Final Results
NEWS RELEASE
8 June 2009
Preliminary Results for the year ended 31 March 2009
The Biotech Growth Trust PLC today announces preliminary results for the year
ended 31 March 2009.
31 March 31 March % change
2009 2008
Shareholders' funds (£'000) 70,208 64,497 8.9
Net asset value per share 136.9p 103.4p 32.4
Share price 130.5p 96.8p 34.8
Discount of share price to net asset value 4.7% 6.4% N/A
per share
NASDAQ Biotechnology Index (sterling 477.5 393.1 21.5
adjusted)
Total expense ratio * 1.6% 1.5% N/A
*Based on the average amount of shareholders' funds during the year - excludes
performance fee accrued/written back -see note 3.
For and on behalf of Frostrow Capital LLP - Company Secretary
8 June 2009
- ENDS -
The following are attached:
* Chairman's Statement
* Investment Manager's Review
* Income Statement
* Statement of Changes in Equity
* Balance Sheet
* Cash Flow Statement
* Notes to the Financial Statements
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 Communications 020 7758 2230
Chairman's Statement
PERFORMANCE
Following the strong performance reported at the interim stage, I am delighted
to report that despite an extremely challenging period for financial markets,
the Company continued to deliver strong returns during the second half of its
financial year. During the year ended 31 March 2009, the Company's net asset
value per share rose by 32.4% compared to a rise of 21.5% in the Company's
benchmark during the same period. This compares to a fall in the MSCI World
index over the same period of 22.2% in sterling terms. The Company's share
price also outperformed the benchmark, rising by 34.8%, as the discount of
share price to net asset value per share narrowed slightly from 6.4% at 31
March 2008 to 4.7% at the year end.
This outperformance was achieved, in part, from continued high levels of merger
and acquisition activity in the biotechnology sector as larger pharmaceutical
companies sought to enhance their internal research through additional products
obtained through acquisitions. The Company's total return was also aided by the
significant weakening of sterling during the year.
We are delighted that, during the calendar year to 31 December 2008, the
Company's share price performance, measured on a total return basis, was ranked
third out of approximately 250 UK listed investment companies (source:
Winterflood Securities Limited). In addition, the Company won the Specialist
Category at the 2008 Investment Week, Investment Trust of the Year Awards and
OrbiMed Capital LLC, the Company's Investment Manager, won the techMARK
Technology Fund Manager of the Year Award for its management of the Company's
portfolio.
RETURN PER SHARE AND DIVIDEND
The total return per share amounted to 32.0p for the year (2008: loss of
13.8p), comprising a revenue deficit of 0.7p per share (2008: deficit of 0.4p)
and a capital gain of 32.7p (2008: loss of 13.4p). No dividend is recommended
in respect of the year ended 31 March 2009 (2008: Nil).
DISCOUNT MANAGEMENT POLICY AND BUY-BACK AUTHORITY
The Board continued to implement its policy of active discount management and
to buy back shares 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
11,089,550 shares was bought back for cancellation, at an average discount to
net asset value per share of 8.4%, costing £12,265,000 (including expenses).
The execution and timing of any share buy-back will continue to be at the
absolute discretion of the Board.
Shareholder approval to renew the authority to buy back shares will be sought
at the Annual General Meeting.
OUTLOOK
The economic outlook remains uncertain and stock market conditions will
continue to be volatile and difficult. But we expect that healthcare companies
will be well-positioned to maintain their growth rates in the medium term, as
their products are non-discretionary and often funded by government
expenditure.
In the light of the difficult market conditions our Investment Manager has
continued to adopt a cautious stance with regard to the make-up of the
portfolio, the majority of which is invested in liquid stocks. Merger and
acquisition activity continues to be a key driver for the sector and we believe
that in this regard the Company is well positioned as a number of our holdings
are in small to mid-sized companies with products that are expected to be
attractive to larger strategic buyers.
Against this background, our outlook remains in line with that expressed at the
interim stage. We are cautiously optimistic in the medium term and are nervous
of continued volatility in the short term.
