Interim Results
Intl. Biotechnology Trust PLC
15 April 2008
INTERNATIONAL BIOTECHNOLOGY TRUST PLC
Half-Yearly Report
Six months ended 29 February 2008
INVESTMENT OBJECTIVE AND POLICY
The Company's investment objective is to achieve long term capital growth by
investing in high growth, development stage biotechnology companies that are
either quoted or unquoted. IBT invests in companies whose shares are considered
to be good value, with experienced management and strong potential upside
through the development and/or commercialisation of a product, device or
enabling technology.
INVESTMENT STRATEGY
The Company has delegated responsibility for day-to-day investment of its assets
to the Manager. Consistent with the Company's investment objective, the Manager
makes the majority of its investments in biotechnology companies focused on drug
discovery and development. A small proportion of investments is sometimes made
in related sectors such as medical devices or healthcare services.
The majority of the Company's assets is generally invested in small and mid
capitalisation quoted companies. The Manager seeks to invest up to 30% of the
Company's assets in unquoted companies with a current guideline of no more than
40% unquoted company exposure (after allowing for valuation write-ups and
further follow-on investments).
For unquoted investments, the Manager seeks to generate gains that represent
multiples of invested cost primarily through the sale of these unquoted
companies to strategic buyers including major pharmaceutical companies or, in
some cases, through a flotation. Quoted holdings are made with an expectation
that these companies may benefit from a significant re-rating when they achieve
clinical trial success and/or receive regulatory approvals in the US for their
products.
The Manager usually makes the majority of its investments in the US, which is
the most mature and established market for drugs. However, the best investments
worldwide are sought so the Company will usually have some investments in
Western Europe and occasionally elsewhere such as Australia or Asia.
The biotechnology sector has matured significantly since the first companies
were started in the United States in the 1970s. More than half the drugs under
review by the U.S. Food and Drugs Administration (FDA) continue to be derived
and/or licensed from biotechnology companies. There are increasing levels of
dependency between the pharmaceutical and biotechnology industries, driven by
the large increase in patent expires and pharmaceutical companies' need for new
medicines and growth. As a result the biotechnology industry has experienced a
dramatic increase of merger and acquisition (M&A) activity as pharma companies
buy biotechnology companies in order to replenish their pipelines.
In addition to the increased appetite by pharmaceutical companies to acquire
biotechnology companies, the underlying trends in the life sciences markets are
also encouraging. US Healthcare spending is predicted to grow to 18% of GDP, or
$3.4 trillion, by 2013 driven by the ageing population, unmet medical needs and
technology advances.
The biotechnology sector is also becoming broader from a geographical
perspective. While the historical centres remain the West and East Coasts of the
U.S., viable industry centres now exist in Europe, Australia and Canada.
Emerging biotechnology markets have also been developing in Japan, China and
India.
The rewards for commercially successful biotechnology companies are great, with
highly profitable drugs meeting previously unmet clinical needs; the sector
today combines the defensive characteristics of the pharmaceutical industry with
the high growth dynamics of the technology sector.
However, the biotechnology industry is higher risk than the pharmaceutical
sector since biotechnology companies typically have more limited pipelines and
cash resources, so that product successes or failures have a significant, often
binary, effect on prospects for the companies. Overall industry statistics for
successful drug development remain challenging, with 90% of drugs tested in man
failing to get approved for sale.
PORTFOLIO APPROACH TO INVESTMENT
Given the extreme volatility in the biotechnology sector, access to a specialist
team is an important aspect of the decision to invest in biotechnology.
Investing in biotechnology is difficult for investors who are not dedicated to
the sector and do not have the resources to monitor and evaluate new drugs. The
Board of IBT has appointed SV Life Sciences as Investment Manager to the
Company. SV Life Sciences is a dedicated life sciences team of professionals
based in Boston, London and San Francisco. In addition to IBT, SV Life Sciences
manages or advises four life sciences focused venture capital funds with total
commitments of $1.4 billion.
IBT offers investors access to the team at SV Life Sciences and the portfolio
aims to capture the best chances of clinical, regulatory and commercial success
from a diversified portfolio of public and private biotechnology investments.
Directors and Advisers
ADVISERS
Investment Manager
SV Life Sciences Managers LLP 71 Kingsway, London WC2B 6ST Telephone 020 7421
7070
Company Secretary and Registered Office
Schroder Investment Management Limited 31 Gresham Street, London EC2V 7QA
Telephone 020 7658 6501
Bankers
Schroder & Co. Limited
31 Gresham Street, London EC2V 7QA
JPMorgan Chase Bank
125 London Wall, London EC1 5AJ
Custodian
JPMorgan Chase
125 London Wall, London EC1 5AJ
Solicitors
Slaughter and May
One Bunhill Row, London EC1Y 8YY
Auditors
PricewaterhouseCoopers LLP
Hay's Galleria, Hay's Lane, London SE1 2RD
Stockbroker
Cenkos Securities Limited
6.7.8 Tokenhouse Yard London EC2R 7AS
Registrars
Equiniti Limited
PO Box 28448, Finance House Orchard Brae, Edinburgh EH4 1WQ
Shareholder Helpline: 0871 384 2624*
Website: www.shareview.co.uk
*Calls to this number are charged at 8p per minute from a BT Landline. Other
telephone providers' costs may vary.
