Half-year Report

RNS Number : 7097X

Polar Cap Gbl Healthcare Growth&IT

10 May 2016

 

POLAR CAPITAL GLOBAL HEALTHCARE GROWTH AND INCOME TRUST PLC (the "Company")

Unaudited Results for the half year ended 31 March 2016

This announcement contains regulated information

10 May 2016

Financial Highlights for the half year ended 31 March 2016

Performance
Net asset value per ordinary share (total return) (note 1)								0.5%
Benchmark index MSCI ACWI/Healthcare Index (total return in Sterling with dividends reinvested)								5.1%
Total return for investors since inception (based on share price - note 2)								113.9%
Financials		As at 31 March  2016				As at 30 September 2015		% Change
Net asset value per ordinary share		173.97p				174.24p		(0.2%)
Ordinary share price		162.00p				168.25p		(3.7%)
Discount		6.9%				3.4%
Ordinary shares in issue		120,775,000				120,775,000
Ordinary shares held in treasury		1,875,000				1,875,000
Expenses
Ongoing charges for the half year ended 31 March 2016 (note 3) (Ongoing charges for the half year ended 31 March 2015: 0.99%)					1.02%
Dividends
Dividends paid and declared  in the period:	Pay date		Amount	Record date			Ex-date	Declared date
The Company has paid the following dividends relating to the financial year ended 30 September 2015:	27 Nov 2015		0.65p	06 Nov 2015			05 Nov  2015	27 Oct 2015
The Company has paid the following dividends relating to the current financial year:	29 Feb 2016		0.65p	05 Feb 2016			04 Feb 2016	27 Jan 2016
The Company has declared the following dividends relating to the current financial year:	03 Jun 2016		0.65p	20 May 2016			19 May 2016	10 May 2016

All data sourced from Polar Capital LLP

Note 1  -  The total return NAV performance for the period is calculated by reinvesting the dividends in the assets of the Company from the relevant pay date.

Note 2  -  The Total Return for investors since inception calculation is adjusted to account for any dividends to have been reinvested on the payment date in ordinary shares at the prevailing share price and assumes that all investors have exercised their subscription rights.

Note 3 - Ongoing charges represent  the total expenses of the fund, excluding finance costs, expressed as a percentage of the average daily net asset value, calculated in accordance with AIC guidance issued in May 2012.

 

Chairman's Statement

Performance

For the six months to 31 March 2016 your company generated a Net Asset Value total return of 0.5% which was behind our benchmark, the MSCI Healthcare Index (total return in Sterling with dividends reinvested) which rose by 5.1% over the same period. The underperformance was caused by adverse stock-specific moves in certain small caps and stock selection in the pharmaceutical sector. Meanwhile our share price fell by 3.7% over the period as the discount to Net Asset Value widened from 3.4% to 6.9%.

It was an extremely volatile six months which saw healthcare move out of favour on the back of an outbreak of "Hillary-phobia". The political rhetoric surrounding the U.S. Presidential election and in particular the comments from Hillary Clinton in late September regarding drug pricing set the tone and created quite a headwind for the healthcare sector. This has meant that both the pharmaceutical sector and the biotechnology sector have underperformed. The better performing areas were those not facing this perceived pricing pressure, namely medical supplies and equipment, insurers, hospitals and medical services. Given our investment mandate where we currently have 66% of the portfolio invested in pharmaceuticals, it is very difficult for our Managers to replicate the structure of the benchmark. The portfolio is more a pharmaceutical portfolio than a healthcare portfolio.

The half year also saw the introduction by the U.S. Treasury of much stricter rules to discourage tax inversions under which U.S. companies have been buying foreign companies to take advantage of lower rates of corporation tax overseas. This had the effect of scuttling the merger plans of Pfizer (one of our larger holdings) and Allergan and no doubt frustrating a number of other tax inversion deals in the pipeline. While inversion deals are not dead, only those that can navigate the increasingly hostile rules will remain viable.

Share Capital

There has been no activity in terms of share capital during the period so we still have 122,650,000 shares in issue with 1,875,000 of these shares in treasury.

Dividends

Dividends are a critical part of the Company's mandate. We have paid or declared a total of 1.3p in dividends in respect of the six months ended 31 March 2016 compared to 1.2p for the corresponding period last year. The Company's policy of aiming to increase the dividend on an annual basis remains unchanged.

Life

The Articles of Association provide for the Company to be wound up at its seventh Annual General Meeting which is expected to take place in January 2018. As communicated in my Chairman's Statement last year we think we should be in a position to provide more information about this when announcing our full year results in December.

Outlook

As our managers Dan Mahony and Gareth Powell point out in their report, valuations across large cap healthcare have become quite compelling and the sector looks cheap on both a relative and an absolute basis. Towards the end of the period they added a number of positions in the growth portfolio in mid cap and large cap biotech as well as a couple of stocks in the medical technology area, with the result that we are now fully invested.

Following such a severe sell off our managers see a short term opportunity for a positive move in the biotech and pharmaceutical sectors. However the U.S. election remains an overhang and thus we expect volatility to continue ahead of the election in November. We believe that fears about drug pricing are overdone; there may well be some policy initiatives on this front but these are unlikely to pose a threat to those companies that are genuine innovators. We therefore feel that once the election is out of the way, the increasingly positive fundamentals for the healthcare sector should begin to reassert themselves.

