Annual Financial Report

The Biotech Growth Trust PLC

(the “Company”)

Audited Results for the Year Ended 31 March 2023

The Company’s annual report for the year ended 31 March 2023 (the “Annual Report”), which includes the notice of the Company’s forthcoming annual general meeting, will be posted to shareholders on 22 June 2023. Members of the public may obtain copies from Frostrow Capital LLP, 25 Southampton Buildings, London WC2A 1AL or from 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.

The Annual Report has been submitted to the Financial Conduct Authority and will shortly be available in full, unedited text for inspection on the National Storage Mechanism (NSM): https://data.fca.org.uk/#/nsm/nationalstoragemechanism

Frostrow Capital LLP

Company Secretary

0203 709 8734

FINANCIAL HIGHLIGHTS

as at 31 March 2023

852.6p	783.0p	£330.3m
Net asset value per share**	Share price	Shareholders’ funds**
2022: 957.8p	2022: 898.0p	2022: £394.2m

-11.0%	-12.8%	+5.4%
Net asset value per share	Share price	Benchmark*†
*(total return)^**	*(total return)^**	2022: -7.4%
2022: -33.8%	2022: -37.0%

8.2%	1.1%	76.6%
Discount of share price to net asset	Ongoing Charges^	*Active Share^**
*value per share^**	2022: 1.1%	2022: 77.3%
2022: 6.2%

* Source: Morningstar;

^ Alternative Performance Measure (see glossary);

† NASDAQ Biotechnology Index (sterling adjusted)

** UK GAAP Measure

CHAIRMAN’S STATEMENT

ROGER YATES

INTRODUCTION AND RESULTS

This has been another difficult year for the Company. The challenging economic conditions of the previous year carried over to the year under review, leading to disappointing absolute and relative performance; the Company’s NAV per share total return was -11.0% (2022: -33.8%), and the share price total return was -12.8% (2022: -37.0%), both underperforming the Company’s benchmark, the NASDAQ Biotechnology Index (sterling adjusted), which over the year rose 5.4% (2022: -7.4%). The disparity between the performance of the Company’s NAV per share and its share price reflected a widening of the share price discount to the NAV per share from 6.2% at the start of the Company’s financial year to 8.2% at the year end.

The majority of the Company’s assets are denominated in U.S. dollars with the result that the Company’s performance was positively affected by the tailwind of sterling weakness during the year, particularly against the U.S. dollar, with the average exchange over the period being $1.204, some 11.7% weaker than the previous year’s average of $1.363.

The Company’s gearing, which decreased to 7.8% at the year-end from 8.4% at the beginning of the year, detracted 0.8% from the Company’s overall NAV return during the year.

The factors that contributed to the Company’s performance are analysed in detail in the Portfolio Manager’s report. In general, rather than reflecting disappointing underlying performance or a lack of innovation from the sector, the price of biotechnology stocks has continued to suffer as investors’ appetite for growth stocks – those companies offering fast growing earnings or revenues – has remained muted. Alongside this, there continues to be a very significant divergence in performance between large and small capitalisation (cap) stocks in the biotechnology sector. Both factors reflect investors’ current levels of risk aversion which sees them favour larger companies with well-established business models and earnings over the potentially more exciting opportunities offered by faster growing and smaller companies.

In addition, the selective exposure to Chinese biotechnology companies was a headwind to performance. The Portfolio Manager continues to believe that the high levels of innovation that can be found in China represent a promising investment opportunity, however the companies in question have been affected by difficult macroeconomic and geopolitical environments. Accordingly, the Portfolio Manager has reduced our exposure to Chinese biotech and has not made any new crossover investments (investments in a Company’s last private funding round prior to an IPO) during the year. Chinese net investments represented 9% (2022: 13%) of the portfolio at the year end.

While performance this year has been disappointing, our Portfolio Manager expects that the overweighting of small and mid cap companies will deliver positive results to shareholders. In particular, they expect that the divergence in the valuations of large and small/mid cap companies will close. In addition, they anticipate that we can expect to see continued consolidation in the biotechnology industry, as larger companies seek to acquire smaller companies with promising pipelines of drugs and therapies to address gaps in their own portfolios and, in many cases, impending patent expirations which threaten their future earnings. This consolidation is likely to create both opportunities and challenges for small biotechnology companies, as they navigate the changing landscape of the industry. Above all, if breakthroughs can be made in the next generation technologies in which the Company is invested, this will be transformational for the sector and, we hope, for the Company’s performance.

CAPITAL STRUCTURE

The Company’s shares traded at a discount throughout the year, leading to the repurchase of 2,421,263 shares, at an average discount of 8.0% to the Company’s cum income NAV per share at the time, at a total cost of £22.6 million.

Shareholders will be aware that the Company pursues an active discount management policy, buying back shares when the discount of the Company’s share price to its NAV per share is higher than 6% (under normal market conditions).

At the period end there were 38,737,419 shares in issue and the share price traded at an 8.2% discount to the cum income NAV per share. As we have previously commented, while it remains possible for the shares to trade at a discount wider than 6% on any one day, the Company remains committed to protecting a 6% share price discount over the longer term. Since the year end, a further 1,057,959 shares have been bought back for cancellation and at the time of writing the share price discount stands at 7.6%.

RETURN AND DIVIDEND

The revenue return per share was (1.6)p (2022: 0.0p). No dividend is recommended in respect of the year ended 31 March 2023 (2022: nil).

BOARD AND MANAGEMENT CHANGES

During the year, Andrew Joy retired from the Board and I succeeded him as Chairman. There will be other retirements in the coming years and we are focused on successfully managing transitions with the right individuals and mix of people. Improving the diversity of the Board will be a key consideration in future recruitment processes and more information on the Board’s diversity policy can be found on page 45 of the Annual Report.

The Board also welcomes OrbiMed's announcement that Josh Golomb has been appointed as co-portfolio manager of the Company's portfolio. Further details can be found in their report but the Board believes that Josh's knowledge and expertise add significant value to an already well-resourced portfolio management team.

PERFORMANCE FEE

There is currently no provision within the Company’s NAV for any performance fee payable at a future calculation date. The arrangements for performance fees are described in detail on pages 48 and 49 of the Annual Report but I would highlight that it is dependent on the long-term outperformance of the Company: any outperformance has to be maintained for 12 months after the relevant calculation date and only becomes payable to the extent that the outperformance gives rise to a total fee greater than the total of all performance fees paid to date.

INVESTMENT POLICY

The Board reviews the Company’s investment policy at every Board meeting to ensure the limits and restrictions remain appropriate and must recommend any material changes to shareholders for approval.

This year, following consultation with our advisers, the Board is proposing a number of small changes to the investment policy in order to clarify the scope of the use of swaps and derivatives for efficient portfolio management. The proposed changes will:

– Enable derivative instruments (other than equity swaps) to be used to mitigate risk and/or enhance return subject to an aggregate net exposure of 5% of the value of the Company's gross assets measured at the time of the relevant transaction; and

– Remove the current limit for equity swaps but impose a limit on aggregate net counterparty exposure, through a combination of derivatives and equity swap transactions, of 12% of the value of the gross assets of the Company at the time of the transaction.

The proposed amendments have been approved in principle by the Financial Conduct Authority.

ANNUAL GENERAL MEETING

The Company’s AGM will be held at the Saddlers’ Hall, 40 Gutter Lane, London EC2V 6BR on Thursday, 27 July 2023 at 12 noon. As well as the formal proceedings, there will be an opportunity for shareholders to meet the Board and the Portfolio Manager, and to receive an update on the Company’s strategy and its key investments.

Last year the heatwave in July may have prevented some shareholders from attending the AGM, so I very much look forward to seeing as many shareholders as possible this year, weather permitting. For those investors who are not able to attend the meeting in person, a video recording of the Portfolio Manager’s presentation will be uploaded to the website after the meeting. Shareholders can submit questions in advance by writing to the Company Secretary at info@frostrow.com.

I encourage all shareholders to exercise their right to vote at the AGM and to register their votes online in advance. Registering your vote in advance will not restrict you from attending and voting at the meeting in person should you wish to do so, but as the past few years have shown, unforeseen extraordinary events can make attendance difficult or impossible. Details of the proxy votes received will be published as soon as practicable following the conclusion of the AGM by way of a stock exchange announcement and on the Company’s website: www.biotechgt.com.

OUTLOOK

The biotechnology sector has been a critical area of innovation and growth in recent years with the rate of underlying scientific discovery and its translation into effective treatments continuing apace. With a focus on precision medicine, cell and gene therapy, digital health, and rare diseases, small biotechnology companies are at the forefront of this innovation. Additionally, advances in technology, the availability of big data and the use of artificial intelligence are enabling healthcare solutions which have the potential to revolutionise the industry.

However, the challenges facing the sector will persist, including regulatory hurdles and uncertainty around funding. Drug development will remain a long-term and costly pursuit. The broader economic environment also remains challenging: global economic growth has slowed, the cost of capital has risen, and geopolitical instability and ongoing supply chain disruptions continue to challenge the post-pandemic recovery. More broadly, elevated energy prices and surprisingly persistent inflation will continue to impact business investment.

Although the impact of these factors will continue to weigh on financial markets, our Portfolio Manager remains confident that there are a number of potential catalysts that could elicit a recovery in the biotechnology sector and so their overall investment strategy remains unchanged. Their highly skilled team will continue to seek out the most innovative and promising opportunities in the biotech sector.

The Board shares their view that the fundamental investment themes for the biotechnology sector remain intact and with a continued focus on the selection of stocks with strong prospects for capital enhancement, long-term investors will be rewarded.