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, 23 July 2009
at 12 noon, 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
Review of Investments
We present with pleasure our annual review of investments for The Biotech
Growth Trust PLC, which was launched in June 1997 and for which OrbiMed became
the Investment Manager in May 2005.
Performance Review
The Company's net asset value per share increased by 32.4% during the year. We
were pleased to deliver this performance during a very challenging market
environment as evidenced by the 32.2% decline in the FTSE All-Share index
during the year. The Company also outperformed our benchmark index, the NASDAQ
Biotechnology Index (measured on a sterling adjusted basis), which rose 21.5%
during this period. According to Winterflood Securities, the Company's broker,
the Company's share price performance, measured on a total return basis, was
ranked third out of approximately 250 UK listed investment companies during the
calendar year to 31 December 2008.
The top contributors to performance in the portfolio were ImClone Systems,
Tepnel Life Sciences, Amgen, Genentech, and Kosan Biosciences. Four of these
companies were targets of announced acquisitions. As we have discussed in a
number of the Company's published fact sheets, acquisition activity in the
biotechnology sector has been strong as larger pharmaceutical companies seek to
bolster their internal research efforts with additional products obtained
through acquisitions. As these transactions often occur at a substantial
premium to the current share price, investors have an opportunity to earn
handsome returns by investing in companies which are subsequently acquired.
Among our top winners, ImClone Systems was acquired at a 50% premium by Eli
Lilly for $6.5 billion, Tepnel Life Sciences was acquired at a 125% premium by
Gen-Probe for approximately $100 million, Roche acquired the remainder of
Genentech it did not already own at a 20% premium for $47 billion, and Kosan
Biosciences was acquired at a 233% premium by Bristol-Myers Squibb for $190
million.
The biggest losses were from positions in BioMarin, Life Technologies, formerly
known as Invitrogen, and XOMA. XOMA has lost value because the psoriasis
product Raptiva upon which it receives royalties was withdrawn from the market
in the U.S. and EU due to a rare side effect. BioMarin has declined because
they issued long-term earnings guidance that was below consensus expectations.
Healthcare in the Eye of the Financial Market Storm
Amidst the worst financial market collapse in over a generation, the healthcare
sector validated its reputation as a defensive sector, providing something of a
safe haven and largely preserving investor capital. Underpinning the strong
relative performance of the sector has been a combination of reasonably stable
earnings for the larger companies, resurgent mergers and acquisition ("M&A")
activity, and a rotation of investor capital into the healthcare sector away
from more cyclical and consumer-discretionary related sectors. This rotation
into healthcare stocks is reminiscent of the 1990/1991 economic slowdown, a
period with many parallels to today's declining housing markets, financial
markets stresses, rising corporate and individual default rates and poor
economic growth. The biotechnology sector posted extraordinary gains during
this period, with the Amex Biotechnology Index increasing 46% in 1990 and over
190% in 1991.
Looking forward over the next five years, the global economy will clearly have
to contend with the ramifications of the deleveraging of the U.S. consumer. As
of last year, the U.S. economy represented approximately a quarter of the
global economy, and of this figure nearly 70% was accounted for by consumer
spending, compared to 50% to 60% for many European countries. At its nadir last
year, the U.S. savings rate actually turned negative, meaning U.S. consumers
spent more than 100% of their disposable income. As the U.S. retrenches from
this consumer-driven growth bubble, many sectors of the global economy which
are tied to discretionary spending (and the U.S. consumer in particular) will
face significant headwinds over the coming years. We expect healthcare
companies will be well-positioned to maintain their growth rates during this
period, as their products are largely non-discretionary and often funded by
government expenditures. We believe investors should maintain a
larger-than-normal allocation to healthcare investments, such as the Company,
over the coming years.
Healthcare Meets Obamanomics
In February, President Obama unveiled his plans for healthcare reform as part
of the release of his $3.6 trillion 2010 budget proposal. The broad outline was
for a combination of tax increases and spending cuts to free up $630 billion
over the next ten years to dramatically expand healthcare coverage. Obama
appears determined to deliver on his campaign promise to expand access to the
U.S. healthcare system for the nearly 50 million uninsured Americans without
implementing a UK-style single payor system. The healthcare sector experienced
a dramatic sell-off in the days following publication of this plan as investors
began to fear implementation of a radical healthcare overhaul dominated by the
federal government. During March however the sell-off abated and investor
sentiment turned more neutral as investors began to examine the proposals and
recognise that there were no incremental negative industry implications in the
budget plans.