James Robinson

Chairman

9 May 2016

Investment Manager's Report

For the half year ended 31 March 2016

For the six months to 31 March 2016, the Company delivered a total return of 0.5%, which was behind the benchmark performance of 5.1% over the same period.

Global stock markets were extremely volatile over the six months to 31 March. Macroeconomic issues have been the major drivers of market sentiment over the last few months.

In the U.S., the Federal Reserve signalled the end to its loose monetary policy by raising interest rates in December - an event that had been widely expected - but this raised concerns that this move might precipitate an economic slowdown or even a recession. These concerns, coupled with geopolitical issues in the Middle East and the impact of slowing growth in China, led to a sharp sell-off at the beginning of January.

Markets began to stage a recovery in mid-February and were not de-railed by the British government's announcement of an EU referendum in June. The rally continued into March and confidence was fuelled by Mario Draghi, the President of the European Central Bank (ECB), announcing that the ECB would extend its quantitative easing programme and start buying corporate bonds.

We continue to believe that a number of macroeconomic and political uncertainties are likely to drive investor sentiment and, therefore, market volatility in the near-term.

Healthcare has underperformed

Healthcare has been a notable relative underperformer over the reporting period. Importantly, we do not think this has been due to any deterioration in the underlying fundamentals - it seems as though investor enthusiasm for healthcare has been affected by the political rhetoric surrounding the U.S. Presidential election. The catalyst for this seemed to be comments from Hillary Clinton in late September regarding drug pricing, which we discuss below.

Healthcare is now trading at a significant discount to the market on a price to earnings (P/E) basis. While the impact has not been as significant as that seen in 2008, when we had the prospect of President Obama's broad healthcare reform, it is worth noting that the healthcare sector currently has a superior earnings growth profile to the broader market. Moreover, on an absolute P/E basis the sector is also below its long-term (35 year) average. We think current investor sentiment has de-coupled from the underlying fundamentals.

Within healthcare, pharmaceuticals and biotechnology stocks were hardest hit largely because of concerns related to drug pricing. In addition, a reduction in investor risk appetite meant that small healthcare stocks across a number of sub-sectors, not just biotechnology, underperformed.

The best performing sub-sectors over the reporting period were health insurers, life sciences tools and medical equipment - parts of the sector where pricing concerns are low and so investors have greater confidence in the growth outlook.

Even within pharmaceutical stocks there has been a large dispersion of returns. Investors seemed to shun companies that had valuations based on clinical pipeline optionality - such as Eli Lilly and Astra Zeneca - and favoured more solid defensive growth names like Johnson & Johnson and GlaxoSmithKline.

To quantify this dispersion, it is worth noting that over the reporting period Johnson & Johnson and GlaxoSmithKline were up 21% and 17%, respectively, while Astra Zeneca, Eli Lilly and Novartis were down 4%, 10% and 16%, respectively.

The relative performance of the Company's portfolio compared to the benchmark can largely be explained by the large weighting to pharmaceuticals - a positioning we have maintained since inception and will continue to hold into the wind-up in January 2018. The portfolio was also affected by some negative stock-specific news in a couple of small cap stocks.

U.S. Presidential election creates uncertainty

The rhetoric around the ongoing U.S. Presidential election appears to be a major cause of uncertainty for investors in the healthcare sector. Interestingly, none of the Presidential candidates have articulated a detailed healthcare policy much beyond media sound bites related to drug pricing. Nevertheless, the relative valuation of healthcare is suggestive of the period in 1991/92 and 2007/08 when President Clinton and President Obama, respectively, made healthcare reform a key part of their election campaign.

One investor concern seems to relate to a potential repeal of the Affordable Care Act (ACA), often referred to as Obamacare. If the Democratic candidate is successful in winning the White House then it is highly unlikely that we will see any major changes to the ACA - none of the candidates has stated this as a major policy aim.

The Republicans continue to be vocal in their opposition to Obamacare. While this is good political rhetoric in an election year we think it will be challenging for a new Republican President to simply eliminate the ACA, even with a Republican controlled Congress.

Repealing the ACA entirely would create a significant rise in the uninsured population - bad for hospitals and health insurers but also bad for any Republican who is up for re-election in a low income area as such a change would be very unpopular. There are an estimated 22 million people from low income families that now have health insurance coverage because
of Obamacare.

Republicans are focused on a few issues - the individual mandate, where individuals are forced to buy health insurance or face a fine; the level of subsidies to low income families that enables them to buy health insurance; and expansion of the State-run Medicaid programme funded by the Federal government.

If the next President is a Republican, we think it is more likely that the responsibility for healthcare will be pushed from the Federal government down to the individual States to eliminate the impression of central control. This may well be claimed as repeal of the ACA, but in practice will mean that low income families continue to have health insurance coverage and most of the major provisions of Obamacare will remain intact.

Drug pricing is also on the political agenda

The other major investor concern relates to prescription drug pricing and the potential for government legislation in this area. The catalyst was a comment from Hillary Clinton last September when she accused certain pharmaceutical companies of 'outrageous price gouging'.

To put the drug pricing debate into context, we think it is important to divide this issue into three separate categories.