DIRECTORS
Andrew Barker (Chairman)
Alan Clifton
David Clough
Peter Collacott
Alex Hammond-Chambers
Ian Macgregor
Further information on the Company may be found on the internet at:
www.internationalbiotrust.com
Financial Highlights
Six months to 29 February 2008
29 February 31 August
2008 2007 %
(Unaudited) (Audited) Change
Company Performance
Net assets (£'000) 91,679 102,360 (10.4)
Shares in issue ('000) 70,593 70,593 -
Net asset value per share 129.87p 145.00p (10.4)
Share price 121.25p 139.50p (13.1)
Share price discount (6.64)% (3.79)%
Index return
Nasdaq Biotech Index (£-adjusted) 394.1 403.4 (2.3)
Merill Lynch Small-Cap Biotech Index
(£-adjusted)* 104.4 103.9 0.5
Russell 2000 Biotech Growth Index
(£-adjusted) 35.0 40.5 (13.4)
* Source: Merrill Lynch (rebased to 100 from 28/02/03)
Chairman's Statement
PERFORMANCE
During the six months to 29 February 2008, the net asset value (NAV) per
Ordinary share of International Biotechnology Trust plc (IBT) fell by 10.4% from
145.0p to 129.9p. Over the same period the ordinary share price of IBT fell by
13.0% from 139.5p to 121.3p. This compares to a fall in the Nasdaq Biotech Index
(NBI) of 2.3% and a fall in the Russell 2000 Growth Biotech Index (ticker:
R2GBIOR) of 13.4% all in sterling terms.
Over the six months under review the discount of the share price to NAV at which
the Ordinary shares trade widened from 3.8% to 6.6%.
The performance of IBT's quoted portfolio, which represented 66.0% of NAV at
period end, calculated on a time-weighted return basis (assuming mid month cash
flows) showed a decrease of 13.4% during the six months under review. On an
unweighted basis (ignoring the timing of transactions) the quoted portfolio
return was (10.0)%.
As at 29 February 2008 the level of cash, money market instruments and other net
current assets was £19.1 million or 20.8% of net assets. This relatively large
cash position was created to protect the downside of the portfolio as the
markets have sunk and to capitalise on a market correction which could provide
cheaper entry points into exciting development stage companies at a future date.
The credit crisis, including the sub-prime mortgage crisis, and the fall in the
general equity markets have impacted the smaller, early stage, biotechnology
companies to a greater extent than the later stage, profitable, biotechnology
companies as investors moved away from the riskiest, most volatile stocks.
This indiscriminate selling of the biotech stocks is not related to any change
in the fundamentals of these companies. However, the severe negative sentiment
towards the biotech stocks with small stockmarket capitalisation ('small cap')
explains the significant outperformance of the NBI (which reflects large cap
biotech company performance) versus the Russell 2000 Growth Biotech Index which
represents the smaller cap biotech stocks. IBT has a large percentage of its
holdings in smaller cap companies which has affected performance over the period
under review.
Although there have been no exits from the unquoted portfolio during the last
six months, there have been two portfolio companies, Oxagen and Dynogen that
have announced positive Phase 2 clinical data that give us confidence that we
may achieve attractive M&A exits or public listings for these two companies in
the next six to twelve months.
During the six months under review, the Board has written up the value of its
investment in Oxagen by £0.5 and written off the remaining investment (£0.3)
million in Trine on the failure of its dIBS drug crofelemer in Phase 2b clinical
trials. The net valuation change of the unquoted portfolio over the period,
which represented 13% of NAV at period end, was £0.5 million including foreign
exchange movements. Further commitments and reserves to the private portfolio
total £9.0 million (9.9.% of NAV) at the end of the period.
SHARE BUY BACKS
During the period since 31 August 2007, the Company did not buy-back any shares
either for cancellation or for retention in Treasury.
VAT ON MANAGEMENT FEES
As the result of a legal action brought against HM Revenue & Customs (HMRC), the
European Court of Justice has ruled that investment management fees paid to
investment managers by investment trust companies should be exempt from VAT,
thereby bringing them into line with unit trusts, open ended investment
companies (OEICs) and similar investment funds.
Following HMRC's recent acceptance of this decision, new UK legislation is
expected to be introduced specifically exempting UK investment trusts from
paying VAT on management fees and allowing the Company to reclaim VAT previously
paid to its Investment Managers. The Board is presently quantifying the likely
impact on the Company.
ELECTRONIC COMMUNICATIONS
At the Annual General Meeting held in November, revised Articles of Association
which allow the Company to send certain information relating to it (for example
notices and accounts) by electronic means or by placing this information on a
website, were adopted by the Company. Shareholders will receive a letter with a
printed copy of the Half-Yearly Report, offering them three options:
1. to view shareholder communications on the Company's Website; or
2. to have notifications sent by email by registering online at
www.shareview.co.uk; or,
3. to continue to receive hard copies of shareholder communications by post. To
receive shareholder communications in this way, you must complete and return the
form by 5 p.m. on 31 May 2008.
We believe that this approach to communication with shareholders will help to
reduce both paper utilisation and costs.
EXTRAORDINARY GENERAL MEETING (EGM)
An EGM is being convened for later in the year at which a number of amendments
will be proposed to the Articles of Association to reflect the provisions of the
Companies Act 2006, in particular the provisions that come into effect on 1
October 2008. An explanation of the changes will be included with the notice of
the EGM, which will be sent to shareholders in due course.
PROSPECTS
The IBT portfolio provides shareholders with exposure to global biotechnology
and medical technology through investments in development stage biotechnology
companies that are both quoted and unquoted.
IBT is primarily focused on quoted small and mid cap companies which have had a
difficult time in recent months, as well as unquoted companies which the Manager
believes have potential to offer performance that is uncorrelated with the
public biotech or equity markets.
Long term prospects for the biotech sector remain attractive. Chronic diseases
are becoming more prevalent and the costs of managing these diseases are
increasing as new ways of treating these diseases are found and people live
longer. As a consequence, biotechnology companies, together with the pharma
industry, are actively trying to discover and develop new drugs that actually
cure disease or at least further alleviate the symptoms and extend survival.
This has spurred a flurry of M&A activity and in-licensing deals with numerous
biotechnology companies over the years. The Manager believes this trend will
continue well into the next decade.