Looking ahead, the broad push to reform the U.S. healthcare system will drive
changes and growth that we expect to be largely beneficial to the generic
pharmaceutical, hospital and healthcare technology sectors, while creating
headwinds for traditional large pharmaceutical companies, managed care
providers and selected large biotechnology companies at risk of generic
competition. An additional $6 billion of proposed funding to the National
Institutes of Health (NIH) will stimulate new basic research, particular in
oncology, while an additional $1 billion of funding for the U.S. Food and Drug
Administration ("FDA") will help to expedite decision-making and hopefully
improve efficiency and morale after a period of lacklustre effectiveness by the
agency. President Obama's pick to run the FDA, Dr. Margaret Hamburg, is viewed
as a reasonable, pragmatic leader for the agency, able to draw on her past
experience as the former Health Commissioner of New York City and previous work
at the NIH.
Mergers and Acquisitions Bonanza
As mentioned earlier in this report, our investment theme focused on M&A
targets yielded strong results during the year. The recent surge in
acquisitions coupled with high premiums paid for the acquired companies
demonstrate continued strong demand from "big pharma" companies as they look to
smaller discovery companies to offset their generally low research
productivity. As shown in the table below, the past year has seen over a score
of acquisitions of smaller discovery companies. Fortunately for the investors
in these acquired companies, the premium paid for these companies has averaged
upwards of 50%.
Biotechnology Acquisition Announcements
Announcement Target Acquiror Deal Size Premium
Date Paid
12/03/09 CV Therapeutics Gilead Sciences $1.4 billion 25%
27/2/09 Arena Cephalon $210 million 69%
Therapeutics
30/01/09 Tepnel Life Gen-Probe $132 million 126%
Sciences
12/01/09 Targanta Medicines Co. $50 million 72%
05/01/09 Indevus Endo $370 million 45%
Pharmaceuticals
24/11/08 Omrix Johnson & Johnson $465 million 18%
30/10/08 Genelabs GlaxoSmithKline $57 million 430%
06/10/08 Imclone Systems Eli Lilly $6.5 billion 51%
25/07/08 Acambis Sanofi Aventis £275 million 65%
15/07/08 Lev ViroPharma $443 million 49%
Pharmaceuticals
10/07/08 Speedel Novartis $880 million 94%
08/07/08 SGX Eli Lilly $64 million 119%
Pharmaceuticals
03/07/08 Jerini Shire $521 million 73%
23/06/08 Barrier Stiefel Labs $148 million 136%
Therapeutics
09/06/08 Third Wave Tech. Hologic $580 million 7%
05/06/08 Tercica Ipsen $665 million 104%
29/05/08 Kosan Biosciences Bristol-Myers $190 million 233%
Squibb
12/05/08 Iomai Intercell $189 million 128%
22/04/08 Sirtris GlaxoSmithKline $720 million 84%
11/04/08 Millennium Takeda $8.8 billion 53%
In addition to these smaller deals, there have been several blockbuster
announcements over the past year, such as Pfizer's $68 billion bid for Wyeth,
Merck's $41 billion bid for Schering-Plough, and Roche's $44 billion bid for
Genentech. We have been adept at positioning the Company advantageously to
profit from M&A activity as a number of our holdings are invested in small and
mid-sized companies with products that would be attractive to numerous larger
strategic buyers.
A Promising Start to Fiscal 2010
Fiscal 2010 has begun on an auspicious note with the announcement, in April, by
biotechnology company Dendreon, that their prostate cancer treatment Provenge
had meaningfully extended survival for patients in a phase 3 clinical trial.
Dendreon's stock price increased over 130% on the day of that news. Provenge
comes from a very advanced class of therapies known as "immunotherapies", which
essentially are vaccines against cancer. We typically have a bias against these
treatments as they have historically failed to demonstrate efficacy. However
our research on Provenge, including many conversations with clinical
investigators and biostatisticians, provided evidence that Provenge was showing
meaningful efficacy, and given the significant market pessimism surrounding
this trial the stock presented a compelling risk/reward profile.