The first category relates to some of the massive price increases for old drugs, often where there is a drug manufacturing issue that has limited the supply of a drug. Hillary Clinton's comments related to a 5,000% price hike for an old anti-parasitic drug, called Daraprim, by Turing Pharmaceuticals, a start-up specialty pharmaceutical company.

We do not like business models that rely on pricing power in the absence of innovation and would agree that a handful of companies have been engaging in egregious practices. It is likely that we will see some public policy on this front - probably as a result of an investigation initiated by the U.S. Senate's Special Committee on Aging.

The second category is innovative drugs that are delivering demonstrable value to patients and healthcare systems. We think companies developing these drugs will be able to maintain strong pricing power and good margins for their products.

It is unlikely that we will see any legislation that will curb innovation in the pharmaceutical or biotechnology sectors, especially as a number of biotechnology companies are making progress with exciting new drug candidates and approaches to treat diseases that have hitherto been untreatable. Interestingly, following her initial comments, Hillary Clinton re-affirmed her commitment to supporting innovation '…companies working on life-saving breakthroughs won't have anything to fear from my plan.'

The third category relates to the change in the balance of power between the pharmaceutical industry and pharmacy benefit managers (PBMs) - the PBMs negotiate with drug companies on behalf of health insurance plans. Following a period of consolidation, the PBMs now have much greater purchasing power. Moreover, they have developed financial incentives for patients that can direct the usage of certain drugs over others and so gives them some control over market access. This is particularly important when there are two or more products in a similar therapeutic class (often with similar efficacy/safety).

This has been an issue for some of the larger pharmaceutical companies. Over the last two years, GlaxoSmithKline has had to offer substantial rebates for its respiratory drugs in order to maintain market share in the U.S., although it seems as though pricing has stabilised for 2016. In diabetes, Sanofi and Novo Nordisk are facing similar pricing pressure from the PBMs this year. We see little need for any legislation - the private sector is already beginning to create a solution to escalating drug prices by focusing on value.

Adoption of value-based reimbursement is beginning

The move to value-based reimbursement is one important ramification of the structural change that is beginning to happen across the healthcare sector. Reimbursement systems across the world are beginning to move away from a 'fee for service', volume-based system to one that rewards quality and improved clinical outcomes.

There is a growing focus on the value delivered by a therapy - whether it is a drug, device or a healthcare service. From a drug company perspective, pricing may not just be based on the efficacy data collected in a controlled clinical trial. New digital health technologies are emerging that will enable governments or insurers to evaluate the effectiveness of therapy in the 'real world' and so will allow an adjustment in reimbursement and price post-approval.

Therefore, while we do not expect legislation in this area we do expect to see governments around the world begin to adopt value-based pricing approaches.

In support of this argument, the U.S. Centers for Medicare and Medicaid Services (CMS) recently announced that it was initiating a new programme to evaluate the use of value-based drug pricing for Medicare Part B drugs - these are drugs that are administered in a physician's office or hospital outpatient department (e.g. cancer drugs or injectable antibiotics).

The programme will evaluate different tools to help physicians choose the best value treatment for patients, provide the potential for companies to charge different prices for the same drug used in different diseases (based on its relative effectiveness) and an opportunity for drug manufacturers to share risk with CMS where the price paid for a drug is linked to patient outcomes.

While value-based reimbursement is not a near-term threat to the pharmaceutical industry this is an area that is evolving rapidly. On a five year view, we see a risk that the use of data and analytical tools to evaluate products and services may create unexpected pricing pressure for healthcare companies that have not grasped the scope of the impending structural change across the industry.

Portfolio review

Since inception, we have split the Company's investments into an income and a growth portfolio with an 80:20 division of assets, respectively. All of the companies in the income portfolio pay a dividend and the large weighting towards income reduces the volatility and the overall risk of the Company's investment portfolio.

The change in investor sentiment at the end of September, coupled with the macroeconomic concerns, led us to adopt a very cautious approach over the course of the reporting period. We sold down some of our smaller cap growth stocks and raised cash towards the end of December. In mid-March, valuations across the healthcare sector had declined to a level where we needed to re-evaluate our positioning. We began to deploy the cash and shifted the positioning of the portfolio by adding to the growth portfolio - the portfolio is now fully invested.

Our income portfolio

Since inception, the Company has maintained large positions in most of the major global pharmaceutical companies. The remainder of the income portfolio is invested in a number of medical device companies, healthcare service companies and healthcare real estate investment trusts (REITs). The turnover in the income portfolio has been low over the reporting period.

As we highlighted above, there was a large dispersion in returns across the pharmaceutical sector during the reporting period. Our focus has been on identifying companies with clinical pipelines that are under-appreciated and under-valued, in our view. However, given the risk aversion in the markets and the concerns over drug pricing pressure, the better performers were the more defensive pharmaceutical stocks that are perceived as safe havens.

We maintained a large position in Johnson & Johnson throughout the period, which provided a significant positive contribution to performance on an absolute basis. However, we did not own any GlaxoSmithKline at the start of the reporting period although we bought a position in late January. Other positive contributors during the reporting period were Bristol-Myers and Consort Medical.

