARE Revenue Capital Total Revenue Capital Total 2012 2012 2012 2011 2011 2011 £'000 £'000 £'000 £'000 £'000 £'000 (Loss)/earnings per share (0.5)p 64.1p 63.6p (0.5)p 3.5p 3.0p The total gain per share of 63.6p (2011: gain 3.0p) is based on the total gain attributable to equity shareholders of £40,519,000 (2011: gain £2,000,000). The revenue loss per share 0.5p (2011: loss 0.5p) is based on the revenue loss attributable to equity shareholders of £309,000 (2011: £341,000). The capital gain per share of 64.1p (2011: gain 3.5p) is based on the capital gain attributable to equity shareholders of £40,828,000 (2011: gain £ 2,341,000). The total revenue loss and capital gain per share are based on the weighted average number of shares in issue during the year of 63,666,908 (2011: 65,687,388). 8. INVESTMENTS HELD AT FAIR VALUE THROUGH PROFIT AND LOSS Listed 2012 2011 Equity Unquoted Total Total £'000 £'000 £'000 £'000 Cost at 1 April 2011 111,802 1,742 113,544 103,008 Investment holding gains/(losses) at 1 April 2011 15,356 (554) 14,802 29,610 Valuation at 1 April 2011 127,158 1,188 128,346 132,618 Movement in the year Purchases at cost 153,261 477 153,738 109,556 Sales - proceeds (164,522) (121) (164,643) (116,519) - gains/(losses) on disposal 40,206 (309) 39,897 17,499 Net movement in investment holding gains 3,762 555 4,317 (14,808) /(losses) Valuation at 31 March 2012 159,865 1,790 161,655 128,346 Closing book cost at 31 March 2012 140,747 1,789 142,536 113,544 Investment holding gains at 31 March 19,118 1 19,119 14,802 2012 Valuation at 31 March 2012 159,865 1,790 161,655 128,346 2012 2011 £'000 £'000 Gains on investments: Gains on disposal based on historical cost 39,897 17,499 Amounts recognised as investment holding loss in (11,999) (19,727) previous year Gains/(losses) on disposal based on carrying value at 27,898 (2,228) previous financial position date Net movement in investment holding gains in the year 16,316 4,919 Gains on investments 44,214 2,691 9. OTHER RECEIVABLES 2012 2011 £'000 £'000 Future settlements - sales 147 1,086 Other debtors 31 23 Prepayments and accrued income 35 52 213 1,161 10. OTHER PAYABLES 2012 2011 £'000 £'000 Future settlements - purchases 3,402 14,010 Future settlements - repurchase of shares - 3 Performance fee accrued 1,640 - Bank overdraft 182 - Other creditors and accruals 513 367 5,737 14,380 11. ORDINARY SHARE CAPITAL 2012 2011 £'000 £'000 Allotted, called up, issued and fully paid: 15,560 16,239 62,240,426 shares of 25p (2011: 64,954,681) At 31 March 2012 the Company had 62,240,426 shares of 25p in issue (2011: 64,954,681). During the year 2,714,255 shares were repurchased for cancellation at a cost of £5,206,000 (including expenses). Subsequent to the year end and to the date of this report a further 19,079 shares were repurchased for cancellation at a cost of £47,000 (including expenses). In addition, 275,000 shares were issued raising £681,000. 12. NET ASSET VALUE PER SHARE 2012 2011 £'000 £'000 Net asset value per share 250.9p 186.0p The net asset value per share is based on the net assets attributable to equity shareholders of £156,131,000 (2011: £120,818,000) and on 62,240,426 (2011: 64,954,681) shares in issue at 31 March 2012. 13. 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 as stated on page 14 of the 2012 Annual Report and Financial Statements. 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 in 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 reviews regularly and agrees policies for managing and monitoring each of these risks. 1. Market price risk: The fair value or future cash flows of a financial instrument held by the Company may fluctuate because of changes in market prices. This market risk comprises three elements - currency risk, interest rate risk and other price risk. The Company's portfolio is exposed to market price fluctuations which are monitored by the Investment Manager in pursuance of the investment objective. Further information on the composition of the portfolio is set out on page 12 of the 2012 Annual Report and Financial Statements. No derivatives or hedging instruments are utilised to manage market price risk. (a) Currency risk: A significant proportion of 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 risk The Investment Manager and Manager monitor the Company's exposure to foreign currencies on a continuous basis and report to the Board regularly. The Investment Manager does not hedge against foreign currency movements, but takes account of the risk when making investment decisions. Income denominated in foreign currencies is converted into sterling on receipt. 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 £ 153,851,000 (2011: £124,088,000) of investments denominated in U.S. dollars and £7,804,000 (2011: £4,258,000) in other non-sterling currencies. Currency sensitivity The following table details the sensitivity of the Company's profit or loss after taxation for the year to a 10% increase and decrease in sterling against U.S. dollars (2011: 10% increase and decrease). 