Roger Yates
Chairman

14 June 2023

INVESTMENT PORTFOLIO

INVESTMENTS HELD AS AT 31 MARCH 2023

		Fair value	% of
Security	Country/Region#	£’000	investments
Biogen	United States	22,710	6.4
Sarepta Therapeutics	United States	19,727	5.5
BioMarin Pharmaceutical	United States	19,508	5.5
Regeneron Pharmaceuticals	United States	15,940	4.4
Amgen	United States	14,993	4.2
Keros Therapeutics	United States	14,183	4.0
Travere Therapeutics	United States	13,712	3.9
Ionis Pharmaceuticals	United States	13,474	3.8
Argenx	Netherlands	13,409	3.8
XtalPi*	China	12,899	3.6
Ten largest investments		160,555	45.1
Syndax Pharmaceuticals	United States	12,897	3.6
Xenon Pharmaceuticals	Canada	12,707	3.6
Chinook Therapeutics	United States	11,440	3.2
uniQure	Netherlands	10,075	2.8
Mersana Therapeutics	United States	9,549	2.7
Compass Therapeutics	United States	9,388	2.6
Amylyx Pharmaceuticals	United States	9,284	2.6
2seventy bio	United States	9,205	2.6
BELLUS Health	Canada	9,158	2.6
GH Research	Ireland	9,061	2.6
Twenty largest investments		263,319	74.0
Vertex Pharmaceuticals	United States	8,807	2.5
Aerovate Therapeutics	United States	8,751	2.4
RAPT Therapeutics	United States	6,362	1.8
Innovent Biologics	China	5,783	1.6
StemiRNA Therapeutics*	China	5,204	1.5
Kezar Life Sciences	United States	4,862	1.4
Vera Therapeutics	United States	4,640	1.3
Amicus Therapeutics	United States	4,615	1.3
Janux Therapeutics	United States	3,387	0.9
Vaxcyte	United States	3,319	0.9
Thirty largest investments		319,049	89.6
ALX Oncology Holdings	United States	3,319	0.9
Crinetics Pharmaceuticals	United States	3,302	0.9
Ventyx Biosciences	United States	2,974	0.8
Immatics NV	Germany	2,852	0.8
Apellis Pharmaceuticals	United States	2,761	0.8
YS Biopharma	China	2,723	0.8
Remegen	China	2,428	0.7
BioAtla	United States	2,315	0.7
OrbiMed Asia Partners*†	Asia	2,164	0.6
Intellia Therapeutics	United States	1,950	0.5
Forty largest investments		345,837	97.1
Prelude Therapeutics	United States	1,597	0.5
Essa Pharma	Canada	1,558	0.4
Edgewise Therapeutics	United States	1,426	0.4
Wuxi Biologics Cayman	China	1,371	0.4
Gracell Biotechnologies**	China	1,224	0.4
Suzhou Basecare Medical	China	1,022	0.3
Heron Therapeutics	United States	980	0.3
Enliven Therapeutics	United States	824	0.2
Galecto	Denmark	454	0.1
Repare Therapeutics	Canada	390	0.1
Fifty largest investments		356,683	100.2

# Primary listing

† Partnership interest

* Unquoted investment

** Gracell Biotechnologies (0.4% of the Company's investments) is held through a variable interest entity ("VIE"). See glossary for further details.

		Fair value	% of
Security	Country/Region#	£’000	investments
AWAKN Life Sciences	Canada	373	0.1
Nektar Therapeutics	United States	173	–
AWAKN Life Sciences warrant 16/06/2023*	Canada	–	–
AWAKN Life Sciences warrant 21/03/2024*	Canada	–	–
Imara	United States	–	–
Total equities and fixed interest investments		357,229	100.3
OTC equity swaps – Financed
BeiGene	China	5,022	1.4
Less: Gross exposure on financed swaps		(6,224)	(1.7)
Total OTC equity swaps		(1,202)	(0.3)
Total investments including OTC equity swaps		356,027	100.0

All of the above investments are equities unless otherwise stated.

# Primary listing

† Partnership interest

* Unquoted

PORTFOLIO BREAKDOWN

Investments	Fair value £’000	% of investments
Quoted
Equities	336,962	94.6
	336,962	94.6
Unquoted
Equities	18,103	5.1
Partnership interest	2,164	0.6
	20,267	5.7
Derivatives
OTC equity swaps	(1,202)	(0.3)
Total investments	356,027	100.0

PORTFOLIO MANAGER’S REVIEW

PERFORMANCE REVIEW

Following a difficult fiscal year ended 31 March 2022, the Company posted another challenging year of performance for the year ended 31 March 2023. The Company’s net asset value per share total return was down 11.0% during the fiscal year, compared to a 5.4% increase for the Company’s benchmark, the NASDAQ Biotechnology Index, measured on a sterling adjusted basis (the Benchmark).

Macroeconomic factors rather than industry fundamentals continued to dominate portfolio performance during the fiscal year. The fiscal year began with weakness in the biotech sector in April and May 2022, driven by continued investor concerns about rising interest rates. Continued rate hikes by the U.S. Federal Reserve (the Fed) to combat inflation drove down share prices for unprofitable technology stocks broadly, including emerging biotech. Valuations for emerging biotech, which had reached 20-year lows, appeared to bottom out in May and June. In August, drug pricing legislation in the U.S. was passed as part of the Democrats’ “Inflation Reduction Act”. While the bill allows for limited drug price negotiation by Medicare starting in 2026, the provisions appear manageable for the industry and passage of the bill cleared a longstanding political overhang for the sector. By the end of September, the biotech sector had begun staging a recovery from depressed levels. In October, a disappointing round of earnings from large capitalization (cap) technology stocks like Amazon and Meta and growing recession concerns appeared to draw generalist inflows into the defensive pharmaceutical sector and large cap biotech. Large cap biotech outperformance continued in November, but small cap biotech began outperforming in December, and January 2023. Unfortunately, interest rate expectations became more hawkish in February when the U.S. announced a lower-than-expected unemployment rate and higher-than-expected inflation, sending small cap shares back down. In March, the unexpected failure of Silicon Valley Bank (SVB) had a particularly negative impact on small cap biotech, many of which were SVB clients. Even though absolute cash exposure to SVB for most biotech companies was minimal, renewed risk aversion due to the concerns over the banking system caused large cap biotech to significantly outperform small cap biotech. This trading dynamic had a particularly detrimental impact on the Company’s relative performance versus the Benchmark, given that the Company is significantly overweight small cap names and underweight large cap names. The drawdown in March accounted for virtually all of the underperformance of the Company’s NAV versus the Benchmark for the fiscal year. Encouragingly, the Company has seen a rebound in relative performance in April and May 2023, which we hope signals a more sustained recovery.

Our positioning at the beginning of the fiscal year was premised on overweighting smaller cap emerging biotech names for three reasons:

1) Emerging biotech was trading at 20-year valuation lows, with almost 20% of the industry at the start of the fiscal year trading at negative enterprise values (market capitalisation below the net cash on the companies’ balance sheets). Small and mid cap biotech companies had significantly underperformed large cap biotech and the S&P 500 since early 2021 and a reversion in performance based on historical patterns seemed likely.

2) We expected an increase in M&A activity due to the compelling valuations of smaller biotech targets.

3) Emerging biotech, rather than large cap biotech, was still contributing about two-thirds of the total biopharmaceutical industry pipeline. Fundamental innovation was strong.

All of these elements of our investment thesis remain intact. Indeed, we think emerging biotech was showing good signs of a recovery from the lows of summer 2022, but the banking crisis in March 2023 temporarily derailed that rerating. We believe biotech companies have largely eliminated their direct exposure to bank failure risk by diversifying their banking relationships, holding cash at banks that are deemed “too big to fail” (e.g. J.P. Morgan, Bank of America), and moving their cash into alternate liquid securities. Most emerging biotech companies rely on equity financings rather than debt financings to fund their operations, so we think they are better insulated than other industries from any pullback in bank lending activity.

We are also encouraged by current market expectations that the Fed’s recent cycle of rate hikes may be coming to an end. Fed comments following their recent May 2023 meeting were widely interpreted as signaling that a pause in interest rate hikes could occur as early as June. As a result, we think the macro factors that have weighed on the sector so heavily over the past two years should soon abate, allowing the sector to recover.

Similarly to the prior fiscal year, the underperformance of the Company versus the Benchmark can be principally attributed to the portfolio’s heavier weighting in small cap biotech. As shown in Figure 1 (on page 10 of the Annual Report), if one looks at the market cap distribution of the Company’s portfolio at the beginning of the fiscal year, the Company was 41% overweight small caps and 33% underweight large caps relative to the Benchmark. If one plots the average stock price performance of the Benchmark constituents in each of those market capitalization categories, one observes that small cap biotech underperformed large cap biotech by about 27% during the review period. Notably, the prior fiscal year showed a similar 30% underperformance of small caps versus large caps, a trend that we had hoped would reverse in the review period. Figure 2 (on page 11 of the Annual Report) shows that the small cap underperformance during the fiscal year is simply an extension of a longer trend of underperformance since 31 March 2021. We are surprised that the underperformance of small caps has persisted for so long but remain convinced that the segment is overdue a recovery.

We believe large cap biotech outperformance is principally driven by generalist investors seeking defensive investments during a time of macro volatility. Large cap names are better insulated from interest rate hikes and have lower beta – a measure of their sensitivity to broader market moves – during market downturns. At a time when investors are focused on maintaining liquidity in their portfolios, large cap names offer greater liquidity than their small cap counterparts. Additionally, drug sales are less economically sensitive than other sectors during a recession, making large pharma and large biotech companies with marketed drugs natural places to hide for generalist investors concerned about recession risk. We would caution that investors may be temporarily parking money in large cap biotech primarily as a means of managing macro risk rather than investing based on enthusiasm for those companies’ individual fundamentals. When the macro picture improves, that capital may quickly reallocate to other sectors of the economy. While large cap biotech does have some defensive qualities during a recession, recent analysis from Goldman Sachs shows that small and mid cap biotech (as reflected by the SPDR S&P Biotech ETF or XBI) have also outperformed the S&P 500 during the last four recessions.

