Preliminary Announcement of Results
NEWS RELEASE
To: City Editors
For immediate release
22 November 2010
The Biotech Growth Trust PLC
Unaudited Interim Results for the six months ended 30 September 2010
Financial Highlights 30 September 31 March % Change
2010 2010
Net asset value per share 168.3p 182.6p -7.8
Share price 159.0p 175.8p -9.6
Discount of share price to net asset value 5.5% 3.7% -
per share
NASDAQ Biotechnology Index (sterling 569.3 618.1 -7.9
adjusted)
No interim dividend is proposed.
The following are attached:
* Chairman's Statement
* Review of Investments
* Top and Bottom Five Contributors to Net Asset Value Performance
* Income Statement
* Statement of Changes in Equity
* Balance Sheet
* Cash Flow Statement
* Notes to the Interim Financial Statements
This Announcement is not the Company's interim report. It is an abridged
version of the Company's full interim report for the six months ended 30
September 2010. The full interim report will be sent to shareholders on 26
November 2010. The full interim report, together with a copy of this
announcement, will also be available on the Company's website:
www.biotechgt.com
For further information please contact:
Mark Pope, Frostrow Capital LLP 020 3008 4913
Jo Stonier, Quill Communications 020 7758 2230
Chairman's Statement
Performance
Following strong returns during the last financial year, it is disappointing to
report that markets were rather more subdued during the first half of the
current financial year. The Company's net asset value per share fell by 7.8%
during the period compared to a fall of 7.9% in the Company's benchmark, the
NASDAQ Biotechnology Index, measured in sterling terms. The Company's share
price fell by 9.6% as the discount of the share price to the net asset value
per share widened from 3.7% at 31 March 2010 to 5.5% at 30 September 2010.
During the half year the U.S. dollar fell by 3.9% against sterling from $1.52
to £1 at the end of March 2010 to $1.58 to £1 at the end of September 2010.
This had an adverse influence on the Company's net asset value. Another
negative factor was the slight underperformance of the biotechnology sector
against the wider market. This underperformance reflected concerns over the
short term impact of the recently enacted U.S. healthcare reform and weaker
than expected earnings reports from a number of major biotechnology companies.
Merger and acquisition (M&A) activity remains extremely important for the
sector. For example, the shares of portfolio holding Genzyme rose by over 25%
on news that Sanofi-Aventis had made a takeover approach. We believe that we
are well placed to benefit from further M&A activity in the future.
Discount Management Policy and Share Buyback Policy
The Board has continued to implement its policy of active discount management
and to buy back shares for cancellation when the discount of the share price
against the net asset value per share is greater than 6%. During the six months
under review the Company repurchased a total of 90,052 shares for cancellation
at a cost of £134,000 (including expenses).
Revenue and Dividends
The revenue loss for the period was £202,000 (six months ended 30 September
2009: loss of £233,000) and no interim dividend is declared (six months ended
30 September 2009: nil).
Outlook
President Obama's Democratic Party suffered heavy losses in the recent U.S.
mid-term elections. The Republican Party took control of the House of
Representatives and made significant gains in the Senate. This result brings
uncertainty to the proposed healthcare reform in the U.S. as the Republicans
have indicated that they would wish to `repeal and replace' the healthcare
reform law passed in early 2010. President Obama, however, has pledged to find
common ground with the Republicans on this and other key issues and the polls
suggest that, overall, the public wants the healthcare reform to be amended
rather than scrapped altogether. The outcome is likely to remain unclear for
some time and at this stage it is impossible to predict whether progress or
paralysis will mark the remainder of President Obama's term of office. While it
is unlikely that there will be a wholesale repeal of the healthcare reform, the
expected gridlock should lead to less negative rhetoric and legislation against
the healthcare industry, a positive for healthcare companies overall.
Your Board remains of the view that the longer term outlook for the
biotechnology sector is promising, with M&A activity being a key driver of
performance for the sector as a whole.
Our focus continues to be on the selection of stocks with strong prospects for
capital growth and our belief that the long term investor in our sector will be
well rewarded is still firm.