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 management fees. Movements in the performance fee accruals have been excluded from the analysis below. If sterling had weakened against U.S. dollars, as stated above, this would have had the following effect: 2012 2011 USD USD £'000 £'000 Impact on revenue return - - Impact on capital return 16,983 13,698 Total return after tax/effect on shareholders' funds 16,983 13,698 If sterling had strengthened against U.S. dollars, as stated above, this would have had the following effect: 2012 2011 USD USD £'000 £'000 Impact on revenue return - - Impact on capital return (13,896) (11,207) Total return after tax/effect on shareholders' funds (13,896) (11,207) (b) Interest rate risk: Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Management of the risk The possible effects on fair value and cash flows that could arise as a result of changes in interest rates are taken into account when making investment decisions. The Company, generally, does not hold significant cash balances, with short term borrowing being used when required and therefore deems this risk to be immaterial. Interest rate exposure The Company has a loan facility with Goldman Sachs & Co. New York which is repayable on demand. (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 (2011: 5% higher or lower) while all other variables had remained constant, the return and net assets attributable to shareholders for the year ended 31 March 2012 would have increased/decreased by £32,121,000 (2011: £6,376,000), after adjusting for an increase or decrease in management fees. The calculations are based on the portfolio valuations as at the respective Statement of Financial Position dates. 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 and other quoted securities that are readily realisable. The Board gives guidance to the Investment Manager as to the maximum amount of the Company's resources that should be invested in any one company. Liquidity exposure Contractual maturities of the financial liabilities as at 31 March 2012, based on the earliest date on which payment can be required, are as follows: Amounts due to brokers and accruals £5,737,000 (2011: £14,380,000). All of the stated financial liabilities are repayable within three months or less. 3. Credit risk: The failure of the counterparty to a transaction to discharge its obligations under that transaction could result in the Company suffering a loss. The Company has a loan facility, repayable on demand, provided by Goldman Sachs & Co. New York. Further details of the risks associated with this loan facility can be found on page 16 of the 2012 Annual Report and Financial Statements. Management of the risk The risk is not significant and is managed as follows: • by only dealing with brokers which have been approved by OrbiMed Capital LLC and banks with high credit ratings; and • by setting limits to the maximum exposure to any one counterparty at any time. At 31 March 2012 the Company's exposure to credit risk amounted to £213,000 and was in respect of other receivables, such as amounts due from brokers, dividends and interest receivable (2011: £1,161,000). At 31 March 2012 the Company held a cash balance of £nil (2011: £5,691,000). Hierarchy of investments The Company has classified its financial assets designated at fair value through profit or loss and the fair value of derivative financial instruments 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 2012 £'000 £'000 £'000 £'000 Assets Financial investments designated at fair value through profit or loss 159,865 - 1,790 161,655 Level 1 Level 2 Level 3 Total As of 31 March 2011 £'000 £'000 £'000 £'000 Assets Financial investments designated at fair value through profit or loss 127,158 - 1,188 128,346 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. 2012 2011 £'000 £'000 Assets As at 1 April 1,188 692 Total gains/(losses) during the year 246 (159) Net capital commitments 356 655 Assets as at 31 March 1,790 1,188 NOTES TO THE FINANCIAL STATEMENTS (continued) 13. RISK MANAGEMENT POLICIES AND PROCEDURES (continued) 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. Capital management policies and procedures 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 through an appropriate balance of equity capital and debt. The Company's capital is disclosed in the Statement of Financial Position on page 34 of the 2012 Annual Report and Financial Statements and is managed on a basis consistent with its investment objective and policy as set out in the Report of the Directors on pages 14 and 15 of the 2012 Annual Report and Financial Statements. The Company currently has a loan facility with Goldman Sachs & Co. New York which is repayable on demand, which can be used to satisfy the Company's