Half-yearly Report
The Biotech Growth Trust PLC
Interim Report for the six months to 30 September 2007
Company Summary
Performance Statistics 30 September 31 March % Change
2007 2007
Shareholders' Funds £75.6m £76.8m -1.6
Net asset value per share 117.0p 117.1p -0.1
Share price 111.8p 109.8p +1.8
Discount of share price to net asset value 4.4% 6.2% -
per share
NASDAQ Biotechnology Index (sterling 418.7 394.7 +6.1
adjusted)
Investment Objective and Policy
The Biotech Growth Trust PLC 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).
It is the Company's policy to invest no more that 15% of its gross assets in
other listed investment companies (including listed investment trusts). Other
that its investment in the Merlin Fund LP, which it has held since inception,
the Company has never had a holding in an investment company of any sort, and
the Directors do not currently envisage any circumstances in which it is likely
to do so in the future.
A significant proportion of the Company's assets are, 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.
Interim Dividend
The Company has not declared an interim dividend (2006: nil).
Capital Structure
During the half year, a total of 978,000 shares were repurchased by the Company
for cancellation. At 30 September 2007, the Company had 64,599,263 shares in
issue. Since the end of the half year a further 255,500 shares have been
repurchased for cancellation. As at 21 November 2007 the Company had 64,343,763
shares in issue.
Continuation Vote
The next continuation vote of the Company shall be held at the Annual General
Meeting in 2010, further opportunities to vote on the continuation of the
Company shall be given to shareholders every five years thereafter.
Chairman's Statement
Performance
The period under review has again been a difficult one for stock markets as a
whole and the Company's net asset value per share fell slightly by 0.1%. This
compares to a rise in the Company's benchmark, NASDAQ Biotechnology Index
measured in sterling terms, of 6.1%. Over the longer term however, since the
appointment of OrbiMed Capital LLC as investment manager to the Company in May
2005, the net asset value per share has risen by 17.5% which compares to a rise
in the benchmark index of 12.3%.
The Company's share price rose over the period by 1.8% as the discount of share
price to net asset value per share narrowed from 6.2% to 4.4%.
It is disappointing to report a period when your Company's net asset value per
share has again not made ground in absolute terms and in addition has
underperformed the benchmark index. There are two principal reasons for this.
First, the U.S. dollar again played its part in constraining the Company's
absolute performance. It fell during the half year from $1.96 to £1 at the end
of March 2007 to $2.04 to £1 at the end of September 2007, a drop of 4.1%.
And second, relative to the index, the investment portfolio was weighted more
towards smaller capitalisation biotechnology stocks which had a weak period
relative to larger capitalisation stocks. This was largely because of a lack of
merger and acquisition (`M&A') activity and some disappointing sales growth
generally within the sector. The level of M&A activity within the biotech
sector has picked up since the end of the period, most notably the board of
Biogen Idec announcing that the company is for sale. We believe that we are
well placed to benefit from further M&A activity in the future. Further details
of the performance of the Investment Portfolio are set out within the
Investment Manager's Review which forms part of the Company's Interim Report.
Share Capital
During the six months under review the Company repurchased a total of 978,000
shares at a cost of £1,062,000. All of these shares were cancelled. As at 30
September 2007 the Company held no shares in treasury. The Company remains
committed to active discount management and to buying back shares if the market
price is at a discount to net asset value per share of greater than 6%.
Revenue and Dividends
The revenue loss for the period was £126,000 (six months ended 30 September
2006: loss of £164,000) and no interim dividend is declared (six months ended
30 September 2006: nil).
Composition of the Board
Anthony Townsend retired from the Board on 8 November 2007. On behalf of all my
colleagues I would particularly like to thank Anthony for his contribution to
the Company over the whole of its life to date. Anthony, more than anyone else,
should be regarded as the founder of the Company. We will greatly miss his
attention to our affairs, his good advice and his great knowledge of the
investment trust market. We wish him well with his future plans.
