Half-yearly Report
FINSBURY WORLDWIDE PHARMACEUTICAL TRUST PLC
INTERIM REPORT FOR THE SIX MONTHS TO 30 SEPTEMBER 2007
Performance
30 September 31 March % Change
2007 2007
Shareholders' funds £268.4m £273.6m -1.9
Net asset value per share - basic 551.7p 520.9p +5.9
Net asset value per share - 535.9p 511.2p +4.8
diluted (for warrants)
Share price 503.0p 477.8p +5.3
Warrant price 85.5p 103.0p -17.0
Discount of share price to basic 8.8% 8.3% -
net asset value per share
Discount of share price to diluted 6.1% 6.5% -
net asset value per share
Benchmark Index * 7,528.9 7,507.7 +0.3
Gearing # 6.0% 5.0% -
Total Expense Ratio (annualised) 1.2% 1.3% -
* Datastream World Pharmaceutical and Biotechnology Index, total return,
sterling adjusted.
#Calculated using the Association of Investment Companies' definition (prior
charges as a percentage of net assets).
Investment Policy and Benchmark
Finsbury Worldwide Pharmaceutical Trust PLC invests worldwide in pharmaceutical
and biotechnology companies with the objective of achieving a high level of
capital growth
Performance is measured against the Datastream World Pharmaceutical &
Biotechnology Index (total return, sterling adjusted).
Capital Structure
Shares
At 30 September 2007 the Company had in issue 48,643,468 shares of 25p each (30
September 2006:57,604,881, 31 march 2007: 52,526,781).
During the half year, a total of 3,898,000 shares were bought back by the
Company. At 30 September 2007, 5,192,100 of the Company's shares were held as
treasury shares. Since the end of the half year a further 675,500 shares have
been repurchased, as at 19 November 2007 the Company had 47,967,968 shares in
issue.
Warrants
On 31 July, 14,687 warrants were exercised at the exercise price of 464p per
share.
At 30 September 2007 the Company had in issue 10,758,680 warrants to subscribe
for shares of 25p each (30 September 2006:10,773,367, 31 March 2007:
10,773,367).
Chairman's Statement
Performance
The period under review has been a challenging one for stock markets as a whole
and, against a background of turbulent market conditions over the summer
months, the Datastream World Pharmaceutical & Biotechnology Index measured in
sterling terms on a total return basis, rose by 0.3%. Against this background,
I am pleased to report that the Company's undiluted net asset value per share
rose by 5.9% over the same period, an outperformance of 5.6%. This compares to
a rise in the diluted net asset value per share of 4.8%. This outperformance
was derived principally from the Company's holdings in biotechnology stocks
which performed strongly when compared to larger capitalisation pharmaceutical
stocks which were held back due to a combination of weak drug development
pipelines, lacklustre sales and the prospect of an increase in patent
expirations commencing in 2009.
The weak U.S. dollar again played its part in constraining the Company's
absolute performance; during the half year falling 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%.
The Company's share price rose over the period by 5.3% as the discount of share
price to the diluted net asset value per share narrowed slightly.
Further information on the investment performance is given in the Review of
Investments in the Interim Report.
Despite shorter term difficulties in stock markets I would like to remind
shareholders of the longer term investment performance delivered by the Company
and your Board's continued belief that this historical strong performance will
continue over the years ahead. The Company's longer term performance against
its benchmark has been as follows:
As at 30 September 2007
1 Year 5 Years 10 Years
% % %
Benchmark* -3.0 +33.7 +69.4
FWPT fully diluted net asset +4.9 +58.2 +169.8
value per share
+7.9 +24.5 +100.4
Outperformance
+4.9 +9.6 +10.4
Annual compound rate of return
*Datastream World Pharmaceutical & Biotechnology Index measured in sterling
terms on a total return basis
Source: Fundamental Data on behalf of the Association of Investment Companies
Share Capital
During the six months under review the Company has repurchased a total of
3,898,000 shares at a cost of £19,077,000, all of which were cancelled with the
exception of 114,000 shares which were added to the shares held in treasury as
at 4 April 2007. As at 30 September 2007, the Company held 5,192,100 shares in
treasury and the Board confirms that any treasury shares remaining on 31
January 2008 will be cancelled.
The annual exercise date for the Company's warrants occurred on 31 July 2007,
at which time a total of 14,687 warrants were exercised, raising £68,000. The
remaining 10.8m warrants are exercisable either on 31 July 2008 or 31 July 2009
at an exercise price 464p per share.