We have noted in the past the increasing biotech innovation we are now observing in China. The Chinese central government made developing a domestic, innovative biotech industry a priority in 2015, and we believe the COVID pandemic has only strengthened that commitment. According to IQVIA (a provider of biopharmaceutical development and data analytics services), about 15% of the drug industry’s early-stage development pipeline is now being developed by Chinese companies, a dramatic increase from the 4% level in 2012. We have therefore allocated a portion of the portfolio to investments in Chinese biotech (about 9% of NAV as of 31 March 2023).

In 2021, significant macro headwinds in China led to a general decline in the Chinese markets, which caused Chinese biotech stocks to decline. Headwinds included regulatory tightening by the Chinese government, slowing economic growth due to China’s “zero COVID” lockdowns, and potential delisting of Chinese American Depositary Receipts (ADRs) from the U.S. stock market. Encouragingly, most of those headwinds have now abated. In late 2022, China lifted its COVID restrictions, allowing the economy to fully reopen. The U.S. and China agreed on a compromise solution regarding inspection of Chinese companies’ accounting records, removing the potential delisting risk of Chinese ADRs. The Chinese central government also softened its tone with regards to regulatory restrictions on private businesses. Unlike the U.S., where the Federal Reserve is raising interest rates to slow down the economy, China is intently focused on stimulating economic growth in 2023. During the latter half of the review period, we saw some stabilization of the Chinese healthcare indexes to reflect the more favorable macro backdrop. Our expectation is that Chinese biotech shares should rise from current levels now that the macro headwinds have abated. While the state of U.S./China relations remains difficult, we think U.S. trade restrictions will continue to be focused on industries directly relevant to security and national defense rather than healthcare. Additionally, the primary market for our Chinese biotech positions is the Chinese domestic market, not the U.S. market.

EMERGING BIOTECH VALUATIONS STILL AT 20-YEAR LOWS

Our confidence in a recovery of small and mid cap biotech really stems from the observation that absolute and relative valuations in that segment remain at 20-year lows.

As we have noted in the past, one proxy commonly used to track performance of small and mid cap biotech is the XBI, an equal weighted index of biotech companies created in 2006. About 50% of this index consists of small cap names. If one plots the relative performance of the XBI versus the S&P 500 (shown in Figure 4 on page 13 of the Annual Report), one can see that since inception, the XBI has outperformed the S&P 500, indicating that emerging biotech has historically been a sector offering better returns than the broader market. Over the past 15 years however, there have been short periods when the XBI has underperformed the S&P 500, shown by the red circles. Typically, these drawdown periods result in underperformance versus the S&P 500 of 30-45%. The most recent relative drawdown was 73%, making it the longest and largest drawdown of the XBI on both an absolute and relative basis. Prior drawdowns have been followed by periods of significant outperformance of the XBI versus the S&P 500, denoted by the green arrows on the graph, which usually results in the biotech index reclaiming prior outperformance highs. Encouragingly, a recovery from the recent relative drawdown started to take place in the second half of 2022, only to be cut short by the banking crisis in March. Our view is that the bank-related retracement is just a temporary setback in an eventual recovery over the next several months.

On an absolute valuation basis, a significant number of biotech companies are now trading at market caps below the net cash on their balance sheets. In other words, the market has assigned a negative value to these listed enterprises when the value of their cash holdings is excluded. As shown in Figures 5 and 6 (on page 14 of the Annual Report), we estimate about 25% of the biotech universe, representing approximately 120 companies, is now trading at negative enterprise values as of 31 March 2023. The graphs show how unprecedented these valuations are in historical context. We have never seen valuations remotely approaching these levels in over 20 years, even in previous major market drawdowns like the Great Financial Crisis or the Dot Com Bust.

The compelling absolute and relative valuations of emerging biotech have led us to continue maintaining our small cap biotech overweighting in the portfolio. While a recovery has taken longer to materialize than we had anticipated, we think that it is just a matter of time before the sector rerates to historical norms. Possible catalysts to trigger such a revaluation include a possible pause in interest rate hikes by the Fed as early as mid-2023, with some investors now anticipating interest rate cuts in the second half of 2023. M&A activity and positive clinical developments should also help aid a recovery.

PRINCIPAL CONTRIBUTORS TO AND DETRACTORS FROM NET ASSET VALUE PERFORMANCE

		Contribution
		per share
Top Five Contributors	£’000	(pence)*
Sarepta Therapeutics	9,607	23.8
Verona Pharma	8,916	22.1
Forma Therapeutics	7,406	18.4
Syndax Pharmaceuticals	6,276	15.6
Seagen	5,783	14.4
	37,988	94.3

Top Five Detractors
YS Biopharma	(11,596)	(28.8)
GH Research	(9,729)	(24.1)
Jounce Therapeutics	(7,748)	(19.2)
Mirati Therapeutics	(7,628)	(18.9)
Kezar Life Sciences	(7,120)	(17.7)
	(43,821)	(108.7)

* based on 40,287,724 shares being the weighted average number of shares in issue during the year ended 31 March 2023.

CONTRIBUTORS AND DETRACTORS

Sarepta Therapeutics, Verona Pharma, Forma Therapeutics, Syndax Pharmaceuticals and Seagen were the leading positive contributors to performance in the portfolio during the year.

• Sarepta Therapeutics is a commercial biotechnology company focused on rare neuromuscular diseases. It markets three approved therapies for Duchenne muscular dystrophy but is also developing a gene therapy for the condition. The company’s share price rose on the increased investor expectation that the company would be able to obtain accelerated approval for its gene therapy in 2023.

• Verona Pharma is a biopharmaceutical company focused on developing therapies for the treatment of chronic respiratory diseases. Verona Pharma’s product candidate, ensifentrine, combines bronchodilator and anti-inflammatory activities in one compound for the treatment of chronic obstructive pulmonary disease (COPD). In August 2022, shares appreciated on the announcement of a positive Phase 3 trial for ensifentrine in COPD, showing the drug yielded improvements in lung function, symptoms, and quality of life. In December 2022, the stock rose significantly on the announcement of a second positive Phase 3 trial of ensifentrine in COPD, confirming the benefits demonstrated in the first trial.

• Forma Therapeutics was a development stage biopharmaceutical company focused on developing new therapies for patients with sickle cell disease and rare blood disorders. Its lead asset, etavopivat, works by activating an enzyme that is thought to improve anemia and red blood cell health, thereby reducing the painful episodes experienced by sickle cell patients. In early September, Novo Nordisk announced that it was acquiring Forma for $1.1 billion in cash, representing a 49% premium to Forma’s closing price the previous day.

• Seagen is a pioneer in antibody-drug conjugate (ADC) technology, marketing four ADC therapeutics for the treatment of cancer. Seagen’s stock appreciated in March after Pfizer announced its plans to acquire the company for $43 billion.

• Syndax Pharmaceuticals is an emerging biotechnology company with two drugs in pivotal trials: revumenib for leukemia and axatilimab for chronic graft versus host disease. The stock appreciated in anticipation of pivotal data readouts for both of those programs in 2023.

YS Biopharma, GH Research, Jounce Therapeutics, Mirati Therapeutics, and Kezar Life Sciences were the principal detractors for the year.

• YS Biopharma is a Chinese vaccine company which markets a rabies vaccine and is developing a novel vaccine adjuvant that could have applications for developing superior versions of vaccines for COVID, rabies, and hepatitis B. The company went public in the U.S. in March via a special purpose acquisition company (SPAC) merger but subsequently saw a substantial decline in share price that we attribute to SPAC-related trading dynamics rather than fundamentals. Given that the company generates over $100 million of revenues, we think the shares are extremely oversold and will recover once the fundamentals are properly recognized by investors.

• GH Research is a biopharmaceutical company focused on the treatment of psychiatric and neurological disorders. The company is developing a proprietary 5-MeO-DMT inhaled therapy for the treatment of patients with treatment-resistant depression (TRD), now in Phase 2 clinical trials. Shares declined during the fiscal year due to overall sector weakness and a lack of near-term catalysts.

• Jounce Therapeutics is a clinical stage biotech company focused on developing targeted immuno-oncology therapies. Shares of Jounce underperformed after disclosing its drug vopratelimab failed in a Phase 2 trial in lung cancer. Its second asset JTX-8064 also failed to demonstrate sufficient efficacy in a variety of tumor types in a Phase 1/2 proof of concept trial. The Company exited the position.

• Mirati Therapeutics is a biotechnology company developing novel small molecule drugs to treat cancer. Its lead product, adagrasib, is a precision oncology medicine that targets cancers with a specific gene mutation. Shares fell in December 2022 following the presentation of disappointing clinical trial data suggesting adagrasib might not be superior to standard-of-care treatment in first-line lung cancer. The drug may still be used in later-stage lung cancer and colorectal cancer.

• Kezar Life Sciences is an emerging biotech company developing zetomipzomib, a first-in-class immunoproteasome inhibitor, for the treatment of lupus nephritis. The drug has shown promising results in a Phase 2 trial for lupus nephritis. However, shares declined in March 2023 when the company announced a lengthy delay in the completion of its first pivotal trial for zetomipzomib.

REGULATORY CLIMATE CONTINUES TO BE CONSTRUCTIVE

We continue to believe that the U.S. Food and Drug Administration (the FDA), under the leadership of commissioner Robert Califf, remains constructive towards the approval of new drugs. Having said that, in 2022, the FDA approved 37 new drugs, which is lower than recent years. We believe this reflects the residual impact of COVID-related delays on clinical trial progress and delays in manufacturing inspections. It could also reflect normal year to year variability in drug approval timing. Notably, the agency received a similar number of new drug applications in 2022 as the past few years, reflecting continued strong innovation in the industry. We suspect many of those applications will be approved in 2023.

