Annual Financial Report
LONDON STOCK EXCHANGE ANNOUNCEMENT
The Biotech Growth Trust PLC
Annual Financial Report
for the Year Ended 31 March 2011
COMPANY SUMMARY
KEY STATISTICS
Year Year
ended ended
31 March 31 March
2011 2010 %
change
Shareholders' funds (£'000) 120,818 120,417 +0.3%
Net asset value per share 186.0p 182.6p +1.9%
Share price 166.0p 175.8p -5.6%
Discount of share price to net asset value per share 10.8% 3.7% -
NASDAQ Biotechnology Index (sterling adjusted) 647.9 618.1 +4.8%
(Benchmark)
Total expense ratio* 1.2% 1.2% -
*Based on the average amount of shareholders' funds during the year - excludes
performance fee accrued/written back - see note 3 on page 31.
PERFORMANCE FOR THE YEAR TO 31 MARCH 2011
Figures have been rebased to 100 as at 31 March 2010.
Source: Bloomberg and Morningstar
INVESTMENT OBJECTIVE AND POLICY
The Biotech Growth Trust PLC seeks capital appreciation through investment in
the worldwide biotechnology industry, principally by investing in emerging
biotechnology companies. Performance is measured against the NASDAQ
Biotechnology Index (sterling adjusted).
The majority of the emerging biotechnology companies that the Company will
invest in are likely to be companies with a market capitalisation of less than
U.S.$3 billion that have undergone an IPO (Initial Public Offering) but as yet
are unprofitable. They will typically be focused on drug research and
development, with their valuations driven by profitable developments, clinical
trial results and partnerships.
The Company may invest or commit for investment a maximum of U.S.$15 million,
after the deduction of proceeds of disposal and other returns of capital, in
private equity funds managed by OrbiMed Capital LLC, the Company's Investment
Manager, or an affiliate thereof. Further details of the Company's investment
policy are set out in the Report of the Directors beginning on page 8.
CAPITAL STRUCTURE
As at 31 March 2011, the Company had 64,954,681 shares in issue. During the
year, 1,005,180 shares were bought back for cancellation. Subsequent to the
year end, to 31 May 2011, a further 262,756 shares were bought back for
cancellation.
DIVIDEND
No dividend is recommended in respect of the year ended 31 March 2011 (2010:
Nil).
PERFORMANCE SUMMARY
PERFORMANCE SINCE THE DATE OF APPOINTMENT OF ORBIMED CAPITAL LLC AS INVESTMENT
MANAGER
Figures have been rebased to 100 as at 19 May 2005.
Source: Bloomberg and Morningstar
YEAR ENDED 31 MARCH
FIVE YEAR PERFORMANCE RECORD
2006 2007 2008 2009 2010 2011
Net asset value per share 131.8p 117.1p 103.4p 136.9p 182.6p 186.0p
Share price 135.5p 109.8p 96.8p 130.5p 175.8p 166.0p
(Premium)/discount of share (2.8)% 6.2% 6.4% 4.7% 3.7% 10.8%
price to net asset value per
share
NASDAQ Biotechnology Index 483.7 394.7 393.1 477.5 618.1 647.9
(sterling adjusted)
CHAIRMAN'S STATEMENT
PERFORMANCE
During the year ended 31 March 2011, the Company's net asset value per share
rose by 1.9% compared to a rise of 4.8% in the Company's benchmark during the
same period. The Company's share price, however, fell by 5.6%, as the discount
of share price to net asset value per share widened from 3.7% at 31 March 2010
to 10.8% at the year-end.
This disappointing result was due in part to the strong performance of a small
number of stocks which were in the Index against which we measure our
performance but which were not in our own portfolio. We also suffered from
being underweight in some mid capitalisation stocks which performed
particularly well in the second half of the year and overweight in major
biotechnology companies which underperformed the mid and small capitalisation
companies. A weakening of the U.S. dollar during the year had a negative impact
on the Company's absolute performance. Further information on the Company's
investments can be found in the Review of Investments beginning on page 6.
Active management of a portfolio will inevitably lead to periods of relative
out and underperformance. For example in the two preceding financial years our
net asset value per share rose by 32.4% and 33.4% respectively, substantially
outperforming the Index throughout that period.
RETURN PER SHARE AND DIVIDEND
The total return per share amounted to 3.0p for the year (2010: return of
51.8p), comprising a revenue deficit of 0.5p per share (2010: deficit of 0.6p)
and a capital gain of 3.5p (2010: gain of 52.4p). No dividend is recommended in
respect of the year ended 31 March 2011 (2010: Nil).
GEARING
Following a change in the Company's custodian in December 2009, the Company's
borrowing requirements are met through a loan facility, negotiated on
competitive terms, provided by the custodian Goldman Sachs & Co, New York. This
loan facility was used by the Company at various times during the year but on
31 March 2011 it was undrawn.
CAPITAL
The Board has continued to implement its policy of active discount management
and to buy back shares when necessary in the event of the market price being at
a discount greater than 6% to the net asset value per share. During the year, a
total of 1,005,180 shares was bought back for cancellation, at an average
discount to net asset value per share of 7.9%. The cost was £1,601,000
(including expenses).
As mentioned above, the discount of the Company's share price to the net asset
value per share was 10.8% at the year-end, emphasising that the discount can
sometimes temporarily exceed the target of 6%. This reflects the overall
balance between supply and demand for the Company's shares in the secondary
market and the volatility of the biotechnology asset class.
The average month end share price discount during the year was 6.1% and the
execution and timing of any share buy-backs will continue to be at the absolute
discretion of the Board. Shareholder approval to renew the authority to
buy-back shares will be sought at the Annual General Meeting.
DEVELOPMENTS IN THE INVESTMENT TRUST SECTOR
HM Treasury's review of the tax and company law rules affecting investment
trusts set out in its consultation document last summer has now resulted in
sensible and beneficial amendments which should be advantageous to the whole
industry. These amendments include a softening of the rules so that inadvertent
and minor breaches that are remedied without delay will not cause the
investment trust concerned to suffer adverse tax consequences. Our trade
association, the Association of Investment Companies (AIC), played a leading
role in reaching this satisfactory conclusion of the review.
The Alternative Investment Fund Managers Directive was passed into law by the
European Parliament last summer, but there is much detail still to emerge
before this Directive takes effect in 2013. It is, however, clear that much of
the over-bureaucratic regulation first proposed has been abandoned in favour of
more pragmatic measures and the AIC again played a major role in achieving
this.
OUTLOOK
The outlook for most markets has tended to improve over the last two years, not
least on account of the expansive monetary policies adopted by many central
banks. The Company's share price has risen from 130.5p to 180.0p since 31 March
2009. Serious structural problems still persist, however, in many industrial
countries, particularly in the United States and in Europe. The dangers of
inflation remain another growing source of concern.
OrbiMed, our Investment Manager, believes that the outlook for the healthcare
sector is good although volatility in the sector may increase if the
Republicans decide to reform the current U.S. healthcare bill. But healthcare
shares in general, and mature biotechnology shares in particular, are at
historically low levels as measured by criteria such as a company's price/
earnings to growth ratio and OrbiMed are well positioned to take advantage of
the investment opportunities which arise. Continued merger and acquisition
activity and the release of important product data will both be key drivers for
the sector. In addition, there are a number of expected high profile and
innovative product approvals due in 2011 which could prove very significant for
the sector.
Despite disappointing performance in the year under review your Board is
confident that the Company is well positioned to take advantage of current
market conditions.
Our focus continues to be on the selection of stocks with strong prospects for
capital enhancement and we continue to believe that the long term investor in
our sector will be well rewarded.
ANNUAL GENERAL MEETING
The Annual General Meeting of the Company will be held at the Barber- Surgeons'
Hall, Monkwell Square, Wood Street, London EC2Y 5BL on Thursday, 14 July 2011
at 12 noon, and we hope as many shareholders as possible will attend. This will
be an opportunity to meet the Board and to receive a presentation from our
Investment Manager.
JOHN SCLATER, CVO
CHAIRMAN
31 MAY 2011
THE BOARD
JOHN SCLATER, CVO (CHAIRMAN)*†#
John Sclater, aged 70, has served on the Board as Chairman since the launch of
the Company in June 1997; he is also Chairman of the Nominations Committee. He
was formerly a Trustee of The Grosvenor Estate, Chairman of Hill Samuel Bank
Limited, Chairman of Foreign & Colonial Investment Trust PLC, Chairman of
Graphite Enterprise Trust PLC, First Church Estates Commissioner, President of
The Equitable Life Assurance Society and a Director of other public companies.
He remains a self-employed farmer and Chairman of Argent Group (Europe) Ltd and
of Burner, Nicol & Co. Limited.
SVEN BORHO
Sven Borho, aged 44, joined the Board in March 2006. He is a founding General
Partner of OrbiMed Capital LLC, the Company's Investment Manager, where he acts
as a portfolio manager for OrbiMed's public equity funds and heads the firm's
trading activities. He started his career in 1991 when he joined Mehta and
Isaly as a Senior Analyst covering European pharmaceutical firms and
biotechnology companies worldwide. Sven studied business administration at
Bayreuth University in Germany and received an M.Sc (Econ.) from The London
School of Economics.
PAUL GAUNT†#
Paul Gaunt, aged 62, joined the Board in June 1997. Paul is self-employed and
has over 30 years' experience in the investment industry. He was formerly
Senior Investment Manager and an Assistant General Manager of The Equitable
Life Assurance Society and a Director of Brit Insurance Holdings PLC and of
Oasis Healthcare plc. Paul is a Director of RCM Technology Trust PLC and also
of Worldwide Healthcare Trust PLC; OrbiMed Capital LLC, the Company's
Investment Manager, also acts as investment Manager for Worldwide Healthcare
Trust PLC.
DR JOHN GORDON*†#
Dr John Gordon, aged 66, joined the Board in June 1997 and has been designated
as the Senior Independent Director; he is also Chairman of the Remuneration
Committee. Dr Gordon is Chairman of, and employed by, Quercus Management
Limited and has previously acted as Director of several biotechnology
companies, as well as working at Beecham Research Laboratories, Cambridge
University and the Medical Research Council.
PETER KEEN*†#
Peter Keen, aged 53, has served on the Board as a Director since the launch of
the Company in June 1997 and is Chairman of the Audit & Management Engagement
Committee. A chartered accountant, he has over 25 years' experience in the
management and financing of biotechnology businesses and up until March 2010
was the Corporate Development and Finance Director of the privately held
biopharmaceutical company Serentis Limited. He has served as a Director of a
number of technology businesses and is currently the Senior Independent
Director of Abcam plc, a Director of Ark Therapeutics Group plc and Chairman of
Oval Medical Technologies Limited and of Exosect Limited.
THE RT HON LORD WALDEGRAVE OF NORTH HILL*†#
Lord Waldegrave of North Hill, aged 64, joined the Board in June 1998. He is
Provost of Eton College and acts as a consultant to investment bank UBS, where
he was formerly Vice-Chairman of their Investment Banking Department. He is a
Director of Fleming Family & Partners Limited and was previously Chairman of
the Global Financial Institutions Group at Dresdner Kleinwort Wasserstein. From
1979 to 1997, he was MP for Bristol West holding a number of Cabinet posts
including Secretary of State for Health. Lord Waldegrave of North Hill is also
Chairman of the Rhodes Trust.
* Member of the Audit and Management Engagement Committee
†Member of the Nominations Committee
# Member of the Remuneration Committee
All members of the Board are non-executive. None of the Directors has any other
connections with the Investment Manager and is not employed by any of the
companies in which the Company holds an investment.
ORBIMED CAPITAL LLC - INVESTMENT MANAGER
OrbiMed Capital LLC, based in New York, is an investment manager focused
exclusively on the healthcare sector, with approximately U.S.$5.1 billion in
assets under management as at 31 March 2011 across a range of funds, including
investment trusts, hedge funds and private equity funds. OrbiMed's investment
management activities were founded in 1989 by Samuel D Isaly.
INVESTMENT STRATEGY
The Biotech Growth Trust's objective is to seek capital appreciation through
investment in the worldwide biotechnology industry principally by investing in
emerging biotechnology companies.
Consistent with this mandate, OrbiMed has invested the majority of the
Company's assets in emerging biotechnology companies with the remainder
invested in major biotechnology companies. The portfolio comprised 42 holdings
as at 31 March 2011.
OrbiMed makes investments worldwide - in North America, Europe, and the Far
East. Geographic allocation is in line with the geographic distribution of
investment opportunities, with a majority of the Company's investments in
companies based in North America.
OrbiMed takes a bottom-up approach to stock selection based on intensive
proprietary research. Stock selection is based on rigorous financial analysis,
exhaustive scientific review, frequent meetings with company management and
consultations with physicians and other industry experts.
OrbiMed seeks to invest in emerging biotechnology companies with strong
management teams, innovative products in development, and sufficient financial
resources to develop those products. For major biotechnology companies, OrbiMed
looks for strong management teams, healthy organic growth from current products
and deep pipelines to fuel future growth.
The attainment of profitability frequently acts as a significant catalyst for
biotech share price appreciation. As a result, OrbiMed believes superior
returns can be achieved by investing in emerging biotechnology companies two to
three years prior to sustainable profitability. Companies that become
profitable benefit from greater analyst research coverage, a wider
institutional investor base and reduced clinical development risk (since
profitability typically coincides with a product approval and launch). OrbiMed
generally seeks to exit its investments when the wider investor community
starts to value the newly profitable biotechnology company in excess of its
anticipated future growth.
Risk management is conducted via position size limits, geographic
diversification and an appropriate weighting between major and emerging
biotechnology. OrbiMed maintains adequate portfolio liquidity by limiting the
Company's ownership to 15% of an individual company's equity (at the time of
investment) and by strictly limiting the Company's exposure to direct unquoted
companies to 10% of the portfolio at the time of acquisition.
THE ORBIMED TEAM
OrbiMed's investment professionals possess a combination of extensive
scientific, medical, and financial expertise. The following five individuals
represent the portfolio management team for the Company:
Samuel D Isaly, is a founder and the Managing Partner of OrbiMed. Sam has been
active in global healthcare investing and analysis since 1968 when he joined
Chase Manhattan Bank in New York. During his career, Sam has been a
pharmaceutical analyst with Merrill Lynch, Legg Mason and SocGen Swiss
International. Sam created OrbiMed's asset management business in 1989 through
OrbiMed's predecessor organisation, Mehta and Isaly. Sam has a BA in Economics
from Princeton University and a M.Sc. (Econ.) from The London School of
Economics.
Sven H Borho, CFA, is a founding General Partner of OrbiMed. Sven is a
portfolio manager for OrbiMed's public equity funds and he heads the firm's
trading team. He started his career in 1991 when he joined Mehta and Isaly as a
Senior Analyst covering European pharmaceutical firms and biotechnology
companies worldwide. Sven studied business administration at Bayreuth
University in Germany and received a M.Sc. (Econ.) from The London School of
Economics; he is a citizen of both Germany and Sweden.