borrowing requirements. The Board, with the assistance of the Manager and the Investment Manager, monitors and reviews the broad structure of the Company's capital on an ongoing basis. This review includes: - the planned level of gearing, which takes into account the Investment Manager's view of the market; - the need to buy back equity shares, for cancellation which takes account of the difference between the net asset value per share and the share price (i.e. the level of share price discount or premium); - the possible need for new issues of equity shares; and - the extent to which revenue in excess of that which is required to be distributed should be retained. The Company's objectives, policies and processes for managing capital are unchanged from the preceding accounting period. The Company is also subject to several externally imposed capital requirements. - as a public company, the Company has a minimum share capital of £50,000; and - in order to be able to pay dividends out of profits available for distribution, the Company has to be able to meet one of the two capital restriction tests imposed on investment companies by company law. These requirements are unchanged since last year and the Company has complied with them at all times. 14. RELATED PARTIES Details of the relationship between the Company, Frostrow Capital LLP and OrbiMed Capital LLC are disclosed in the Report of Directors on pages 17 and 18 of the 2012 Annual Report and Financial Statements. Sven Borho is a Director of the Company, as well as a Partner of the Company's Investment Manager, OrbiMed Capital LLC. During the year ended 31 March 2012, OrbiMed Capital LLC earned £ 856,000 in respect of Investment Management fees, of which £247,000 was outstanding at the year end. In addition, amounts totalling £260,000 were paid during the year in respect of performance fees which crystalised. 15. CAPITAL RESERVE Capital reserve - investment Capital reserve - holdings gains / other (losses) Total £'000 £'000 £'000 At 31 March 2011 38,509 14,802 53,311 Transfer on disposal of 11,999 (11,999) - investments Net gains on investments 27,898 16,316 44,214 Exchange losses (228) - (228) Expenses charged to capital (3,158) - (3,158) At 31 March 2012 75,020 19,119 94,139 NOTICE OF ANNUAL GENERAL MEETING Notice is hereby given that the Annual General Meeting of The Biotech Growth Trust PLC will be held at the Barber-Surgeons' Hall, Monkwell Square, Wood Street, London, EC2Y 5BL on Thursday, 12 July 2012 at 12.30 p.m. for the following purposes: ORDINARY BUSINESS 1. To receive and, if thought fit, to accept the Audited Financial Statements and the Report of the Directors for the year ended 31 March 2012 2. To elect Professor Dame Kay Davies, CBE as a Director of the Company 3. To elect Andrew Joy as a Director of the Company 4. To re-elect Sven Borho as a Director of the Company 5. To re-elect Paul Gaunt as a Director of the Company 6. To re-elect Dr John Gordon as a Director of the Company 7. To re-elect Peter Keen as a Director of the Company 8. To re-elect Lord Waldegrave of North Hill as a Director of the Company 9. To approve the Directors' Remuneration Report for the year ended 31 March 2012 10. To re-appoint Grant Thornton UK LLP as Auditors to the Company and to authorise the Directors to determine their remuneration SPECIAL BUSINESS To consider, and if thought fit, pass the following resolutions of which resolutions 12, 13 and 14 will be proposed as special resolutions: Authority to Allot Shares 11. THAT in substitution for all existing authorities the Directors be and are hereby generally and unconditionally authorised in accordance with Section 551 of the Companies Act 2006 (the "Act") to exercise all powers of the Company to allot relevant securities (within the meaning of Section 551 of the Act) up to a maximum aggregate nominal amount of £1,562,408 (being 10% of the issued share capital of the Company at the date of the notice convening the meeting at which this resolution is proposed) and representing 6,249,634 shares of 25 pence each (or, if less, the number representing 10% of the issued share capital of the Company at the date at which this resolution is passed), provided that this authority shall expire at the conclusion of the Annual General Meeting of the Company to be held in 2013 or 15 months from the date of passing this resolution, whichever is the earlier, unless previously revoked, varied or renewed, by the Company in general meeting and provided that the Company shall be entitled to make, prior to the expiry of such authority, an offer or agreement which would or might require relevant securities to be allotted after such expiry and the Directors may allot relevant securities pursuant to such offer or agreement as if the authority conferred hereby had not expired. Disapplication of Pre - emption Rights 12. THAT in substitution of all existing powers the Directors be