Importantly, we do not believe the reduced number of approvals in 2022 means the FDA has become less constructive on approving drugs. On the contrary, about 65% of drug approvals in 2022 used an expedited means of approval, whether it be Fast Track, Breakthrough Designation, Priority Review, or Accelerated Approval. Other recent examples of FDA flexibility include the following:

• approval of Biogen’s Aduhelm for Alzheimer’s disease, despite the company stopping both of its pivotal trials for futility and a negative FDA advisory committee vote;

• approval of Apellis Pharmaceuticals’ Syfovre, a first-in-class treatment for geographic atrophy, despite one of two pivotal trials failing to meet its primary endpoint;

• approval of Amylyx Pharmaceuticals’ Relyvrio to treat amyotrophic lateral sclerosis, despite significant doubts about the statistical rigor of the primary endpoint of their pivotal trial; and

• approval of Biogen’s Qalsody for amytrophic lateral sclerosis, despite its sole pivotal trial missing the primary endpoint.

The FDA has continued to demonstrate flexibility on approval requirements when drugs are submitted to the agency that address an unmet medical need.

DRUG PRICING REFORM CLEARS LONGSTANDING POLITICAL OVERHANG

For many years, the prospect of drug price controls in the U.S. served as an overhang on the biopharmaceutical sector. Politicians like Hillary Clinton and Bernie Sanders would criticize the pharmaceutical industry in their election campaigns and vow to lower pharmaceutical prices via government legislation. Whenever the prospect of drug pricing reform was in the news, pharmaceutical and biotech stocks in the U.S. would come under pressure.

In July 2022, congressional Democrats finally succeeded in passing some drug pricing provisions as part of the “Inflation Reduction Act”, which President Biden signed into law in August 2022. The new law includes three elements of drug pricing reform:

1) a redesign of Medicare Part D to cap out-of-pocket costs that seniors pay for prescription drugs (a positive for the industry);

2) an inflation cap on annual drug price increases; and

3) the ability for the federal government to negotiate Medicare drug prices for a limited number of drugs starting in 2026. Biologic drugs will enjoy 13 years of market exclusivity before becoming eligible for Medicare price negotiation while small molecule drugs will enjoy nine years of exclusivity.

We do not think the bill will have an impact on biotech in the near term, though in the long run it may incentivize companies to pursue biologic drugs rather than small molecule drugs due to biologics’ longer exclusivity period.

Now that the legislation has passed, we don’t expect any further adverse drug pricing legislation for the next several years, especially now that the Republicans have retaken a majority in the House of Representatives. The removal of this persistent political overhang should help the biotech sector recover.

IPO AND CROSSOVER ACTIVITY SLOWS DOWN, BUT FINANCING ENVIRONMENT REMAINS STRONG FOR GOOD COMPANIES

Initial Public Offerings (IPOs) and crossover financing activity slowed considerably during the review period as valuations contracted in the sector. The Company did not make any new IPO or crossover investments during the fiscal year. The only private position that went public during the fiscal year was YS Biopharma, a Chinese vaccine company which listed on the NASDAQ in March via a SPAC merger.

As of 31 March 2023, the Company had two directly held private investments totaling approximately 5.5% of NAV. Both of the positions are Chinese biotech companies: XtalPi, an artificial intelligence-based drug discovery company, and StemiRNA, a Chinese mRNA vaccine company. Given the IPO delays in China, we may seek to sell some of these positions to other private investors prior to an IPO. As the IPO markets open up in the U.S. and China, we will reinitiate crossover investing as opportunities arise, being mindful of valuation in the current market environment.

We would emphasize that, despite reduced IPO activity, the follow-on financing environment for high quality emerging biotech companies remains very strong. Companies with strong fundamentals have had no problems raising capital from equity investors. Companies that are at an earlier stage of development have had more difficulty in raising capital, but this can present an opportunity for us to invest in these companies at a compelling price.

MERGERS AND ACQUISITIONS (M&A) ACTIVITY ACCELERATING

Biotech M&A has been a historical driver of returns in the sector. Emerging biotech companies that show successful proof-of-concept for their lead drug are usually acquired at some point. We had predicted an acceleration in biotech M&A activity given the depressed valuations of potential biotech targets with the recent drawdown. If one looks at the number of announced acquisitions of public biotech companies shown in Figure 9 (on page 18 of the Annual Report), the number of transactions did appear to increase over the course of the fiscal year relative to the prior 12 months. Initial results for the first month of the second quarter of 2023 show a run-rate of M&A activity that appears to be continuing to increase.

The Company benefited directly from five M&A transactions during the fiscal year because of holdings in the target companies:

• Pfizer’s acquisition of Seagen for $43 billion;

• Novo Nordisk’s acquisition of Forma Therapeutics for $1.1 billion;

• Pfizer’s acquisition of Global Blood Therapeutics for $5.4 billion;

• AstraZeneca’s acquisition of CinCor Pharma for $1.3 billion;

• AstraZeneca’s acquisition of LogicBio Therapeutics for $68 million; and

• GlaxoSmithKline’s acquisition of BELLUS Health for $2 billion (announced in April 2023, after the Company's fiscal year end).

Aside from low valuations, another principal driver of recent M&A activity is the upcoming wave of patent expirations of key, blockbuster biopharma products in the second half of the decade. With large multi-billion-dollar blockbusters like Merck’s Keytruda and Bristol Myers Squibb’s Eliquis facing biosimilar competition before 2030, large pharmaceutical companies are eagerly looking for late-stage biotech companies to replace that lost revenue.

RECORD INNOVATION CONTINUES TO DRIVE INDUSTRY VALUE

As seen in Figure 11 (on page 20 of the Annual Report), innovation in the biopharmaceutical sector remains strong, with the global drug pipeline continuing to grow to record levels. We attribute the flattening of the number of drugs in development over the past two years to delays in clinical trial starts due to COVID.

Of the 37 drug approvals by the FDA in 2022, 54% of them were first-in-class drugs with mechanisms of action different from those of existing therapies. Below are just some examples of first-in-class novel drug approvals originated by biotech companies in 2022 (some of the biotech companies have been acquired by larger pharmaceutical companies):

• Camzyos, first cardiac myosin inhibitor for obstructive hypertrophic cardiomyopathy;

• Elahere, first FOLR1-targeting antibody-drug conjugate for ovarian cancer;

• Enjaymo, first C1s inhibitor for hemolysis in cold agglutinin disease;

• Kimmtrak, first bispecific gp100xCD3 T cell engager for uveal melanoma;

• Pluvicto, first PSMA-targeting radioligand for metastatic castration-resistant prostate cancer;

• Pyrukynd, first pyruvate kinase activator for pyruvate kinase deficiency;

• Sunlenca, first long-acting HIV capsid inhibitor for HIV-1 infection;

• Tzield, first CD3-targeting antibody for type 1 diabetes;

• Vtama, first aryl hydrocarbon receptor agonist for the topical treatment of plaque psoriasis; and

• Ztalmy, first neuroactive steroid GABA-A receptor positive modulator for CDKL5 deficiency disorder.

The number of next generation biotherapeutics entering development based on novel development technologies like cell therapy and gene therapy continues to rise as shown in Figure 12 on page 21 of the Annual Report.

The Company has exposure across a wide swath of these new technologies, as shown in Figure 13 on page 22 of the Annual Report.

Other seminal events in the biotech sector during the review period include:

• Leqembi, a beta-amyloid antibody for Alzheimer’s disease developed by Biogen and Eisai, became the first beta-amyloid antibody for Alzheimer’s to have a conclusively positive Phase 3 trial;

• Madrigal Pharmaceuticals announced positive Phase 3 results of its drug for non-alcoholic steatohepatitis (NASH) and liver fibrosis;

• Vaxcyte announced positive Phase 1/2 results of its novel 24-valent pneumococcal vaccine;

• Moderna announced positive Phase 2 results of its mRNA cancer vaccine in melanoma;

• Alnylam Pharmaceuticals announced positive Phase 3 results of its RNA interference drug in amyloidosis with cardiomyopathy;

• Prometheus Biosciences announced positive Phase 2 results for its first-in-class anti-TL1A antibody for ulcerative colitis;

• Iveric Bio announced positive Phase 3 results for its drug for geographic atrophy; and

• Verona Pharma announced positive Phase 3 results for its drug for chronic obstructive pulmonary disease.

Importantly, all of the clinical events listed above resulted in substantial positive stock reactions for the sponsors involved, indicating that investors in the current market environment do get paid for taking on the risk of holding through clinical events.

The expected sales potential for many of these innovative drugs is also substantial. The top 15 new product opportunities in biotechnology today could create over $60 billion in cumulative sales by the next decade (source: Jefferies).

While innovation is taking place across all therapeutic areas, particular areas of focus for the Company now include the following:

• Gene therapy – The first gene therapies for hemophilia and Duchenne muscular dystrophy will likely be approved this year in the U.S. Expected peak sales potential for these one-time treatments are both in excess of $1 billion.

• Immunology & Inflammation – Significant new mechanisms of action have been validated recently in this space, which address large markets like ulcerative colitis and psoriasis. This is also an area of significant strategic interest by larger pharmaceutical companies, so we expect continued M&A activity in this area.

• Oncology – According to IQVIA, drugs in development for cancer now make up 38% of the global pharmaceutical development pipeline, making it by far the leading therapeutic area of research focus for the industry. Multiple different approaches, including antibody-drug conjugates, radiopharmaceuticals, mRNA vaccines, and cell therapy, have shown positive proof of concept in this area.

• Kidney disease – We have seen increased innovation lately in this area for conditions like lupus nephritis and IgA nephropathy.