The Board and Manager believes that despite this volatility, the growth
prospects for the small to mid cap quoted biotech sector, which is trading at
five-year lows and the successful unquoted companies, should outperform the
larger biotech companies and the NBI over the longer term and generate
significant returns.
IBT is currently well positioned for a recovery in the biotech sector. IBT is
ready to invest its cash position in companies with excellent fundamentals, but
depressed valuations that have been brought on by this recent market correction,
and looks forward to sentiment returning to small and mid cap companies over the
course of 2008.
Andrew Barker
Chairman
15 April 2008
Investment Manager's Review
MARKET REVIEW
Throughout the period under review large cap biotechnology stocks significantly
outperformed the small caps. During September 2007, the Nasdaq biotech index
rose nearly 6% driven by Amgen and Genzyme. Both companies are major
constituents of the index and, together make up approximately 15% of the Nasdaq
Biotech Index.
The large caps continued to rally in October 2007, driven by Genzyme increasing
their expected future earnings growth and the announcement that its leukaemia
drug Campath has shown a positive effect in the treatment of patients with
Multiple Sclerosis.
During November and December 2007 there was a run of bad news. Amgen shares
reversed their upward trend after reporting they may have to revise the safety
label associated with its 'erythropoietin stimulating agent' (ESA) product
franchise. Following on from this, Biogen announced that it was no longer up for
sale, which suggests a lack of interest at a sufficiently high price for
continued Board support for a sale.
In January and February 2008 the general markets sold off sharply and market
volatility reached levels not seen since 2002. Not surprisingly the small and
mid cap stocks suffered the most, falling 17% in sterling terms. Interestingly
the large cap biotechnology stocks reacted relatively well, outperforming the
wider indices by 3%. There were a number of reasons for this large cap
outperformance. First, in light of the global downturn, investors turned to
companies with economically insensitive earnings growth, which is a
characteristic of this group. Secondly, larger cap biotech companies have little
need for debt financing and therefore should not be impacted by the 'credit
crunch'. Finally, the large cap biotechnology stocks are relatively immune to
the potential introduction of Medicare drug price negotiations that may be
initiated by the election of a Democrat president. All these factors have
underpinned the large cap biotech stock prices over the reporting period.
The share prices of small cap biotechnology stocks tumbled during the period.
Regulatory concerns dogged the biotech sector during the last six months. The
rate of drug approvals by the FDA has been disappointing despite the huge
ramp-up in R&D spend across the industry. The number of 'New Drug Approvals'
fell by 34% in 2007 over 2006, reaching an all time low. Regulatory concerns
were compounded by the announcement that an FDA director had given his staff
discretion to delay approval decisions by up to three months.
M&A activity of public biotech companies by pharma has proved unpredictable.
This is despite the continued erosion of pharma's sales driven by patent
expiries and the universal acceptance that M&A of biotech companies and their
products as an attractive source of innovative drugs for pharma to boost future
sales.
For the small cap biotechs, these M&A deals have been lumpy and irregular. In
the second half of 2007 there were only four public biotech company deals of
significance including the purchases of MGI Pharma (a portfolio holding),
Pharmion, Encysive and Coley. However, this is far from the M&A frenzy investors
had been hoping for.
Both M&A activity and drug approvals traditionally drive performance of quoted
biotechnology stocks. As news flow in both areas was lacking, share prices
suffered. This has particularly hit the small cap arena due to concerns over
liquidity and weak balance sheets further compounding the issues outlined above.
During 2007, $1.3 billion was raised through Initial Public Offerings (IPOs) in
the US biotech sector. This was marginally higher than 2006 but the actual
number of IPOs fell in 2007 from 2006. European IPOs raised just over $1bn in
2007, a similar amount to their US peers. However, the US biotech sector raised
$3.9 billion through follow-on financings, which dwarfed the $388 million raised
in Europe.
Unlike the quoted biotech sector, 2007 was a record setting year for M&A of
venture-backed healthcare companies (Venture One) and a very strong Q4 bodes
well for continued momentum in 2008. The mean amount paid per deal has doubled
in 2007 from previously strong years in 2005 and 2006.
Unquoted deal flow generated by SVLS has remained strong throughout the year and
IBT has had a broad range of investment opportunities from which to choose. This
deal flow continues to look strong and IBT will continue to invest in the most
attractive private opportunities.
In the US, SVLS has seen particular strength in new medical device opportunities
(and IBT invested in Cadent and TransEnterix) and in earlier technology platform
companies with the potential to transform the biological therapeutics industry
such as Fundamental Applied Biology ('Fab') and Itero. In Europe, deal flow has
ranged from pharmaceutical company spin-offs (eg Vantia spun off from Ferring in
March 2008) to earlier stage discovery companies addressing huge markets with
unmet clinical needs (eg RespiVert).
Venture capital investment into US healthcare companies was at an all time high
in 2007, raising $10 billion (Source: Dow Jones VentureSource) As a result,
strong private healthcare companies are generally able to raise funds at
attractive prices to fund their clinical development pipelines. Median pre-money
valuations have remained stable for the last several years, demonstrating the
discipline in the venture industry following the 2000 bubble.
OUTLOOK
It has been a very difficult start to the calendar year for the equities markets
which looks to continue into 2008 despite the fact that the underlying
fundamentals of the biotech industry have not changed.
In this risk-averse environment, higher risk investments, such as biotechnology
and especially the small cap sub sector have tended to suffer the most.
IBT's portfolio has historically been dominated by high growth potential early
stage biotechnology companies which are predominantly small cap public
companies. This will remain the Trust's primary focus. However, the Manager has
recently adjusted the Trust's public market exposure in order to protect IBT's
NAV during these difficult times. This has involved increasing the Trust's
exposure to high quality larger cap stocks (for example Gilead and Celgene),
increasing positions in high growth potential but less volatile subsectors such
as clinical diagnostics and managing the Trust's cash position prudently. At the
end of February IBT had a large cash position of 21% which will be reinvested
into unquoted, small and mid cap stocks with excellent prospects at a point at
which the Manager believes investors will begin to focus on company fundamentals
once more.