Revenue and Dividends
The revenue return for the period was £674,000 (six months ended 30 September
2006: £787,000) and no interim dividend is declared (six months ended 30
September 2006: nil).
Composition of the Board
As I mentioned in my Chairman's Statement in June, I will be stepping down from
the Board at the Annual General Meeting to be held in 2008. I am delighted to
report that Martin Smith and Dr David Holbrook have recently joined the Board.
Martin Smith is currently a non-executive director of New Star Asset Management
Group PLC and has held a number of senior positions both within and without the
investment management industry over recent years. Dr David Holbrook is
currently a life sciences partner with MTI Partners Limited and has a wide
range of experience within the pharmaceutical and biotechnology sectors.
Outlook
Your Board remains of the view that the longer term outlook for the
pharmaceutical and biotechnology sectors remains bright with merger and
acquisition activity within the biotechnology sector being one of the main
drivers of performance to the sector as a whole. Despite shorter term concerns
over drug pipelines and patent expiry within larger capitalisation
pharmaceutical companies together with the continued weakness of the U.S.
dollar, your Board believes that the long term investor in the sector will be
well rewarded.
Ian Ivory
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 beginning on page 2 and in the Review of Investments
beginning on page 5. 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 (Datastream World Pharmaceutical and Biotechnology Index -
measured in sterling terms on a total return basis) 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 20 November 2007and the above
responsibility statement was signed on its behalf by:
Ian Ivory
Chairman
Performance
The pharmaceutical and biotechnology sectors experienced volatility during the
past six months, but thanks to a rally in September the indexes finished
approximately unchanged for the period. We are delighted to report that the
Company's holdings performed substantially better than the market, the diluted
net asset value per share rising by 4.8%.
There were two primary contributors to the Company's favourable performance
relative to the index. First, our decision to overweight the biotech sector vs.
"big pharma" has been helpful, as the higher growth biotechnology sector share
prices outperformed large capitalisation "big pharma" stocks during the period.
Second, we generated strong performance from several biotechnology holdings
which experienced positive fundamental developments, such as Onyx, Vertex and
BioMarin.
Contribution by Investment - excluding derivatives
Top and bottom five contributors to NAV performance over the six months to 30
September 2007
Top Five Contributors Contribution for the Contribution
six months
per Share (p)*
£'000
MedImmune 4,658 9.18
Gen-Probe 4,241 8.36
Onyx Pharmaceuticals 4,072 8.03
Schering-Plough 2,997 5.91
Vertex Pharmaceuticals 2,727 5.38
36.86
Bottom Five Contributors
Chugai Pharmaceutical (4,854) (9.57)
Genentech (1,894) (3.73)
Novartis (1,462) (2.88)
Cephalon Inc (1,046) (2.06)
Merck KGAA (1,012) (2.00)
(20.24)
* based on the weighted average number of shares in issue as at 30 September
2007 (50,710,624)
Source: Frostrow Capital
Investments
Our holdings continue to focus on undervalued profitable biotechnology
companies, and likely biotech acquisition candidates. Although the most recent
months have been a quiet period for mergers and acquisition ("M&A") activity,
we expect an increase towards year end, as strategic buyers stretch to complete
their corporate development objectives. In fact, in the opening weeks of
October, Aspreva received a $915 million offer from Galencia, and the Boards of
both Biogen Idec and Protein Design Labs announced that their companies were
being offered for sale. Share prices of the companies, increased sharply as a
result. We expect a healthy bidding war will emerge for Biogen Idec as pharma
companies compete for one of the few remaining "trophy" biotech assets. The
Company is well positioned to participate in this anticipated M&A activity over
the coming quarters including through a basket of investments in companies that
OrbiMed have identified as likely participants in this activity.
Helping to drive the recent strong performance of the biotechnology sector was
a 0.5% reduction in short term interest rates by the U.S. Federal Reserve.
Historically the biotechnology sector has performed well in a falling interest
rate environment as many of these companies are dependent on financing to
develop their products. In contrast to the healthy biotech performance, the
"big pharma" sector remains somewhat depressed. Many of these companies
continue to be weighed down by a combination of weak pipelines, lacklustre
sales growth and an increase in patent expirations beginning in 2009/2010. We
continue to forecast lacklustre returns from this area over the near term.
The number of holdings has remained constant at approximately 40, excluding
unquoted investments and options contracts. In terms of approximate
geographical breakdown, we have reduced exposure in the U.S. to just under 70%,
with the balance split approximately equally between Europe and Asia.