OUTLOOK AND ORBIMED UPDATE

This was a challenging fiscal year for the Company given that small and mid cap biotech failed to recover as we had expected. The recent drawdown in biotech has been unprecedented in both length and severity. Macro factors outside of company fundamentals continue to dominate stock price action, which has made it particularly challenging for fundamental-based investors such as us. We remain optimistic that once the macro backdrop becomes more stable, valuations will recover to historical norms and the industry’s strong fundamentals will be properly reflected in share prices. Already, we are seeing a pickup in M&A activity and the Federal Reserve signaling a potential pause in interest rate hikes, which could catalyze a recovery. Our strategic positioning remains unchanged, with an emphasis on smaller, emerging biotech names that should have the most upside potential when a broad sector recovery materializes. Gearing will remain in the 5-10% range.

OrbiMed continues to invest in its research team to improve investment performance. We are happy to announce the promotion of Josh Golomb, a Partner at OrbiMed, to be a co-portfolio manager of The Biotech Growth Trust. Josh has close to 20 years of experience investing in biotech and brings substantial expertise to our research effort. Including Josh and Geoff, we now have seven analysts on the biotech research team, supplemented by one specialty pharma analyst, two tools/diagnostics analysts, and four analysts in China. Now that the COVID pandemic has subsided, we have resumed in-person travel to medical and investor conferences. We have also recently opened a London office, initially for professionals in our venture capital and structured debt businesses. While our public equity investing efforts will continue to be headquartered in New York, our new London presence gives us a foothold to further expand our organization in the UK and other parts of Europe in the future.

In conclusion, while we are disappointed with the investment performance of the Company during the fiscal year, we remain confident that a biotech recovery will occur soon and do not see much further downside from current levels. We have never seen such a large disconnect between valuations and industry fundamentals and continue to believe this is an excellent entry point for long-term investors seeking exposure to this exciting and innovative area of healthcare.

Geoff Hsu & Josh Golomb
OrbiMed Capital LLC, Portfolio Manager

14 June 2023

BUSINESS REVIEW

The Strategic Report contains a review of the Company’s business model and strategy, an analysis of its performance during the financial year and its future developments, as well as details of the principal risks and challenges it faces.

Its purpose is to inform shareholders in the Company and help them to assess how the Directors have performed their duty to promote the success of the Company. The Strategic Report contains certain forward-looking statements. These statements are made by the Directors in good faith based on the information available to them up to the date of this report. Such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying such forward-looking information.

BUSINESS MODEL

The Biotech Growth Trust PLC is an externally managed investment trust and its shares are listed on the premium segment of the Official List and traded on the main market of the London Stock Exchange.

The purpose of the Company is to achieve long-term growth in its shareholders' wealth by providing a vehicle for investors to gain exposure to a portfolio of worldwide biotechnology companies, through a single investment.

The Company’s strategy is to create value for shareholders by addressing its investment objective.

As an externally managed investment trust, all of the Company's day-to-day management and administrative functions are outsourced to service providers. As a result, the Company has no executive directors, employees or internal operations.

The Company employs Frostrow Capital LLP (Frostrow) as its Alternative Investment Fund Manager (AIFM), OrbiMed Capital LLC (OrbiMed) as its Portfolio Manager, J.P. Morgan Europe Limited as its Depositary and J.P. Morgan Securities LLC as its Custodian and Prime Broker. Further details about their appointments can be found in the Report of the Directors.

The Board is responsible for all aspects of the Company’s affairs, including setting the parameters for and monitoring the investment strategy as well as the review of investment performance and policy.

The Company is an investment company within the meaning of Section 833 of the Companies Act 2006 and has been approved by HM Revenue & Customs as an investment trust (for the purposes of Section 1158 of the Corporation Tax Act 2010). As a result, the Company is not liable for taxation on capital gains. The Directors have no reason to believe that approval will not continue to be retained. The Company is not a close company for taxation purposes.

INVESTMENT OBJECTIVE AND POLICY

The Company seeks capital appreciation through investment in the worldwide biotechnology industry.

In order to achieve its investment objective, the Company invests in a diversified portfolio of shares and related securities in biotechnology companies on a worldwide basis.

In connection with the investment policy, the following guidelines apply:

The Company will not invest more than 10%, in aggregate, of the value 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 its 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% of the value of its gross assets in any one individual stock at the time of acquisition.
The Company will not invest more than 10% of the value of its gross assets in unquoted investments at the time of acquisition. This limit includes any investment in private equity funds managed by the Portfolio 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 the Portfolio Manager, or an affiliate thereof.
The Company’s borrowing policy is that borrowing will not exceed 20% of the Company’s net assets. The Company’s borrowing requirements are met through the utilisation of a loan facility, repayable on demand and provided by J.P. Morgan Securities LLC. This facility can be drawn by the Portfolio Manager overseen by the AIFM.
The Company may be unable to invest directly in certain countries. In these circumstances, the Company may gain exposure to companies in such countries by investing indirectly through swaps. Where the Company invests in swaps, exposure to underlying assets will not exceed 5% of the gross assets of the Company at the time of entering into the contract.

In accordance with the requirements of the Financial Conduct Authority, any material change to the investment policy will only be made with the approval of shareholders by ordinary resolution.

PROPOSED CHANGES TO THE INVESTMENT POLICY

As explained in the Chairman’s Statement, the Board is proposing some changes to the investment policy in order to clarify the scope of the use of swaps and derivatives for efficient portfolio management. The proposed changes will:

Enable derivative instruments (other than equity swaps) to be used to mitigate risk and/or enhance return subject to an aggregate net exposure of 5% of the value of the Company’s gross assets measured at the time of the relevant transaction; and
Remove the current limit on equity swaps but impose a limit on aggregate net counterparty exposure, through a combination of derivatives and equity swap transactions, of 12% of the value of the gross assets of the Company at the time of the transaction.

Accordingly, an ordinary resolution to approve the amended investment policy is included in the Notice of AGM and a blacklined statement of the investment policy showing the proposed changes is set out on page 106 of the Annual Report. The proposed amendments have been approved in principle by the Financial Conduct Authority in accordance with the requirements of the Listing Rules.

INVESTMENT STRATEGY

The implementation of the Investment Objective has been delegated to OrbiMed by Frostrow (as AIFM) under the Board’s and Frostrow’s supervision and guidance.

Details of OrbiMed’s investment strategy and approach are set out in the Portfolio Manager’s Review. While performance is measured against the Benchmark, the Board encourages OrbiMed to manage the portfolio without regard to the Benchmark and its make-up.

While the Board’s strategy is to allow flexibility in managing the investments, in order to manage investment risk it has imposed various investment, gearing and derivative guidelines and limits, within which Frostrow and OrbiMed are required to manage the investments, as set out in the Investment Policy.

PERFORMANCE MEASUREMENT

The Board measures OrbiMed's performance against the NASDAQ Biotechnology Index (sterling adjusted). The Board also monitors the Company's performance against its peer group.

DIVIDEND POLICY

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.

No dividends were paid or declared during the year (2022: None).

CONTINUATION OF THE COMPANY

An opportunity to vote on the continuation of the Company is given to shareholders every five years. The next such continuation vote will be proposed at the Annual General Meeting to be held in 2025.

COMPANY PROMOTION

The Company has appointed Frostrow to provide marketing and investor relations services, in the belief that a well-marketed investment company is more likely to grow over time, have a more diverse, stable list of shareholders and its shares will trade closer to the net asset value per share over the long run. Frostrow actively promotes the Company in the following ways:

Engaging regularly with institutional investors, discretionary wealth managers and a range of execution-only platforms: Frostrow regularly meets with institutional investors, discretionary wealth managers and execution-only platform providers to discuss the Company’s strategy and to understand any issues and concerns, covering both investment and corporate governance matters;

Making Company information more accessible: Frostrow works to raise the profile of the Company by targeting key groups within the investment community, holding periodic investment seminars, commissioning and overseeing PR output and managing the Company’s website and wider digital offering, including Portfolio Manager videos and social media;

Disseminating key Company information: Frostrow performs the Investor Relations function on behalf of the Company and manages the investor database. Frostrow produces all key corporate documents, distributes monthly factsheets, annual and half yearly reports and updates from OrbiMed on the portfolio and market developments; and

Monitoring market activity, acting as a link between the Company, shareholders and other stakeholders: Frostrow maintains regular contact with sector broker analysts and other research and data providers, and conducts periodic investor perception surveys, liaising with the Board to provide up-to-date and accurate information on the latest shareholder and market developments.

KEY PERFORMANCE INDICATORS (KPIs)

The Board assesses the Company’s performance in meeting its objective against the following key performance indicators:

net asset value total return;
share price total return;
share price discount to net asset value per share; and
ongoing charges.

Information on the Company’s performance is provided in the Chairman’s Statement and the Portfolio Manager’s Review and a record of these measures is shown on pages 1, 5 and 6 of the Annual Report. The KPIs have not changed from the prior year:

NET ASSET VALUE PER SHARE TOTAL RETURN^

The Directors regard the Company’s net asset value per share total return as being the overall measure of value generated by the Portfolio Manager over the long term. The Board considers the principal comparator to be the NASDAQ Biotechnology Index (sterling adjusted) (the Benchmark). OrbiMed’s investment style is such that performance is likely to deviate from that of the Benchmark.

During the year under review, the Company’s net asset value per total share return was -11.0%, underperforming the Benchmark by 16.4% (2022: -33.8%, underperforming the Benchmark by 26.4%). Since OrbiMed’s date of appointment (19 May 2005) to 31 March 2023, the Company’s net asset value per share total return is 756.0% compared with 795.8% for the Benchmark. Please refer to the Chairman’s Statement and the Portfolio Manager’s Review for further information.

SHARE PRICE TOTAL RETURN^

The Directors also regard the Company’s share price total return to be a key indicator of performance. This reflects the Company's share price growth which the Board recognises is important to investors.

During the year under review the Company’s share price total return was -12.8% (2022: -37.0%). Since OrbiMed’s date of appointment (19 May 2005) to 31 March 2023, the Company’s share price total return is 730.8% compared with Benchmark performance of 795.8%. Please refer to the Chairman’s Statement for further information.