The enterprise valuations of the small cap biotech companies are nearing their
all time lows and so entry prices of selected target stocks currently look
attractive.
The prospects for IBT's unquoted portfolio appear strong. Several portfolio
companies have reported positive clinical and preclinical data over the period.
M&A and lucrative licensing deals are typically triggered in response to
positive clinical data.
The financing environment for successful private companies is robust and these
companies can generally raise more funds than ever before to enable them to fund
larger clinical trials to build value in their product pipeline. Successful
internationally focused venture capitalist firms are raising increasingly larger
funds (including the Manager SVLS), so their private biotech portfolio companies
are no longer dependent on the public markets for substantial capital.
In the longer term, the biotechnology sector fundamentals look very strong. As
the population ages so does incidence of both chronic and acute diseases such as
cancer and cardiovascular disease. For example, the prevalence of diabetes is
expected to double from 2000 to 2030. Despite this, the population is expected
to live longer and will drive demand for innovative targeted therapies,
currently being developed by hundreds of biotechnology companies. Moreover, the
pharmaceuticals industry is in desperate need of new patented drugs as their top
line sales are significantly eroded through patent expirations.
There is huge growth in the sales of biologics and a marked increase in M&A of
biologics companies, so IBT will continue to seek innovative investments which
are focused on improving biological drugs and processes to make them.
IBT is well positioned to take advantage of both the recovery of the biotech
sector as a whole, as well continuing to find attractive high growth private
companies whose value is less exposed to the swings of the public market
sentiment.
SUMMARY OF PORTFOLIO COMPANY NEWS
QUOTED COMPANIES
Despite a relatively quiet six months with regards to M&A activity, IBT
benefited from two acquisition announcements of public portfolio holdings, both
of which were top ten holdings at the time of their announcement.
In November, portfolio holding Gyrus was acquired by Olympus (the world's
largest maker of surgical cameras) for $1.9 billion, a 58% premium to the
previous day's closing share price and an uplift to cost of £1.6 million
Celgene, also a portfolio holding, then announced the acquisition of Pharmion
for $2.9 billion which was a strategic move in order to become a global leader
in haematology and oncology.
In December, Eisai and MGI Pharma (portfolio holding) entered into a definitive
merger agreement. MGI Pharma was a biopharmaceutical company focused in the
areas of oncology and acute care with two marketed products and one late stage
pipeline product. Eisai acquired the company for $3.9 billion which was at a 39%
premium to the share price when MGI first announced that the company was
considering strategic options in November 2007, and a £1.7 million uplift to
cost.
Also in December, Morphosys, another top ten holding, rose to a four year high
after announcing that the Swiss based Pharmaceuticals Company Novartis agreed to
pay up to $1 billion in a new strategic co-operation. Novartis will now be the
preferred partner for Morphosys' HuCal-technology. £0.7 million was added to the
NAV from the performance of this portfolio company in the period.
Performance was helped by the Trust's holding in Australian-company CSL Limited
which boosted IBT's NAV £0.4 million NAV gain in the period after a faster than
expected rollout of their HPV vaccine in the latter half of 2007 and 2008 to
date, which drove the share price up. Finally, portfolio holding GTx Inc
announced positive Phase 3 clinical data in February 2008 from their late stage
clinical trial testing of Acapodene in Adrogen Deprivation Therapy and a result,
the share price rallied, at which point IBT sold realising a profit for the
period of £0.5 million.
On the negative side, three quoted portfolio companies suffered unusually large
losses during the period. In September, Sonus announced that their late-stage
trial of the lead experimental drug for metastatic breast cancer failed to meet
the trial's primary endpoint. This was an unexpected disappointment, causing the
share price to fall considerably. Another disappointment for the Trust came in
November, when the FDA rejected Momenta's application for a biogeneric
blood-thinner drug, M-Enoxaparin. Finally, Genosis' US launch of its OTC
fertility diagnostics tests - Fertell - through CVS and Longs Pharmacy chain
proved disappointing as the sales levels were insufficient to enable the company
to reach break-even. As a result, Genosis' share price collapsed in September
and strategic alternatives are being pursued.
Despite the positive impact of M&A and the organic growth within the quoted
portfolio, the net effect of these news items and the poor small-cap biotech
sector performance overall collectively reduced IBT's NAV during the period
under review.
UNQUOTED COMPANIES
In the last six months new unquoted investments have been made in Cadent, FAB,
Itero and TransEnterix, totaling £2.0 million Follow on fundings have been made
in to ESBATech, Lux and Oxagen totaling £2.2 million. Across all unquoted
companies at period end, legal commitments to further fundings subject to
pre-determined milestones and Investment Committee approved investments total
£3.9 million. Within this number the Manager has made follow-on commitments of £1.5
million to EUSA Pharma and TransEnterix, which have not yet drawn down but which
are likely to be invested by September 2008. In addition, the Manager has identified
that reserves of £5.1 million that are likely to be necessary to continue
funding existing portfolio companies in future financing rounds.
Following the period end, two further unquoted investments have been made
totaling £0.4 million in to a new company -Vantia Therapeutics and an existing
portfolio company TransEnterix.
In addition, there are several companies within SVLS's venture capital portfolio
that are coming up for financing rounds over the next few months where IBT has
an opportunity to invest, subject to acceptable terms and conditions.
Positive clinical and preclinical progress has been reported by several of IBT's
private companies.
Dynogen announced that DDP225 met its endpoints in a dIBS Phase 2 trial, and
DDP733 too in nGERD and cIBS - which are all gastrointestinal diseases which are
poorly treated.