Outlook
All of the leading candidates in the U.S. Presidential election next year
continue to push ambitious healthcare reform proposals, which we are
scrutinising. While Democrats generally endorse universal coverage, no leading
candidate is proposing a single-payer system. The current proposals generally
rely on market-based mechanisms to accomplish the objective of bringing over 40
million uninsured Americans into the healthcare system. Although it is too
early to forecast the impact to specific industry sub-sectors and companies, we
can look at the impact of a recent precedent for expanded government
involvement in healthcare: the Medicare Part D prescription drug benefit. The
enactment of this provision has actually been a net positive for drug companies
as a result of increased drug utilisation by consumers. Similarly, the current
healthcare proposals would seem poised to benefit many healthcare product and
service providers by expanding healthcare utilisation of a large (in excess of
40 million) and currently under-served consumer population. However, funding
mechanisms and pricing policies will be the key variables. This current raft of
reform proposals is likely to increase the government's role in negotiating
prices, with negative implications for large cap pharmaceutical companies and
some healthcare insurance/services providers.
An important piece of legislation was passed this quarter: the Prescription
Drug User Fee Act IV, which provides for a continuation of industry funding for
the U.S. Food and Drug Agency (FDA) to ensure timely and transparent action on
drug approvals. There were several positive elements to this legislation from
an industry perspective. First, FDA was not split into two independent agencies
(as was debated) with one agency responsible for drug approvals and the other
responsible for drug withdrawals (an outcome which clearly would have led to an
increase in the rate of product withdrawals). Secondly, there was no provision
for the reimportation of cheap drugs from Canada. Finally, the legislation
failed to advance a pathway for approval of so called "bio-generics", which are
the generic alternatives for biotech products. For now there continues to be no
clear legal path for approval of bio-generics for most of today's leading
biotechnology products. But looking ahead to 2009 and beyond, we expect that
bio-generic legislation in some form will be approved by a
Democratic-controlled Congress.
OrbiMed Growth
This month we welcomed Will Sawyer to our team as a senior analyst covering
primarily the generic pharmaceutical sector. Will joined us from Leerink Swann,
and brings prior experience as an analyst at Merrill Lynch and Lehman Brothers.
We also hired Jung Ryu as a support analyst. Jung previously worked in the
healthcare investment banking group of JP Morgan.
Our private equity team has grown with three significant recent appointments.
Dr. Nancy Chang and Dr. Jonathan Wang have joined to spearhead our venture
capital activities in Asia. We also welcome Dr. Klaus Veitinger as a Venture
Partner.
We are excited about the capabilities, experience and resources that these new
colleagues bring to our efforts. We look forward to reporting back to you about
their contributions in the years ahead.
Samuel D Isaly
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
Gains/(losses) - 15,373 15,373 - (36,518) (36,518) - (37,708) (37,708)
on investments
held at fair
value through
profit or loss
Exchange gains - 1,022 1,022 - 2,544 2,544 - 3,903 3,903
on currency
balances
Income from 1,363 - 1,363 1,656 - 1,656 3,891 - 3,891
investments
held at fair
value through
profit or loss
(note 2)
Investment (65) (1,244) (1,309) - (1,527) (1,527) (147) (2,787) (2,934)
management and
management
fees (note 3)
Operating (304) - (304) (518) - (518) (973) - (973)
expenses
Net return/ 994 15,151 16,145 1,138 (35,501) (34,363) 2,771 (36,592) (33,821)
(loss) before
finance
charges and
taxation
Finance (35) (658) (693) - (1,228) (1,228) (100) (1,893) (1,993)
charges
Net return/ 959 14,493 15,452 1,138 (36,729) (35,591) 2,671 (38,485) (35,814)
(loss) on
ordinary
activities
before
taxation
Taxation on (285) 140 (145) (351) 155 (196) (819) 389 (430)
net return/
(loss) on
ordinary
activities
Net return/ 674 14,633 15,307 787 (36,574) (35,787) 1,852 (38,096) (36,244)
(loss) on
ordinary
activities
after taxation
Return/(loss) 1.3p 28.9p 30.2p 1.4p (63.5)p (62.1)p 3.3p (66.9)p (63.6)p
per Ordinary
share - basic
(note 4)
Return/(loss) 1.3p 28.5p 29.8p 1.3p (63.5)p (62.2)p 3.2p (66.9p) (63.7)p
per Ordinary
share -
diluted (note
4)
The total column of this statement is the Income Statement of the Company. The
revenue and capital return columns are supplementary to this and are prepared
under guidance published by the Association of Investment Companies.