SHARE PRICE (DISCOUNT)/PREMIUM TO NET ASSET VALUE PER SHARE^

The Board regularly reviews the level of the discount/ premium of the Company’s share price to the net asset value per share and considers ways in which share price performance may be enhanced, including the effectiveness of marketing, share issuance and buybacks, where appropriate. The Board has a discount control mechanism in place, the aim of which is to prevent the level of the share price discount to the net asset value per share exceeding 6%. Shareholders should note, however, that it remains possible for the discount to be greater than 6% on any one day due to sector volatility and the fact that the share price continues to be influenced by the overall supply of and demand for the Company’s shares in the secondary market. Any decision to repurchase shares is at the discretion of the Board. 2,421,263 shares were repurchased by the Company during the year (2022: 576,087).

When the Company's shares trade at a premium to the net asset value per share, new shares can be issued at a premium to the net asset value per share.

The Board believes that the benefits of issuing new shares in such conditions are as follows:

to fulfil excess demand in the market in order to help manage the premium at which the Company’s shares trade to net asset value per share;
to provide a small enhancement to the net asset value per share of existing shares through new share issuance at a premium to the estimated net asset value per share;
to grow the Company, thereby spreading operating costs over a larger capital base, which should reduce the ongoing charges ratio; and
to improve liquidity in the market for the Company’s shares.

As the Company's shares traded at a discount to the net asset value per share throughout the year, no new shares were issued during the year (2022: 150,000).

The volatility of the net asset value per share in an asset class such as biotechnology is a factor over which the Board has no control. The making and timing of any share buy-backs or share issuance is at the absolute discretion of the Board. Please see the Chairman’s Statement for further information.

^ Alternative Performance Measure (See Glossary).

ONGOING CHARGES^

Ongoing charges represent the costs that the Company can reasonably expect to pay from one year to the next, under normal conditions. The Board continues to be conscious of expenses and seeks to maintain a sensible balance between high quality service and costs. The Board therefore considers the ongoing charges ratio to be a KPI and reviews the figure on a regular basis.

As at 31 March 2023 the ongoing charges figure was 1.1% (2022: 1.1%).

^ Alternative Performance Measure (see Glossary).

RISK MANAGEMENT

The Board is responsible for managing the risks faced by the Company. Through delegation to the Audit Committee, the Board has established procedures to manage risk, to review the Company’s internal control framework and to establish the level and nature of the principal risks the Company is prepared to accept in order to achieve its long-term strategic objective. At least twice during a year the Audit Committee carries out a robust assessment of the principal and emerging risks with the assistance of Frostrow Capital (the AIFM). A risk management process has been established to identify and assess risks, their likelihood and the possible severity of impact. Further information is provided in the Audit Committee Report. These principal risks and the ways they are managed or mitigated are set out below.

PRINCIPAL RISKS AND UNCERTAINTIES		MANAGEMENT/MITIGATION
MARKET RISK
The Company’s portfolio is exposed to fluctuations in market prices (changes in broad market measures, individual security prices and foreign exchange rates) in the biotechnology sector and the regions in which it invests, which may result in a reduction in assets due to market falls and higher volatility. The biotechnology sector has historically been more volatile than other equity sectors, reflecting factors inherent in biotech companies, including emerging technologies, uncertainty of drug approval outcomes, regulatory and pricing policy. More generally, geopolitical and economic uncertainties have affected markets globally and are likely to continue to do so. These include the continued impact of the war in Ukraine and the effect of sanctions against Russia, resulting in elevated energy prices. More broadly, inflation may prove more persistent than had been hoped. This has driven interest rates higher, increasing the cost of capital for companies in our investment universe and leading to concerns about the resilience of elements of the US banking system, in turn reducing investors’ risk appetites. Globally, political, military and commercial tensions between the US/West and China have put the pace of global economic growth at risk.		The Portfolio Manager has responsibility for selecting investments in accordance with the Company’s investment objective and policy and seeks to ensure that investment in individual stocks falls within acceptable risk levels. Compliance with the limits and guidelines contained in the Company’s investment policy is monitored daily by Frostrow and OrbiMed and reported monthly to the Board. The investment restrictions ensure that the portfolio is diversified, reducing the risks associated with individual stocks and markets. OrbiMed report at each Board meeting on the Company’s performance and the macro factors affecting it. The Portfolio Manager spreads investment risk over a wide portfolio of investments. At the year end the Company’s portfolio comprised investments in 54 companies. As part of its review of the going concern and long-term viability of the Company, the Board also considers the sensitivity of the portfolio to changes in market prices and foreign exchange rates (see note 14) and the ability of the Company to liquidate its portfolio if the need arose. Further details are included in the Going Concern and Viability Statements.
PORTFOLIO PERFORMANCE
Investment performance may not achieve the Investment Objective and the value of the investments held in the portfolio may fall materially out of line with the sector. The Portfolio Manager’s approach is expected to lead to performance that will deviate from comparators, including both market indices and other investment companies investing in the biotechnology sector.		The Board reviews regularly investment performance against the Benchmark and against the Company’s peer group. The Board also receives regular reports that analyse performance against other relevant indices. The Portfolio Manager provides an explanation of significant stock selection decisions and an overall rationale for the make-up of the portfolio. The Portfolio Manager discusses current and potential investment holdings with the Board on a regular basis.
SHARE PRICE PERFORMANCE
The risk that the Company’s share price is not representative of its underlying net assets.		To manage this risk, the Board: regularly reviews the level of the share price discount/premium to the net asset value per share and considers ways in which share price performance may be enhanced, including the effectiveness of marketing and investor relations services, new share issuance and share buybacks, as appropriate; has implemented a discount management policy, buying back the Company’s shares when the level of the share price discount to the net asset value per share exceeds 6% (in normal market conditions). may issue shares at a premium to the net asset value per share to help prevent a share price premium reaching too high a level; reviews an analysis of the shareholder register at each Board meeting and is kept informed of shareholder sentiment; and regularly discusses the Company’s future development and strategy with the Portfolio Manager and the AIFM.
CYBER RISK
Cyber crime may lead to the disruption or failure of systems covering dealing, trade processing, administrative services, financial and other operational functions.		The Board relies on controls in place at OrbiMed, Frostrow, J.P. Morgan, Link and other third-party service providers. The Audit Committee reviews the internal controls reports of the principal service providers, as well as their data storage and information security arrangements.
KEY PERSON RISK
The risk that the individual(s) responsible for managing the Company’s portfolio may leave their employment or may be prevented from undertaking their duties.		The Board manages this risk by: appointing OrbiMed, who in turn have appointed Geoff Hsu and, in the course of the year, Josh Golomb to manage the Company’s portfolio. Mr Hsu and Mr Golomb are supported by a team of researchers and analysts dedicated to the biotechnology sector; receiving reports from OrbiMed at each Board meeting, such reports include any significant changes in the make-up of the team supporting the Company; meeting the wider team at OrbiMed’s offices and encouraging the participation of the wider OrbiMed team in investor updates; and delegating to the Management Engagement Committee, the responsibility to perform an annual review of the service received from OrbiMed, including, inter alia, the team supporting the lead managers and their succession plans.
VALUATION RISK
Pursuant to the Investment Policy, the Company may invest up to 10% of its gross assets in unquoted investments at the time of acquisition. The valuation of unquoted assets involves a degree of subjectivity and there is a risk that proceeds received on the disposal of unquoted holdings may prove to be significantly lower than the value at which the investment is held in the Company’s portfolio.		Unquoted investments comprised 5.7% of the Company's portfolio at the year end. The Company’s directly held unquoted investments are valued by an independent, third-party valuation agent. The Board has established a Valuation Committee to review the valuations of the unquoted investments and the methodologies used in the valuations. The valuations are recommended to the Committee by Frostrow, the Company's AIFM, following review by its own valuations committee. The Valuation Committee makes recommendations to the Board, as appropriate. Further information can be found in the Audit Committee Report and note 1 to the financial statements.
CLIMATE CHANGE
Climate change events, as well as the introduction of new regulations designed to combat climate change, could have an impact on portfolio companies and their operations, as well as on the Company’s service providers, potentially affecting their operating models, supply chains, physical locations and energy costs.		Although the effects of climate change have yet to be fully determined, the Board and the Portfolio Manager keep the subject under review. The Board is conscious that climate change poses a general risk to the investment environment and, through discussions with the Portfolio Manager, has noted that the biotechnology industry is not a major contributor to greenhouse gas emissions. For this reason, the Portfolio Manager does not consider climate change to be a material ESG consideration when engaging with investee companies. However energy management is noted as a material concern in the wider healthcare and pharmaceutical sectors, and this forms part of OrbiMed’s ESG monitoring.
COUNTERPARTY RISK
The Company is exposed to credit risk arising from the use of counterparties. If a counterparty were to fail, the Company could be adversely affected through either a delay in settlement or a loss of assets.		The most significant counterparty to which the Company is exposed is J.P. Morgan Securities LLC (the Company’s Custodian and Prime Broker) which is responsible for the safekeeping of the Company’s assets and provides the loan facility to the Company. As part of the arrangements with J.P. Morgan Securities LLC (J.P. Morgan) they may take assets as collateral up to 140% of the value of the loan drawn down. The assets taken as collateral by J.P. Morgan may be used, loaned, sold, rehypothecated* or transferred. The level of the Company's gearing is at the discretion of the AIFM and the Board and the loan can be repaid at any time, at which point the assets taken as collateral will be released back to the Company. Any of the Company’s assets taken as collateral are not covered by the custody arrangements provided by J.P. Morgan. J.P. Morgan is a registered broker-dealer and is accordingly subject to limits on rehypothecation* imposed by the U.S. Securities and Exchange Commission (SEC). In the event of J.P. Morgan’s insolvency, the Company may be unable to recover in full assets held by it as Custodian or held as collateral. The risk is managed through the selection of a financially stable counterparty, limitations on the use of gearing and reliance on the SEC's robust regulatory regime. In addition, the Board monitors the credit rating of J.P. Morgan. J.P. Morgan is also subject to regular monitoring by J.P. Morgan Europe Limited, the Depositary, and the Board receives regular reports from the Depositary. During the year the Company entered into swap transactions with Goldman Sachs International. Further information can be found in note 14 to the financial statements.
OPERATIONAL DISRUPTION
As an externally managed investment trust, the Company is reliant on the systems of its service providers for dealing, trade processing, administration, financial and other functions. If such systems were to fail or be disrupted (including, for example, as a result of a pandemic, war, network disruption or simply poor performance/controls) this could prevent accurate reporting of the Company’s financial position or lead to a failure to comply with applicable laws, regulations and governance requirements and/or to a financial loss.		To manage these risks, the Board (in some cases meeting as the Audit Committee): periodically meets representatives from the Company's key service providers to gain a better understanding of their control environment, and the processes in place to mitigate any disruptive events (including the COVID-19 pandemic); receives a monthly report from Frostrow, which includes, inter alia, confirmation of compliance with applicable laws and regulations; reviews the internal control reports and key policies (including disaster recovery procedures and business continuity plans) of its service providers; maintains a risk matrix with details of risks to which the Company is exposed, the approach to managing those risks, the key controls relied on and the frequency of the controls operation; receives updates on pending changes to the regulatory and legal environment and progress towards the Company’s compliance with such changes; and has considered the increased risk of cyber-attacks and received reports and assurance from its service providers regarding the information security controls in place.