John Sclater CVO
Chairman
22 November 2010
Review of Investments
The Company's net asset value per share declined by 7.8% during the six month
period ended 30 September 2010. The Company performed in-line with our
benchmark index, the NASDAQ Biotechnology Index (measured on a sterling
adjusted basis), which declined 7.9% during this period. Currency movements had
a negative effect on the Company's NAV performance, as sterling appreciated
3.9% against the U.S. dollar during this period.
The largest gains in the portfolio were from positions in Genzyme,
Pharmacyclics, Endo Pharmaceuticals, The Medicines Company and Illumina.
Genzyme received a takeover bid from Sanofi-Aventis at a 27% premium, which was
subsequently rejected by Genzyme's Board as being too low. Most investors
believe Sanofi-Aventis is committed to completing the transaction and will
increase its offer. Pharmacyclics announced positive data from its phase I
trial of PCI-32765, its Btk inhibitor for the treatment of lymphoma. We
continue to believe that this compound is one of the most promising new agents
for cancer. Endo Pharmaceuticals made progress in its franchise extension
strategy for its painkiller Opana and also acquired two businesses, the urology
diagnostics/services company HealthTronics and the generics company Qualitest,
which are both accretive to earnings. The Medicines Company received an
extension of its patent for its lead drug Angiomax. Illumina has posted strong
operating results with the introduction of its new HiSeq instrument line,
continuing its leadership in the gene sequencing sector.
The biggest losses were from positions in Gilead Sciences and Allos
Therapeutics. Gilead has performed poorly due to increased concern that it will
be unable to grow beyond the patent expiry for its HIV drug Viread in 2018. We
continue to think there is value in the company's shares and the patent cliff
will not be as dramatic as investors fear. Allos' shares declined due to a
disappointing launch of their lead drug Folotyn for T-cell lymphoma.
Since the signing of the U.S. healthcare reform bill in March 2010, markets
have struggled to determine the implications of the reform measures for
healthcare companies. The major biotechnology companies tended to underperform
as investors factored in reduced Medicaid reimbursement and other small reform
impacts into earnings projections. While there are some minimal reform-related
costs for biotechnology companies to absorb in the near-term, the gains in
patient volumes from having an extra 30 million Americans insured in 2014
should still represent a net benefit for the industry. In general, Americans
remain divided about their support for the healthcare reform package. In the
run-up to the mid-term elections, one of the main Republican platform
initiatives resonating with voters was the Republicans' desire to repeal or
replace "ObamaCare" and they substantially eroded the Democratic majorities in
Congress, taking control of the House of Representatives and making significant
gains in the Senate. While it is unlikely that this will lead to wholesale
repeal of healthcare reform, the resulting gridlock should lead to less
negative rhetoric and legislation against the healthcare industry, a positive
for healthcare companies overall.
Merger and acquisition (M&A) activity remains a key theme for biotechnology
investing. During the period, Sanofi-Aventis launched a takeover bid for
Genzyme, one of the largest holdings within the portfolio. If the transaction
is completed, this will leave only five independent biotechnology companies
that we consider major, following the acquisitions of Genentech, MedImmune and
Chiron over the past several years. The acquisition shows that M&A activity is
not restricted to emerging biotechnology companies and that the larger, more
mature major biotechnology companies still represent compelling value.
Interestingly, Genzyme focuses primarily on orphan disease markets, which
involves delivering extremely high-priced drugs to very small patient
populations. In the past it has been conventional wisdom that large
pharmaceutical companies would not acquire orphan disease companies, as it
would be poor public relations to sell such expensive drugs, whose prices can
exceed $300,000 annually. Sanofi's acquisition interest in Genzyme may signal a
shift in this attitude towards these markets and a belief that high pricing is
sustainable even for a large pharmaceutical company. Other profitable orphan
disease companies that may now be considered as acquisition targets include
portfolio holdings Shire Pharmaceuticals, BioMarin Pharmaceuticals, and former
holding Alexion Pharmaceuticals.