Dendreon is a fine example of our belief that the coming years promise to be an
exciting time for investors in the healthcare sector thanks to a continued
flurry of M&A activity, the successful development of several "blockbuster" new
products such as Provenge, improved regulatory efficiency particularly in the
U.S., and a broad push towards expanded healthcare coverage for consumers in
many large markets such as the U.S. and China. We are intensely focused on
finding investment opportunities that will benefit from these trends.
At the Annual General Meeting, held on 23 July 2008, shareholders granted
approval to invest up to $15 million in private equity funds managed by
OrbiMed. The Company has committed to a $5 million investment in Caduceus Asia
Partners, a fund dedicated to making private investments in Asian healthcare
companies. We believe that this fund is well-positioned to capitalise on the
rapid growth in emerging markets and pressures to lower pharmaceutical
development costs through outsourcing. The fund has made its first investment
in a life science tools company with significant operations in mainland China.
As always, we appreciate and thank you for your support.
Sven Borho
OrbiMed Capital LLC
Investment Manager
Income Statement
for the year ended 31 March 2009
2009 2008
Revenue Capital Total Revenue Capital Total
£000 £000 £000 £000 £000 £000
Investment income
Investment income ( note 39 - 39 116 - 116
2)
Other income ( note 2) - - - 6 - 6
Total income 39 - 39 122 - 122
Gains and losses on
investments
Gains/losses on - 19,774 19,774 - (9,156) (9,156)
investments held at fair
value through
profit or loss
Exchange losses on - (469) (469) - (4) (4)
currency balances
Expenses
Investment management, - (871) (871) - 514 514
management and
performance fees ( note
3)
Other expenses (408) (7) (415) (366) - (366)
Profit/(loss) before (369) (18,427) (18,058) (244) (8,646) (8,890)
finance costs and
taxation
Finance costs (7) (75) (82) (26) (12) (38)
Profit/(loss) before (376) 18,352 17,976 (270) (8,658) (8,928)
taxation
Taxation - - - - - -
Profit/(loss) for the (376) 18,352 17,976 (270) (8,658) (8,928)
year
Earnings/(loss) per (0.7)p 32.7p 32.0p (0.4)p (13.4)p (13.8)p
share
( note 4)
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.
Statement of Changes in Equity
For the year ended 31 March 2009
Share Special Capital Capital Retained Total
capital redemption earnings
£000 reserve reserve £000 £000
£000 reserve
£000
£000
At 31 March 2008 15,596 46,065 1,535 3,574 (2,273) 64,497
Net profit/ (loss) - - - 18,352 (376) 17,976
for the year
Buy back of shares (2,772) (12,265) 2,772 - - (12,265)
At 31 March 2009 12,824 33,800 4,307 21,926 (2,649) 70,208
For the year ended 31 March 2008
Share Special Capital Capital Retained Total
capital reserve redemption reserve earnings
£000 £000 reserve £000 £000
£000
£000
At 31 March 2007 16,394 49,443 737 12,232 (2,003) 76,803
Net loss for the year - - - (8,658) (270) (8,928)
Buy back of shares (798) (3,378) 798 - - (3,378)
At 31 March 2008 15,596 46,065 1,535 3,574 (2,273) 64,497
Balance Sheet
As at 31 March
2009 2008
£'000 £'000
Non current assets
Investments held at fair 71,256 64,806
value through profit or
loss
Current assets
Other receivables 1,066 850
Cash and cash equivalents 2,161 811
3,227 1,661
Total assets 74,483 66,467
Current liabilities
Other payables 1,136 1,970
Bank loan 3,139 -
4,275 1,970
Net assets 70,208 64,497
Equity attributable to
equity holders
Ordinary share capital 12,824 15,596
Special reserve 33,800 46,065
Capital redemption reserve 4,307 1,535
Capital reserve 21,926 3,574
Retained earnings (2,649) (2,273)
Total equity 70,208 64,497
Net asset value per share 136.9p 103.4p
( note 5)
Cash Flow Statement
For the year ended 31 March
2009 2008
£'000 £'000
Operating activities
Profit/(loss) before tax 17,976 (8,928)
Add back interest paid 82 38
Less: gain/(loss) on (19,774) 9,156
investments held at fair
value through profit or
loss
Less exchange losses on 469 4