and are hereby generally empowered pursuant to Sections 570 and 573 of the Companies Act 2006 (the "Act") to allot equity securities (within the meaning of section 560 of the Act) for cash pursuant to the authority conferred on them by resolution 11 set out in the notice convening the Annual General Meeting at which this resolution is proposed or otherwise as if section 561(1) of the Act did not apply to any such allotment and to sell relevant shares (within the meaning of section 560 of the Act) for cash as if section 561(1) of the Act did not apply to any such sale, provided that this power shall be limited to the allotment of equity securities pursuant to: a. an offer of equity securities open for acceptance for a period fixed by the Directors where the equity securities respectively attributable to the interests of holders of shares of 25 pence each in the Company ("Shares") are proportionate (as nearly as may be) to the respective numbers of Shares held by them but subject to such exclusions or other arrangements in connection with the issue as the Directors may consider necessary, appropriate, or expedient to deal with equity securities representing fractional entitlements or to deal with legal or practical problems arising in any overseas territory, the requirements of any regulatory body or stock exchange, or any other matter whatsoever; and b. (otherwise than pursuant to sub-paragraph (a) above) up to an aggregate nominal value of £1,562,408 or, if less, the number representing 10% of the issued share capital of the Company at the date of the meeting at which this resolution is passed, and expires at the conclusion of the next Annual General Meeting of the Company after the passing of this resolution or 15 months from the date of passing this resolution, whichever is the earlier, unless previously revoked, varied or renewed by the Company in general meeting and provided that the Company shall be entitled to make, prior to the expiry of such authority, an offer or agreement which would or might require equity securities to be allotted after such expiry and the Directors may allot equity securities pursuant to such offer or agreement as if the power conferred hereby had not expired. Authority to Repurchase Ordinary Shares 13. THAT the Company be and is hereby generally and unconditionally authorised in accordance with section 701 of the Companies Act 2006 (the "Act") to make one or more market purchases (within the meaning of section 693(4) of the Act) of ordinary shares of 25 pence each in the capital of the Company ("Shares") for cancellation provided that: (a) the maximum aggregate number of Shares authorised to be purchased is 9,368,202 (representing approximately 14.99% of the issued share capital of the Company at the date of the notice convening the meeting at which this resolution is proposed); (b) the minimum price (exclusive of expenses) which may be paid for a Share is 25 pence; (c) the maximum price (exclusive of expenses) which may be paid for a Share is an amount equal to the greater of (i) 105% of the average of the middle market quotations for a Share as derived from the Daily Official List of the London Stock Exchange for the five business days immediately preceding the day on which that Share is purchased and (ii) the higher of the price of the last independent trade in shares and the highest then current independent bid for shares on the London Stock Exchange as stipulated in Article 5(1) of Regulation No. 2233/2003 of the European Commission (Commission Regulation of 22 December 2003 implementing the Market Abuse Directive as regards exemptions for buyback programmes and stabilisation of financial instruments); (d) the authority hereby conferred shall expire at the conclusion of the Annual General Meeting of the Company to be held in 2012 or, if earlier, on the expiry of 15 months from the date of the passing of this resolution unless such authority is renewed prior to such time; and (e) the Company may make a contract to purchase Shares under this authority before the expiry of such authority which will or may be executed wholly or partly after the expiration of such authority, and may make a purchase of Shares in pursuance of any such contract. General Meetings 14. THAT the Directors be authorised to call general meetings (other than annual general meetings) on not less than 14 clear days' notice, such authority to expire at the conclusion of the next Annual General Meeting of the Company or, if earlier, until expiry of 15 months from the date of the passing of this resolution. BY ORDER OF THE BOARD REGISTERED OFFICE: ONE WOOD STREET LONDON EC2V 7WS FROSTROW CAPITAL LLP COMPANY SECRETARY 31 MAY 2012 Notes 1. Members are entitled to appoint a proxy to exercise all or any of their rights to attend and to speak and vote on their behalf at the meeting. A shareholder may appoint more than one proxy in relation to the meeting provided that each proxy is appointed to exercise the rights attached to a different share or shares held by that shareholder. A proxy need not be a shareholder of the Company. A proxy form which may be used to make such appointment and give proxy instructions accompanies this notice. 