Outlook
Your Board remains of the view that the longer term outlook for the
biotechnology sector is promising, with merger and acquisition activity being
the key driver of performance for the sector as a whole. Notwithstanding
shorter term challenges, your Board believes that the long term investor will
be well rewarded.
John Sclater CVO
Chairman
Interim Management Report
Risks and Uncertainties
A review of the half year and the outlook for the Company can be found in the
Chairman's Statement and in the Review of Investments. The major risks
associated with the Company are market price risk, gearing risk, liquidity
risk, interest rate risk and currency movement risk. The Company has
established a framework for managing these risks which is evolving continually
in line with the Investment Manager's strategy. The Board has provided the
Investment Manager with guidelines and limits for the management of market
risk, gearing and financial assets and liabilities. The Company does not hedge
its foreign currency exposure. Other key risks identified by the Board that
could affect the Company's performance are as follows:
* Performance risk: The performance of the Investment Portfolio relative to
the benchmark (NASDAQ Biotechnology Index - measured in sterling terms) is
monitored closely by the Board
* Discount volatility: The Company's share price can trade at a discount to
the underlying net asset value per share. The Company operates a discount
protection policy and associated share buyback programme.
* Regulatory risk: The Company operates in a complicated regulatory
environment and faces a number of regulatory risks. Breaches of
regulations, such as Section 842 of the Income and Corporation Taxes Act
1988, the UKLA Listing Rules and the Companies Act, could lead to a number
of serious outcomes and reputational damage. The Audit Committee monitors
compliance with regulations by reviewing internal control reports from the
Manager and Investment Manager.
Directors' Responsibilities
The Directors are responsible for preparing the interim report in accordance
with applicable law and regulations. The Directors confirm that to the best of
their knowledge the interim financial statements, within the interim report,
have been prepared in accordance with the Accounting Standards Board's
Statement `Half Yearly Financial Reports' and that the Chairman's Statement and
the Interim Management Report include a fair review if the information required
by 4.2.7R and 4.2.8R of the FSA's Disclosure and Transparency Rules.
The interim report has not been reviewed by the Company's auditors.
The interim report was approved by the Board on 22 November 2007and the above
responsibility statement was signed on its behalf by:
John Sclater CVO
Chairman
Review Of Investments
Performance
In the six months ending 30 September 2007, the Company's net asset value per
share underperformed its benchmark by approximately 6.2%. In absolute terms it
declined 0.1% versus a 6.1% increase in the NASDAQ Biotechnology Index
(sterling adjusted).
Several factors contributed to our underperformance. We were underweight
several major biotechnology positions that performed well during the term
including Celgene and Gilead Sciences, both of which are large components of
our benchmark. Additionally, the Company was invested in two companies which
experienced clinical setbacks: Panacos Pharmaceuticals and Vion
Pharmaceuticals.
Environment and Outlook
We continue to view merger and acquisition activity as a key strategic
investment theme for positioning the Company. Recently the board of Biogen Idec
publicly announced that it would consider a sale of the company. If completed,
this would represent the fourth acquisition of a major biotechnology company in
the last two years following the acquisitions of MedImmune, Serono and Chiron.
Among emerging biotechnology companies, Aspreva received a $915 million
acquisition offer from Galenica in October. The Company remains well positioned
to benefit from anticipated merger & acquisition activity in the future.
Larger capitalisation pharmaceutical stocks and large biotechnology stocks have
also sought to gain rights to potential new products through the signing of
partnerships. The value of late stage clinical programmes has climbed
dramatically over the last several years as companies compete for these prized
assets. In July, Ariad Pharmaceuticals partnered its lead drug for cancer with
Merck in return for over $700 million in upfront fees, potential milestone
payments and royalties.