* See glossary.

EMERGING RISKS

The Company has carried out a robust assessment of the Company’s emerging risks and the procedures in place to identify emerging risks are described below. The International Risk Governance Council definition of an ‘emerging’ risk is one that is new, or is a familiar risk in a new or unfamiliar context or under new context conditions (re-emerging).

The Audit Committee reviews a risk map at its half-yearly meetings. Emerging risks are discussed in detail as part of this process and also throughout the year to try to ensure that emerging (as well as established) risks are identified and, so far as practicable, mitigated.

Current identified emerging risks are:

1. Demographic trends in China and Europe, including the effects of an ageing workforce, may have an impact on global markets.

2. Threats to research funding and the effects of increased costs in the biotech sector may affect the Company's investee companies.

GOING CONCERN

The financial statements have been prepared on a going concern basis. The Directors consider this is the appropriate basis as the Company has adequate resources to continue in operational existence for at least the next 12 months from the date of approval of this report. The Company’s portfolio, trading activity, cash balances, revenue and expense forecasts, and the trends and factors likely to affect the Company’s performance are reviewed and discussed at each Board meeting. The Board has considered a detailed assessment of the Company’s ability to meet its liabilities as they fall due, including stress tests which modelled the effects of substantial falls in portfolio valuations and liquidity constraints on the Company’s financial position. Further information is provided in the Audit Committee report.

Based on the information available to the Directors at the date of this report, including the results of these stress tests, the conclusions drawn in the Viability Statement below, the Company’s current cash balances, and the liquidity of the Company’s investments, the Directors are satisfied that the Company has adequate financial resources to continue in operation for at least the next 12 months and that, accordingly, it is appropriate to continue to adopt the going concern basis in preparing the financial statements.

VIABILITY STATEMENT

In accordance with the UK Corporate Governance Code and the Listing Rules, the Directors have carefully assessed the Company’s position and prospects as well as the principal risks and have formed a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the next five financial years. The Board has chosen a five-year horizon in view of the long-term nature and outlook adopted by the Portfolio Manager when making investment decisions.

To make this assessment and in reaching this conclusion, the Audit Committee has considered the Company’s financial position, its ability to liquidate its portfolio and meet its liabilities as they fall due and, in particular, notes the following:

The portfolio is principally comprised of investments traded on major international stock exchanges. Based on recent market volumes 94.5% of the current portfolio could be liquidated within 30 trading days with 88.3% in seven days. There is no expectation that the nature of the investments held within the portfolio will be materially different in future.
The Board has considered the viability of the Company under various scenarios, including periods of acute stock market and economic volatility, and concluded that it would expect to be able to ensure the financial stability of the Company through the benefits of having a diversified portfolio of (mostly) listed and realisable assets. As illustrated in note 14 to the financial statements, the Board has considered other price risk (the sensitivity of the value of shareholders' funds to changes in the fair value of the Company's investments), foreign currency sensitivity (the sensitivity to changes in key exchange rates to which the portfolio is exposed) and interest rate sensitivity (the sensitivity to changes in the interest rate charged on the Company's loan facility).
With an ongoing charges ratio of 1.1%, the expenses of the Company are predictable and modest in comparison with the assets and there are no capital commitments foreseen which would alter that position.
The Company has a short-term bank facility which can be used to meet its liabilities. Details of the Company’s current liabilities are set out in note 11 to the financial statements.
The Company has no employees. Consequently it does not have redundancy or other employment related liabilities or responsibilities.

The Audit Committee, as well as considering the potential impact of the Company’s principal risks and various severe but plausible downside scenarios, has made the following assumptions in considering the Company’s longer-term viability:

There will continue to be demand for investment trusts;
The Portfolio Manager will continue to adopt a long-term view when making investments, and anticipated holding periods will be at least five years;
The Company invests principally in the securities of listed companies traded on international stock exchanges to which investors will wish to continue to have exposure;
Shareholders will vote for the continuation of the Company at the Annual General Meeting to be held in 2025. The Company's shareholders are asked every five years to vote for the continuation of the Company. At the current time, the Directors believe they have a reasonable expectation that the next vote will be passed.
The closed-ended nature of the Company means that, unlike open-ended funds, it does not need to realise investments when shareholders wish to sell their shares;
The Company will continue to be able to fund share buybacks when required. The Company bought back 2,421,263 ordinary shares in the year under review at a total cost of £22.6 million and experienced no problem with liquidity in doing so. It had shareholders’ funds in excess of £330.2 million at the year end; and
The long-term performance of the Company will continue to be satisfactory.

ENVIRONMENTAL, SOCIAL, COMMUNITY AND HUMAN RIGHTS MATTERS

As an externally managed investment trust, the Company does not have any employees or maintain any premises, nor does it undertake any manufacturing or other physical operations itself. All its operational functions are outsourced to third party service providers. Therefore, the Company has no material, direct impact on the environment or any particular community and, as a result, the Company itself has no environmental, human rights, social or community policies.

Under the Listing Rules, the Company is also exempt from reporting against the Taskforce for Climate-Related Financial Disclosures (TCFD) framework. However, the Board recognises that climate change poses a general risk to the investment environment and has discussed with the Portfolio Manager the potential impact of climate change risk on the Company's investments.

The Board believes that consideration of environmental, social and governance (“ESG”) factors is important to shareholders and other stakeholders, and has the potential to protect and enhance investment returns. The Portfolio Manager’s investment criteria ensure that ESG factors are integrated into their investment process and best practice in this area is encouraged by the Board. The Portfolio Manager engages with the Company’s underlying investee companies in relation to their corporate governance practices and the development of their policies on social, community and environmental matters.

The Board is committed to carrying out the Company’s business in an honest and fair manner with a zero-tolerance approach to bribery, corruption and tax evasion. As such, policies and procedures are in place to prevent this. In carrying out the Company’s activities, the Board aims to conduct itself responsibly, ethically and fairly. The Board’s expectations are that the Company’s principal service providers have appropriate governance policies in place.

PERFORMANCE AND FUTURE DEVELOPMENTS

A review of the Company’s year, its performance and the outlook for the Company can be found in the Chairman’s Statement and in the Portfolio Manager’s Review.

The Company’s overall strategy remains unchanged.

STAKEHOLDER INTERESTS AND BOARD DECISION-MAKING (SECTION 172 OF THE COMPANIES ACT 2006)

The following disclosure, which is required by the Companies Act 2006 and the AIC Code of Corporate Governance, describes how the Directors have had regard to the views of the Company’s stakeholders in their decision-making.

STAKEHOLDER GROUP	HOW THE BOARD HAS ENGAGED WITH THE COMPANY’S STAKEHOLDERS
Investors	The Board’s key mechanisms of engagement with investors include: The Annual and Half-yearly Reports The Annual General Meeting The Company’s website which hosts reports, articles and insights, monthly factsheets and video interviews with the Portfolio Manager The Company’s distribution list which is maintained by Frostrow and is used to communicate with shareholders on a regular basis Online seminars with presentations from the Portfolio Manager One-to-one investor meetings The AIFM and the Portfolio Manager, on behalf of the Board, completed a programme of investor relations throughout the year, reporting to the Board on the feedback received. In addition, the Chairman has been and remains available to engage with the Company’s shareholders where required.
Portfolio Manager	The Board met regularly with the Portfolio Manager throughout the year, both formally at quarterly Board meetings and informally, as required. The Board engaged primarily with key members of the portfolio management team, discussing the Company’s overall performance as well as developments at individual portfolio companies and wider macroeconomic developments. The Directors also met with members of the Portfolio Manager’s risk management and compliance teams to better understand their internal controls, as well as their ESG Officer to discuss the integration of ESG considerations into the investment process. The Management Engagement Committee reviewed the performance of the Portfolio Manager and the terms and conditions on which they are engaged. The Board carried out an overall review of the Portfolio Management Agreement, which was subsequently restated.
Other Service Providers	The Board met regularly with the AIFM, representatives of which attend every quarterly Board meeting to provide updates on risk management, accounting, administration, corporate governance and marketing matters. The Management Engagement Committee reviewed the performance of all the Company’s service providers, receiving feedback from Frostrow in their capacity as AIFM and Company Secretary. The AIFM, which is responsible for the day-to-day operational management of the Company, meets and interacts with the other service providers including the Depositary, Custodian and Registrar, on behalf of the Board, on a daily basis. This can be through email, one-to-one meetings and/or regular written reporting. The Audit Committee reviewed the quality and effectiveness of the audit and recommended to the Board that it be proposed to shareholders that BDO LLP (“BDO”) be re-appointed as Auditor. The Audit Committee also met with BDO to review the audit plan and set their remuneration for the year.