The largest negative contributors were AstraZeneca, Eli Lilly and Novartis. We continue to believe that the pipeline opportunities at both AstraZeneca and Eli Lilly are under-appreciated. In particular, we think that AstraZeneca's recently-approved lung cancer treatment, Tagrisso, could exceed expectations this year and so demonstrate that the company can turn its R&D potential into revenue.

Novartis' shares fell due to problems at its Alcon division and, more importantly, a decline in consensus expectations for the peak sales potential of its new heart failure drug, Entresto. While Entresto's European launch has progressed quite well, possibly ahead of expectations, the initial launch in the U.S. has been disappointing as insurance companies have been slow to provide reimbursement for the drug. We think that expectations on Entresto were probably too high at the beginning of the reporting period and are now too low - the stock looks very cheap at these levels. However, it may take a couple of quarters of solid earnings results for Novartis' shares to recover.

Our growth portfolio

For the growth portfolio, at the end of March 2016 the Company had 34 holdings in a range of biotechnology, device, service and pharmaceutical stocks. Over the reporting period, we have reduced the risk in the growth portfolio that has historically had a bias to smaller companies. We reduced or sold some of the positions in smaller companies in December to raise cash. We re-deployed this cash in the latter part of March into larger companies - at the end of the reporting period just over half of the growth portfolio was invested in companies with a market capitalisation greater than $5 billion.

The most significant positive contributors in the growth portfolio were Hutchison China Meditech
and Stryker.

We have held shares in Hutchison China Meditech for nearly five years. Over that period, the company has successfully expanded its speciality pharmaceutical business in China. At the same time, the company has been focused on developing a pipeline of innovative, next-generation cancer therapeutics with a number beginning to make progress through clinical trials. To fund further clinical development, the company announced its intention to list on NASDAQ in October last year that caused a rapid appreciation in its share price. While we like the company, we felt the valuation was a little stretched and we used this rally to exit the position.

Stryker is one of the global leaders in surgical and medical products and is a beneficiary of the volume growth driven by an ageing population. The company looks set to deliver double digit earnings growth over the next three years. Given the pricing concerns in other sub-sectors of healthcare, particularly pharmaceuticals, the stock has performed well as investors view it as a solid defensive growth company.

Cambian, a UK-based mental health service provider, was the most significant negative contributor over the period. In October, the company announced that it would not meet profit expectations for 2015 as it had failed to hire sufficient staff to cope with the rapid expansion in its facilities -especially in the children's services division. Surprisingly, the expectations for 2015 were reset in February and then again in March. The company seems to have had issues not only with staffing but also with its financial reporting systems and the CFO has now left the company.

Outlook

Over the remainder of the year, macroeconomic factors and geopolitical events are likely to drive investor sentiment and we expect global markets to remain volatile.

From a healthcare sector perspective, the start of the U.S. Presidential election process last year seems to have been a catalyst for a period of relative underperformance. While we keep a close eye on politics, and understand why investors are concerned about potential changes in the United States, the positive fundamentals for healthcare cannot be totally ignored.

An ageing population will continue to drive demand and companies that help to deliver better healthcare for less money are set to thrive. Innovation within the healthcare sector is certainly not slowing and arguably it is accelerating.

Our original investment thesis for the Company has largely played out as we expected and we are now in the final phase - a return to growth driven by a recovery in R&D productivity and the launch of new drugs. However, this is not a return to the drug industry's halcyon days of the 1990s.

The concerns over drug pricing are merely a part of a broader structural change that we are seeing across the healthcare industry. As reimbursement systems move towards rewarding quality and outcomes, the pharmaceutical companies need to demonstrate the value of their drugs to payers.

Our approach to investing in the pharmaceutical sector is to focus on this value proposition and to identify those companies where the pipeline and growth prospects are underestimated by the market.

For the broader healthcare sector, our investment thesis is to focus on (a) the consolidators or (b) the innovators - these are the companies that will decrease the cost and increase the quality of healthcare, respectively.

While the political overhang may persist until the U.S. elections in November this year, we think the valuation case for healthcare is compelling. Our investment strategy remains unchanged - we will endeavour to maintain a low risk portfolio with a high weighting to pharmaceutical stocks - with a goal of delivering a total return in the region of 10-12% per annum through to the end of the life of the Company in January 2018.

Dr Daniel Mahony and Mr Gareth Powell

Polar Capital LLP

9 May 2016

 