The upcoming U.S. Presidential election could create headline risk as investors
weigh the impact of potential changes to the health care system, most
importantly any pressure on drug pricing. We believe that biotechnology
companies will be less impacted than large pharmaceutical firms because few
biotechnology drugs face significant competition and biotechnology products are
generally deemed to be more innovative and therefore worthy of a premium price.
Prescription Drug User Free Act IV was an important piece of legislation passed
by the U.S. Congress in September. This renewed an important programme which
allows pharmaceutical manufacturers to pay fees to the U.S. Food and Drug
Agency (FDA) in exchange for more timely regulatory decisions. Importantly,
industry unfriendly provisions, such as regulations allowing follow-on
biologics and the creation of a separate independent safety division at the
FDA, were considered but left out of the final legislation.
From a geographic perspective, our emphasis remains on North American
biotechnology companies, which account for approximately 88% of assets. We have
also identified several promising opportunities in Europe, which account for
approximately 10% of assets. The unquoted positions now represent just 2.2% of
assets.
OrbiMed Capital LLC
Investment Manager
Income Statement
For the six months ended 30 September 2007
(Unaudited) (Unaudited) (Audited)
Six months ended Six months ended Year ended
30 September 2007 30 September 2006 31 March 2007
Revenue Capital Total Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Investment i
ncome
Investment 38 - 38 18 - 18 36 - 36
income
Other income 6 - 6 2 - 2 8 - 8
Total income 44 - 44 20 - 20 44 - 44
(note 2)
Gains and
losses on
investments
(Losses)/ - (472) (472) - (2,947) (2,947) - 3,373 3,373
gains on
investments
held at fair
value through
profit or
loss
Exchange - (111) (111) - (104) (104) - (277) (277)
losses on
currency
balances
Expenses
Investment - 575 575 - (463) (463) - (2,048) (2,048)
management,
management
and
performance
fees
(note 3)
Other (155) - (155) (178) - (178) (355) - (355)
expenses
(Loss)/profit (111) (8) (119) (158) (3,514) (3,672) (311) 1,048 737
before
finance costs
and taxation
Finance costs (15) (7) (22) (6) - (6) (20) (17) (37)
(Loss)/profit (126) (15) (141) (164) (3,514) (3,678) (331) 1,031 700
before
taxation
Taxation - - - - - - - - -
(Loss)/profit (126) (15) (141) (164) (3,514) (3,678) (331) 1,031 700
for the
period
(Loss)/ea (0.2)p (0.0)p (0.2)p (0.3)p (6.6)p (6.9)p (0.5)p 1.7p 1.2p
rnings per
share (note 4
)
The total column of this statement represents the Income Statement, prepared in
accordance with IFRS. The revenue return and capital return 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.
All income is attributable to the equity holders of The Biotech Growth Trust
PLC.
Statement of Changes in Equity
For the six months ended 30 September 2007
Unaudited Six months ended 30 September 2007
Share Share Special Capital Capital Revenue Total £
Capital Premium Reserve Redemption Reserve Reserve '000
Account £'000 Reserve £'000 £'000
£'000 £'000
£'000
At 31 March 2007 16,394 - 49,443 737 12,232 (2,003) 76,803
Net loss for the - - - - (15) (126) (141)
period
Buyback of shares (244) - (1,062) 244 - - (1,062)
At 30 September 2007 16,150 - 48,381 981 12,217 (2,129) 75,600
Unaudited Six months ended 30 September 2006
Share Share Special Capital Capital Retained Total £
Capital Premium Reserve Redemption Reserve Earnings '000
Account £'000 Reserve £'000 £'000
£'000 £'000
£'000
At 31 March 2006 6,935 272 19,167 653 11,201 (1,672) 36,556
Net loss for the - - - - (3,514) (164) (3,678)
period