2. A vote withheld is not a vote in law, which means that the vote will not be counted in the calculation of votes for or against the resolutions. If no voting indication is given, a proxy may vote or abstain from voting at his/ her discretion. A proxy may vote (or abstain from voting) as he or she thinks fit in relation to any other matter which is put before the meeting. 3. To be valid any proxy form or other instrument appointing a proxy must be completed and signed and received by post or (during normal business hours only) by hand at Capita Registrars, PXS, 34 Beckenham Road, Beckenham, Kent BR3 4TU no later than 12 noon on Tuesday, 10 July 2012. 4. In the case of a member which is a company, the instrument appointing a proxy must be executed under its seal or signed on its behalf by a duly authorised officer or attorney or other person authorised to sign. Any power of attorney or other authority under which the instrument is signed (or a certified copy of it) must be included with the instrument. 5. The return of a completed proxy form, other such instrument or any CREST Proxy Instruction (as described below) will not prevent a shareholder attending the meeting and voting in person if he/she wishes to do so. 6. Any person to whom this notice is sent who is a person nominated under section 146 of the Companies Act 2006 to enjoy information rights (a "Nominated Person") may, under an agreement between him/her and the shareholder by whom he/she was nominated, have a right to be appointed (or have someone else appointed) as a proxy for the meeting. If a Nominated Person has no such proxy appointment right or does not wish to exercise it, he/she may, under any such agreement, have a right to give instructions to the shareholder as to the exercise of voting rights. 7. The statement of the rights of shareholders in relation to the appointment of proxies in paragraphs 1 and 3 above does not apply to Nominated Persons. The rights described in these paragraphs can only be exercised by shareholders of the Company. 8. Pursuant to regulation 41 of the Uncertificated Securities Regulations 2001, only shareholders registered on the register of members of the Company (the "Register of Members") at 5.30 p.m. on Tuesday, 10 July 2012 (or, in the event of any adjournment, on the date which is two days before the time of the adjourned meeting) will be entitled to attend and vote or be represented at the meeting in respect of shares registered in their name at that time. Changes to the Register of Members after that time will be disregarded in determining the rights of any person to attend and vote at the meeting. 9. As at 31 May 2012 (being the last business day prior to the publication of this notice) the Company's issued share capital consists of 62,496,347 ordinary shares, carrying one vote each. Therefore, the total voting rights in the Company as at 31 May 2012 are 62,496,347. 10. CREST members who wish to appoint a proxy or proxies through the CREST electronic proxy appointment service may do so by using the procedures described in the CREST Manual. CREST Personal Members or other CREST sponsored members, and those CREST members who have appointed a service provider(s), should refer to their CREST sponsor or voting service provider (s), who will be able to take the appropriate action on their behalf. 11. In order for a proxy appointment or instruction made using the CREST service to be valid, the appropriate CREST message (a "CREST Proxy Instruction") must be properly authenticated in accordance with the specifications of Euroclear UK and Ireland Limited ("CRESTCo"), and must contain the information required for such instruction, as described in the CREST Manual. The message, regardless of whether it constitutes the appointment of a proxy or is an amendment to the instruction given to a previously appointed proxy must, in order to be valid, be transmitted so as to be received by the issuer's agent (ID RA10) no later than 48 hours before the time appointed for holding the meeting. For this purpose, the time of receipt will be taken to be the time (as determined by the timestamp applied to the message by the CREST Application Host) from which the issuer's agent is able to retrieve the message by enquiry to CREST in the manner prescribed by CREST. After this time any change of instructions to proxies appointed through CREST should be communicated to the appointee through other means. 