Carl L Gordon, Ph.D, CFA, is a founding General Partner of OrbiMed and co-Head
of Private Equity. Carl is active in both private equity and
small-capitalisation public equity investments. He was a senior biotechnology
analyst at Mehta and Isaly from 1995 to 1997. He was a Fellow at The
Rockefeller University from 1993 to 1995. Carl received a Ph.D. in Molecular
Biology from the Massachusetts Institute of Technology. His doctoral work
involved studies of protein folding and assembly. He received a Bachelors
degree from Harvard College.
Geoffrey C Hsu, CFA, is a General Partner of OrbiMed, having joined in 2002 as
a public biotechnology analyst. Prior to joining OrbiMed, he worked as a
financial analyst in the healthcare investment banking group at Lehman
Brothers. Geoffrey received his AB degree summa cum laude from Harvard
University and holds an MBA from Harvard Business School. Prior to business
school, he spent two years studying medicine at Harvard Medical School.
Richard D Klemm, Ph.D, CFA, joined OrbiMed in 2000 as a public biotechnology
analyst. He completed a Ph.D. from the Massachusetts Institute of Technology in
Molecular Biology in 2000. Richard has published scientific articles in the
fields of DNA replication and transcription. He received a BA from the
University of California, Berkeley in 1994 with majors in molecular and cell
biology and economics.
REVIEW OF INVESTMENTS
PERFORMANCE REVIEW
The Company's net asset value per share increased by 1.9% during the year. A
weakening of the U.S. dollar negatively impacted the Company's absolute
performance by approximately 5%. The Company's benchmark index, the NASDAQ
Biotechnology Index (measured on a sterling adjusted basis), rose 4.8% during
this period. The underperformance is partially attributed to a relative
overweight position in major biotechnology companies which underperformed the
mid and small capitalisation companies during the year.
The top contributors to performance in the portfolio were Ariad
Pharmaceuticals, Genzyme, Pharmasset, Illumina, and Shire. Ariad reported
positive results from two programmes during the year which drove positive share
performance: Ponatinib showed strong activity against the treatment of
refractory chronic myelogenous leukaemia and Ridaforolimus demonstrated a
benefit in sarcoma. Genzyme was acquired by Sanofi-Aventis at a 40% premium to
the price before rumours of the unsolicited bid emerged. Pharmasset reported
positive results from early stage trials for two of its HCV (Hepatitis C)
polymerase inhibitors, PSI-7977 and PSI-938. Over the course of the year, it
has become clear that Pharmasset is a front-runner among the next "wave" of
direct acting antiviral drugs for HCV, and has the potential to be the first
company with an all-oral combination regimen for HCV. Illumina's share price
performance was driven by the launch of the company's new HiSeq 2000 next
generation sequencing system in early 2010, which exceeded sales expectations
over the course of the year. There has been keen investor interest in next
generation genetic sequencing for both research and diagnostic purposes and
Illumina remains the leading company in that area. Shire's share price
performance was driven by earnings upside due to manufacturing difficulties at
a key competitor and the absence of broad generic competition to its legacy
attention deficit disorder compound Adderall XR.
The largest losses were from positions in Allos Therapeutics, Curis, Amgen, and
Celgene. Allos' shares were weak as the launch of their drug Folotyn for
peripheral T-cell lymphoma came in below estimates. Furthermore, they reported
underwhelming data for Folotyn for the treatment of lung cancer, a key
expansion indication. We continue to hold the shares as we believe that the
reset expectations for Folotyn in 2011 are achievable. Curis reported negative
data for their "hedgehog inhibitor" licensed to Roche in colorectal cancer.
This failure suggests that the drug may be limited to the relatively small
market of basal cell carcinoma, where it does possess dramatic activity.
Amgen's shares remained subdued during the year due to a
slower-than-anticipated launch of its osteoporosis drug Prolia, investor
concerns about the company's capital allocation policy and continued headwinds
for the company's anaemia franchise. Celgene's shares underperformed during the
year as investors began to question the longer term growth potential of the
company. Additionally, data presented in December caused some concern about the
potential for Revlimid, Celgene's lead drug for myeloma, to cause secondary
cancers and thus limit uptake in the maintenance setting.
OUTLOOK: NEW PRODUCT MOMENTUM CONTINUES
The outlook for new innovative products from the biotechnology sector remains
strong. A number of the drugs approved or expected to be approved in 2011 have
"blockbuster" potential (conventionally defined, a blockbuster is a drug with
over U.S.$1 billion in annual sales). We would highlight four new products that
will be launched in 2011: Benlysta, Esbriet, Telaprevir, and Ruxolitinib.
- Benylsta, from Human Genome Sciences and partnered with GlaxoSmithKline, is
an anti-BLyS antibody for the treatment of lupus, an autoimmune disease with
high unmet need. It is the first drug to be approved in the United States for
lupus in 50 years.
- Esbriet, from InterMune, has been approved in Europe for idiopathic pulmonary
fibrosis, a fatal lung disease with no other effective drug therapy.
- Telaprevir, from Vertex Pharmaceuticals, is a protease inhibitor for
Hepatitis C. This drug dramatically increases the cure rate compared with
current standard of care and will greatly expand the number of patients treated
annually for Hepatitis C.
- Ruxolitinib, from Incyte, is a Janus kinase inhibitor for myelofibrosis, a
progressive scarring of the bone marrow. The drug has shown impressive activity
in reducing spleen size and improving symptoms of the disease.
The number of holdings in the portfolio remains at approximately 40, exclusive
of unquoted investments and warrants. The geographic distribution of assets is
81% North America, 13% Europe 3% Far East and 3% Israel. Currently
approximately 45% of the Company's assets are invested in major capitalisation
companies and 55% are invested in small and mid capitalisation companies. We
believe that the level of high profile new drug launches, the favourable
valuation of major biotechnology companies and the potential for continued
merger and acquisition activity will drive strong performance in the coming
year.
SVEN BORHO
ORBIMED CAPITAL LLC
INVESTMENT MANAGER
31 MAY 2011
PORTFOLIO
AS AT 31 MARCH 2011
Fair value % of
Investments Country/region £'000 Investments
Gilead Sciences United States 10,699 8.3
Shire Ireland 7,903 6.2
Life Technologies United States 6,050 4.7
Illumina United States 5,726 4.5
Amgen United States 5,169 4.0
Incyte Genomics United States 5,139 4.0
Pharmasset United States 4,570 3.6
Celgene United States 4,414 3.4
Biogen Idec United States 4,395 3.4
Teva Pharmaceutical Industries Israel 4,375 3.4
Top 10 Investments 58,440 45.5
Thermo Fisher Scientific United States 4,204 3.3
Warner Chilcott Ireland 4,065 3.2
Pharmacyclics United States 4,035 3.2
Perrigo United States 3,768 2.9
Alexion Pharmaceuticals United States 3,641 2.8
BioMarin Pharmaceutical United States 3,640 2.8
United Therapeutics United States 3,587 2.8
ArQule United States 3,225 2.5
Affymetrix United States 2,942 2.3
3SBio China 2,940 2.3
Top 20 Investments 94,487 73.6
Allos Therapeutics United States 2,760 2.2
Cubist Pharmaceuticals United States 2,633 2.1
Medivir Sweden 2,596 2.0
Human Genome Science United States 2,416 1.9
KV Pharmaceutical United States 2,363 1.8
Dendreon United States 2,279 1.8
InterMune United States 2,091 1.6
Exact Sciences United States 2,076 1.6
Regeneron Pharmaceuticals United States 2,070 1.6
Ariad Pharmaceuticals United States 2,022 1.6
Top 30 Investments 117,793 91.8
Fluidigm United States 1,843 1.4
Onyx Pharmaceuticals United States 1,709 1.3
Cephalon United States 1,371 1.1
NPS Pharmacuticals United States 1,313 1.0
Stratec Biomedical Systems Germany 1,311 1.0
OrbiMed Asia Partners L.P.
(unquoted)
(formerly Caduceus Asia Partners Far East 1,188 0.9
L.P.)
Anadys Pharmaceuticals United States 711 0.6
Aveo Pharmaceuticals United States 570 0.4
Bavarian Nordic Denmark 351 0.3
YM Biosciences Canada 102 0.1
Top 40 Investments 128,262 99.9
Idenix Pharmaceuticals United States 84 0.1
Ligand Pharmaceuticals Wts 10/13/11* United States - -
Total Investments 128,346 100.0
All of the above investments are equities unless otherwise stated.
* Warrants
PORTFOLIO BREAKDOWN
Fair value % of
Investments £'000 Investments
Equities 128,346 100.0
Warrants - -
Total Investments 128,346 100.0
REPORT OF THE DIRECTORS
INCORPORATING THE BUSINESS REVIEW
The Directors present their report and the audited financial statements for the
year ended 31 March 2011.
INTRODUCTION
The Report of the Directors includes the Business Review and Corporate
Governance Statement. The Business Review contains a review of the Company's
business, the principal risks and uncertainties it faces and an analysis of its
performance during the financial period, the position at the period end and the
future business plans of the Company. To aid understanding of these areas the
Board has included an analysis using appropriate Key Performance Indicators.
The Business Review should be read in conjunction with the Chairman's Statement
on page 3, the Review of Investments on page 6 and the Portfolio list on page
7.
BUSINESS AND STATUS OF THE COMPANY
The Company is registered as a public limited company and is an investment
company within the terms of Section 833 of the Companies Act 2006. Its shares
are listed on the Official List of the UK Listing Authority and traded on the
main market of the London Stock Exchange. The Company has received approval
from HM Revenue & Customs as an authorised investment trust under Section 842
of the Income and Corporation Taxes Act 1988 ("ICTA 1988") for the year ended
31 March 2010 and all previous periods. This approval is subject to there being
no subsequent enquiry under corporation tax self-assessment. In the opinion of
the Directors, the Company continues to direct its affairs so as to enable it
to qualify for such approval and the Company will continue to seek approval
each year. With effect from the year ended 31 March 2011, approval will be
sought under Sections 1158 and 1159 of the Corporation Tax Act 2010 ("CTA
2010"), formerly under Section 842 ICTA 1988.
The Company's shares are eligible for inclusion in the stocks and shares
component of an Individual Savings Account.
CONTINUATION OF THE COMPANY
A resolution was passed at a General Meeting of the Company held on 4 December
2009, that the Company continue as an investment trust for a further five year
period (from the Annual General Meeting held in 2010). In accordance with the
Company's Articles of Association, shareholders will have an opportunity to
vote on the continuation of the Company at the Annual General Meeting in 2015
and every five years thereafter.
INVESTMENT OBJECTIVE AND BENCHMARK
The Company seeks capital appreciation through investment in the worldwide
biotechnology industry, principally by investing in emerging biotechnology
companies. Performance is measured against the NASDAQ Biotechnology Index
(sterling adjusted).
INVESTMENT POLICY
In order to achieve its investment objective, the Company invests in a
diversified portfolio of biotechnology (including emerging biotechnology
companies) and related securities on a worldwide basis.
Investment Limitations and Guidelines
The Board seeks to manage the Company's risk by imposing various investment
limits and restrictions:
- The Company will not invest more than 10% of its gross assets in other closed
ended investment companies (including investment trusts) listed on the London
Stock Exchange, except where the investment companies themselves have stated
investment policies to invest no more than 15% of their gross assets in other
closed ended investment companies (including investment trusts) listed on the
London Stock Exchange.
- The Company will not invest more than 15%, in aggregate, of the value of the
gross assets of the Company in other closed ended investment companies
(including investment trusts) listed on the London Stock Exchange.
- The Company will not invest more than 15% of the portfolio in any one
individual stock at the time of acquisition.
- The largest 30 quoted stocks will normally represent at least 50% of the
quoted portfolio.
- The majority of the emerging biotechnology companies that the Company will
invest in are likely to be companies with a market capitalisation of less than
US$3 billion that have undergone an IPO (Initial Public Offering) but as yet
are unprofitable. They will typically be focused on drug research and
development, with their valuations driven by profitable developments, clinical
trial results and partnerships.
- The Company will not invest more than 10% of the portfolio in direct unquoted
investments at the time of acquisition. This limit does not include any
investment in private equity funds managed by the Investment Manager or any
affiliates of such entity.
- The Company may invest or commit for investment a maximum of U.S.$15 million,
after the deduction of proceeds of disposal and other returns of capital, in
private equity funds managed by OrbiMed Capital LLC, the Company's Investment
Manager, or an affiliate thereof.
REPORT OF THE DIRECTORS (continued)
INCORPORATING THE BUSINESS REVIEW
- The Company's gearing policy is to borrow up to a maximum of £15 million. The
Company's borrowing requirements are met through the utilisation of a loan
facility, repayable on demand, provided by Goldman Sachs & Co. New York. This
facility can be drawn down at the discretion of the Investment Manager.
Compliance with the Board's investment limitations and guidelines is monitored
continuously by Frostrow Capital LLP ("Frostrow" or the "Manager") and OrbiMed
Capital LLC ("OrbiMed" or the "Investment Manager") and is reported to the
Board on a monthly basis.
DIVIDENDS
The Company invests with the objective of achieving capital growth and it is
expected that dividends, if any, are likely to be small. The Board intends only
to pay dividends on the Company's shares to the extent required in order to
maintain the Company's investment trust status.
PERFORMANCE
In the year to 31 March 2011, the Company's net asset value per share increased
by 1.9% compared to a rise of 4.8% in the NASDAQ Biotechnology Index (sterling
adjusted). The Company's share price fell by 5.6% in the same period.
The Review of Investments on page 6 includes a review of the principal
developments during the year, together with information on investment activity
within the Company's portfolio.
TOP AND BOTTOM FIVE CONTRIBUTORS TO NET ASSET VALUE PERFORMANCE FOR THE YEAR TO
31 MARCH 2011
Contribution
for the year Contribution
to
31 March per share
2011
£'000 (pence)*
Top Five Contributors
Ariad Pharmaceuticals 3,036 4.6
Genzyme 2,562 3.9
Pharmasset 2,326 3.5
Illumina 2,291 3.5
Shire 1,573 2.4
17.9
Bottom Five Contributors
Allos Therapeutics (2,886) (4.4)
Curis (1,750) (2.7)
Amgen (1,676) (2.6)
Celgene (1,675) (2.5)
Santarus (1,441) (2.2)
(14.4)
* Based on 65,687,388 ordinary shares being the weighted average number of
shares in issue for the year ended 31 March 2011.
Source: Frostrow Capital LLP
RESULTS AND DIVIDENDS
The results attributable to shareholders for the year and the transfer to
reserves are shown on page 25. No dividend is proposed in respect of the year
ended 31 March 2011 (2010: nil).
REPORT OF THE DIRECTORS (continued)
INCORPORATING THE BUSINESS REVIEW
KEY PERFORMANCE INDICATORS ("KPIs")
The Board assesses its performance in meeting the Company's objective against
the following Key Performance Indicators:
- Net asset value return (see page 1)
- Share price return (see pages 1 and 23)
- Stock contribution analysis (see page 9)
- Share price premium/discount to net asset value per share (see pages 1 and 2)
- Total expense ratio (see page 1)
- Benchmark and peer group performance (see pages 1, 2 and 23)
- Repurchase of own shares (see pages 1 and 11)
As indicated, the management of the portfolio has been delegated to the
Investment Manager and management, administration, company secretarial and
marketing services have been delegated to the Manager. Each provider is
responsible to the Board which is ultimately responsible to the shareholders
for performing against, inter alia, the above KPIs within the terms of their
respective agreements by utilising the capabilities of the experienced
professionals within each firm.