Although the number of major biotechnology companies has gradually been
declining over the years due to acquisitions, there are several companies with
major drug launches underway or expected over the next year that are poised to
become the next generation of major biotechnology companies. Three such
candidates are currently held within the portfolio. Dendreon recently launched
Provenge, a cell-based immunotherapy for the treatment of advanced prostate
cancer. We expect Provenge sales to eventually exceed $2 billion. In December
we expect approval of Human Genome Sciences' Benlysta for Lupus. This is a
multi-billion dollar opportunity, as lupus is a high-unmet medical need.
Finally, in mid-2011, we anticipate the approval of Vertex's Telaprevir for
hepatitis C. Data released recently indicates that Telaprevir increases the
cure rate to 75% compared to 44% for the current standard of care. We expect
rapid uptake of this drug, due to retreatment of prior treatment failures and
an increase in new patients seeking treatment.
The number of holdings in the portfolio remains at approximately 30, exclusive
of unquoted investments and warrants. The geographic distribution of assets is
82% North America, 14% Europe, 3% Israel and 1% Asia. Currently approximately
40% of the Company's assets are invested in major biotechnology companies, and
60% are invested in emerging biotechnology companies. We have taken a closer
look at potential opportunities in Asia as more companies have gone public in
that area.
With the Republicans having made significant gains in the recent U.S. mid-term
elections, investors increasingly understanding the implications of healthcare
reform, and several blockbuster drugs expected to launch over the next 12-18
months, we think that the outlook for the biotechnology sector is bright and
believe that strong returns can be delivered.
OrbiMed Capital LLC
Investment Manager
22 November 2010
Top and Bottom Five Contributors to Net Asset Value Performance
For the Six Months to 30 September 2010
Contribution Contribution
for the six per Share (p)
months to 30 *
September 2010
£'000
Top Five contributors
Genzyme 3,421 5.2
Pharmacyclics 3,041 4.6
Endo Pharmaceuticals 2,795 4.2
The Medicines Company 2,507 3.8
Illumina 1,760 2.7
13,524 20.5
Bottom Five contributors
Gilead Sciences (2,251) (3.4)
Allos Therapeutics (1,773) (2.7)
Curis (1,750) (2.7)
InterMune (1,735) (2.6)
Celgene (1,464) (2.2)
(8,973) (13.6)
*based on 65,934,855 ordinary shares being the weighted average number of
shares in issue during the period ended 30 September 2010
Source: Frostrow Capital LLP
Income Statement
For the six months ended 30 September 2010
(Unaudited) (Unaudited) (Audited)
Six months ended Six months ended Year ended
30 September 2010 30 September 2009 31 March 2010
Revenue Capital Total Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Investment
income
Investment 7 - 7 4 - 4 31 - 31
income
Other income - - - - - - 34 - 34
Total income 7 - 7 4 - 4 65 - 65
(note 2)
Gains and
losses on
investments
(Losses/gains - (8,913) (8,913) - 9,119 9,119 - 30,979 30,979
on
investments
held at fair
value through
profit or
loss
Exchange - 223 223 - (62) (62) - (725) (725)
gains/
(losses) on
currency
balances
Expenses
Investment - (512) (512) - (621) (621) - (1,365) (1,365)
management,
management
and
performance
fees
(note 3)
Refund of VAT - - - - - - - 168 168
previously
paid on
management
fees
Other (199) - (199) (235) - (235) (417) - (417)
expenses
(Loss)/profit (192) (9,202) (9,394) (231) 8,436 8,205 (352) 29,057 28,705
before
finance costs
and taxation
Finance costs (10) - (10) (2) (3) (5) (3) (13) (16)
(Loss)/profit (202) (9,202) (9,404) (233) 8,433 8,200 (355) 29,044 28,689
before
taxation
Taxation - - - - - - - - -
(Loss)/profit (202) (9,202) (9,404) (233) 8,433 8,200 (355) 29,044 28,689
for the
period
(Loss)/ (0.3)p (14.0)p (14.3)p (0.5)p 16.9p 16.4p (0.6)p 52.4p 51.8p
earnings per
share (note
4)
The Company does not have any income or expenses which are not included in the
profit for the period. Accordingly, the "Profit for the period" 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 the statement is the Income Statement of the Company
prepared in accordance with IFRS. The supplementary revenue and capital columns
are presented for information purposes as recommended by the Statement of
Recommended Practice issued by the Association of Investment Companies. All
items in the above statement derive from continuing operations. No operations
were acquired or discontinued during the period.