Portfolio As at 31 March 2016

		Stock	Country	Market Value (£'000)		% of total net assets
				31 March 2016	30 September 2015	31 March 2016	30 September 2015
1	(5)	Johnson & Johnson	United States	18,815	11,708	9.0%	5.6%
2	(3)	Eli Lilly	United States	14,275	15,737	6.8%	7.5%
3	-	AstraZeneca	United Kingdom	14,049	-	6.7%	-
4	(9)	Merck & Co	United States	13,620	7,169	6.5%	3.4%
5	(4)	Roche Holding	Switzerland	12,038	15,182	5.7%	7.3%
6	(2)	Novartis	Switzerland	11,140	16,913	5.3%	8.0%
7	(1)	Pfizer	United States	10,304	18,656	4.9%	8.9%
8	-	GlaxoSmithKline	United Kingdom	9,877	-	4.7%	-
9	(8)	Astellas Pharma	Japan	7,864	7,218	3.7%	3.4%
10	(7)	Sanofi	France	6,629	9,383	3.2%	4.5%
Top 10 investments				118,611		56.5%
11	(11)	Teva	Israel	6,141	6,148	2.9%	2.9%
12	(10)	Bristol-Myers Squibb	United States	5,332	6,250	2.5%	3.0%
13	(13)	Consort Medical	United Kingdom	5,034	5,298	2.4%	2.5%
14	(14)	Takeda Pharmaceutical	Japan	4,768	4,319	2.3%	2.1%
15	(12)	AbbVie	United States	4,766	6,103	2.3%	2.9%
16	(16)	Abbott	United States	4,364	2,390	2.1%	1.1%
17	(22)	Sonic Healthcare	Australia	2,288	1,945	1.1%	0.9%
18	(24)	Stryker	United States	2,181	1,815	1.0%	0.9%
19	-	Celgene	United States	2,089	-	1.0%	-
20	(27)	Medtronic	Ireland	1,930	1,635	0.9%	0.8%
Top 20 investments				157,504		75.0%
21	(31)	Medical Properties Trust	United States	1,805	1,459	0.9%	0.7%
22	(18)	Unitedhealth	United States	1,793	2,297	0.9%	1.1%
23	(28)	Religare Health Trust	India	1,772	1,544	0.8%	0.8%
24	(29)	UDG Healthcare	Ireland	1,752	1,509	0.8%	0.7%
25	-	Biomarin Pharmaceutical	United States	1,607	-	0.8%	-
26	(17)	Newron Pharmaceuticals	Italy	1,602	2,367	0.8%	1.1%
27	(40)	Virtus Health	Australia	1,493	1,127	0.7%	0.5%
28	-	Bard	United States	1,409	-	0.7%	-
29	(35)	Sienna Senior	Canada	1,339	1,243	0.6%	0.6%
30	(21)	Oxford Pharmascience	United Kingdom	1,322	1,982	0.6%	0.9%
Top 30 investments				173,398		82.6%
31	(47)	Healthcare Reality Trust REIT	United States	1,289	984	0.6%	0.5%
32	(38)	Medical Facilities	Canada	1,271	1,149	0.6%	0.5%
33	-	Incyte Genomics	United States	1,260	-	0.6%	-
34	(43)	Senior Housing Property Trust	United States	1,244	1,070	0.6%	0.5%
35	-	Fresenius Medical Care	Germany	1,234	-	0.6%	-
36	(37)	Omega Healthcare	United States	1,228	1,160	0.6%	0.6%
37	(34)	Endologix	United States	1,203	1,347	0.6%	0.6%
38	-	Abiomed	United States	1,187	-	0.6%	-
39	(49)	Coltene Holding	Switzerland	1,181	946	0.6%	0.4%
40	(26)	Summit	United Kingdom	1,159	1,702	0.6%	0.8%
Top 40 investments				185,654		88.6%
41	(48)	National Health Investors	United States	1,157	949	0.6%	0.5%
42	(33)	Acadia Healthcare	United States	1,150	1,365	0.5%	0.7%
43	-	DexCom	United States	1,134	-	0.5%	-
44	(36)	HCP	United States	1,133	1,229	0.5%	0.6%
45	(25)	Revance Therapeutic	United States	1,120	1,809	0.5%	0.9%
46	-	Cooper Companies	United States	1,071	-	0.5%	-
47	-	Stericycle	United States	1,053	-	0.5%	-
48	(54)	NIB Holdings	Australia	1,051	755	0.5%	0.4%
49	(39)	Sabra Health Care REIT	United States	1,046	1,147	0.5%	0.5%
50	-	Lundbeck	Denmark	1,040	-	0.5%	-
Top 50 investments				196,609		93.7%
51	(30)	AmSurg	United States	1,038	1,503	0.5%	0.7%
52	(51)	Novadaq Technologies	Canada	1,003	895	0.5%	0.5%
53	(52)	Healthcare Services Group	United States	982	853	0.5%	0.4%
54	(53)	Ablynx	Belgium	975	847	0.5%	0.4%
55	(59)	Civitas Solutions	United States	910	605	0.4%	0.3%
56	-	Medivation	United States	799	-	0.4%	-
57	(66)	Oxford Immunotec	United Kingdom	755	484	0.4%	0.2%
58	(55)	Photocure	Norway	728	721	0.3%	0.3%
59	(57)	Primary Health Care	Australia	705	617	0.3%	0.3%
60	(64)	Extendicare	Canada	631	491	0.3%	0.2%
Top 60 investments				205,135		97.8%
61	(67)	Meridian Biosciences	United States	614	484	0.3%	0.2%
62	(19)	Cambian Group	United Kingdom	488	2,252	0.2%	1.1%
63	(61)	Synairgen	United Kingdom	458	534	0.2%	0.3%
64	(65)	Futura Medical	United Kingdom	428	488	0.2%	0.2%
65	(45)	Dynavax Technologies	United States	401	1,030	0.2%	0.5%
66	(71)	Sigma Pharmaceuticals	Australia	313	190	0.1%	0.1%
67	(56)	Brookdale Senior Living	United States	298	707	0.1%	0.3%
68	(63)	Circle Holdings	United Kingdom	280	504	0.1%	0.2%
69	(68)	Conatus Pharmaceuticals	United States	233	458	0.1%	0.2%
70	(70)	Epistem Holdings	United Kingdom	120	255	0.1%	0.1%
Total equities				208,768		99.4%
Other net assets				1,339		0.6%
Net assets				210,107		100.0%