Issue of shares 9,543 31,267 - - - - 40,810
Issue expenses - (938) - - - - (938)
Share premium - (30,601) 30,601 - - - -
account cancelled
Issue expenses - - - - 37 - 37
written back
At 30 September 16,478 - 49,768 653 7,724 (1,836) 72,787
2006
Audited Year ended 31 March 2007
Share Share Special Capital Capital Revenue Total
Capital Premium Reserve Redemption Reserve Reserve £'000
Account £'000 Reserve £'000 £'000
£'000 £'000
£'000
At 31 March 2006 6,935 272 19,167 653 11,201 (1,672) 36,556
Net profit/(loss) - - - - 1,031 (331) 700
for the period
Issue of shares 9,543 31,267 - - - - 40,810
Issue expenses - (938) - - - - (938)
Share premium - (30,601) 30,601 - - - -
account cancelled
Issue expenses - - 39 - - - 39
written back
Buyback of shares (84) - (364) 84 - - (364)
At 31 March 2007 16,394 - 49,443 737 12,232 (2,003) 76,803
Balance Sheet
as at 30 September 2007
(Unaudited) (Unaudited) (Audited)
30 30 31 March
September September
2007 2006 2007
£'000 £'000 £'000
Non current assets
Investments held at fair value through 74,695 73,081 78,088
profit or loss
Current assets
Other receivables 695 170 2,443
Cash and cash equivalents 1,184 538 -
1,879 708 2,443
Total assets 76,574 73,789 80,531
Current liabilities
Other payables 974 742 2,635
Bank overdrafts - 260 1,093
974 1,002 3,728
Net assets 75,600 72,787 76,803
Equity attributable to equity holders
Share capital 16,150 16,478 16,394
Special reserve 48,381 49,768 49,443
Capital redemption reserve 981 653 737
Capital reserve - realised 14,052 7,109 12,305
Capital reserve - unrealised (1,835) 615 (73)
Revenue reserve (2,129) (1,836) (2,003)
Total equity 75,600 72,787 76,803
Net asset value per share (note 5) 117.0p 110.4p 117.1p
Cash Flow Statement
for the six months ended 30 September 2007
(Unaudited) (Unaudited) (Audited)
Six months ended Six months ended Year ended
30 September 30 September 2006 31 March 2007
2007
£'000 £'000
£'000
Net cash inflow/(outflow) 3,398 (39,107) (39,943)
from operating activities
(note 6)
Net cash inflow/(outflow) 3,398 (39,107) (39,943)
before financing
Net cash (outflow)/inflow (1,010) 39,909 39,547
from financing activities
Net increase/(decrease) in 2,388 802 (396)
cash and cash equivalents
Cash and cash equivalents (1,093) (420) (420)
at start of period
Realised loss on foreign (111) (104) (277)
currency
Cash and cash equivalents 1,184 278 (1,093)
at period end
Notes to the Interim Financial Statements
1. Accounting Policies
The financial statements have been prepared under the historical cost
convention, modified to include the valuation of investments at fair value, in
accordance with applicable accounting standards and with the Statement of
Recommended Practice `Financial Statements of Investment Trust Companies'. All
of the Company's operations are of a continuing nature.
This interim report is prepared in accordance with IAS 34 and on the basis of
the accounting policies set out in the Company's Annual Report and Accounts as
at 31 March 2007.
2. Income
(Unaudited) (Unaudited) (Audited)
30 September 30 September 31 March
2007 2006 2007
£'000 £'000 £'000
Investment income 38 18 36
Bank interest 6 2 8
44 20 44
Notes to the Interim Financial Statements (continued)
3. Investment Management, Management and Performance Fees
(Unaudited) (Unaudited) (Audited)
30 September 30 September 31 March
2007 2006 2007
£'000 £'000 £'000
Periodic fee 390 294 672
Performance fee accrual as at the 406 169 1,351
period end
Performance fee provision as at (1,351) - -
31 March 2007 written back
Irrecoverable VAT thereon (20) - 25
(575) 463 2,048
As at 30 September 2007 a performance fee of £169,000 (ex VAT) crystallised and
became payable.