Statement of Changes in Equity
Six months
ended 30
September
2010
(Unaudited)
Share Share Special Capital Capital Retained Total
Capital Premium Redemption Reserve Earnings
Account Reserve Reserve
£'000 £'000 £'000 £'000 £'000 £'000 £'000
At 31 March 16,490 19,298 32,021 4,642 50,970 (3,004) 120,417
2010
Net loss for - - - - (9,202) (202) (9,404)
the period
Buyback of (23) - (134) 23 - (134)
shares
Refund of - 2 - - - - 2
issue costs
At 30 16,467 19,300 31,887 4,665 41,768 (3,206) 110,881
September
2010
Six months
ended 30
September
2009
(Unaudited)
Share Special Capital Capital Retained Total
Capital Reserve Redemption Reserve Earnings
Reserve
£'000 £'000 £'000 £'000 £'000 £'000
At 31 March 12,824 33,800 4,307 21,926 (2,649) 70,208
2009
Net profit/ - - - 8,433 (233) 8,200
(loss) for
the period
Buyback of (292) (1,475) 292 - - (1,475)
shares
At 30 12,532 32,325 4,599 30,359 (2,882) 76,933
September 200
9
Year ended
31 March
2010
(Audited)
Share Share Special Capital Capital Retained Total
Capital Premium Redemption Reserve Earnings
Account Reserve Reserve
£'000 £'000 £'000 £'000 £'000 £'000 £'000
At 31 March 12,824 - 33,800 4,307 21,926 (2,649) 70,208
2009
Net profit/ - - - - 29,044 (355) 28,689
(loss) for
the year
Issue of 4,001 19,877 - - - 23,878
shares
Issue costs - (579) - - - - (579)
Buy back of (335) - (1,779) 335 - - (1,779)
shares
At 31 March 16,490 19,298 32,021 4,642 50,970 (3,004) 120,417
2010
Balance Sheet
as at 30 September 2010
(Unaudited) (Unaudited) (Audited)
30 30 31 March
September September
2010 2009 2010
£'000 £'000 £'000
Non current assets
Investments held at fair value through 113,061 77,434 132,618
profit or loss
Current assets
Other receivables 643 2,031 304
Cash and cash equivalents 5,294 95 -
5,937 2,126 304
Total assets 118,998 79,560 132,922
Current liabilities
Other payables 8,117 2,627 4,016
Bank loan - - 8,489
8,117 2,627 12,505
Net assets 110,881 76,933 120,417
Equity attributable to equity holders
Ordinary share capital 16,467 12,532 16,490
Share premium account 19,300 - 19,298
Special reserve 31,887 32,325 32,021
Capital redemption reserve 4,665 4,599 4,642
Capital reserve 41,768 30,359 50,970
Retained earnings (3,206) (2,882) (3,004)
Total equity 110,881 76,933 120,417
Net asset value per share (note 5) 168.3p 153.5p 182.6p
Cash Flow Statement
for the six months ended 30 September 2010
(Unaudited) (Unaudited) (Audited)
Six months ended Six months ended Year ended
30 September 30 September 2009 31 March 2010
2010
£'000 £'000 £'000
Net cash inflow/(outflow) 13,692 3,218 (27,698)
from operating activities
(note 6)
Net cash inflow/(outflow) 13,692 3,218 (27,698)
before financing
Net cash (outflow)/inflow (8,621) (5,222) 26,262
from financing activities
Net increase/(decrease) in 5,071 (2,004) (1,436)
cash and cash equivalents
Cash and cash equivalents - 2,161 2,161
at start of period
Realised gain/(loss) on 223 (62) (725)
foreign currency
Cash and cash equivalents 5,294 95 -
at period end
Notes to the Interim Financial Statements
1. Accounting Policies
The condensed financial statements have been prepared under the historical cost
convention, except for the valuation of investments at fair value, and in
accordance with applicable accounting standards and with the Statement of
Recommended Practice `Financial Statements of Investment Trust Companies and
Venture Capital Trusts' dated January 2009.
The same accounting policies used for the year ended 31 March 2010 have been
applied.