Oxagen has continued to generate encouraging data with its lead oral asthma drug
and discussions are now underway regarding licensing, M&A and other strategic
options.
In February 2008, ESBATech announced that its antibody fragments reach
therapeutic levels in the front but also back of the eye when administered with
eye drops. This therapeutically-effective penetration has not been seen before
with antibodies which reinforces the potential breadth of ESBATech's platform.
As a result of these exciting results, the lead ophthalmic drugs will be taken
into human clinical testing in the next few months.
In March 2008 Affinium started its first-time-in man clinical trials for its
novel antibiotic AFN-1252, one of its lead clinical candidates from its novel
class of fatty acid biosynthesis inhibitors. Affinium believes that AFN-1252
will provide patients and their doctors a potent, oral and IV treatment for
susceptible and resistant staphylococcal infections both in and out of
hospitals. Phase 2 trials will follow-on rapidly after the successful completion
of the Phase 1 trials and if successful the company will be sold on the back of
the positive Phase 2 data package and strong IP.
Intranasal, a US-based specialty pharmaceutical company, has successfully
completed two Phase 2 studies for hydromorphone in an inhaled small molecule
treatment for acute, moderate-to-severe pain as well as a second phase 1 study
for Midazolam in the treatment of epilepsy.
On the other hand, Trine's Phase2b trial on crofelemer for dIBS failed to meet
its clinical endpoint in February 2008 and the company is now being wound up.
IBT has written off the remaining investment of £0.3 million to nil.
In March 2008, the Oxford-based speciality pharmaceutical company EUSA Pharma
announced its intent to acquire Nasdaq-listed Cytogen Corporation. EUSA Pharma
is a rapidly growing transatlantic specialty pharmaceutical company focused on
in-licensing, developing and marketing late-stage oncology, pain control and
critical care products. The company currently has six products on the market,
including the antibiotic surgical implant Collatamp(R) G, Erwinase(R) and
Kidrolase(R) for the treatment of acute lymphoblastic leukemia, and Rapydan(R),
a rapid-onset anesthetic patch which recently received Europe-wide approval. The
acquisition of Cytogen brings to the enlarged EUSA group an established US
commercial organization with a 40-strong specialist oncology sales force and
three marketed products. This merger remains subject to Cytogen shareholder
approval among other things.
The net valuation increase of the unquoted portfolio over the period was £0.5
million.
PORTFOLIO SUMMARY AT 29 FEBRUARY 2008
At the end of the Trust's interim period, IBT had investments in 52 companies:
35 quoted (representing 66.0% NAV) and 17 unquoted companies (representing 13.2%
of NAV). The remaining 20.8% comprised cash, money market instruments and other
net assets (£19.1 million), of which 4.3% of NAV or £3.9 million was legally
committed or Investment Committee approved to further investments in unquoted
companies. In addition to these commitments, the Manager has identified 5.6% of
NAV or £5.1 million of likely future reserves that may be needed for follow-on
financing rounds in the near future 2008-2010.
By subsector, 65.3% was invested in the biopharma/therapeutic sector and 13.1%
in medical devices and healthcare services, which tend to be more stable than
the biotech stocks of the rest of the portfolio, a higher proportion than at the
Trust's year end in August 2007.
Representatives of the Manager sat on the Board of eighteen portfolio companies
at the end of the period, which were the four quoted companies - Achillion
Pharma, Micromet, Pharmacopeia Drug Discovery and Santarus, and the fourteen
unquoted companies, Affinium Pharma, Archemix, Cadent, Dynogen Pharma, ESBATech,
Fundamental Applied Biology, Intranasal Therapeutics, Itero, Lux Biosciences,
Oxagen, RespiVert, Ricerca, Spinal Kinetics and TransEnterix.
In terms of geographical split, the majority of holdings were North American
based companies totalling 55.3% of the portfolio. IBT had one Australian
investment, CSL, (5.3% of NAV) and one holding in Given Imaging, which is
located in Israel (1.1% of the NAV). The remaining 17.6% were continental
European (3.4%) and the UK (14.1%) based companies.
86.9% of the portfolio had greater than twelve months of cash. Those that have
less than twelve months include Affinium, Dynogen Pharma, FAB, Intranasal
Therapeutics, Itero, RespiVert and TransEnterix, which have milestone or other
legally based commitments, so that if conditions are met then further cash will
be invested.
VALUATIONS
At 29 February 2008, the IBT unquoted portfolio, value £12.2 million represented
13.3% of net assets, compared to 7.4% at 31 August 2007. Four new investments
and three follow on investments were made in the reporting period as described
above.
In this period under review, the net effect of the change in the Directors'
valuations of unquoted companies and taking in to account foreign exchange
movements, was a net increase in NAV of £0.5 million representing 0.6% of net
assets at the start of the period.
The valuation of Oxagen was increased by £0.5 million in December 2007 following
positive clinical results. The remaining investment in Trine of £0.24 million
was written off in February 2008 following clinical trial failure.
SV Life Sciences Managers
15 April 2008
Ten Largest Investments
as at 29 February 2008
Market
value of % of
holding net
Investment Country Sector £'000 assets Business activity
1 Celgene United Pharmaceuticals 5,119 5.6 Celgene is a
States & Biotech biopharmaceutical
company which
markets novel
therapeutics with
a primary focus
in
the treatment of
hematologic
cancers. The
company has three
marketed
products,
Revlimid,
Thalomid and
Vidaza and a
further ten
products in
clinical
development.
2 CSL Australia Pharmaceuticals 4,825 5.3 CSL manufactures
& Biotech and markets
pharmaceuticals
and diagnostics
derived from
human plasma. The
company also
markets a
seasonal
influenza
vaccine and
receives
royalties on the
sale of the
cervical cancer
vaccine,
Gardasil.