4. (Loss)/Earnings per Share
The (loss)/earnings per share figure is based on the net loss for the six
months of 141,000 (six months ended 30 September 2006: £3,678,000 loss; year
ended 31 March 2007: £700,000 gain) and on 65,176,968 (six months ended 30
September 2006: 53,188,176 and year ended 31 March 2007: 59,520,000) shares,
being the weighted average number of shares in issue during the period.
The return per share detailed above can be further analysed between revenue and
capital as follows:
(Unaudited) (Unaudited) (Audited)
30 September 30 September 31 March
2007 2006 2007
£'000 £'000 £'000
Net revenue loss (126) (164) (331)
Net capital (loss)/gain (15) (3,514) 1,031
Net total (loss)/gain (141) (3,678) 700
Weighted average number of shares 65,176,968 53,188,176 59,520,000
in issue during the period
Pence Pence Pence
Revenue loss per share (0.2) (0.3) (0.5)
Capital (loss)/earnings per share - (6.6) 1.7
Total (loss)/earnings per share (0.2) (6.9) 1.2
Notes to the Interim Financial Statements (continued)
5. Net Asset Value per Share
The net asset value per share is based on the net assets attributable to equity
shareholders of £75,600,000 (30 September 2006: £72,787,000; 31 March 2007: £
76,803,000) and on 64,599,263 (30 September 2006: 65,912,263; 31 March 2007:
65,577,263) shares, being the number of shares in issue at the period end.
6. Reconciliation of Profit/(Loss) Before Taxation to Net Cash Outflow From
Operating Activities
(Unaudited) (Unaudited) (Audited)
Six months Six months Year ended
ended 30 ended 30
September 2007 September 2006 31 March
£'000 £'000 2007
£'000
(Loss)/profit before taxation (141) (3,678) 700
Loss/(gain) on investments held at 583 3,051 (3,096)
fair value through profit or loss
Net sales/(purchases) of 3,843 (38,622) (38,953)
investments held at fair value
through profit or loss
(Increase) in other receivables (3) (16) -
(Decrease)/increase in other (884) 158 1,406
payables
Taxation on overseas income - - -
Net cash inflow/(outflow) 3,398 (39,107) (39,943)
7. Transaction Costs
Purchase and sale transaction costs for the six months ended 30 September 2007
were 178,000; year ended 31 March 2007: £378,000; six months ended 30 September
2006: £214,000. These costs comprise mainly stamp duty and broker commission.
8. VAT
On 31 October 2007 the Association of Investment Companies announced that HM
Revenue and Customs had confirmed to the Investment Management Association that
investment trust investment management fees should no longer attract Value
Added Tax (VAT). The Company is now taking steps to recover VAT paid to its
previous investment manager, Close Investments Limited (formerly Close Finsbury
Asset Management Limited) and the Company will take credit for any VAT
recovered when any such recovery can be assessed with reasonable certainty.
9. Comparative Information
The financial information contained in this interim report does not constitute
statutory accounts as defined in section 240 of the Companies Act 1985. The
financial information for the six months ended 30 September 2007 and 2006 has
not been audited or reviewed by the auditors.
Notes to the Interim Financial Statements (continued)
The information for the year ended 31 March 2007 has been extracted from the
latest published audited financial statements. The audited financial statements
for the year ended 31 March 2007 have been filed with the Registrar of
Companies. The report of the auditors on those accounts was unqualified, did
not include a reference to any matters to which the auditors drew attention by
way of emphasis without qualifying the report, and did not contain statements
under section 237(2) or (3) of the Companies Act 1985.
For The Biotech Growth Trust PLC
Frostrow Capital LP, Company Secretary
The Interim Report is available on the Company's website (www. Biotechgt.com)
or from the Company Secretary and has been posted to shareholders
END
The Biotech Growth Trust PLC
Interim Results for the six months ended 30 September 2007
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