PRINCIPAL RISKS AND THEIR MITIGATION
The Company's assets consist principally of listed equities; its main area of
risk is therefore market-related. The specific key risks faced by the Company,
together with the Board's mitigation approach, are as follows:
i) Objective and Strategy - The Company becomes unattractive to investors.
The Board reviews regularly the Company's investment objective and investment
guidelines in the light of investor sentiment monitoring closely whether the
Company should continue in its present form. The Board also considers the size
of the Company to ensure that it has sufficient critical mass. The Board,
through the Manager and the Investment Manager, holds regular discussions with
major shareholders. A continuation vote is to be held at the Annual General
Meeting in 2015 and every five years thereafter. Each month the Board receives
a report which monitors the investments held in the portfolio compared against
the Benchmark Index and the investment guidelines. Additional reports and
presentations are regularly presented to investors by the Company's Manager,
Investment Manager and Corporate Stockbroker.
ii) Level of discount/premium - The level of discount/premium can fluctuate.
The Board undertakes a regular review of the level of discount/premium and
consideration is given to ways in which share price performance may be
enhanced, including the effectiveness of marketing and share buy-backs, if
considered appropriate. The Board has implemented an active discount management
policy, buying back the Company's shares for cancellation if the market price
is at a discount greater than 6% to the net asset value per share. Shareholders
should note that it remains possible for the share price discount to net asset
value per share to be greater than 6% on any one day and is due to the fact
that the share price continues to be influenced by overall supply and demand
for the Company's shares in the secondary market. In addition, the volatility
of the net asset value per share in an asset class such as biotechnology is
also a factor. The average month end share price discount during the year was
6.1%. The making and timing of any share buy-backs is at the absolute
discretion of the Board.
iii) Portfolio Performance - Investment performance may not be meeting
shareholder requirements.
The Board reviews regularly investment performance against the Benchmark and
against the Company's peer group. The Board also receives regular reports that
show an analysis of performance compared to other relevant indices. The
Investment Manager provides an explanation of significant stock selection
decisions and an overall rationale for the make-up of the portfolio. The
Investment Manager discusses current and potential investment holdings with the
Board on a regular basis.
iv) Operational and Regulatory - A breach of Sections 1158 and 1159 of the
Corporation Tax Act 2010 (formerly under Section 842 of the Income and
Corporation Taxes Act 1988) could lead to the Company being subject to tax on
capital gains, whilst a serious breach of other regulatory rules may lead to
suspension from the Stock Exchange or to a qualified Audit Report. Other
control failures, either by the Manager, the Investment Manager or any other of
the Company's service providers, may result in operational and/or reputational
problems, erroneous disclosures or loss of assets through fraud, as well as
breaches of regulations.
All transactions and income and expenditure forecasts are reviewed by the Board
at each Board Meeting. The Board considers regularly all major risks, the
measures in place to control them and the possibility of any other risks that
could arise. The Board also ensures that satisfactory assurances are received
from service providers. The Compliance Officer of the Manager and Investment
Manager produce regular reports for review at the Company's Audit and
Management Engagement Committee meetings and are available to attend such
meetings in person if required.
v) Market Price Risks - Uncertainty about future prices of financial
instruments held.
The Board meets on a quarterly basis during the year and on an ad hoc basis if
necessary. At each meeting the Directors consider the asset allocation of the
portfolio in order to minimise the risk associated with particular countries,
sectors, or instruments. The Investment Manager has responsibility for
selecting investments in accordance with the Company's investment objective and
seeks to ensure that investment in individual stocks falls within acceptable
risk levels.
REPORT OF THE DIRECTORS (continued)
INCORPORATING THE BUSINESS REVIEW
vi) Liquidity Risk - Ability to meet funding requirements when they arise. The
Investment Manager has constructed the portfolio so that funds can be raised at
short notice if required.
vii) Shareholder Profile - Activist shareholders whose interests are not
consistent with the long-term objectives of the Company may be attracted onto
the shareholder register.
The Manager provides a shareholder analysis at every Board Meeting so that the
Board can give consideration as to any action required; this is in addition to
regular reporting by the Company's Stockbroker. The Board has implemented an
active discount management policy as mentioned in (ii) above.
viii) Currency Risk - Movements in exchange rates could adversely affect the
performance of the portfolio.
A significant proportion of the Company's assets is, and will continue to be,
invested in securities denominated in foreign currencies, in particular U.S.
dollars. As the Company's shares are denominated and trade in sterling, the
return to shareholders will be affected by changes in the value of sterling
relative to those foreign currencies. The Board has made clear the Company's
position with regard to currency fluctuations which is that it does not
currently hedge against currency exposure.
ix) Loan Facility - The provider of the Company's loan facility may no longer
be prepared to lend to the Company.
Both the Board and the Investment Manager are kept fully informed of any
likelihood of the withdrawal of the loan facility so that repayment can be
effected in an orderly fashion.
x) Credit Risk - The Company's assets can be held by Goldman Sachs & Co. New
York as collateral for the loan provided by them to the Company.
Such assets taken as collateral may be used, loaned, sold, rehypothecated or
transferred by Goldman Sachs & Co. New York, although the Company maintains the
economic benefits from ownership of those assets. Goldman Sachs & Co. New York
may take up to 140% of the value of the outstanding loan as collateral. The
Company is protected, such protection being equal to the net assets held by
Goldman Sachs & Co. New York, by SEC rules and U.S. legislation. (Also see
Glossary on page 44).
Assets held by Goldman Sachs & Co. New York, as custodian, that are not used as
collateral, are held in segregated client accounts. At the year end no assets
were taken as collateral by Goldman Sachs & Co. New York.
Further information on financial instruments and risk, as required by IAS 7,
can be found in note 13 to the financial statements beginning on page 34.
LOAN FACILITY
With effect from December 2009, the Company's borrowing requirements are met
through the utilisation of a loan facility, repayable on demand, provided by
Goldman Sachs & Co. New York.
SHARE CAPITAL
As part of the package of measures adopted in 2005 by the Board to improve the
attraction of the Company's shares to new investors and also to provide the
prospect of a sustained improvement in the rating of the Company's shares, an
active discount management policy was implemented to buy back shares if the
market price is at a discount greater than 6% to net asset value per share. As
at 31 March 2011, the discount was 10.8%, somewhat wider than the stated target
of 6%. It remains possible for the discount to be greater than 6% on any one
day due to the fact that the share price continues to be influenced by overall
supply and demand for the Company's shares in the secondary market. In
addition, the volatility of the net asset value per share in an asset class
such as biotechnology is also a factor. The average month end share price
discount during the year was 6.1%. The making and timing of any share buy-back
remains at the absolute discretion of the Board. Authority to buy back up to
14.99% of the Company's issued share capital is sought at each Annual General
Meeting. During the year a total of 1,005,180 shares was bought back for
cancellation representing 1.5% of the issued share capital at the beginning of
the year. The purchases were made at prices ranging between £1.5714 and £1.8054
per share at a cost of £1,601,000 (including expenses) and at an average
discount of 7.9% to the net asset value per share. A further 262,756 shares
were repurchased for cancellation subsequent to the year end at a cost of £
438,000 (including expenses). As at the date of this report there were
64,691,925 shares in issue.
PROSPECTS
The Company's Investment Manager is optimistic for the outlook for the sector
and believes that there are a number of new innovative products that have
either been approved or are expected to be approved in 2011 that will have the
potential to reach in excess of U.S.$1 billion in annual sales. In addition,
merger and acquisition activity and the release of important product data will
continue to be key drivers for the sector.
The AIFM Directive, passed into law by the European Parliament last summer is
due to take effect in 2013. The Association of Investment Companies has played
a key role in ensuring that a series of more pragmatic measures have been
adopted. The Board continues to keep this situation under close review.
MANAGEMENT
Management, Administrative and Secretarial Services Agreement: Management,
Administrative, Secretarial and other services are provided to the Company by
the Manager. The Manager is authorised and regulated by the Financial Services
Authority.
Frostrow Capital LLP, as the Manager, receives a periodic fee equal to 0.30%
per annum of the Company's market capitalisation, plus a fixed amount equal to
£60,000 per annum*. The notice period on the Management, Administration and
Company Secretarial Agreement with the Manager is not less than 12 months.
Termination can be at the instigation of either party.
* This figure has been fixed for a period of three years from 1 April 2010.
REPORT OF THE DIRECTORS (continued)
INCORPORATING THE BUSINESS REVIEW
The Manager, under the terms of the Agreement provides, inter alia, the
following services:
• marketing and shareholder services;
• administrative services;
• advice and guidance in respect of corporate governance requirements;
• maintaining adequate accounting records in respect of Company dealing,
investments, transactions, dividends and other income, the income account,
statement of financial position and cash books and statements;
• preparation and despatch of the audited annual, and the unaudited interim,
report and financial statements and interim management statements; and
• attending to general tax affairs where necessary.
INVESTMENT MANAGEMENT
Investment Management Agreement: Investment Management Services are provided by
the Investment Manager. The Investment Manager is authorised and regulated by
the U.S. Securities and Exchange Commission. The Investment Manager receives a
periodic fee equal to 0.65% p.a. of the Company's net asset value. The
Investment Management Agreement may be terminated by either party giving notice
of not less than 12 months. The Investment Manager under the terms of the
Agreement provides, inter alia, the following services:
• seeking out and evaluating investment opportunities;
• recommending the manner by which monies should be invested, disinvested,
retained or realised;
• advising on how rights conferred by the investments should be exercised;
• analysing the performance of investments made; and
• advising the Company in relation to trends, market movements and other
matters which may affect the investment policy of the Company.
The proportion of the Company's assets committed for investment in OrbiMed Asia
Partners L.P. (formerly known as Caduceus Asia Partners L.P.), a limited
partnership managed by OrbiMed Asia G.P., L.P., an affiliate of the Company's
Investment Manager, is excluded from the Investment Management fee calculation.
Performance Fee: Dependent on the level of long term outperformance of the
Company, the Investment Manager and the Manager are entitled to the payment of
a performance fee. The performance fee is calculated by reference to the amount
by which the Company's net asset value (`NAV') performance has outperformed the
NASDAQ Biotechnology Index (sterling adjusted), the Company's benchmark index.
The fee is calculated quarterly by comparing the cumulative performance of the
Company's NAV with the cumulative performance of the benchmark since the
commencement of the performance fee arrangement on 30 June 2005. The
performance fee amounts to 16.5% of any outperformance over the benchmark, the
investment manager receiving 15% and the manager receiving 1.5% respectively.
Provision is also made within the daily NAV per share calculation as required
and in accordance with generally accepted accounting standards.
In order to ensure that only sustained outperformance is rewarded, at each
quarterly calculation date any performance fee is based on the lower of:
(i) The cumulative out-performance of the portfolio over the benchmark as at
the quarter end date; and
(ii) The cumulative out-performance of the portfolio over the benchmark as at
the corresponding quarter end date in the previous year.
In addition, a performance fee only becomes payable to the extent that the
cumulative outperformance gives rise to a total fee greater than the total of
all performance fees paid to date.
During the year performance fee amounts totalling £517,000 were paid (year
ended 31 March 2010: £Nil).
The proportion of the Company's assets invested in OrbiMed Asia Partners L.P.
is excluded from the performance fee calculation.
MANAGER AND INVESTMENT MANAGER EVALUATION AND RE-APPOINTMENT
The performance of the Manager and the Investment Manager is reviewed
continuously by the Audit and Management Engagement Committee with a formal
evaluation being undertaken each year. As part of this process, the Committee
monitors the services provided by the Manager and the Investment Manager and
receives regular reports and views from them. The Committee also receives
comprehensive performance measurement reports to enable it to determine whether
or not the performance objectives set by the Board have been met. The Committee
reviewed the appropriateness of the appointment of the Manager and the
Investment Manager in March 2011 with a recommendation being made to the full
Board.
The Board believes the continuing appointment of the Manager and the Investment
Manager, under the terms described above and on the previous page, is in the
interests of shareholders as a whole. In coming to this decision, it also took
into consideration the following additional reasons:
- the quality and depth of experience of the management, administrative,
company secretarial and marketing team that the Manager allocates to the
management of the Company; and
REPORT OF THE DIRECTORS (continued)
INCORPORATING THE BUSINESS REVIEW
- the quality and depth of experience allocated by the Investment Manager to
the management of the portfolio and the level of performance of the portfolio
in absolute terms and also by reference to the benchmark index.
GOING CONCERN
The Directors believe that it is appropriate to adopt the going concern basis
in preparing the accounts as the assets of the Company consist mainly of
securities that are readily realisable and, accordingly, the Company has
adequate financial resources to continue in operational existence for the
foreseeable future.
CREDITORS PAYMENT POLICY
Terms of payment are negotiated with suppliers when agreeing settlement details
for transactions. While the Company does not follow a formal code, it is the
Company's continuing policy to pay amounts due to creditors as and when they
become due. There were no creditors in respect of goods or services supplied at
the year end (2010: Nil).
SOCIAL, ENVIRONMENTAL AND ETHICAL POLICY
The Company's primary objective is to achieve long term capital growth through
investment in the worldwide biotechnology industry, principally by investing in
emerging biotechnology companies. The Directors recognise that this should be
done in a responsible way but they believe that the Company would be in breach
of its fiduciary duties to shareholders if investment decisions were based
solely on social, ethical or environmental considerations. The Company
encourages a positive approach to corporate governance and engagement with
companies.
DIRECTORS
Directors of the Company, all of whom served throughout the year, are as
follows:
John Sclater, CVO, (Chairman)
Sven Borho
Paul Gaunt
Dr John Gordon
Peter Keen
Lord Waldegrave of North Hill
DIRECTORS' INTERESTS
The beneficial interests of the Directors and their families in the Company
were as set out below:
Shares of 25p each
31 March 31 March
2011 2010
John Sclater 25,000 25,000
Sven Borho 236,218 221,218
Paul Gaunt - -
Dr John Gordon 70,000 70,000
Peter Keen 45,000 45,000
Lord Waldegrave of North Hill 58,716 58,716
As at 31 May 2011, there had been no changes in the above details.
None of the Directors was granted or exercised rights over shares during the
year. Sven Borho is a partner at OrbiMed, the Company's Investment Manager,
which is party to the Investment Management Agreement with the Company and
receives fees as described on pages 11 and 12. A number of the partners at
OrbiMed have a minority financial interest amounting in total to 20% in
Frostrow Capital LLP, the Company's Manager.
DIRECTORS' FEES
A report on Directors' Remuneration is set out on pages 22 and 23.
DIRECTORS' & OFFICERS' LIABILITY INSURANCE COVER
Directors' & officers' liability insurance cover was maintained by the Board
during the year ended 31 March 2011. It is intended that this policy will
continue for the year ended 31 March 2012 and subsequent years.
REPORT OF THE DIRECTORS (continued)
INCORPORATING THE BUSINESS REVIEW
SUBSTANTIAL SHAREHOLDINGS
As at 30 April 2011 the Company was aware of the following interests in the
shares of the Company, which exceeded 3% of the issued share capital.