3 Gilead Sciences United Pharmaceuticals 4,625 5.0 Gilead is a
States & Biotech biopharmaceutical
company with a
significant HIV
franchise that
has established
itself
as the market
leader in this
area. The company
recently
diversified its
product portfolio
into two
new disease
areas, COPD and
resistant
hypertension, by
acquiring two
companies,
Myogen and Corus.
4 Applera-Celera United Pharmaceuticals 3,327 3.6 Celera is a
Genomics States & Biotech diagnostics
business
delivering
personalized
disease
management
solutions
through a
combination of
tests and
services based
on proprietary
genetics
discovery
platforms.
5 Oxagen Ltd Pref United Pharmaceuticals 3,065 3.3 Oxagen is focused
Kingdom & Biotech on the discovery
and
development of
novel drugs for
inflammation
against molecular
targets (mostly
GPCRs) which
have been
validated in
humans by genetic
analysis.
6 Barr United Pharmaceuticals 2,927 3.2 A speciality
Pharmaceuticals States & Biotech pharmaceutical
company that
develops,
manufactures and
markets both
generic
and proprietary
prescription
pharmaceuticals.
7 Shire United Pharmaceuticals 2,722 3.0 Shire is focused
Kingdom & Biotech on developing and
commercialising
drugs that tackle
attention deficit
and hyperactivity
disorder, human
genetic
therapies,
gastrointestinal
and renal
diseases.
8 Medicines United Pharmaceuticals 2,442 2.7 The Medicines
Company States & Biotech Company markets
Angiomax which
has become a
dominant
anticoagulant in
percutaneous
coronary
intervention. The
company
have two other
cardiovascular
compounds,
Cleviprex and
Cangrelor, which
are in late stage
clinical
development.
9 Alexion United Pharmaceuticals 2,285 2.5 A
Pharmaceuticals States & Biotech biopharmaceutical
company that
researches and
develops
proprietary
immunoregulatory
compounds for the
treatment of
cardiovascular
diseases. The
company's lead
product, Soliris
is
approved in the
US and Europe.
10 Acambis United Pharmaceuticals 2,275 2.5 A vaccine
Kingdom & Biotech discovery and
development
company.
Acambis has a
smallpox vaccine
approved by the
FDA and others in
development to
prevent dengue
fever, influenza
and West Nile
virus infection.
Consolidated Income Statement
(Unaudited) (Unaudited)
For the six months ended For the six months ended
29 February 2008 28 February 2007
Group Group Group Group
Revenue Capital Group Revenue Capital Group
Return Return Total Return Return Total
Note £'000 £'000 £'000 £'000 £'000 £'000
(Losses)/gains on investments
held at fair
value - (9,791) (9,791) - 7,032 7,032
Exchange losses on currency
balances - (43) (43) - (13) (13)
Income 2 200 - 200 118 - 118
Expenses
Performance fee - - - - (400) (400)
Management fees 3 (692) - (692) (481) - (481)
Administrative
expenses (328) - (328) (351) - (351)
------------------------- --- ------- --- ------- ------- --- -------
Net (loss)/return before
finance
costs and
taxation (820) (9,834) (10,654) (714) 6,619 5,905
Finance costs
Interest
payable 3 (22) - (22) - - -
------------------ --- ------ --- ------ --- --- ---
Net (loss)/return on ordinary
activities
before
taxation (842) (9,834) (10,676) (714) 6,619 5,905
Taxation on ordinary - - - - - -
activities --- ------ --- --- --- --- ---
------------------------------
Net (loss)/return after taxation
attributable
to equity
shareholders (842) (9,834) (10,676) (714) 6,619 5,905
--------------------------------- ------- --------- ---------- ------- ------- ------
Net (loss)/return per
Ordinary share 4 (1.19)p (13.93)p (15.12)p (1.41)p 15.80p 14.39p
Net
(loss)/return
per C share 4 - - - (0.20)p (3.31)p (3.51)p
------------------------------ --- --- --- --- --------- -------- --------
(Audited)
For the year ended
31 August 2007
Group Group
Revenue Capital Group
Return Return Total
Note £'000 £'000 £'000
----- ------- ------- -------
(Losses)/gains on investments
held at fair value - (774) (774)
Exchange losses on currency
balances - (54) (54)
Income 2 580 - 580
Expenses
Performance fee - - -
Management fees 3 (1,248) - (1,248)
Administrative expenses (623) - (623)
------------------------- --- ------- --- -------
Net (loss)/return before finance
costs and taxation (1,291) (828) (2,119)
Finance costs
Interest payable 3 (43) - (43)
------------------ --- ------ --- ------
Net (loss)/return on ordinary
activities before taxation (1,334) (828) (2,162)
Taxation on ordinary activities - - -
------------------------------ --- --- ---
Net (loss)/return after taxation
attributable to equity shareholders (1,334) (828) (2,162)
--------------------------------- -------- ------- --------
Net (loss)/return per
Ordinary share 4 (2.24)p (1.39)p (3.63)p
Net (loss)/return per C share 4 - - -
------------------------------ --- --- --- ---
The total column of this statement represents the Group's 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.
The Group has no recognised gains and losses other than those disclosed in the
Consolidated Income Statement and the Consolidated Statement of Changes in
Equity.
All income is attributable to the equity holders of the parent company. There
are no minority interests.
All items in the above statement derive from continuing operations.
Notes 1-7 below form part of these financial statements.