2. Income
(Unaudited) (Unaudited) (Audited)
Six months Six months Year ended
ended 30 ended 30 31 March
September September
2010 2009 2010
£'000 £'000 £'000
Investment income 7 4 31
Other operating income - - 34
Total income 7 4 65
3. Investment Management, Management and Performance Fees
(Unaudited) (Unaudited) (Audited)
Six months Six months Year ended
ended 30 ended 30 31 March
September September
2010 2009 2010
£'000 £'000 £'000
Investment management fee 336 226 544
Management, administrative and 158 101 247
company secretarial fee fee
Performance fee charged in the 18 294 574
period/year&
512 621 1,365
*In accordance with the performance fee arrangements described on page 12 of
the 2010 Annual Report, a performance fee of £506,000 was accrued at the period
end (six months ended 30 September 2009: £516,000; year ended 31 March 2010:
£799,000).
In addition, during the period, fees totalling £310,000 were paid, of which
£224,000 related to fees which crystallised at 31 March 2010 and £86,000 in
relation to fees which crystallised and became payable at 30 June 2010.
Notes to the Interim Financial Statements (continued)
4. (Loss)/Earnings per Share
The (loss)/earnings per share figure is based on the net loss for the six
months of £9,404,000 (six months ended 30 September 2009: £8,200,000 gain; year
ended 31 March 2010: £28,689,000 gain) and on 65,934,855 (six months ended 30
September 2009: 50,043,197 and year ended 31 March 2010: 55,422,574) shares,
being the weighted average number of shares in issue during the period.
The (loss)/return per share detailed above can be further analysed between
revenue and capital as follows:
(Unaudited) (Unaudited) (Audited)
Six months Six months Year ended
ended 30 ended 30 31 March
September September
2010 2009 2010
£'000 £'000 £'000
Net revenue loss (202) (233) (355)
Net capital (loss) gain (9,202) 8,433 29,044
Net total (loss)/gain (9,404) 8,200 28,689
Weighted average number of shares 65,934,855 50,043,197 55,422,574
in issue during the period
Pence Pence Pence
Revenue loss per share (0.3) (0.5) (0.6)
Capital (loss)/earnings per share (14.0) 16.9 52.4
Total (loss)/earnings per share (14.3) 16.4 51.8
5. Net Asset Value per Share
The net asset value per share is based on the net assets attributable to equity
shareholders of £110,881,000 (30 September 2009: £76,933,000; 31 March 2010: £
120,417,000) and on 65,896,809 (30 September 2009: 50,127,463; 31 March 2010:
65,959,861) shares, being the number of shares in issue at the period end.
Notes to the Interim Financial Statements (continued)
6. Reconciliation of Profit/(Loss) Before Taxation to Net Cash Inflow/(Outflow)
From Operating Activities
(Unaudited) (Unaudited) (Audited)
Six months Six months Year ended
ended 30 ended 30
September 2010 September 2009 31 March
£'000 £'000 2010
£'000
(Loss)/profit before taxation (9,404) 8,200 28,689
Losses/(gains) on investments held 8,690 (9,057) (30,254)
at fair value through profit or
loss
Movements in investments held at 14,674 3,678 (26,783)
fair value through profit or loss
Decrease/(increase) in other 18 17 (17)
receivables
(Decrease)/increase in other (286) 380 667
payables
Net cash inflow/(outflow) 13,692 3,218 (27,698)
7. Transaction Costs
Purchase and sale transaction costs for the six months ended 30 September 2010
were £256,000 (six months ended 30 September 2009: £183,000 year ended 31 March
2010: £415,000). These costs comprise mainly commission.
8. Comparative Information
The financial information contained in this interim report does not constitute
statutory accounts as defined in section 435 (1) of the Companies Act 2006. The
financial information for the six months ended 30 September 2010 and 2009 has
not been audited or reviewed by the auditors.
The information for the year ended 31 March 2010 has been extracted from the
latest published audited financial statements. The audited financial statements
for the year ended 31 March 2010 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 498 of the Companies Act 2006.
Frostrow Capital LLP
Company Secretary
22 November 2010
Monday, 3rd February 2025
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