Geographical Exposure at	31 March 2016	30 September 2015
United States	49.6%	48.1%
United Kingdom	16.2%	11.3%
Switzerland	11.6%	15.7%
Japan	6.0%	5.5%
France	3.2%	4.6%
Israel	2.9%	2.9%
Australia	2.7%	2.2%
Canada	2.0%	-
Other	5.2%	8.7%
Cash	0.6%	1.0%
Total	100.0%	100.0%

Sector Exposure at	31 March 2016	30 September 2015
Pharmaceuticals	66.3%	70.1%
Healthcare Equipment	9.7%	7.2%
Biotechnology	7.5%	3.9%
Specialised Healthcare REITs	5.1%	4.5%
Healthcare Facilities	3.7%	5.4%
Healthcare Services	3.6%	2.4%
Healthcare Supplies	1.4%	0.7%
Managed Healthcare	0.9%	1.7%
Environmental & Facilities Services	0.5%	-
Life & Health Insurance	0.5%	0.4%
Healthcare Distributors	0.1%	1.3%
Life Sciences Tools & Services	0.1%	1.1%
Healthcare Technology	-	0.3%
Cash	0.6%	1.0%
Total	100.0%	100.0%

Market Cap at	31 March 2016	30 September 2015
Large (>US$5bn)	80.1%	76.3%
Medium (US$1bn - US$5bn)	7.0%	7.8%
Small (<US$1bn)	12.9%	15.9%
Total	100.0%	100.0%

 

Statement of Directors' Responsibilities
 

Risks and Uncertainties

The Directors consider that the principal risks and uncertainties faced by the Company for the remaining six months of the financial year, which could have a material impact on performance, are consistent with those outlined in the Report and Financial Statements for the year ended 30 September 2015.

These principal risks can be summarised as market volatility, stock pricing and liquidity risk, currency and interest rate risk, counterparty risk and differing economic cycles between different markets.

The Investment Manager's report comments on the outlook for market related risks.

The Company's risk management framework is a structured process for identifying, assessing and

managing the risks associated with the Company's business. The investment portfolio is diversified by

geography, which mitigates risk, but is focused on the Healthcare sector and has a high proportion of

investments listed on US markets or exposed to the US Dollar.

Directors' Responsibility Statement

The Directors of Polar Capital Global Healthcare Growth and Income Trust plc, who are listed in the

Company Information Section, confirm to the best of their knowledge that:

•      the condensed set of financial statements has been prepared in accordance with International Accounting Standard 34 as adopted by the European Union;

•      the Chairman's Statement together with the Investment Manager's Report provide a fair review of the information required by Disclosure and Transparency Rule 4.2.7R; and

•      in accordance with DTR 4.2.8R there have been no new related party transactions during the six month period to 31 March 2016 and therefore nothing to report on any material effect by such transactions on the financial position or performance of the Company during that period.  There have been no changes in any related party transaction described in the last annual report that could have a material effect on the financial position or performance of the Company in the first six months of the current financial year.

The half year financial report for the six months ended 31 March 2016 has not been audited or reviewed by the auditors.

The financial report for the six months ended 31 March 2016 was approved by the Board on 9 May 2016.

On behalf of the Board

James Robinson

Chairman

 

Statement of Comprehensive Income

For the half year ended 31 March 2016

	Notes	(Unaudited)
		Half year ended 31 March 2016
		Revenue return £'000	Capital return £'000	Total return £'000
Investment income	2	3,410	162	3,572
Other operating income	2	294	-	294
Loss on investments held at fair value		-	(1,219)	(1,219)
Other movements on written options		-	-	-
Other currency gains		-	53	53
Total income		3,704	(1,004)	2,700
Expenses
Investment management fee		(172)	(690)	(862)
Other administrative expenses		(235)	-	(235)
Total expenses		(407)	(690)	(1,097)
Profit/(loss) before tax		3,297	(1,694)	1,603
Tax		(357)	(7)	(364)
Net profit/(loss) for the period and total comprehensive income		2,940	(1,701)	1,239
Earnings per ordinary  share (basic) (pence)	3	2.43	(1.40)	1.03

Notes		(Unaudited) Half year ended 31 March 2015			(Audited) Year ended 30 September 2015
		Revenue return £'000	Capital return £'000	Total return £'000	Revenue return £'000	Capital return £'000	Total return £'000
Investment income	2	3,019	164	3,183	5,494	164	5,658
Other operating income	2	149	-	149	374	-	374
Gain on investments held at fair value		-	36,106	36,106	-	13,653	13,653
Other movements on written options		-	-	-	-	(7)	(7)
Other currency losses		-	(160)	(160)	-	(528)	(528)
Total income		3,168	36,110	39,278	5,868	13,282	19,150
Expenses
Investment management fee		(169)	(676)	(845)	(351)	(1,402)	(1,753)
Other administrative expenses		(223)	-	(223)	(452)	-	(452)
Total expenses		(392)	(676)	(1,068)	(803)	(1,402)	(2,205)
Profit before tax		2,776	35,434	38,210	5,065	11,880	16,945
Tax		(357)	(2)	(359)	(662)	(2)	(664)
Net profit for the period and total comprehensive income		2,419	35,432	37,851	4,403	11,878	16,281
Earnings per ordinary share (basic) (pence)	3	1.99	29.17	31.16	3.63	9.81	13.44

The total column of this statement represents the Company's Statement of Comprehensive Income,
prepared in accordance with IFRS as adopted by the European Union.