Consolidated Balance Sheet
(Unaudited) (Unaudited) (Audited)
At 29 February At 28 February At 31 August
2008 2007 2007
Group Group Group
Notes £'000 £'000 £'000
------- ------- ------- -------
Non-current assets
Investments held at fair
value through profit or
loss 72,624 89,755 101,774
--------------------------------------------------- -------- -------- ---------
72,624 89,755 101,774
Current assets
Other receivables 2,652 2,928 1,812
Investments held for
trading 11,189 22,016 519
Cash and cash equivalents 6,705 679 2
--------------------------- -------- -------- -------
20,546 25,623 2,333
-------- -------- -------
Total assets 93,170 115,378 104,107
Current liabilities
Other payables (1,491) (6,345) (1,747)
---------------- --------- --------- ---------
Net assets 91,679 109,033 102,360
------------ -------- --------- ---------
Equity attributable to equity holders
Called up share capital
- Ordinary shares 17,648 11,766 17,648
- C shares - 18,583 -
Share premium account 18,746 17,594 18,751
Capital redemption reserve 24,169 11,231 24,169
Share purchase reserve 65,564 65,564 65,564
Capital reserves (20,606) (3,325) (10,772)
Revenue reserve (13,842) (12,380) (13,000)
----------------- ---------- ---------- ----------
Equity shareholders' funds 91,679 109,033 102,360
---------------------------- -------- --------- ---------
Net asset value per
Ordinary share 5 129.87p 156.64p 145.00p
------------------------------------ --- --------- --------- ---------
Net asset value per C
share 5 - 142.50p -
----------------------------- --- --- --------- ---
Notes 1-7 below form part of these financial statements.
Consolidated Statement of Changes in Equity
Group
For the six
months ended 28
February 2007
(Unaudited)
Called up Share Capital Share Capital Capital
Share premium redemption purchase reserve reserve Revenue
capital account reserve reserve realised unrealised reserve Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
------- ------- ------- ------- ------- ------- ------- -------
Balance at 31
August 2006 11,766 - 11,231 65,564 4,153 (14,097) (11,666) 66,951
Net return for
the period - - - - 1,680 4,939 (714) 5,905
Issue of shares 18,583 17,594 - - - - - 36,177
----------------- -------- -------- -------- -------- ------- --------- ---------- ---------
Balance at 28
February 2007 30,349 17,594 11,231 65,564 5,833 (9,158) (12,380) 109,033
---------------------------- -------- -------- -------- -------- ------- --------- ---------- ---------
Group
For the year
ended 31 August
2007 (Audited)
Called up Share Capital Share Capital Capital
Share premium redemption purchase reserve reserve Revenue
capital account reserve reserve realised unrealised reserve Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
------- ------- ------- ------- ------- ------- ------- -------
Balance at 31
August 2006 11,766 - 11,231 65,564 4,153 (14,097) (11,666) 66,951
Net loss for
the year - - - - 8,031 (8,859) (1,334) (2,162)
Issue of shares 5,882 18,751 12,938 - - - - 37,571
----------------- -------- -------- -------- -------- -------- ---------- ---------- ---------
Balance at 31
August 2007 17,648 18,751 24,169 65,564 12,184 (22,956) (13,000) 102,360
--------------------------- -------- -------- -------- -------- -------- ---------- ---------- ---------
Group
For the six
months ended 29
February 2008
(Unaudited)
Called up Share Capital Share Capital Capital
Share premium redemption purchase reserve reserve Revenue
capital account reserve reserve realised unrealised reserve Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
------- ------- ------- ------- ------- ------- ------- -------
Balance at 31
August 2007 17,648 18,751 24,169 65,564 12,184 (22,956) (13,000) 102,360
Net loss for
the period - - - - (5,711) (4,123) (842) (10,676)
Share issue
costs - (5) - - - - - (5)
------------------- -------- -------- -------- -------- ------- ---------- ---------- --------
Balance at 29
February 2008 17,648 18,746 24,169 65,564 6,473 (27,079) (13,842) 91,679
---------------------------- -------- -------- -------- -------- ------- ---------- ---------- --------
Notes 1-7 below form part of these financial statements.
Consolidated Cash Flow Statement
(Unaudited) (Unaudited) (Audited)
For the six For the six For the year
months ended months ended ended
29 February 28 February 31 August 2007
2008 2007
Group Group Group
£'000 £'000 £'000
------- ------- -------
Cash flows from operating activities
Net (loss)/return
before finance costs
and taxation (10,654) 5,905 (2,119)
Exchange losses on
currency balances 43 13 54
Adjustments for:
Decrease/(increase) in
investments 29,150 (31,733) (43,752)
(Increase)/decrease in
current asset
investments (10,670) (15,147) 6,350
(Increase)/decrease in
receivables (840) (928) 188
(Decrease)/increase in
payables (248) 6,178 1,580
--------------------------------- ------- ------- -------
Net cash flows from
operating activities 6,781 (35,712) (37,699)
------------------------------------------ ------- ---------- ----------
Cash flows from financing activities
Issue of shares (5) 36,177 37,571
Interest paid on bank
overdrafts (30) - (43)
---------------------------------- ------ --- ------
Net cash (used in)/from
financing activities (35) 36,177 37,528
---------------------------------------------- ------ -------- --------
Net increase/(decrease)
in cash and cash
equivalents 6,746 465 (171)
Effect of foreign
exchange losses (43) (13) (54)
Cash and cash
equivalents at
beginning of period 2 227 227
-------------------------------------------------- ------- ----- -----
Cash and cash
equivalents at end of
period 6,705 679 2
-------------------------------------------- ------- ----- -----
Notes 1-7 below form part of these financial statements.
Notes to the Financial Statements
1. Accounting policies and responsibility statement
Directors confirm that, to the best of their knowledge, this set of condensed
financial statements has been prepared in accordance with International
Financial Reporting Standards (IFRS), which comprise standards and
interpretations approved by the International Accounting Standards Board (IASB)
and International Standards Committee (IASC) as adopted by the European Union as
effective as at 29 February 2008 and the Interim Management Report in the form
of the Chairman's Statement and the Investment Manager's Review include a fair
review of the information required by DTR 4.2.7 and 4.2.8 of the FSA's
Disclosure and Transparency Rules.