% of
Issued
Beneficial share
shareholder Registered holder No. of capital
shares
Newton Investment Various Nominees 9,934,878 15.31
Management
Baillie Gifford & Co. BNY (OCS) Nominees/Sec Services 8,235,999 12.69
Nominees
East Riding of Yorkshire Nortrust Nominees 6,293,000 9.70
Council
M&G Investment Management Various Nominees 4,778,415 7.36
Reliance Mutual Insurance HSBC Global Custody Nominee
Society (UK)/
State Street Nominees 3,808,063 5.87
JP Morgan Asset Management Chase Nominees/Bank of New York 3,658,805 5.64
Nominees
Hansa Capital Mellon Nominees (UK)/State
Street Nominees/
Lynchwood Nominees 2,355,915 3.63
Legal & General Investment Various Nominees 2,311,145 3.56
Management
AUDITORS
Grant Thornton UK LLP have indicated their willingness to continue to act as
Auditors to the Company and a resolution for their re-appointment will be
proposed at the forthcoming Annual General Meeting.
DIRECTORS' INDEMNITIES
As at the date of this report, indemnities are in force between the Company and
each of its Directors under which the Company has agreed to indemnify each
Director, to the extent permitted by law, in respect of certain liabilities
incurred as a result of carrying out his role as a Director of the Company. The
Directors are also indemnified against the costs of defending any criminal or
civil proceedings or any claim by the Company or a regulator as they are
incurred provided that where the defence is unsuccessful the Director must
repay those defence costs to the Company. The indemnities are qualifying third
party indemnity provisions for the purposes of the Companies Act 2006.
A copy of each deed of indemnity is available for inspection at the Company's
registered office during normal business hours and will be available for
inspection at the Annual General Meeting.
AWARENESS OF RELEVANT AUDIT INFORMATION
So far as the Directors are aware, there is no relevant audit information of
which the Auditors are unaware. The Directors have taken all steps they ought
to have to make themselves aware of any relevant audit information and to
establish that the Auditors are aware of that information.
CORPORATE GOVERNANCE
A formal statement on Corporate Governance is set out on pages 17 to 21 and
forms part of this Report of the Directors.
BENEFICIAL OWNERS OF SHARES - INFORMATION RIGHTS
Beneficial owners of shares who have been nominated by the registered holder of
those shares to receive information rights under section 146 of the Companies
Act 2006 are required to direct all communications to the registered holder of
their shares rather than to the Company's registrar, Capita Registrars, or to
the Company directly.
COMPANY SHARE INFORMATION
The following disclosures are made in accordance with paragraph 13 of Schedule
7 to the Large and Medium Sized Companies and Group (Accounts and Reports)
Regulations 2008:
Capital Structure
The Company's capital structure is summarised on page 1.
Voting Rights in the Company's shares
Details of the voting rights in the Company's shares at the date of this Annual
Report are given in note 9 to the Notice of Annual General Meeting on page 40.
REPORT OF THE DIRECTORS (continued)
INCORPORATING THE BUSINESS REVIEW
NOTICE PERIOD FOR GENERAL MEETINGS
Recent amendments made to the Company's Articles of Association included a
provision allowing 14 clear days as the minimum period of notice for all
general meetings of the Company, other than Annual General Meetings, where the
notice period remains 21 clear days. A Special Resolution was passed at last
year's Annual General Meeting approving this. The Board is proposing Resolution
13 as a Special Resolution to renew this approval for a further year.
ANNUAL GENERAL MEETING
The formal Notice of Annual General Meeting is set out on pages 38 to 41 of
this Annual Report. Resolutions relating to the following items of special
business will be proposed at the forthcoming Annual General Meeting:
(a) Authority to allot shares
Ordinary Resolution 10 gives the Directors authority to allot new shares,
otherwise than by a pro rata issue to existing shareholders, up to an aggregate
nominal amount of £1,617,298 such amount being equivalent to 10% of the issued
share capital at 31 May 2011 and representing 6,469,193 shares of 25p each.
Such issues would only be made at prices greater than the prevailing net asset
value ("NAV") per share thereby increasing the assets underlying each share and
spread administrative expenses, other than those charged as a percentage of
assets, over a greater number of shares.
(b) Disapplication of pre-emption rights
Special Resolution 11 seeks shareholder approval for the disapplication of
pre-emption rights in respect of the allotment of shares or the sale by the
Company of shares pursuant to a rights issue or a sale equivalent or similar to
a rights issue for cash up to an aggregate nominal value of £1,617,298. No such
allotment will be made at less than the prevailing NAV per share (as determined
in the absolute discretion of the Directors).
(c) Authority to repurchase shares
Special Resolution 12 seeks shareholder approval for the Company to have the
power to repurchase its own shares. The Board believes that the ability of the
Company to purchase its own shares in the market will potentially benefit all
shareholders of the Company. The repurchase of shares at a discount to the
underlying NAV would enhance the NAV of the remaining shares.
At the Annual General Meeting the Company will seek shareholder approval to
repurchase up to 9,697,320 shares, representing approximately 14.99% of the
Company's issued share capital (the maximum permitted under the Listing Rules)
at a price that is not less than 25p a share (the nominal value of each share)
and not more than the higher of (a) 105% of the average of the middle market
quotations for the five business days preceding the day of purchase; and (b)
the higher of the price of the last independent trade in shares and the highest
then current independent bid for shares on the London Stock Exchange. The
decision as to whether to repurchase any shares will be at the absolute
discretion of the Board. Shares repurchased under this authority will be
cancelled.
(d) General meetings
Special Resolution 13 seeks shareholder approval to hold general meetings
(other than Annual General Meetings) at 14 clear days' notice.
The authorities being sought under resolutions 10, 11, 12 and 13 will last
until the conclusion of the next Annual General Meeting or, if less, a period
of 15 months.
BY ORDER OF THE BOARD
FROSTROW CAPITAL LLP
COMPANY SECRETARY
31 MAY 2011
STATEMENT OF DIRECTORS' RESPONSIBILITIES
Company law in the United Kingdom requires the Directors to prepare financial
statements for each financial year. The Directors are responsible for preparing
the financial statements in accordance with applicable law and regulations. In
preparing these financial statements, the Directors have:
• selected suitable accounting policies and applied them consistently;
• made judgements and estimates that are reasonable and prudent;
• followed applicable international accounting standards; and
• prepared the financial statements on a going concern basis.
The Directors are responsible for keeping adequate accounting records which
disclose with reasonable accuracy at any time the financial position of the
Company and enable them to ensure that the financial statements comply with the
Companies Act 2006 as in force from time to time. They are also responsible for
safeguarding the assets of the Company and hence for taking reasonable steps
for the prevention and detection of fraud and other irregularities.
The Directors are responsible for ensuring that the Report of the Directors and
other information included in the Annual Report is prepared in accordance with
company law in the United Kingdom. They are also responsible for ensuring that
the Annual Report includes information required by the Listing Rules of the
Financial Services Authority.
The financial statements are published on the Company's website (website
address: www.biotechgt.com) and on the Manager's website (website address:
www.frostrow.com). The maintenance and integrity of these websites, so far as
it relates to the Company, is the responsibility of the Manager. The work
carried out by the Auditors does not involve consideration of the maintenance
and integrity of these websites and, accordingly, the Auditors accept no
responsibility for any changes that have occurred to the financial statements
since they were initially presented on these websites. Visitors to the websites
need to be aware that legislation in the United Kingdom governing the
preparation and dissemination of the financial statements may differ from
legislation in their jurisdiction.
The Directors, whose details can be found on page 4, confirm that to the best
of their knowledge the financial statements, within the Annual Report, have
been prepared in accordance with applicable accounting standards, give a true
and fair view of the assets, liabilities, financial position and the return for
the year ended 31 March 2011, and that the Chairman's Statement, Review of
Investments and the Report of the Directors include a fair review of the
information required by 4.1.8R to 4.2.11R of the FSA's Disclosure and
Transparency Rules.
ON BEHALF OF THE BOARD
JOHN SCLATER, CVO
CHAIRMAN
31 MAY 2011
CORPORATE GOVERNANCE
This Corporate Governance Statement forms part of the Report of the Directors
COMPLIANCE
The Board has considered the principles and recommendations of the AIC Code of
Corporate Governance ("AIC Code") by reference to the AIC Corporate Governance
Guide for Investment Companies ("AIC Guide"). The AIC Code, as explained by the
AIC Guide, addresses all the principles set out in Section 1 of the Combined
Code, as well as setting out additional principles and recommendations on
issues that are of specific relevance to The Biotech Growth Trust PLC.
The Board considers that reporting against the principles and recommendations
of the AIC Code, and by reference to the AIC Guide (which incorporates the
Combined Code), will provide better information to shareholders.
The Company has complied with the recommendations of the AIC Code and the
relevant provisions of Section 1 of the Combined Code throughout the year ended
31 March 2011 and up to the date of this report, except with regard to the
composition of its committees and as set out below.
The Combined Code includes provisions relating to:
• The role of the chief executive;
• Executive directors' remuneration; and
• The need for an internal audit function.
For the reasons set out in the AIC Guide, and in the preamble to the AIC Code,
the Board considers these provisions are not relevant to the position of The
Biotech Growth Trust PLC, being an externally managed investment company. The
Company has therefore not reported further in respect of these provisions.
INTERNAL AUDIT
As the Company delegates to third parties its day-to-day operations and has no
employees, the Board has determined that there are no requirements for an
internal audit function. The Board reviews annually whether a function
equivalent to an internal audit is needed and it will continue to monitor its
systems of internal controls in order to provide assurance that they operate as
intended.
BOARD INDEPENDENCE, COMPOSITION AND TENURE
The Board, chaired by John Sclater who is responsible for leadership of the
Board and for ensuring its effectiveness in all aspects of its role, currently
consists of six non-executive Directors. The Directors' biographical details,
set out on page 4, demonstrate a breadth of investment, commercial and
professional experience. Dr John Gordon has been designated as the Senior
Independent Director, who can act as a sounding board for the Chairman and also
acts as an intermediary for the other Directors when necessary. The Directors
review their independence annually.
On 28 May 2010 the Financial Reporting Council ("FRC") published the UK
Corporate Governance Code which replaced the Combined Code on Corporate
Governance and applies to reporting periods beginning on or after 29 June 2010.
In turn the Association of Investment Companies updated the Code of Corporate
Governance and Corporate Governance Guide to reflect the changes made to the UK
Corporate Governance Code. One of the main changes is that all directors of
FTSE 350 companies are now recommended to stand for annual re-election. The
Directors have agreed, despite not being a FTSE 350 company, to adopt this
provision as they believe it will enhance the Board's accountability to
shareholders. Accordingly all Directors of the Company will stand for
re-election annually. This decision will create a policy whereby Directors are
required to seek election more frequently than as currently set out in the
Company's Articles of Association.
Paul Gaunt is also a Director of Worldwide Healthcare Trust PLC for which
OrbiMed also acts as Investment Manager and he has also served on the Board for
over nine years. Despite being considered by the Board to be independent in
character and judgement, Mr Gaunt is not considered by the Board to be an
Independent Director. Sven Borho is a Founding General Partner of OrbiMed, the
Company's Investment Manager, and is also not considered to be an Independent
Director. Mr Sclater, Dr Gordon, Lord Waldegrave of North Hill and Mr Keen have
all served on the Board for over nine years. The Board subscribes to the view
expressed within the AIC Code that long-serving Directors should not be
prevented from forming part of an independent majority. It does not consider
that a Director's tenure necessarily reduces his ability to act independently
and, following formal performance evaluations, believes that each of those
Directors is independent in character and judgement and that there are no other
relationships or circumstances which are likely to affect their judgement. The
Board has considered the position of Mr Sclater, Dr Gordon, Lord Waldegrave of
North Hill and Messrs Borho, Gaunt and Keen as part of the evaluation process,
and believes that it would be in the Company's best interests to propose them
for re-election at the forthcoming Annual General Meeting.
None of the Directors has a service contract with the Company. New Directors
are appointed with the expectation that they will serve for a minimum period of
three years. Any Director may resign in writing to the Board at any time. The
terms of their appointment are detailed in a letter sent to them when they join
the Board. These letters are available for inspection at the offices of the
Company's Manager and will be available at the Annual General Meeting. When a
new Director is appointed to the Board, they are provided with all relevant
information regarding the Company and their duties and responsibilities as a
Director. In addition, a new Director will also spend time with representatives
of the Manager and Investment Manager in order to learn more about their
processes and procedures. The Chairman also regularly reviews the training and
development needs of each
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2011
CORPORATE GOVERNANCE (continued)
Director. The Board also receives regular briefings from, amongst others, the
Auditors and the Company Secretary regarding any proposed developments or
changes in laws or regulations that could affect the Company and/or the
Directors.
THE BOARD'S RESPONSIBILITIES
The Board is responsible for efficient and effective leadership of the Company
and has reviewed the schedule of matters reserved for its decision. The Board
meets at least on a quarterly basis and at other times as necessary. The Board
is responsible for all aspects of the Company's affairs, including the setting
of parameters for and the monitoring of the investment strategy and the review
of investment performance and investment policy. It also has responsibility for
all corporate strategy issues, dividend policy, share buy-back policy, gearing,
share price and discount/premium monitoring and corporate governance matters.
To enable them to discharge their responsibilities, prior to each meeting the
Directors are provided, in a timely manner, with a comprehensive set of papers
giving detailed information on the Company's transactions, financial position
and performance. Representatives of the Manager and Investment Manager attend
each Board meeting, enabling the Directors to seek clarification on specific
issues or to probe further on matters of concern; a full written report is also
received from the Investment Manager and the Manager at each quarterly meeting.
In light of these reports, the Board gives direction to the Investment Manager
with regard to the Company's investment objectives and guidelines. Within these
established guidelines, the Investment Manager takes decisions as to the
purchase and sale of individual investments.
There is an agreed procedure for Directors, in the furtherance of their duties,
to take independent professional advice if necessary at the Company's expense.
The Directors have access to the advice and services of the Company Secretary,
through its appointed representative, who is responsible to the Board for
ensuring that Board procedures are followed.
PERFORMANCE EVALUATION
The Board has carried out an evaluation process for the year ended 31 March
2011, independently managed by Dr Gordon, the Senior Independent Director. This
took the form of a questionnaire followed by discussions to identify how the
effectiveness of its activities, including its committees, policies and
processes might be improved. The results of the evaluation process were
presented to and discussed by the Board and, as a result, it was agreed that
the current Directors contributed effectively and that all have the skills and
experience which are relevant to the leadership and direction of the Company.
CONFLICT OF INTEREST
On 1 October 2008 it became a statutory requirement that a Director must avoid
a situation in which he or she has, or can have, a direct or indirect interest
that conflicts, or possibly may conflict, with the Company's interests (a
"situational conflict"). The Company's Articles of Association have been
amended to give the Directors authority to approve such situations, where
appropriate.
It is the responsibility of each individual Director to avoid an unauthorised
conflict situation arising. He or she must request authorisation from the Board
as soon as he or she becomes aware of the possibility of a situational conflict
arising.
The Board is responsible for considering Directors' requests for authorisation
of situational conflicts and for deciding whether they should be authorised.