All revenue and capital items in the above statement derive from continuing
operations.
The Company has no recognised gains and losses other than those shown above and
therefore no separate statement of total recognised gains and losses have been
presented.
No operations were acquired or discontinued during the year.
Reconciliation of Movements in Shareholders' Funds
For the six months ended 30 September 2007
Six months ended Called-up Share Warrant Capital Capital Revenue Total £
share premium reserve reserve redemption reserve '000
30 September 2007 capital £ account £'000 £'000 reserve £ £'000
'000 £'000 '000
At 31 March 2007 14,401 117,565 7,436 130,724 375 3,130 273,631
Net return from - - - 14,633 - 674 15,307
ordinary
activities
Dividends paid in - - - - - (1,542) (1,542)
respect of year
ended 31 March
2007
Proceeds from 4 64 - - - - 68
exercise of
warrants
Transfer from - 10 (10) - - - -
warrant reserve
following
exercise of
warrants
Shares purchased (946) - - (19,077) 946 - (19,077)
including
expenses
At 30 September 13,459 117,639 7,426 126,280 1,321 2,262 268,387
2007
Six months ended Called-up Share Warrant Capital Capital Revenue Total £
share premium reserve reserve redemption reserve '000
30 September 2006 capital £ £'000 £'000 reserve £ £'000
'000 account '000
£'000
At 31 March 2006 14,356 116,613 7,458 193,699 375 2,257 334,758
Net (loss)/return - - - (36,574) - 787 (35,787)
from ordinary
activities
Dividends paid in - - - - - (979) (979)
respect of year
ended 31 March
2006
Proceeds from 8 143 - - - - 151
exercise of
warrants
Transfer from - 22 (22) - - - -
warrant reserve
following
exercise of
warrants
Issue of own 37 787 - - - - 824
shares
At 30 September 14,401 117,565 7,436 157,125 375 2,065 298,967
2006
Year ended Called-up Share Warrant Capital Capital Revenue Total £
share premium reserve reserve redemption reserve '000
31 March 2007 capital £ £'000 £'000 reserve £ £'000
'000 account '000
£'000
At 31 March 2006 14,356 116,613 7,458 193,699 375 2,257 334,758
Net (loss)return - - - (38,096) - 1,852 (36,244)
from ordinary
activities
Dividends paid in - - - - - (979) (979)
respect of year
ended 31 March
2006
Proceeds from 8 143 - - - - 151
exercise of
warrants
Transfer from - 22 (22) - - - -
warrant reserve
following
exercise of
warrants
Shares purchased - - - (24,879) - - (24,879)
including
expenses
Issue of own 37 787 - - - - 824
shares
At 31 March 2007 14,401 117,565 7,436 130,724 375 3,130 273,631
Balance Sheet
As at 30 September 2007
(Unaudited) (Unaudited) (Audited)
30 September 30 September 31 March
2007 2006
2007
£'000 £'000
£'000
Investments held at fair value through 283,534 326,811 289,919
profit or loss
6,312 - -
Derivative -OTC Swap
289,846 326,811 289,919
Current assets
Debtors 5,191 1,427 1,319
Cash at bank 1,971 22,714 376
Derivative - financial investments 83 - -
7,245 24,141 1,695
Creditors
Amounts falling due within one year (28,704) (51,985) (17,131)
Derivative - financial investments - - (852)
(28,704) (51,985) (17,983)
Net current liabilities (21,459) (27,844) (16,288)
Total net assets 268,387 298,967 273,631
Capital and reserves
Called up share capital 13,459 14,401 14,401
Share premium account 117,639 117,565 117,565
Warrant reserve 7,426 7,436 7,436
Capital reserves 126,280 157,125 130,724
Capital redemption reserve 1,321 375 375
Revenue reserve 2,262 2,065 3,130
Total equity shareholders' funds 268,387 298,967 273,631
Net asset value per share - basic 551.7p 519.0p 520.9p
(note 5)
Net asset value per share - diluted 535.9p 510.3p 511.2p
(note 5)
Cash Flow Statement
For the six months ended 30 September 2007
(Unaudited) (Unaudited) (Audited)
Six months Six months Year
ended ended
ended
30 September 30 September
31 March
2007 2006
2007
£'000 £'000
£'000
Net cash outflow from operating (432) (1,101) (645)
activities
Servicing of finance
Interest paid (644) (1,135) (2,007)
Taxation 135 141 140
Taxation recovered
Financial investment
Purchases of investments (98,888) (27,177) (102,329)
Sales of investments 119,927 49,092 152,855
Net cash inflow from financial 21,039 21,915 50,526
investments
Equity dividends paid (1,544) (979) (979)
Net cash inflow before financing 18,554 18,841 47,035
Financing
Shares issued from exercise of 68 152 151
warrants
Issue of shares - 822 824
Purchase of shares (19,382) - (24,179)
Increase/(decrease) in short term 2,098 (3,566) (29,907)
loans
Net cash outflow from financing (17,216) (2,592) (53,111)
Increase/(decrease) in cash in the 1,338 16,249 (6,076)
period
Notes to the Financial Statements
1. Accounting Policies
The financial statements have been prepared under the historical cost
convention, modified to include the revaluation of investments and in
accordance with applicable accounting standards, pronouncements on interim
reporting issued by the Accounting Standards Board and with the Statement of
Recommended Practice `Financial Statements of Investment Trust Companies' dated
December 2005. All of the Company's operations are of a continuing nature.