currency balances
Purchases of investments (55,870) (79,383)
held at fair value through
profit or loss
Sales of investments held 67,658 85,477
at fair value through
profit or loss
Increase in other (9) (21)
receivables
Increase/(decrease) in 229 (1,359)
other payables
Net cash inflow from 10,761 4,984
operating activities
before interest and
taxation
Interest paid (82) (38)
Net cash inflow from 10,679 4,946
operating activities
Financing activities
Buy back of shares (11,999) (3,038)
Draw down of bank loan 3,139 -
Net cash outflow from (8,860) (3,038)
financing
Increase in cash and cash 1,819 1,908
equivalents
Cash and cash equivalents 811 (1,093)
at start of year
Effect of foreign exchange (469) (4)
rate changes
Cash and cash equivalents 2,161 811
at end of year
Notes to the Financial Statements
1 Basis of Preparation
This preliminary announcement of the Company has been prepared in accordance
with International Financial Reporting Standards ("IFRS") and using the same
accounting policies as those in the last published annual accounts, being those
to 31 March 2008.
2 Income
2009 2008
£'000 £'000
Income from listed investments 20 70
Money market dividend 17 -
Overseas income 2 46
Unfranked interest
39 116
Other operating income - 6
Interest receivable
Total Income 39 122
3 Investment Management, Management and Performance Fees
Revenue Capital Total Revenue Capital Total
2009 2009 2009 2008 2008 2008
£'000 £'000 £'000 £'000 £'000 £'000
Investment - 449 449 - 471 471
Management
Periodic fee
Management fee - 198 198 - 218 218
Performance - - - - 169 169
fee paid
Performance 224 224 - - -
fee accrued
Performance - - - - (1,351) (1,351)
fee accrual
written back
Irrecoverable - - - - (21) (21)
VAT thereon
- 871 871 - (514) (514)
During the year ended 31 March 2008 a performance fee of £169,000 crystallised
and became payable and also during that year the £1,351,000 accrual that had
been made as at 31 March 2007 was reversed in accordance with the performance
fee arrangements in force at the time. In addition, a fee of £224,000 was
accrued as at 31 March 2009.
Notes to the Financial Statements(continued)
4 Earnings/ (loss) per share
Total gain per share of 32.0p (2008: loss 13.8p) is based on the total gain
attributable to equity shareholders of £17,976,000 (2008: loss £8,928,000).
The revenue loss per share of 0.7p (2008:0.4p) is based on the revenue loss
attributable to equity shareholders of £376,000 (2008: £270,000).
The capital gain per share of 32.7p (2008: loss 13.4p) is based on the capital
gain attributable to equity shareholders of £18,352,000 (2008: loss £
8,658,000).
Total gain, revenue loss and capital gain/(loss) per share are based upon the
weighted average number of shares in issue during the year of 56,196,626 (2008:
64,473,752).
5 Net asset value per share
The net asset value per share is based on the net assets attributable to equity
shareholders of £70,208,000 (2008: £64,497,000) and on 51,296,413 (2008:
62,385,963) shares in issue at 31 March 2009.
6 Financial information
This preliminary statement is not the Company's statutory accounts. The above
results for 2009 have been agreed with the Auditors and are an abridged version
of the Company's full accounts which have not yet been filed with the Registrar
of Companies. The 2009 accounts have been prepared in accordance with
International Financial Reporting Standards ("IFRS").
The statutory accounts for the year end 31 March 2008 have been delivered to
the Registrar of Companies and those for 31 March 2009 will be despatched to
shareholders shortly. The 2009 accounts received an audit report which was
unqualified, did not include a reference to any matter to which the auditors
drew attention without qualifying the report, and did not contain statements
under Section 237 (2) and (3) of the Companies Act 1985.
Frostrow Capital LLP
Company Secretary
8 June 2009
- ENDS -
The Biotech Growth Trust PLC
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