The revenue return and capital return columns are supplementary to this and are prepared under
guidance published by the Association of Investment Companies.

The notes on pages 17 to 18 form part of these financial statements.

 

Statement of Changes in Equity for the half year ended 31 March 2016

	(Unaudited) Half year ended 31 March 2016
	Called up share capital £'000	Share premium reserve £'000	Special distributable reserve £'000	Capital reserves £'000	Revenue reserve £'000	Total £'000
Total equity at 1 October 2015	30,663	28,916	61,844	86,605	2,410	210,438
Total comprehensive income:
(Loss)/profit for the half year ended 31 March 2016	-	-	-	(1,701)	2,940	1,239
Transactions with owners, recorded directly to equity:
Equity dividends paid	-	-	-	-	(1,570)	(1,570)
Total equity at 31 March 2016	30,663	28,916	61,844	84,904	3,780	210,107
	(Unaudited) Half year ended 31 March 2015
	Called up share capital £'000	Share premium reserve £'000	Special distributable reserve £'000	Capital reserves £'000	Revenue reserve £'000	Total £'000
Total equity at 1 October 2014	30,663	28,916	63,288	74,727	2,365	199,959
Total comprehensive income:
Profit for the half year ended 31 March 2015	-	-	-	35,432	2,419	37,851
Transactions with owners, recorded directly to equity:
Shares bought back and held in treasury	-	-	(1,354)	-	-	(1,354)
Equity dividends paid	-	-	-	-	(1,459)	(1,459)
Total equity at 31 March 2015	30,663	28,916	61,934	110,159	3,325	234,997
	(Audited) Year ended 30 September 2015
	Called up share capital £'000	Share premium reserve £'000	Special distributable reserve £'000	Capital reserves £'000	Revenue reserve £'000	Total £'000
Total equity at 1 October 2014	30,663	28,916	63,288	74,727	2,365	199,959
Total comprehensive income:
Profit for the year ended 30 September 2015	-	-	-	11,878	4,403	16,281
Transactions with owners, recorded directly to equity:
Shares bought back and  held in treasury	-	-	(1,444)	-	-	(1,444)
Equity dividends paid	-	-	-	-	(4,358)	(4,358)
Total equity at 30 September 2015	30,663	28,916	61,844	86,605	2,410	210,438

The notes on pages 17 to 18 form part of these financial statements.

Balance Sheet

As at 31 March 2016

	Notes	(Unaudited) 31 March 2016 £'000	(Unaudited) 31 March 2015 £'000	(Audited) 30 September 2015 £'000
Non current assets
Investments held at fair value		208,768	227,998	208,247
Current assets
Receivables		708	5,066	509
Overseas tax recoverable		203	211	212
Cash and cash equivalents		5,771	11,607	1,950
		6,682	16,884	2,671
Total assets		215,450	244,882	210,918
Current liabilities
Payables		(5,343)	(9,885)	(206)
Bank overdraft		-	-	(274)
		(5,343)	(9,885)	(480)
Net assets		210,107	234,997	210,438
Equity attributable to equity shareholders
Called up share capital		30,663	30,663	30,663
Share premium reserve		28,916	28,916	28,916
Special distributable reserve		61,844	61,934	61,844
Capital reserves		84,904	110,159	86,605
Revenue reserve		3,780	3,325	2,410
Total equity		210,107	234,997	210,438
Net asset value per ordinary share (pence)	4	173.97	194.49	174.24

The notes on pages 17 to 18 form part of these financial statements.

 

Cash Flow Statement

For the half year ended 31 March 2016

	(Unaudited) Half year ended 31 March 2016 £'000	(Unaudited) Half year ended 31 March 2015 £'000	(Audited) Year ended 30 September 2015 £'000
Cash flows from operating activities
Profit before tax	1,603	38,210	16,945
Adjustment for non-cash items:
Loss/(gain) on investments held at fair value through profit or loss	1,219	(36,106)	(13,653)
Adjusted profit before tax	2,822	2,104	3,292
Adjustments for:
Purchases of investments, including transaction costs	(40,848)	(23,318)	(82,727)
Sales of investments, including transaction costs	44,251	36,256	87,945
(Increase)/Decrease in receivables	(199)	98	(16)
Decrease in payables	(6)	(228)	(218)
Overseas tax deducted at source	(355)	(395)	(701)
Net cash generated from operating activities	5,665	14,517	7,575
Cash flows from financing activities
Cost of shares repurchased	-	(1,354)	(1,444)
Equity dividends paid	(1,570)	(1,459)	(4,358)
Net cash used in financing activities	(1,570)	(2,813)	(5,802)
Net increase in cash and cash equivalents	4,095	11,704	1,773
Cash and cash equivalents at the beginning of the period	1,676	(97)	(97)
Cash and cash equivalents at the end of the period	5,771	11,607	1,676

The notes on pages 17 to 18 form part of these financial statements
 

Notes to the Financial Statements

For the half year ended 31 March 2016

1     General Information          

The financial statements comprise the unaudited results for Polar Capital Global Healthcare Growth & Income Trust Plc for the six month period to 31 March 2016.