The factors to be considered will include whether the situational conflict
could prevent the Director from performing his or her duties, whether it has,
or could have, any impact on the Company and whether it could be regarded as
likely to affect the judgment and/or actions of the Director in question. When
the Board is deciding whether to authorise a conflict or potential conflict,
only Directors who have no interest in the matter being considered are able to
take the relevant decision, and in taking the decision the Directors must act
in a way they consider, in good faith, will be most likely to promote the
Company's success. The Directors are able to impose limits or conditions when
giving authorisation if they think this is appropriate in the circumstances.
A register of conflicts is maintained by the Company Secretary and is reviewed
at quarterly Board meetings, to ensure that any authorised conflicts remain
appropriate. Directors are required to confirm at these meetings whether there
has been any change to their position.
The Directors must also comply with the statutory rules requiring company
directors to declare any interest in an actual or proposed transaction or
arrangement with the Company.
COMMITTEES OF THE BOARD
The Board has delegated certain responsibilities and functions to committees.
Copies of the full terms of reference, which clearly define the
responsibilities of each committee, can be obtained from the Company Secretary,
will be available for inspection at the Annual General Meeting and can be found
at the Company's website at www.biotechgt.com. Following a review by the Board
in 2007, it was agreed, that, due to the Board's size, the membership of the
Company's Committees should comprise the whole Board (provided that a majority
of the Directors present are independent). The Remuneration Committee is
chaired by Dr John Gordon and the Nominations Committee is chaired by the
Chairman of the Company, John Sclater. However, in March 2011, the Board agreed
that, due to his connection with the Company's Investment Manager, Sven Borho
should no longer be a member of the Remuneration and Nominations Committees.
The Audit and Management Engagement Committee, under the chairmanship of Peter
Keen, now comprises the whole Board (except for Messrs Borho and Gaunt).
CORPORATE GOVERNANCE (continued)
The table below details the number of Board and Committee meetings attended by
each Director. During the year there were four Board meetings, two Audit and
Management Engagement Committee meetings, one meeting of the Nominations
Committee and one meeting of the Remuneration Committee.
Audit and
Management
Engagement Nominations Remuneration
Board Committee Committee Committee
Number of meetings held in 2010/11: 4 2 1 1
John Sclater 4 2 1 1
Sven Borho* 4 1 1 1
Paul Gaunt* 4 1 1 1
Dr John Gordon 4 2 1 1
Peter Keen 4 2 1 1
Lord Waldegrave of North Hill 4 2 1 1
All of the Directors attended the Annual General Meeting held on 16 July 2010.
* The decision that Messrs Borho and Gaunt should no longer be members of the
Audit and Management Engagement Committee was taken after the Committee had met
once during the year. It was further agreed, in March 2011, that Mr Borho
should no longer be a member of the Nominations and Remuneration Committees
with immediate effect.
NOMINATIONS COMMITTEE
The Nominations Committee is responsible for the Board appraisal process and
for making recommendations to the Board on the appointment of new Directors.
Where appropriate, each Director is invited to submit nominations and external
advisers may be used to identify potential candidates.
REMUNERATION COMMITTEE
The level of Directors' fees is reviewed on a regular basis relative to other
comparable investment companies and in the light of Directors'
responsibilities. Details of the fees paid to the Directors in the year under
review are detailed in the Directors' Remuneration Report on pages 22 and 23.
AUDIT AND MANAGEMENT ENGAGEMENT COMMITTEE
The Audit and Management Engagement Committee meets at least twice a year and
is responsible for the review of the interim and annual financial statements,
the nature and scope of the external audit and the findings therefrom and the
terms of appointment of the Auditors, including their remuneration and the
provision of any non-audit services by them. In addition, the Committee is
responsible for the review of the Company's financial controls and of the
Management and Investment Management agreements and of the services provided by
the Manager and the Investment Manager.
The Audit and Management Engagement Committee meets representatives of the
Manager and Investment Manager and their Compliance Officers who report as to
the proper conduct of business in accordance with the regulatory environment in
which the Company, Manager and Investment Manager operate. The Company's
Auditors also attend meetings of this Committee at its request and report on
their work procedures and their findings in relation to the Company's statutory
audit. They also have the opportunity to meet with the Committee without
representatives of the Manager or the Investment Manager being present. The
Audit and Management Engagement Committee reviews the need for non-audit
services and authorises such fees on a case by case basis, having consideration
to the cost effectiveness of the services and the independence and objectivity
of the Auditors. Non audit fees of £4,500 were paid to Grant Thornton UK LLP
for their review of the Company's interim accounts and their review of the
performance fee calculation as at 30 September 2010. The Board has concluded,
on the recommendation of the Audit and Management Engagement Committee, that
the Auditors continue to be independent and that their reappointment be
proposed at the Annual General Meeting.
INTERNAL CONTROLS
Risk assessment and the review of internal controls are undertaken by the Board
in the context of the Company's overall investment objective. The review covers
the key business, operational, compliance and financial risks facing the
Company. In arriving at its judgement of what risks the Company faces, the
Board has considered the Company's operations in the light of the following
factors:
• the nature and extent of risks which it regards as acceptable for the Company
to bear within its overall business objective;
• the threat of such risks becoming a reality; and
• the Company's ability to reduce the incidence and impact of risk on its
performance.
CORPORATE GOVERNANCE (continued)
Against this background, the Board has split the review of risk and associated
controls into five sections reflecting the nature of the risks being addressed.
These sections are as follows:
• corporate strategy;
• investment activity;
• published information, compliance with laws and regulations;
• service providers; and
• financial activity.
The Company has appointed Frostrow Capital LLP to provide administrative
services to the Company. The Company has obtained from its various service
providers assurances and information relating to their internal systems and
controls to enable the Board to make an appropriate risk and control
assessment, including the following:
• details of the control environment in operation;
• identification and evaluation of risks and control objectives;
• review of communication methods and procedures; and
• assessment of the control procedures.
The key procedures which have been established to provide internal financial
controls are as follows:
• investment management is provided by OrbiMed Capital LLC who provide regular
updates and reports to the Board. The Board is responsible for setting the
overall investment policy and monitors the actions of the Investment Manager at
regular Board meetings;
• administration, company secretarial and marketing duties for the Company are
performed by Frostrow Capital LLP;
• custody of assets is undertaken by Goldman Sachs & Co. New York;
• the Board clearly defines the duties and responsibilities of their agents and
advisers. The appointment of agents and advisers to the Company is conducted by
the Board after consideration of the quality of the parties involved; the Board
monitors their ongoing performance and contractual arrangements;
• mandates for authorisation of investment transactions and expense payments
are set by the Board; and
• the Board reviews financial information produced by the Investment Manager
and the Manager in detail on a regular basis.
All of the Company's management functions are performed by third parties whose
internal controls are reviewed by the Board or on its behalf by Frostrow
Capital LLP.
In accordance with guidance issued to directors of listed companies, the
Directors confirm that they have carried out a review of the effectiveness of
the system of internal financial control during the year, as set out above.
RELATIONS WITH SHAREHOLDERS
The Board reviews the shareholder register at each Board meeting. The Company
has regular contact with its institutional shareholders particularly through
the Manager. The Board supports the principle that the Annual General Meeting
be used to communicate with private investors. The full Board attends the
Annual General Meeting under the Chairmanship of the Chairman of the Board.
Details of proxy votes received in respect of each resolution are made
available to shareholders at the meeting and are also published on the
Company's website at www.biotechgt.com. Representatives from the Investment
Manager attend the Annual General Meeting and give a presentation on investment
matters to those present. The Company has adopted a nominee share code which is
set out overleaf.
The Board receives marketing and public relations reports from the Manager to
whom the marketing function has been delegated. The Board reviews and considers
the marketing plans of the Manager on a regular basis.
The annual and interim financial reports, the interim management statements and
a monthly fact sheet are available to all shareholders. The Board considers the
format of the annual and interim financial reports so as to ensure they are
useful to all shareholders and others taking an interest in the Company. In
accordance with best practice, the annual report, including the Notice of the
Annual General Meeting, is sent to shareholders at least 20 working days before
the meeting. Separate resolutions are proposed for substantive issues.
CORPORATE GOVERNANCE (continued)
EXERCISE OF VOTING POWERS
The Board has delegated authority to the Investment Manager to vote the shares
owned by the Company that are held on its behalf by its custodian, Goldman
Sachs & Co. New York. The Board has instructed that the Investment Manager
submit votes for such shares wherever possible. This accords with current best
practice whilst maintaining a primary focus on financial returns. The
Investment Manager may refer to the Board on any matters of a contentious
nature. The Company does not retain voting rights on any shares that are
subject to rehypothecation in connection with the loan facility provided by
Goldman Sachs & Co. New York.
ACCOUNTABILITY AND AUDIT
The Statement of Directors' Responsibilities in respect of the financial
statements is set out on page 16. The report of the Auditor is set out on page
24. The Board has delegated contractually to external agencies, including the
Manager, the Investment Manager and Goldman Sachs & Co. New York, the
management of the portfolio, custodial services (which includes the
safeguarding of the Company's assets), the day to day marketing, accounting
administration, company secretarial requirements and registration services.
Each of these contracts was entered into after full and proper consideration by
the Board of the quality and cost of the services offered, including the
control systems in operation in so far as they relate to the affairs of the
Company. The Board receives and considers regular reports from the Manager and
ad hoc reports and information are supplied to the Board as required.
NOMINEE SHARE CODE
Where shares are held in a nominee company name and where the beneficial owner
of the shares is unable to vote in person, the Company nevertheless undertakes:
- to provide the nominee company with multiple copies of shareholder
communications, so long as an indication of quantities has been provided in
advance;
- to allow investors holding shares through a nominee company to attend general
meetings, provided the correct authority from the nominee company is available;
and
- that investors in the Alliance Trust Savings Scheme or ISA are automatically
sent shareholder communications, including details of general meetings,
together with a form of direction to facilitate voting and to seek authority to
attend.
Nominee companies are encouraged to provide the necessary authority to
underlying shareholders to attend the Company's general meetings.
DIRECTORS' REMUNERATION REPORT
FOR THE YEAR ENDED 31 MARCH 2011
The Board has prepared this report in accordance with the requirements of
Section 420 to 422 of the Companies Act 2006. An ordinary resolution for the
approval of this report will be put to the members at the forthcoming Annual
General Meeting.
The law requires your Company's Auditors to audit certain of the disclosures
provided. Where disclosures have been audited, they are indicated as such. The
Auditors' opinion is included in their report on page 24.
REMUNERATION COMMITTEE
The Company has six non-executive Directors. The whole Board, with the
exception of Sven Borho, fulfils the function of a Remuneration Committee. The
Board has appointed Dr John Gordon as Chairman, and the Board may utilise the
services of the Company Secretary, Frostrow Capital LLP, or external advisers
when they consider the level of Directors' fees.
POLICY ON DIRECTORS'FEES
The Board's policy is that the remuneration of Directors should reflect the
responsibilities and experience of the Board as a whole. Regard will be given
to fees paid by other investment trusts that are similar in size, have a
similar capital structure, and have a similar investment objective. It is
intended that this policy will continue for the year ending 31 March 2012 and
subsequent years.
The fees for the Directors are determined within the limits set out in the
Company's Articles of Association, the maximum aggregate amount currently being
£200,000.
At a Remuneration Committee meeting held on 2 March 2011, it was agreed that
the remuneration of the Directors should be increased for the forthcoming year
as detailed below. It was further agreed that the Directors' remuneration would
not be reviewed again for at least two years.
DIRECTORS'EMOLUMENTS FOR THE YEAR (AUDITED)
The Directors who served in the year (unless where stated) received the
following emoluments in the form of fees:
Level of
fees
with effect Fees Fees
from
1 April 2011 2011 2010
£'000 £'000 £'000
John Sclater (Chairman of the Board) 32 29 29
Sven Borho 22 20 20
Paul Gaunt 22 20 20
Dr John Gordon (Senior Independent 24 22 22
Director)
Peter Keen (Chairman of the Audit and 24 22 22
Management Engagement Committee)
Lord Waldegrave of North Hill 22 20 20
146 133 133
DIRECTORS' SERVICE CONTRACTS
It is the Board's policy that none of the Directors has a service contract. The
terms of their appointment provide that Directors shall retire and be subject
to election at the first Annual General Meeting after their appointment and to
re-election annually thereafter. The terms also provide that a Director may
resign by giving one month's notice in writing to the Board at any time and may
be removed without notice and that compensation will not be due on leaving
office. The Company's policy is for the Directors to be remunerated in the form
of fees payable quarterly in arrears.
DIRECTORS' REMUNERATION REPORT (continued)
FOR THE YEAR ENDED 31 MARCH 2011
YOUR COMPANY'S PERFORMANCE
The law requires a line graph be included in the Directors' Remuneration Report
comparing, for a period of five years, on a cumulative basis, the total return
(assuming all dividends are reinvested) to shareholders and the total
shareholder return on a notional investment made up of shares of the same kind
and number as those by reference to which the NASDAQ Biotechnology Index
(sterling adjusted) is calculated. (Please see below).
APPROVAL
The Directors' Remuneration Report on pages 22 and 23 was approved by the Board
of Directors on 31 May 2011 and signed on its behalf by John Sclater, CVO,
Chairman.
REPORT OF THE INDEPENDENT AUDITOR
INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF THE BIOTECH GROWTH TRUST PLC
We have audited the financial statements of The Biotech Growth Trust PLC for
the year ended 31 March 2011 which comprise the Income Statement, the Statement
of Changes in Equity, the Statement of Financial Position, the Statement of
Cash Flows, and the related notes. The financial reporting framework that has
been applied in their preparation is applicable law and International Financial
Reporting Standards (IFRSs) as adopted by the European Union.
This report is made solely to the Company's members, as a body, in accordance
with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been
undertaken so that we might state to the Company's members those matters we are
required to state to them in an auditor's report and for no other purpose. To
the fullest extent permitted by law, we do not accept or assume responsibility
to anyone other than the Company and the Company's members as a body, for our
audit work, for this report, or for the opinions we have formed.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
As explained more fully in the Statement of Directors' Responsibilities set out
on page 16, the Directors are responsible for the preparation of the financial
statements and for being satisfied that they give a true and fair view. Our
responsibility is to audit and express an opinion on the financial statements
in accordance with applicable law and International Standards on Auditing (UK
and Ireland). Those standards require us to comply with the Auditing Practices
Board's (APB's) Ethical Standards for Auditors.
SCOPE OF THE AUDIT OF THE FINANCIAL STATEMENTS
A description of the scope of an audit of financial statements is provided on
the APB's website at www.frc.org.uk/apb/scope/private.cfm.
OPINION ON FINANCIAL STATEMENTS
In our opinion the financial statements:
• give a true and fair view of the state of the Company's affairs as at 31
March 2011 and of its profit for the year then ended;
• have been properly prepared in accordance with IFRS as adopted by the
European Union; and
• have been prepared in accordance with the requirements of the Companies Act
2006.
OPINION ON OTHER MATTERS PRESCRIBED BY THE COMPANIES ACT 2006
In our opinion:
• the part of the Directors' Remuneration Report to be audited has been
properly prepared in accordance with the Companies Act 2006; and
• the information given in the Report of the Directors for the financial year
for which the financial statements are prepared is consistent with the
financial statements.
MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION
We have nothing to report in respect of the following:
Under the Companies Act 2006 we are required to report to you if, in our
opinion:
• adequate accounting records have not been kept or returns adequate for our
audit have not been received from branches not visited by us; or
• the financial statements and the part of the Directors' Remuneration Report
to be audited are not in agreement with the accounting records and returns;
• certain disclosures of Directors' remuneration specified by law are not made;
or
• we have not received all the information and explanations we require for our
audit.
Under the Listing Rules, we are required to review:
• the Directors' statement, set out on page 13, in relation to going concern;
• the part of the Corporate Governance Statement relating to the Company's
compliance with the nine provisions of the June 2008 Combined Code specified
for our review; and
• certain elements of the report to shareholders by the Board on Directors'
remuneration.
JULIAN BARTLETT
SENIOR STATUTORY AUDITOR
FOR AND ON BEHALF OF
GRANT THORNTON UK LLP
STATUTORY AUDITOR, CHARTERED ACCOUNTANTS
LONDON
31 MAY 2011
INCOME STATEMENT
for the year ended 31 March
2011 2010
Revenue Capital Total Revenue Capital Total
Notes £'000 £'000 £'000 £'000 £'000 £'000
Income
Investment income 2 69 - 69 31 - 31
Other income 2 - - - 34 - 34
Total income 69 - 69 65 - 65
Gains and losses on
investments
Gains on investments held at 8 - 2,691 2,691 - 30,979 30,979
fair value through profit or
loss
Exchange gains/(losses) on - 402 402 - (725) (725)
currency balances
Expenses
Investment management, 3 - (752) (752) - (1,365) (1,365)
management and performance
fees
Refund of VAT previously paid - - - - 168 168
on management fees
Other expenses 4 (398) - (398) (417) - (417)
(Loss)/profit before finance (329) 2,341 2,012 (352) 29,057 28,705
costs and taxation
Finance costs 5 (11) - (11) (3) (13) (16)
(Loss)/profit before taxation (340) 2,341 2,001 (355) 29,044 28,689
Taxation 6 (1) - (1) - - -
(Loss)/profit for the year (341) 2,341 2,000 (355) 29,044 28,689
Basic and diluted (loss)/ 7 (0.5)p 3.5p 3.0p (0.6)p 52.4p 51.8p
earnings per share
The Company does not have any income or expenses which are not included in the
profit for the year. Accordingly the "profit for the year" is also the "total
comprehensive income for the period", as defined in IAS 1 (revised) and no
separate Statement of Comprehensive Income has been presented.
All of the profit and total comprehensive income for the period is attributable
to the owners of the Company.
The "Total" column of this statement represents the Company's Income Statement,
prepared in accordance with International Financial Reporting Standards (IFRS).
The "Revenue" and "Capital" columns are supplementary to this and are prepared
under guidance published by the Association of Investment Companies.
All items in the above statement derive from continuing operations.
The accompanying notes are an integral part of this statement.
STATEMENT OF CHANGES IN EQUITY
For the year ended 31 March 2011
Ordinary Share Capital
share premium Special redemption Capital Revenue
capital account reserve reserve reserve reserve Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000
At 31 March 2010 16,490 19,298 32,021 4,642 50,970 (3,004) 120,417
Net profit/(loss) for - - - - 2,341 (341) 2,000
the year
Issue costs refunded - 2 - - - - 2
Buy-back of shares (251) - (1,601) 251 - - (1,601)
At 31 March 2011 16,239 19,300 30,420 4,893 53,311 (3,345) 120,818
For the year ended 31 March 2010
Ordinary Share Capital
share premium Special redemption Capital Revenue
capital account reserve reserve reserve reserve Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000
At 31 March 2009 12,824 - 33,800 4,307 21,926 (2,649) 70,208
Net profit/(loss) for the - - - - 29,044 (355) 28,689
year
Issue of shares 4,001 19,877 - - - - 23,878
Issue costs - (579) - - - - (579)
Buy-back of shares (335) - (1,779) 335 - - (1,779)
At 31 March 2010 16,490 19,298 32,021 4,642 50,970 (3,004) 120,417
The accompanying notes are an integral part of this statement.
STATEMENT OF FINANCIAL POSITION
as at 31 March
2011 2010
Notes £'000 £'000
Non current assets
Investments held at fair value through profit or loss 8 128,346 132,618
Current assets
Other receivables 9 1,161 304
Cash and cash equivalents 5,691 -
6,852 304
Total assets 135,198 132,922
Current liabilities
Other payables 10 14,380 4,016
Bank loan - 8,489
14,380 12,505
Net assets 120,818 120,417
Equity attributable to equity holders
Ordinary share capital 11 16,239 16,490
Share premium account 19,300 19,298
Special reserve 30,420 32,021
Capital redemption reserve 4,893 4,642
Capital reserve 15 53,311 50,970
Revenue reserve (3,345) (3,004)
Total equity 120,818 120,417
Net asset value per share 12 186.0p 182.6p
The financial statements on pages 25 to 37 were approved by the Board on 31 May
2011 and were signed on its behalf by:
JOHN SCLATER, CVO
CHAIRMAN
The accompanying notes are an integral part of this statement.
The Biotech Growth Trust PLC - Company Registration Number 3376377 (Registered
in England)
STATEMENT OF CASH FLOWS
for the year ended 31 March
2011 2010
£'000 £'000
Operating activities
Profit before tax 2,001 28,689
Add back interest paid 11 16
Less: gain on investments held at fair value through profit (2,691) (30,979)
or loss
Add: exchange (gains)/losses on currency balances (402) 725
Purchases of investments held at fair value through profit (98,383) (109,571)
or loss
Sales of investments held at fair value through profit or 115,677 82,788
loss
Increase in other receivables (15) (17)
(Decrease)/increase in other payables (810) 667
Net cash inflow/(outflow) from operating activities before 15,388 (27,682)
interest and taxation
Interest paid (11) (16)
Taxation paid (1) -
Net cash inflow/(outflow) from operating activities 15,376 (27,698)
Financing activities
Refund of issue costs 2 -
Issue of shares - 23,299
Buy-back of shares (1,600) (2,387)
(Repayment)/drawdown of bank loan (8,489) 5,350
Net cash (outflow)/inflow from financing (10,087) 26,262
Increase/(decrease) in cash and cash equivalents 5,289 (1,436)
Cash and cash equivalents at start of year - 2,161
Effect of foreign exchange rate changes 402 (725)
Cash and cash equivalents at end of year 5,691 -
The accompanying notes are an integral part of this statement.
NOTES TO THE FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
The financial statements of the Company have been prepared in accordance with
International Financial Reporting Standards ("IFRS"). These comprise standards
and interpretations approved by the International Accounting Standards Board
("IASB"), together with interpretations of the International Accounting
Standards and Standing Interpretations Committee approved by the International
Accounting Standards Committee ("IASC") that remain in effect, to the extent
that IFRS have been adopted by the European Union.
(a) Accounting Convention
The financial statements have been prepared under the historical cost
convention, except for the measurement at fair value of investments. Where
presentational guidance set out in the revised Statement of Recommended
Practice ("the SORP") for Investment Trust Companies produced by the
Association of Investment Companies and Venture Capital Trusts ("AIC") dated
January 2009 is consistent with the requirements of IFRS, the Directors have
sought to prepare the financial statements on a basis compliant with the
recommendations of the SORP.
(b) Investments
Investments are recognised and de-recognised on the trade date.
As the entity's business is investing in financial assets with a view to
profiting from their total return in the form of interest, dividends or
increases in fair value, investments are designated as fair value through
profit or loss and are initially recognised at fair value. The entity manages
and evaluates the performance of these investments on a fair value basis in
accordance with its investment strategy, and information about the investments
is provided internally on this basis to the Board.
Investments designated as at fair value through profit or loss, which are
quoted investments, are measured at subsequent reporting dates at fair value,
which is either the bid or the last trade price, depending on the convention of
the exchange on which it is quoted.
In respect of unquoted investments, or where the market for a financial
instrument is not active, fair value is established by using valuation
techniques which may include using recent arm's length market transactions
between knowledgeable, willing parties, if available, reference to the current
fair value of another instrument that is substantially the same, discounted
cash flow analysis and option pricing models. Where there is a valuation
technique commonly used by market participants to price the instrument and that
technique has been demonstrated to provide reliable estimates of prices
obtained in actual market transactions, that technique is utilised.
Gains and losses on disposal are also recognised in the Income Statement.
The total transaction costs for the year were £530,000 (31 March 2010: £
415,000) broken down as follows: purchase transaction costs for the year to 31
March 2011 were £232,000, (31 March 2010: £246,000), sale transaction costs
were £298,000 (31 March 2010: £169,000). These costs consist mainly of
commission and stamp duty.
(c) Presentation of Income Statement
In order to better reflect the activities of an investment trust company, and
in accordance with guidance issued by the AIC, supplementary information which
analyses the Income Statement between items of a revenue and capital nature has
been presented alongside the Income Statement. In accordance with the Company's
status as a UK investment company under section 833 of the Companies Act 2006,
capital reserves may not be distributed by way of dividend, although may be
utilised for the purposes of share buy-backs. Additionally, net revenue is the
measure the Directors believe appropriate in assessing the Company's compliance
with certain requirements set out in section 1158 of the Corporation Tax Act
2010.
(d) Income
Dividends receivable on equity shares are recognised on the ex-dividend date.
Where no ex-dividend date is quoted, dividends are recognised when the
Company's right to receive payment is established.
Dividends and interest on investments in unquoted shares and securities are
recognised when they become receivable.
(e) Expenses and Finance Costs
All expenses are accounted for on an accruals basis. Expenses are charged
through the Income Statement except as follows:
• expenses which are incidental to the acquisition or disposal of an investment
are charged to the capital column of the Income Statement;
• expenses are charged to the capital column of the Income Statement where a
connection with the maintenance or enhancement of the value of the investment
can be demonstrated, and accordingly;
• investment management and management fees and related irrecoverable VAT are
charged to the capital column of the Income Statement as the Directors expect
that in the long term virtually all of the Company's returns will come from
capital, and
• loan interest is charged to the Income Statement and allocated to capital as
the Directors expect that in the long term virtually all of the Company's
returns will come from capital.
NOTES TO THE FINANCIAL STATEMENTS (continued)
(f) Taxation
In line with the recommendations of the SORP, the allocation method used to
calculate tax relief on expenses presented against capital returns in the
supplementary information in the Income Statement is the "marginal basis".
Under this basis, if taxable income is capable of being offset entirely by
expenses presented in the revenue column of the Income Statement, then no tax
relief is transferred to the capital column.
Investment trusts which have approval under Section 1158 Corporation Tax Act
2010 (formerly under Section 842 of the Income and Corporation Taxes Act 1988)
are not liable for taxation on capital gains.
Deferred tax is the tax expected to be payable or recoverable on differences
between the carrying amounts of assets and liabilities in the financial
statements and the corresponding tax bases used in the computation of taxable
profit, and is accounted for using the Balance Sheet liability method. Deferred
tax liabilities are recognised for all taxable temporary differences and
deferred tax assets are recognised to the extent that it is probable that
taxable profits will be available against which deductible temporary
differences can be utilised.
Deferred tax is calculated at the tax rates that are expected to apply in the
period when the liability is settled or the asset is realised. Deferred tax is
charged or credited in the Income Statement, except when it relates to items
charged or credited directly to equity, in which case the deferred tax is also
dealt with in equity.
(g) Foreign Currencies
The currency of the primary economic environment in which the Company operates
(the functional currency) is pounds sterling ("sterling"), which is also the
presentational currency of the Company. Transactions involving currencies other
than sterling are recorded at the exchange rate ruling on the transaction date.
At each Statement of Financial Position date, monetary items and non-monetary
assets and liabilities that are fair valued, which are denominated in foreign
currencies, are retranslated at the closing rates of exchange.
Exchange differences arising on settlements of monetary items and from
retranslating at the Statement of Financial Position date including investments
and other financial instruments measured as fair value through profit or loss
and other monetary items are included in the Income Statement and allocated as
capital if they are of a capital nature, or as revenue if they are of a revenue
nature.
(h) Reserves
Capital reserves
The following are credited or charged to the capital column of the Income
Statement and then transferred to the Capital Reserve:
• gains or losses on disposal of investments
• exchange differences of a capital nature
• expenses allocated to this reserve in accordance with the above referred
policies
• increases and decreases in the valuation of investments held at year end
Capital Redemption Reserve
• a transfer will be made to this reserve on cancellation of the Company's own
shares purchased
Special Reserve
During the financial year ended 31 March 2004 a Special Reserve was created,
following the cancellation of the Share Premium account, in order to provide an
increased distributable reserve out of which to purchase the Company's own
shares.
(i) Functional and presentational currency
The financial information is shown in sterling, being the Company's
presentational currency. In arriving at the functional currency the Directors
have considered the following:
(i) the primary economic environment of the Company;
(ii) the currency in which the original capital was raised;
(iii) the currency in which distributions are made;
(iv) the currency in which performance is evaluated; and
(v) the currency in which the capital would be returned to shareholders on a
break up basis.
The Directors have also considered the currency to which the underlying
investments are exposed and liquidity is managed.
The Directors are of the opinion that sterling best represents the functional
currency.
NOTES TO THE FINANCIAL STATEMENTS (continued)
(j) Cash and cash equivalents
Cash in hand and in banks and short-term deposits which are held to maturity
are carried at cost. Cash and cash equivalents are defined as cash in hand,
demand deposits and short-term, highly liquid investments readily convertible
to known amounts of cash and subject to insignificant risk of changes in value.
Bank overdrafts that are repayable on demand, which form an integral part of
the Company's cash management, are included as a component of cash and cash
equivalents for the purpose of the statement of cash flows.
(k) Operating segments
IFRS 8 requires entities to define operating segments and segment performance
in the financial statements based on information used by the Board of
Directors. The Directors are of the opinion that the Company is engaged in a
single segment of business, being the investments business. The results
published in this report therefore correspond to the sole operating segment.
(l) Standards and amendments to published standards that are not yet effective
The IASB and IFRIC have issued number of standards and interpretations which
are not effective for the year ended 31 March 2011 but are relevant for the
Company. The Directors have therefore chosen not to adopt these standards early
as they do not anticipate that they would have a material impact on the
Company's financial statements.
• IFRS 9 Financial Instruments (effective 1 January 2013);
• Deferred Tax: Recovery of Underlying Assets- Amendments to IAS 12 Income
Taxes (effective 1 January 2012).
2. INCOME
2011 2010
£'000 £'000
Investment income
Money market dividends - 2
Overseas income 69 29
69 31
Other operating income
Interest receivable (including interest on VAT repayment from - 34
HMRC)
Total income 69 65
3. INVESTMENT MANAGEMENT, MANAGEMENT AND PERFORMANCE FEES
Revenue Capital Total Revenue Capital Total
2011 2011 2011 2010 2010 2010
£'000 £'000 £'000 £'000 £'000 £'000
Investment management fee - 711 711 - 544 544
Management fee - 322 322 - 247 247
Performance fee (written - (281) (281) - 574 574
back)/accrued
- 752 752 - 1,365 1,365
Details of the performance fee basis and amounts paid during the year can be
found in the Report of the Directors on page 12.