12. CREST members and, where applicable, their CREST sponsors, or voting service providers should note that CRESTCo does not make available special procedures in CREST for any particular message. Normal system timings and limitations will, therefore, apply in relation to the input of CREST Proxy Instructions. It is the responsibility of the CREST member concerned to take (or, if the CREST member is a CREST personal member, or sponsored member, or has appointed a voting service provider, to procure that his CREST sponsor or voting service provider(s) take(s)) such action as shall be necessary to ensure that a message is transmitted by means of the CREST system by any particular time. In this connection, CREST members and, where applicable, their CREST sponsors or voting system providers are referred, in particular, to those sections of the CREST Manual concerning practical limitations of the CREST system and timings. 13. The Company may treat as invalid a CREST Proxy Instruction in the circumstances set out in Regulation 35(5)(a) of the Uncertificated Securities Regulations 2001. 14. In the case of joint holders, where more than one of the joint holders purports to appoint a proxy, only the appointment submitted by the most senior holder will be accepted. Seniority is determined by the order in which the names of the joint holders appear in the Register of Members in respect of the joint holding (the first named being the most senior). 15. Members who wish to change their proxy instructions should submit a new proxy appointment using the methods set out above. Note that the cut-off time for receipt of proxy appointments (see above) also applies in relation to amended instructions; any amended proxy appointment received after the relevant cut-off time will be disregarded. 16. Members who have appointed a proxy using the hard-copy proxy form and who wish to change the instructions using another hard-copy form, should contact Capita Registrars on 0871 664 0300 (calls cost 10p per minute plus network extras). Lines are open 8.30am to 5.30pm Monday to Friday. 17. If a member submits more than one valid proxy appointment, the appointment received last before the latest time for the receipt of proxies will take precedence. 18. In order to revoke a proxy instruction, members will need to inform the Company. Members should send a signed hard copy notice clearly stating their intention to revoke a proxy appointment to Capita Registrars, PXS, 34 Beckenham Road, Beckenham, Kent BR3 4TU. In the case of a member which is a company, the revocation notice must be executed under its common seal or signed on its behalf by an officer of the company or an attorney for the company. Any power of attorney or any other authority under which the revocation notice is signed (or a duly certified copy of such power of attorney) must be included with the revocation notice. If a member attempts to revoke their proxy appointment but the revocation is received after the time for receipt of proxy appointments (see page 47 of the 2012 Annual Report and Financial Statements) then, subject to paragraph 4, the proxy appointment will remain valid. GLOSSARY OF TERMS INVESTMENT TRUST TERMS 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. Gearing The term used to describe the process of borrowing money for investment purposes. The expectation is that the returns on the investments purchased will exceed the finance costs associated with those borrowings. There are several methods of calculating the level of gearing and the following has been selected: The amount drawn down from the Company's loan facility divided by shareholders' funds expressed as a percentage. Hypothecation The pledging of securities or other assets as collateral to secure a loan such as a debt balance in a margin account. Initial Public Offering (IPO) The initial offer by a company of shares to be quoted on a stock exchange. Often known as a flotation. Net Asset Value (NAV) The value of the Company's assets, principally investments made in other companies and cash being held, minus any liabilities. The NAV is also described as `shareholders' funds' per share. 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. Rehypothecation The pledging to banks by securities brokers of the assets in a customer's margin account used as collateral for a loan. Total Assets Total assets less current liabilities before deducting prior charges. Prior charges includes all loans for investment purposes. Ongoing Charges Ongoing charges are calculated by taking the Company's annualised ongoing charges, excluding performance fees and exceptional items, and dividing by the average net asset value of the Company over the year. The publishing of ongoing charges information rather than a total expense ratio (TER) is advocated the Association of Investment Companies who believe that using a single methodology to calculate onging charges will help reduce inconsistencies and allow investors and advisers to compare investment companies more easily with open-ended funds. END

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