The unaudited financial statements to 31 March 2016 have been prepared using the accounting policies used in the Company's financial statements to 30 September 2015. These accounting policies are based on International Financial Reporting Standards ('IFRS'), which comprise standards and interpretations approved by the International Accounting Standards Board ('IASB') and the International Accounting Standards Committee ('IASC'), as adopted by the European Union.

The financial information in this half year Report does not constitute statutory accounts as defined in section 434 of the Companies Act 2006.

The financial information for the periods ended 31 March 2016 and 31 March 2015 have not been audited. The figures and financial information for the year ended 30 September 2015 are an extract from the latest published accounts and do not constitute statutory accounts for that year. Full statutory accounts for the year ended 30 September 2015, prepared under IFRS, including the report of the auditors which was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under section 498 of the Companies Act 2006, have been delivered to the Registrar of Companies.

The Company's accounting policies have not varied from those described in the financial statements for the year ended 30 September 2015.

The financial statements are presented in Pounds Sterling and all values are rounded to the nearest thousand pounds (£'000), except where otherwise stated.

2     Dividends and other income

	(Unaudited) For the half year ended 31 March  2016 £'000	(Unaudited) For the half year ended 31 March 2015 £'000	(Audited) For the year ended 30 September 2015 £'000
Investment income
Revenue:
Franked: Listed investments
Dividend income	812	460	688
Unfranked: Listed investments
Dividend income	2,598	2,559	4,806
Total investment income allocated to revenue	3,410	3,019	5,494
Capital:
Dividends from REITs allocated to capital	162	164	164
Total investment income allocated to capital	162	164	164
Other operating income
Option premium income	292	148	372
Bank interest	2	1	2
Total other operating income	294	149	374

3     Earnings per ordinary share

	(Unaudited) For the half year ended 31 March  2016 £'000	(Unaudited) For the half year ended 31 March  2015 £'000	(Audited) For the year ended 30 September 2015 £'000
Basic earnings per share
Net profit for the period:
Revenue	2,940	2,419	4,403
Capital	(1,701)	35,432	11,878
Total	1,239	37,851	16,281
Weighted average number of shares in issue during the period	120,775,000	121,476,566	121,133,452
Revenue	2.43p	1.99p	3.63p
Capital	(1.40)p	29.17p	9.81p
Total	1.03p	31.16p	13.44p

As at 31 March 2016 there were no potentially dilutive shares in issue (31 March 2015 and 30 September 2015: same).

4     Net asset value per ordinary share         

	(Unaudited) For the half year ended 31 March 2016 £'000	(Unaudited) For the half year ended 31 March 2015 £'000	(Audited) For the year ended 30 September 2015 £'000
Net assets attributable to ordinary shareholders (£'000)	210,107	234,997	210,438
Ordinary shares in issue at end of period	120,775,000	120,825,000	120,775,000
Net asset value per ordinary share (pence)	173.97	194.49	174.24

As at 31 March 2016 there were no potentially dilutive shares in issue (31 March 2015 and 30 September 2015: same).

5     Dividends      

The second interim dividend of 0.65 pence per Ordinary share will be paid on 3 June 2016 to shareholders on the register at 20 May 2016.             

A first interim dividend of 0.65 pence per Ordinary Share was paid on 29 February 2016. In total dividends of 1.30 pence per share have been declared for the six months ended 31 March 2016.

6     Related party transactions                                                                                                        

There have been no related party transactions that have materially affected the financial position or the   performance of the Company during the six month period to 31 March 2016.

Company Website

www.polarcapitalhealthcaretrust.co.uk

Neither the contents of the Company's website nor the contents of any website accessible from the hyperlinks on the Company's website (or any other website) is incorporated into or forms part of this announcement.

COPIES

The Interim Report will be published on the Company's website at www.polarcapitalhealthcaretrust.co.uk and will be posted to shareholders in late May 2016. Copies of this statement are also available from the Company's registered office.

Forward-looking Statements

Certain statements included in this half year Report contain forward-looking information concerning the Company's strategy, operations, financial performance or condition, outlook, growth opportunities or circumstances in the countries, sectors or markets in which the Company operates. By their nature, forward-looking statements involve uncertainty because they depend on future circumstances, and relate to events, not all of which are within the Company's control or can be predicted by the Company. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove to be correct. Actual results could differ materially from those set out in the forward-looking statements. For a detailed analysis of the factors that may affect our business, financial performance or results of operations, we urge you to look at the principal risks and uncertainties included in the Annual Report for the financial year ended 30 September 2015. No part of these results constitutes, or shall be taken to constitute, an invitation or inducement to invest in Polar Capital Global Healthcare Growth and Income Trust plc or any other entity, and must not be relied upon in any way in connection with any investment decision. The Company undertakes no obligation to update any forward-looking statements.

End

 

END

 

 

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