NOTES TO THE FINANCIAL STATEMENTS (continued)
4. OTHER EXPENSES
Revenue Capital Total Revenue Capital Total
2011 2011 2011 2010 2010 2010
£'000 £'000 £'000 £'000 £'000 £'000
Directors' emoluments 133 - 133 133 - 133
Fixed element of management 60 - 60 50 - 50
fee
Auditors' remuneration for 22 - 22 22 - 22
the audit of the Company's
financial statements
Auditors' remuneration for 5 - 5 3 - 3
review of the interim
accounts and performance fee
calculation
Broker retainer 25 - 25 25 - 25
Other including irrecoverable 153 - 153 184 - 184
VAT
398 - 398 417 - 417
Details of the amounts paid to Directors are included in the Directors'
Remuneration Report on pages 22 and 23.
5. FINANCE COSTS
Revenue Capital Total Revenue Capital Total
2011 2011 2011 2010 2010 2010
£'000 £'000 £'000 £'000 £'000 £'000
Bank overdraft 11 - 11 3 - 3
Bank loan interest - - - - 13 13
11 - 11 3 13 16
6. TAXATION
(a) Analysis of charge in the year:
Revenue Capital Total Revenue Capital Total
2011 2011 2011 2010 2010 2010
£'000 £'000 £'000 £'000 £'000 £'000
Overseas taxation suffered 1 - 1 - - -
Total current taxation for 1 - 1 - - -
the year (see note 6b)
(b) Factors affecting current tax charge for year
Approved investment trusts are exempt from tax on capital gains made within the
Company.
The tax assessed for the year is lower than the standard rate of corporation
tax in the UK of 28% (2010: 28%). The differences are explained below:
Revenue Capital Total Revenue Capital Total
2011 2011 2011 2010 2010 2010
£'000 £'000 £'000 £'000 £'000 £'000
Net profit/(loss) on ordinary (340) 2,341 2,001 (355) 29,044 28,689
activities before taxation
Corporation tax at 28% (2010: (95) 655 560 (99) 8,132 8,033
28%)
Effects of:
Non-taxable gains on - (865) (865) - (8,518) (8,518)
investments held at fair
value through profit or loss
Non-taxable overseas (16) - (16) (8) - (8)
dividends
Income taxable in different - - - 4 - 4
years
Overseas taxes 1 - 1 - - -
Excess expenses unused 110 210 320 102 386 488
Disallowed expenses 1 - 1 1 - 1
Current tax charge 1 - 1 - - -
NOTES TO THE FINANCIAL STATEMENTS (continued)
6. TAXATION (continued)
(c) Provision for deferred tax
No provision for deferred taxation has been made in the current or prior year.
The Company has not provided for deferred tax on capital gains or losses
arising on the revaluation or disposal of investments, as it is exempt from tax
on these items because of its status as an investment trust company.
The Company has not recognised a deferred tax asset of £4,108,000 (2010: £
4,103,000) arising as a result of excess management expenses and loan
relationship deficits. These excess expenses will only be utilised if the
Company generates sufficient taxable income in the future.
7. BASIC AND DILUTED (LOSS)/EARNINGS PER SHARE
Revenue Capital Total Revenue Capital Total
2011 2011 2011 2010 2010 2010
£'000 £'000 £'000 £'000 £'000 £'000
(Loss)/earnings per (0.5)p 3.5p 3.0p (0.6)p 52.4p 51.8p
share
The total gain per share of 3.0p (2010: gain 51.8p) is based on the total gain
attributable to equity shareholders of £2,000,000 (2010: gain £28,689,000).
The revenue loss per share 0.5p (2010: loss 0.6p) is based on the revenue loss
attributable to equity shareholders of £341,000 (2010: £355,000).
The capital gain per share of 3.5p (2010: gain 52.4p) is based on the capital
gain attributable to equity shareholders of £2,341,000 (2010: gain £
29,044,000).
The total revenue loss and capital gain per share are based on the weighted
average number of shares in issue during the year of 65,687,388 (2010:
55,422,574).
8. INVESTMENTS HELD AT FAIR VALUE THROUGH PROFIT AND LOSS
2011 2010
Listed
Equity Unquoted Total Total
£'000 £'000 £'000 £'000
Cost at 1 April 2010 101,874 1,134 103,008 63,784
Investment holding gains/(losses) at 1 29,668 (58) 29,610 7,472
April 2010
Valuation at 1 April 2010 131,542 1,076 132,618 71,256
Movement in the year
Purchases at cost 108,901 655 109,556 112,392
Sales proceeds (116,157) (362) (116,519) (82,009)
-
- gains/(losses) on disposal 17,184 315 17,499 8,841
Net movement in investment holding gains (14,312) (496) (14,808) 22,138
Valuation at 31 March 2011 127,158 1,188 128,346 132,618
Closing book cost at 31 March 2011 111,802 1,742 113,544 103,008
Investment holding gains/(losses) at 31 15,356 (554) 14,802 29,610
March 2011
Valuation at 31 March 2011 127,158 1,188 128,346 132,618
2011 2010
£'000 £'000
Gains on investments:
Gains on disposal based on historical cost 17,499 8,841
Amounts recognised as investment holding loss in previous (19,727) (4,545)
year
(Losses)/gains on disposal based on carrying value at (2,228) 4,296
previous balance sheet date
Net movement in investment holding gains in the year 4,919 26,683
Gains on investments 2,691 30,979
NOTES TO THE FINANCIAL STATEMENTS (continued)
9. OTHER RECEIVABLES
2011 2010
£'000 £'000
Future settlements - sales 1,086 244
Other debtors 23 17
Prepayments and accrued income 52 43
1,161 304
10. OTHER PAYABLES
2011 2010
£'000 £'000
Future settlements - purchases 14,010 2,837
Future settlements - purchase of own shares 3 2
Performance fee accrued - 798
Other creditors and accruals 367 379
14,380 4,016
11. ORDINARY SHARE CAPITAL
2011 2010
£'000 £'000
Allotted, called up, issued and fully paid:
64,954,681 shares of 25p (2010: 65,959,861) 16,239 16,490
At 31 March 2011 the Company had 64,954,681 shares of 25p in issue (2010:
65,959,861). During the year 1,005,180 shares were repurchased for cancellation
at a cost of £1,601,000 (including expenses). A further 262,756 shares were
repurchased for cancellation at a cost of £438,000 (including expenses)
subsequent to the year end and to the date of this report.
12. NET ASSET VALUE PER SHARE
2011 2010
£'000 £'000
Net asset value per share 186.0p 182.6p
The net asset value per share is based on the net assets attributable to equity
shareholders of £120,818,000 (2010: £120,417,000) and on 64,954,681 (2010:
65,959,861) shares in issue at 31 March 2011.
13. RISK MANAGEMENT POLICIES AND PROCEDURES
As an investment trust, the Company invests in equities and other investments
for the long term so as to secure its investment objective as stated on pages 8
and 9. In pursuing its investment objective, the Company is exposed to a
variety of risks that could result in either a reduction or increase in the
Company's net assets or in profits.
The Company's financial instruments comprise securities and other investments,
cash balances, debtors and creditors and a loan facility that arise directly
from its operations (for example, in respect of sales and purchases awaiting
settlement).
The main risks the Company faces from its financial instruments are (i) market
price risk (comprising currency risk, interest rate risk and other price risk
(i.e. changes in market prices other than those arising from interest rate or
currency risk)), (ii) liquidity risk and (iii) credit risk.
The Board reviews regularly and agrees policies for managing and monitoring
each of these risks.
1. Market price risk:
The fair value or future cash flows of a financial instrument held by the
Company may fluctuate because of changes in market prices. This market risk
comprises three elements - currency risk, interest rate risk and other price
risk.
The Company's portfolio is exposed to market price fluctuations which are
monitored by the Investment Manager in pursuance of the investment objective.
Further information on the composition of the portfolio is set out on page 7.
No derivatives or hedging instruments are utilised to manage market price risk.
NOTES TO THE FINANCIAL STATEMENTS (continued)
13. RISK MANAGEMENT POLICIES AND PROCEDURES (continued)
(a) Currency risk:
A significant proportion of the Company's portfolio is denominated in
currencies other than sterling (the Company's functional currency, and in which
it reports its results). As a result, movements in exchange rates can
significantly affect the sterling value of those items.
Management of risk
The Investment Manager and Manager monitor the Company's exposure to foreign
currencies on a continuous basis and report to the Board regularly. The
Investment Manager does not hedge against foreign currency movements, but takes
account of the risk when making investment decisions.
Income denominated in foreign currencies is converted into sterling on receipt.
The Company does not use financial instruments to mitigate the currency
exposure in the period between the time that the income is included in the
financial statements and its receipt.
Foreign currency exposure
At the date of the Statement of Financial Position the Company held £
124,088,000 (2010: £126,416,000) of investments denominated in U.S. dollars and
£4,258,000 (2010: £6,187,000) in other non-sterling currencies.
Currency sensitivity
The following table details the sensitivity of the Company's profit or loss
after taxation for the year to a 10% increase and decrease in sterling against
U.S. dollars (2010: 10% increase and decrease).
The above percentages have been determined based on market volatility in
exchange rates over the previous twelve months. The analysis is based on the
Company's foreign currency financial instruments held at each Statement of
Financial Position date, after adjusting for an increase/decrease in management
fees. Movements in the performance fee accruals have been excluded from the
analysis below.
If sterling had weakened against U.S. dollars, as stated above, this would have
had the following effect:
2011 2010
USD USD
£'000 £'000
Impact on revenue return - -
Impact on capital return 13,698 13,955
Total return after tax/effect on shareholders' funds 13,698 13,955
If sterling had strengthened against U.S. dollars, as stated above, this would
have had the following effect:
2011 2010
USD USD
£'000 £'000
Impact on revenue return - -
Impact on capital return (11,207) (11,418)
Total return after tax/effect on shareholders' funds (11,207) (11,418)
(b) Interest rate risk:
Interest rate risk is the risk that the fair value of future cash flows of a
financial instrument will fluctuate because of changes in market interest
rates.
Management of the risk
The possible effects on fair value and cash flows that could arise as a result
of changes in interest rates are taken into account when making investment
decisions.
The Company, generally, does not hold significant cash balances, with short
term borrowing being used when required and therefore deems this risk to be
immaterial.
Interest rate exposure
The Company has a loan facility with Goldman Sachs & Co. New York which is
repayable on demand. At the year end the facility was unutilised. At the year
end the Company held £5,657,000 cash at Goldman Sachs & Co. New York (2010: £
Nil).
(c) Other price risk
Other price risk may affect the value of the quoted investments.
If market prices at the date of the Statement of Financial Position had been 5%
higher or lower (2010: 30% higher or lower) while all other variables had
remained constant, the return and net assets attributable to shareholders for
the year ended 31 March 2011 would have increased/decreased by £6,376,000
(2010: £39,527,000), after adjusting for an increase or decrease in management
fees. The calculations are based on the portfolio valuations as at the
respective Statement of Financial Position dates.
NOTES TO THE FINANCIAL STATEMENTS (continued)
13. RISK MANAGEMENT POLICIES AND PROCEDURES (continued)
2. Liquidity risk:
This is the risk that the Company will encounter difficulty in meeting
obligations associated with financial liabilities.
Management of the risk
Liquidity risk is not significant as the majority of the Company's assets are
investments in quoted equities and other quoted securities that are readily
realisable. The Company has a loan facility with Goldman Sachs & Co. New York
which is repayable on demand.
The Board gives guidance to the Investment Manager as to the maximum amount of
the Company's resources that should be invested in any one company.
Liquidity exposure
Contractual maturities of the financial liabilities as at 31 March 2011, based
on the earliest date on which payment can be required, are as follows:
Amounts due to brokers and accruals £14,380,000 (2010: £4,016,000) and the
Company's loan facility of which £Nil (2010: £8,489,000) was drawn down at 31
March 2011. All of the stated financial liabilities are repayable within three
months or less.
3. Credit risk:
The failure of the counterparty to a transaction to discharge its obligations
under that transaction could result in the Company suffering a loss.
The Company has a loan facility, repayable on demand, provided by Goldman Sachs
& Co. New York. Further details of the risks associated with this loan facility
can be found on page 11. As at 31 March 2011, none of the Company's assets were
held as collateral.
Management of the risk
The risk is not significant and is managed as follows:
• by only dealing with brokers which have been approved by OrbiMed Capital LLC
and banks with high credit ratings; and
• by setting limits to the maximum exposure to any one counterparty at any
time.
At 31 March 2011 the Company's exposure to credit risk amounted to £1,161,000
and was in respect of other receivables, such as amounts due from brokers,
dividends and interest receivable (2010: £304,000). At this date the Company
held a cash balance of £5,691,000 (2010: Nil).
Hierarchy of investments
The Company has classified its financial assets designated at fair value
through profit or loss and the fair value of derivative financial instruments
using a fair value hierarchy that reflects the significance of the inputs used
in making the fair value measurements. The hierarchy has the following levels:
• Level 1 - quoted prices (unadjusted) in active markets for identical assets
or liabilities;
• Level 2 - inputs other than quoted prices included with Level 1 that are
observable for the asset or liability, either directly (i.e. as prices) or
indirectly (i.e. derived from prices); and
• Level 3 - inputs for the asset or liability that are not based on observable
market data (unobservable inputs).
Level 1 Level 2 Level 3 Total
As of 31 March 2011 £'000 £'000 £'000 £'000
Assets
Financial investments designated at fair 127,158 - 1,188 128,346
value through profit or loss
Level 1 Level 2 Level 3 Total
As of 31 March 2010 £'000 £'000 £'000 £'000
Assets
Financial investments designated at fair 131,542 384 692 132,618
value through profit or loss
Level 3 Reconciliation
Please see below a reconciliation disclosing the changes during the year for
the financial assets and liabilities designated at fair value through profit or
loss classified as being Level 3.
2011 2010
£'000 £'000
Assets
As at 1 April 692 719
Total losses during the year (159) (448)
Capital commitments 655 421
Assets as at 31 March 1,188 692
NOTES TO THE FINANCIAL STATEMENTS (continued)
13. RISK MANAGEMENT POLICIES AND PROCEDURES (continued)
Fair value of financial assets and financial liabilities:
Financial assets and financial liabilities are either carried in the Statement
of Financial Position at their fair value or at a reasonable approximation of
fair value.
Capital management policies and procedures
The Company's capital management objectives are:
• to ensure that it will be able to continue as a going concern; and
• to maximise the total return to its equity shareholders through an
appropriate balance of equity capital and debt.
The Company's capital is disclosed in the Statement of Financial Position on
page 27 and is managed on a basis consistent with its investment objectives and
policies as discussed in the Report of the Directors on pages 8 and 9. The
Company currently has a loan facility with Goldman Sachs & Co. New York which
is repayable on demand, which can be used to satisfy the Company's borrowing
requirements.