The Group's functional currency and the currency used for the presentation of
these financial statements is pounds sterling, as that is the currency of the
primary economic environment in which the Group operates.
The financial information for each of the six month periods ended 29 February
2008 and 28 February 2007 comprises non-statutory accounts within the meaning of
Section 240 of the Companies Act 1985. The financial information for the year
ended 31 August 2007 has been extracted from published accounts that have been
delivered to the Registrar of Companies and on which the report of the auditors
was unqualified. The interim accounts have been prepared on the same basis as
the annual accounts.
The Group's accounting policies have not varied from those described in the
Report and Accounts for the year to 31 August 2007.
2. Income
(Unaudited) (Unaudited) (Audited)
For the six For the six For the
months ended months ended year ended
29 February 28 February 31 August 2007
2008 2007
£'000 £'000 £'000
------- ------- -------
Income from investments:
Dividend income 32 2 54
Income from current asset 132 112 422
investments
Interest on deposits 36 4 104
---------------------- ----- ----- -----
200 118 580
----- ----- -----
3. Management fees and interest payable
The investment management fee and any finance costs on borrowings for investment
purposes are apportioned 100% to the revenue return.
4. (Loss)/return per share
(Unaudited) (Unaudited) (Audited)
For the six For the six For the
months ended months ended year ended
29 February 28 February 31 August 2007
2008 2007
£'000 £'000 £'000
------- ------- -------
Revenue loss
attributable to
Ordinary shares (£'000) (842) (664) (1,334)
Revenue loss
attributable to C
shares (£'000) - (50) -
Capital (loss)/return
attributable to
Ordinary shares (£'000) (9,834) 7,438 (828)
Capital loss
attributable to C
shares (£'000) - (819) -
----------------------------------------------- ---------- ------- ---------
Total (£'000) (10,676) 5,905 (2,162)
--------------- ---------- ------- ---------
Weighted average number
of ordinary shares in
issue 70,592,664 47,065,467 59,631,129
Weighted average number
of C shares in issue - 24,777,433 -
Per Ordinary share:
Revenue loss (1.19)p (1.41)p (2.24)p
Capital (loss)/return (13.93)p 15.80 p (1.39)p
----------------------- ---------- --------- ---------
Total (loss)/return (15.12)p 14.39 p (3.63)p
--------------------- ---------- --------- ---------
Per C share:
Revenue loss - (0.20)p -
Capital loss - (3.31)p -
-------------- --- --------- ---
Total loss - (3.51)p -
------------ --- --------- ---
5. Net asset value per share
(Unaudited) (Unaudited) (Audited)
At 29 February At 28 February At 31 August
2008 2007 2007
Net assets attributable to 91,679 73,725 102,360
ordinary shareholders (£'000)
Ordinary shares in issue at end 70,592,664 47,065,467 70,592,664
of period
Net asset value per ordinary 129.87p 156.64p 145.00p
share
Net assets attributable to C - 35,308 -
shareholders (£'000)
C shares in issue at end of - 24,777,433 -
period
Net asset value per C share - 142.50p -
6. Contingent asset
HM Revenue and Customs (HMRC) has declared its acceptance that fund management
services to investment trusts are exempt from VAT. The Manager has confirmed
that claims have been lodged with HMRC to recover VAT paid from January 2001 and
the Board is exploring the potential to recover VAT paid to the previous Manager
for the prior period.
Until uncertainties surrounding the mechanisms of the reclaim process have been
cleared and an exact recovery amount is certain there will be no recognition of
an asset in the financial statements.
7. Related party transactions
There have been no related party transactions that have materially affected the
financial position or the performance of the Group.
Company Summary and Shareholder Information
COMPANY STATUS
The Company was established in 1994 as an independent investment trust whose
shares are listed on the London Stock Exchange (Ordinary Shares: ISIN No
GB0004559349; EPIC Code IBT). The Company is managed by SV Life Sciences
Managers LLP and administered by Schroder Investment Management Limited.
BENCHMARK
The Company's investment performance is compared to the Nasdaq Biotech Index,
the Merrill Lynch Small-Cap Biotech Index and the Russell 2000 Biotech Growth
Index (each Sterling adjusted).
DURATION
The Company's Articles of Association provide for Directors to put forward
proposals for the continuation of the Company at the Company's Annual General
Meeting at two-yearly intervals. Accordingly, such proposals will be put forward
at the Annual General Meeting, which is expected to be held in 2009.
SHARE PRICE AND NET ASSET VALUE INFORMATION
The Company's shares are listed on the London Stock Exchange. The Company's
share price is quoted daily in the Financial Times.
The Company releases its net asset value per share to the market on a daily
basis.
The Company maintains a website, which is located at
www.internationalbiotrust.com. The site provides share price and net asset value
information as well as details of the Board of Directors and Investment Manager,
information on investee companies, monthly fact sheets, the latest published
Annual and Interim Reports and access to recent market announcements.
SHARES IN ISSUE AND VOTING RIGHTS
As at 14 April 2008, the Company had 70,592,664 ordinary shares of 25p each in
issue. Each share carries one voting right.
ASSOCIATION OF INVESTMENT COMPANIES
The Company is a member of the Association of Investment Companies (AIC).
Further information on the AIC can be found at its website, www.theaic.co.uk.
For further information contact:
Schroder Investment Management Limited 31 Gresham Street London EC2V 7QA
Telephone 020 7658 6501 Fax 020 7658 3538
SV Life Sciences Managers LLP 71 Kingsway London WC2B 6ST
Telephone 020 7421 7070 Fax 020 7421 7077
www.internationalbiotrust.com
This information is provided by RNS
The company news service from the London Stock Exchange
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