The same accounting policies used for the year ended 31 March 2007 have been
applied.
2. Income
(Unaudited) (Unaudited) (Audited)
Six months Six months Year ended
ended ended
31 March
30 September 30 September
2007
2007 2006
£'000
£'000 £'000
Investment income 1,152 1,522 3,123
Interest receivable 211 134 768
Total 1,363 1,656 3,891
3. Investment Management and Management Fees
(Unaudited) (Unaudited) (Audited)
Six months Six months Year ended
ended ended
31 March
30 September 30 September
2007
2007 2006
£'000
£'000 £'000
Investment
management and
management fees 1,309 1,458 2,901
Irrecoverable VAT - 69 33
thereon
Total 1,309 1,527 2,934
Notes to the Financial Statements (continued)
4. Return/(Loss) per Share After Tax
(Unaudited) (Unaudited) (Audited)
Six months Six months Year ended
ended 30 ended 30
September 2007 September 2006 31 March 2007
£'000 £'000 £'000
The return per share is based on
the following figures:
Revenue return 674 787 1,852
Capital return/(loss) 14,633 (36,574) (38,096)
Total return/(loss) 15,307 (35,787) (36,244)
Weighted average number of 50,710,624 57,566,950 56,962,481
shares in issue for the period/
year - basic
Revenue return per share 1.33p 1.37p 3.3p
Capital return/(loss) per share 28.85p (63.53)p (66.9)p
Total return/(loss) per share 30.18p (62.16)p (63.6)p
Weighted average number of 51,325,484 58,288,352 57,619,379
shares in issue for the period -
diluted
Revenue return per share 1.31p 1.35p 3.20p
Capital return/(loss) per share 28.51p *(63.53)p (66.9)p
Total return/(loss) per share - 29.82p (62.18)p (63.7)p
diluted
* dilution not applicable
5. Net Asset Value per Share and Issued Share Capital
Net asset value per share is calculated on attributable assets at 30 September
2007 of £268,387,000 (30 September 2006: £298,967,000 and 31 March 2007: £
273,631,000) and 48,643,468 being the number of shares in issue at 30 September
2007 (30 September 2006: 57,604,881 and 31 March 2007: 52,526,781).
The diluted net asset value per share assumes all outstanding warrants are
exercised at 464p resulting in assets attributable to equity shareholders of £
318,307,000 (30 September 2006: £348,955,000, 31 March 2007: 323,619,000) and
on the resultant number of shares of 59,402,148 (30 September 2006: 68,378,248,
31 March 2007: 63,300,148).
6. Exchange Rates
The following spot foreign exchange rates were used to convert the investments
of the Company:
30 September 2007 : 2.0374
31 March 2007 : 1.9614
30 September 2006 : 1.8680
Notes to the Financial Statements (continued)
7. Transaction Costs
Purchase transaction costs for the six months ended 30 September 2007 were £
165,000 (six months ended 30 September 2006: £83,000; year ended 31 March 2007:
£291,000).
Sales transaction costs for the six months ended 30 September 2007 were £
218,000 (six months ended 30 September 2006: £133,000; year ended 31 March
2007: £419,000).
8. Publication of Non Statutory Accounts
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 half years ended 30 September 2007 and 30
September 2006 has not been audited or reviewed by the auditors.
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 237(3) of the Companies Act 1985.
For Finsbury Worldwide Pharmaceutical Trust PLC
Frostrow Capital LLP, Company Secretary
The Interim Report is available on the Company's website (www.finsburywp.com)
or from the Company Secretary and has been posted to shareholders.
END
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