The Board, with the assistance of the Manager and the Investment Manager,
monitors and reviews the broad structure of the Company's capital on an ongoing
basis. This review includes:
- the planned level of gearing, which takes into account the Investment
Manager's view of the market;
- the need to buy back equity shares, either for cancellation or to hold in
treasury, which takes account of the difference between the net asset value per
share and the share price (i.e. the level of share price discount or premium);
- the possible need for new issues of equity shares; and
- the extent to which revenue in excess of that which is required to be
distributed should be retained.
The Company's objectives, policies and processes for managing capital are
unchanged from the preceding accounting period.
The Company is also subject to several externally imposed capital requirements.
- as a public company, the Company has a minimum share capital of £50,000; and
- in order to be able to pay dividends out of profits available for
distribution, the Company has to be able to meet one of the two capital
restriction tests imposed on investment companies by company law.
These requirements are unchanged since last year and the Company has complied
with them at all times.
14. RELATED PARTIES
Details of the relationship between the Company, Frostrow Capital LLP and
OrbiMed Capital LLC are disclosed in the Report of Directors on pages 11 and
12. Sven Borho is a Director of the Company, as well as a Partner of the
Company's Investment Manager, OrbiMed Capital LLC. During the year ended 31
March 2011, OrbiMed Capital LLC earned £711,000 in respect of Investment
Management fees, of which £189,000 was outstanding at the year end. In
addition, amounts totalling £472,000 were paid during the year in respect of
performance fees which crystalised.
15. CAPITAL RESERVE
Capital
reserve -
investment
Capital holdings
reserve - gains/
other (losses) Total
£'000 £'000 £'000
At 31 March 2010 21,360 29,610 50,970
Transfer on disposal of investments 19,727 (19,727) -
Net gains on investments (2,228) 4,919 2,691
Exchange gains 402 - 402
Expenses charged to capital (752) - (752)
At 31 March 2011 38,509 14,802 53,311
NOTICE OF ANNUAL GENERAL MEETING
Notice is hereby given that the Annual General Meeting of The Biotech Growth
Trust PLC will be held at the Barber-Surgeons' Hall, Monkwell Square, Wood
Street, London, EC2Y 5BL on Thursday, 14 July 2011 at 12 noon for the following
purposes:
ORDINARY BUSINESS
1. To receive and, if thought fit, to accept the Audited Financial Statements
and the Report of the Directors for the year ended 31 March 2011
2. To re-elect John Sclater as a Director of the Company
3. To re-elect Sven Borho as a Director of the Company
4. To re-elect Paul Gaunt as a Director of the Company
5. To re-elect Dr John Gordon as a Director of the Company
6. To re-elect Peter Keen as a Director of the Company
7. To re-elect Lord Waldegrave of North Hill as a Director of the Company
8. To approve the Directors' Remuneration Report for the year ended 31 March
2011
9. To re-appoint Grant Thornton UK LLP as Auditors to the Company and to
authorise the Directors to determine their remuneration
SPECIAL BUSINESS
To consider, and if thought fit, pass the following resolutions of which
resolutions 11, 12 and 13 will be proposed as special resolutions:
Authority to Allot Shares
10. THAT in substitution for all existing authorities the Directors be and are
hereby generally and unconditionally authorised in accordance with Section 551
of the Companies Act 2006 (the "Act") to exercise all powers of the Company to
allot relevant securities (within the meaning of Section 551 of the Act) up to
a maximum aggregate nominal amount of £1,617,298 (being 10% of the issued share
capital of the Company at the date of the notice convening the meeting at which
this resolution is proposed) and representing 6,469,193 shares of 25 pence each
(or, if less, the number representing 10% of the issued share capital of the
Company at the date at which this resolution is passed), provided that this
authority shall expire at the conclusion of the Annual General Meeting of the
Company to be held in 2012 or 15 months from the date of passing this
resolution, whichever is the earlier, unless previously revoked, varied or
renewed, by the Company in general meeting and provided that the Company shall
be entitled to make, prior to the expiry of such authority, an offer or
agreement which would or might require relevant securities to be allotted after
such expiry and the Directors may allot relevant securities pursuant to such
offer or agreement as if the authority conferred hereby had not expired.
Disapplication of Pre-emption Rights
11. THAT in substitution of all existing powers the Directors be and are hereby
generally empowered pursuant to Sections 570 and 573 of the Companies Act 2006
(the "Act") to allot equity securities (within the meaning of section 560 of
the Act) for cash pursuant to the authority conferred on them by resolution 10
set out in the notice convening the Annual General Meeting at which this
resolution is proposed or otherwise as if section 561(1) of the Act did not
apply to any such allotment and to sell relevant shares (within the meaning of
section 560 of the Act) for cash as if section 561(1) of the Act did not apply
to any such sale, provided that this power shall be limited to the allotment of
equity securities pursuant to:
(a) an offer of equity securities open for acceptance for a period fixed by the
Directors where the equity securities respectively attributable to the
interests of holders of shares of 25 pence each in the Company ("Shares") are
proportionate (as nearly as may be) to the respective numbers of Shares held by
them but subject to such exclusions or other arrangements in connection with
the issue as the Directors may consider necessary, appropriate, or expedient to
deal with equity securities representing fractional entitlements or to deal
with legal or practical problems arising in any overseas territory, the
requirements of any regulatory body or stock exchange, or any other matter
whatsoever; and
(b) (otherwise than pursuant to sub-paragraph (a) above) up to an aggregate
nominal value of £1,617,298 or, if less, the number representing 10% of the
issued share capital of the Company at the date of the meeting at which this
resolution is passed,
and expires at the conclusion of the next Annual General Meeting of the Company
after the passing of this resolution or 15 months from the date of passing this
resolution, whichever is the earlier, unless previously revoked, varied or
renewed by the Company in general meeting and provided that the Company shall
be entitled to make, prior to the expiry of such authority, an offer or
agreement which would or might require equity securities to be allotted after
such expiry and the Directors may allot equity securities pursuant to such
offer or agreement as if the power conferred hereby had not expired.
NOTICE OF ANNUAL GENERAL MEETING (continued)
Authority to Repurchase Ordinary Shares
12. THAT the Company be and is hereby generally and unconditionally authorised
in accordance with section 701 of the Companies Act 2006 (the "Act") to make
one or more market purchases (within the meaning of section 693(4) of the Act)
of ordinary shares of 25 pence each in the capital of the Company ("Shares")
for cancellation provided that:
(a) the maximum aggregate number of Shares authorised to be purchased is
9,697,320 (representing approximately 14.99% of the issued share capital of the
Company at the date of the notice convening the meeting at which this
resolution is proposed);
(b) the minimum price (exclusive of expenses) which may be paid for a Share is
25 pence;
(c) the maximum price (exclusive of expenses) which may be paid for a Share is
an amount equal to the greater of (i) 105% of the average of the middle market
quotations for a Share as derived from the Daily Official List of the London
Stock Exchange for the five business days immediately preceding the day on
which that Share is purchased and (ii) the higher of the price of the last
independent trade in shares and the highest then current independent bid for
shares on the London Stock Exchange as stipulated in Article 5(1) of Regulation
No. 2233/2003 of the European Commission (Commission Regulation of 22 December
2003 implementing the Market Abuse Directive as regards exemptions for buyback
programmes and stabilisation of financial instruments);
(d) the authority hereby conferred shall expire at the conclusion of the Annual
General Meeting of the Company to be held in 2012 or, if earlier, on the expiry
of 15 months from the date of the passing of this resolution unless such
authority is renewed prior to such time; and
(e) the Company may make a contract to purchase Shares under this authority
before the expiry of such authority which will or may be executed wholly or
partly after the expiration of such authority, and may make a purchase of
Shares in pursuance of any such contract.
General Meetings
13. THAT the Directors be authorised to call general meetings (other than
Annual General Meetings) on not less than 14 clear days' notice, such authority
to expire at the conclusion of the next Annual General Meeting of the Company
or, if earlier, until expiry of 15 months from the date of the passing of this
resolution.
BY ORDER OF THE BOARD REGISTERED OFFICE:
ONE WOOD STREET
LONDON EC2V 7WS
FROSTROW CAPITAL LLP
COMPANY SECRETARY
31 MAY 2011
NOTICE OF ANNUAL GENERAL MEETING (continued)
Notes
1. Members are entitled to appoint a proxy to exercise all or any of their
rights to attend and to speak and vote on their behalf at the meeting. A
shareholder may appoint more than one proxy in relation to the meeting provided
that each proxy is appointed to exercise the rights attached to a different
share or shares held by that shareholder. A proxy need not be a shareholder of
the Company. A proxy form which may be used to make such appointment and give
proxy instructions accompanies this notice.
2. A vote withheld is not a vote in law, which means that the vote will not be
counted in the calculation of votes for or against the resolutions. If no
voting indication is given, a proxy may vote or abstain from voting at his/her
discretion. A proxy may vote (or abstain from voting) as he or she thinks fit
in relation to any other matter which is put before the meeting.
3. To be valid any proxy form or other instrument appointing a proxy must be
completed and signed and received by post or (during normal business hours
only) by hand at Capita Registrars, PXS, 34 Beckenham Road, Beckenham, Kent BR3
4TU no later than 12 noon on 12 July 2011.
4. In the case of a member which is a company, the instrument appointing a
proxy must be executed under its seal or signed on its behalf by a duly
authorised officer or attorney or other person authorised to sign. Any power of
attorney or other authority under which the instrument is signed (or a
certified copy of it) must be included with the instrument.
5. The return of a completed proxy form, other such instrument or any CREST
Proxy Instruction (as described below) will not prevent a shareholder attending
the meeting and voting in person if he/she wishes to do so.
6. Any person to whom this notice is sent who is a person nominated under
section 146 of the Companies Act 2006 to enjoy information rights (a "Nominated
Person") may, under an agreement between him/her and the shareholder by whom he
/she was nominated, have a right to be appointed (or have someone else
appointed) as a proxy for the meeting. If a Nominated Person has no such proxy
appointment right or does not wish to exercise it, he/she may, under any such
agreement, have a right to give instructions to the shareholder as to the
exercise of voting rights.
7. The statement of the rights of shareholders in relation to the appointment
of proxies in paragraphs 1 and 3 above does not apply to Nominated Persons. The
rights described in these paragraphs can only be exercised by shareholders of
the Company.
8. Pursuant to regulation 41 of the Uncertificated Securities Regulations 2001,
only shareholders registered on the register of members of the Company (the
"Register of Members") at 5.30 p.m. on 12 July 2011 (or, in the event of any
adjournment, on the date which is two days before the time of the adjourned
meeting) will be entitled to attend and vote or be represented at the meeting
in respect of shares registered in their name at that time. Changes to the
Register of Members after that time will be disregarded in determining the
rights of any person to attend and vote at the meeting.
9. As at 31 May 2011 (being the last business day prior to the publication of
this notice) the Company's issued share capital consists of 64,691,925 ordinary
shares, carrying one vote each. Therefore, the total voting rights in the
Company as at 31 May 2011 are 64,691,925.
10. CREST members who wish to appoint a proxy or proxies through the CREST
electronic proxy appointment service may do so by using the procedures
described in the CREST Manual. CREST Personal Members or other CREST sponsored
members, and those CREST members who have appointed a service provider(s),
should refer to their CREST sponsor or voting service provider(s), who will be
able to take the appropriate action on their behalf.
11. In order for a proxy appointment or instruction made using the CREST
service to be valid, the appropriate CREST message (a "CREST Proxy
Instruction") must be properly authenticated in accordance with the
specifications of Euroclear UK and Ireland Limited ("CRESTCo"), and must
contain the information required for such instruction, as described in the
CREST Manual. The message, regardless of whether it constitutes the appointment
of a proxy or is an amendment to the instruction given to a previously
appointed proxy must, in order to be valid, be transmitted so as to be received
by the issuer's agent (ID RA10) no later than 48 hours before the time
appointed for holding the meeting. For this purpose, the time of receipt will
be taken to be the time (as determined by the timestamp applied to the message
by the CREST Application Host) from which the issuer's agent is able to
retrieve the message by enquiry to CREST in the manner prescribed by CREST.
After this time any change of instructions to proxies appointed through CREST
should be communicated to the appointee through other means.
12. CREST members and, where applicable, their CREST sponsors, or voting
service providers should note that CRESTCo does not make available special
procedures in CREST for any particular message. Normal system timings and
limitations will, therefore, apply in relation to the input of CREST Proxy
Instructions. It is the responsibility of the CREST member concerned to take
(or, if the CREST member is a CREST personal member, or sponsored member, or
has appointed a voting service provider, to procure that his CREST sponsor or
voting service provider(s) take(s)) such action as shall be necessary to ensure
that a message is transmitted by means of the CREST system by any particular
time. In this connection, CREST members and, where applicable, their CREST
sponsors or voting system providers are referred, in particular, to those
sections of the CREST Manual concerning practical limitations of the CREST
system and timings.
13. The Company may treat as invalid a CREST Proxy Instruction in the
circumstances set out in Regulation 35(5)(a) of the Uncertificated Securities
Regulations 2001.
14. In the case of joint holders, where more than one of the joint holders
purports to appoint a proxy, only the appointment submitted by the most senior
holder will be accepted. Seniority is determined by the order in which the
names of the joint holders appear in the Register of Members in respect of the
joint holding (the first named being the most senior).
15. Members who wish to change their proxy instructions should submit a new
proxy appointment using the methods set out above. Note that the cut-off time
for receipt of proxy appointments (see above) also applies in relation to
amended instructions; any amended proxy appointment received after the relevant
cut-off time will be disregarded.
16. Members who have appointed a proxy using the hard-copy proxy form and who
wish to change the instructions using another hard-copy form, should contact
Capita Registrars on 0871 664 0300 (calls cost 10p per minute plus network
extras). Lines are open 8.30am to 5.30pm Monday to Friday.
17. If a member submits more than one valid proxy appointment, the appointment
received last before the latest time for the receipt of proxies will take
precedence.
18. In order to revoke a proxy instruction, members will need to inform the
Company. Members should send a signed hard copy notice clearly stating their
intention to revoke a proxy appointment to Capita Registrars, PXS, 34 Beckenham
Road, Beckenham, Kent BR3 4TU.
In the case of a member which is a company, the revocation notice must be
executed under its common seal or signed on its behalf by an officer of the
company or an attorney for the company. Any power of attorney or any other
authority under which the revocation notice is signed (or a duly certified
NOTICE OF ANNUAL GENERAL MEETING (continued)
copy of such power of attorney) must be included with the revocation notice. If
a member attempts to revoke their proxy appointment but the revocation is
received after the time for receipt of proxy appointments (see page 40) then,
subject to paragraph 4, the proxy appointment will remain valid.
Frostrow Capital LLP
Company Secretary
9 June 2011
0203 008 4913
www.frostrow.com
The Annual Report will be posted to shareholders on 13 June 2011 Further copies
may be obtained from Frostrow Capital LLP, the Company Secretary at 25
Southampton Buildings, London WC2A 1AL.
A copy of the annual report has been submitted to the National Storage
Mechanism and will shortly be available for inspection at www.hemscott.com/
nsm.do
The annual report is also available on the Company's website at
www.biotechgt.com where up to date information on the Company, including daily
NAV, share prices and fact sheets, can also be found.