As an externally managed investment trust, the Company has no employees, customers, operations or premises. Therefore, the Company’s key stakeholders (other than its shareholders) are considered to be its service providers. The need to foster good business relationships with the service providers and maintain a reputation for high standards of business conduct are central to the Directors’ decision-making as the Board of an externally managed investment trust.

KEY AREAS OF ENGAGEMENT		MAIN DECISIONS AND ACTIONS TAKEN
Ongoing dialogue with shareholders concerning the strategy of the Company, performance and the portfolio. The impact of market volatility caused by, inter alia, the COVID-19 pandemic and certain geopolitical events, on the portfolio. Share price performance.		The Board and the Portfolio Manager provided updates via RNS, the Company’s website, the distribution list and the usual financial reports and monthly fact sheets. The Board continued to monitor share price movements closely. When the discount of the share price to the net asset value per share exceeded 6%, the Company sought to buy back shares in the market. As a result, 2,421,263 shares were bought back during the year. No shares were issued at a premium to the net asset value per share during the year.
Portfolio composition, performance, outlook and business updates. The ongoing impact of the COVID-19 pandemic on the Portfolio Manager’s business and the businesses of the portfolio companies. The integration of sustainability and ESG factors to the Portfolio Manager’s investment process. The Portfolio Manager’s system of internal controls and investment risk management including their cyber security arrangements. The terms and conditions of the Portfolio Management Agreement.		While the Board was confident that OrbiMed had been able to successfully implement remote working, the Directors were pleased to be able to visit OrbiMed's offices in New York during the year, to meet with the OrbiMed team in person. The Board concluded that it was in the interests of shareholders for OrbiMed to continue in their role as Portfolio Manager. A number of minor updates were made to the terms and conditions of the Portfolio Management Agreement, which was restated. The Audit Committee concluded that the Portfolio Manager’s internal controls were satisfactory. Please refer to the Audit Committee Report for further information.
The promotion and marketing strategy of the Company. Service providers’ internal controls, business continuity plans and cyber security provisions. The effectiveness of the audit and the Auditor’s reappointment. The terms and conditions under which the Auditor is engaged.		The Board concluded that it was in the interests of shareholders for Frostrow to continue in their role as AIFM. A number of minor updates were made to the terms and conditions of the AIFM Agreement, which was restated. The Board approved the Audit Committee’s recommendation that it would be in the interests of shareholders for BDO to be re-appointed as the Company’s auditor for a further year. Please refer to the Audit Committee Report and the Notice of AGM for further information.

By order of the Board

Frostrow Capital LLP

Company Secretary

14 June 2023

STATEMENT OF DIRECTORS’ RESPONSIBILITIES

The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law, the Directors are required to prepare the financial statements in accordance with UK-adopted international accounting standards. Under company law, the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss for the Company for that period.

In preparing these financial statements, the Directors are required to:

select suitable accounting policies and then apply them consistently;
make judgements and accounting estimates that are reasonable and prudent;
state whether they have been prepared in accordance with UK-adopted international accounting standards, subject to any material departures disclosed and explained in the financial statements;
prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business; and
prepare a directors’ report, a strategic report and directors’ remuneration report which comply with the requirements of the Companies Act 2006.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and 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.

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 Annual Report and financial statements, taken as a whole, are fair, balanced, and understandable and provide the information necessary for shareholders to assess the Company's position, performance, business model and strategy.

WEBSITE PUBLICATION

The Directors are responsible for ensuring the Annual Report and the financial statements are made available on a website. Financial statements are published on the Company’s website in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the Company’s website is the responsibility of the Directors. The Directors’ responsibility also extends to the ongoing integrity of the financial statements contained therein.

RESPONSIBILITY STATEMENT OF THE DIRECTORS IN RESPECT OF THE ANNUAL REPORT

We confirm that to the best of our knowledge:

the financial statements have been prepared in accordance with the applicable set of accounting standards and give a true and fair view of the assets, liabilities, financial position and the return of the Company for the year ended 31 March 2023; and
the Annual Report includes a fair review of the development and performance of the business and the financial position of the Company, together with a description of the principal risks and uncertainties that they face.

The Directors consider the Annual Report, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company’s position and performance, business model and strategy.

On behalf of the Board

Roger Yates

Chairman

14 June 2023

INCOME STATEMENT

FOR THE YEAR ENDED 31 MARCH 2023

			2023			2022
		Revenue	Capital	Total	Revenue	Capital	Total
	Notes	£’000	£’000	£’000	£’000	£’000	£’000
Investment income	2	310	–	310	1,084	–	1,084
Losses on investments held at fair value through profit or loss	8	–	(32,727)	(32,727)	–	(206,032)	(206,032)
Foreign exchange losses		–	(3,759)	(3,759)	–	(2,340)	(2,340)
AIFM, Portfolio management and performance fees	3	(176)	(3,355)	(3,531)	(237)	6,232	5,995
Other expenses	4	(692)	(51)	(743)	(678)	(124)	(802)
(Loss)/profit before finance costs and taxation		(558)	(39,892)	(40,450)	169	(202,264)	(202,095)
Finance costs	5	(40)	(752)	(792)	(9)	(166)	(175)
(Loss)/profit before taxation		(598)	(40,644)	(41,242)	160	(202,430)	(202,270)
Taxation	6	(56)	–	(56)	(149)	–	(149)
(Loss)/profit for the year		(654)	(40,644)	(41,298)	11	(202,430)	(202,419)
Basic and diluted (loss)/earnings per share	7	(1.6)p	(100.9)p	(102.5)p	0.0p	(488.5)p	(488.5)p

The Company does not have any income or expenses which are not included in the (loss)/profit for the year. Accordingly the “(loss)/profit for the year” is also the “total comprehensive (loss)/profit for the year”, as defined in IAS 1 (revised) and no separate Statement of Other Comprehensive Income has been presented.

The “Total” column of this statement represents the Company’s Income Statement, prepared in accordance with UK-adopted International Accounting Standards and with the requirements of the Companies Act 2006 as applicable to companies reporting under those standards The “Revenue” and “Capital” columns are supplementary to this and are prepared under guidance published by the Association of Investment Companies.

The accompanying notes are an integral part of this statement.

STATEMENT OF FINANCIAL POSITION

AS AT 31 MARCH 2023

		2023	2022
	Notes	£’000	£’000
Non current assets
Investments held at fair value through profit or loss	8	357,229	427,399
Current assets
Other receivables	10	508	49
Cash and cash equivalents		2,772	–
		3,280	49
Total assets		360,509	427,448
Current liabilities
Other payables	11	8,846	1,499
Loan	14	20,170	31,741
Derivative – OTC equity swaps	8, 9	1,202	–
		30,218	33,240
Net assets		330,291	394,208
Equity attributable to equity holders
Ordinary share capital	12	9,684	10,289
Share premium account		79,951	79,951
Capital redemption reserve		13,746	13,141
Capital reserve	16	227,968	291,231
Revenue reserve		(1,058)	(404)
Total equity		330,291	394,208
Net asset value per share	13	852.6p	957.8p

The financial statements were approved by the Board on 14 June 2023 and were signed on its behalf by:

Roger Yates

Chairman

The accompanying notes are an integral part of this statement.

The Biotech Growth Trust PLC – Company Registration Number 3376377 (Registered in England and Wales)

STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 MARCH 2023

		Ordinary	Share	Capital
		Share	premium	redemption	Capital	Revenue
		capital	account	reserve	reserve	reserve	Total
	Notes	£’000	£’000	£’000	£’000	£’000	£’000
At 1 April 2022		10,289	79,951	13,141	291,231	(404)	394,208
Net loss for the year		–	–	–	(40,644)	(654)	(41,298)
Repurchase of own shares for cancellation		(605)	–	605	(22,619)	–	(22,619)
At 31 March 2023	13	9,684	79,951	13,746	227,968	(1,058)	330,291

FOR THE YEAR ENDED 31 MARCH 2022

		Ordinary	Share	Capital
		Share	premium	redemption	Capital	Revenue
		capital	account	reserve	reserve	reserve	Total
	Notes	£’000	£’000	£’000	£’000	£’000	£’000
At 1 April 2021		10,396	77,895	12,997	500,594	(415)	601,467
Net (loss)/profit for the year		–	–	–	(202,430)	11	(202,419)
Issue of new shares	12	37	2,060	–	–	–	2,097
Cost of share issuance		–	(4)	–	–	–	(4)
Repurchase of own shares for cancellation		(144)	–	144	(6,933)	–	(6,933)
At 31 March 2022	13	10,289	79,951	13,141	291,231	(404)	394,208

The accompanying notes are an integral part of this statement.

See note 16 for details of the amounts of reserves available for distribution.

STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 31 MARCH 2023

		2023	2022
	Notes	£’000	£’000
Operating activities
Loss before taxation*		(41,242)	(202,270)
Finance costs		792	175
Losses on investments held at fair value through profit or loss	8	30,945	204,987
Transaction costs**		-	1,045
Foreign exchange losses		3,759	2,340
Decrease/(increase) in other receivables		28	(14)
Decrease in other payables		(116)	(18,255)
Taxation paid	6	(56)	(149)
Net cash outflow from operating activities		(5,890)	(12,141)
Investing activities
Purchases of investments and derivatives		(459,606)	(439,160)
Sales of investments and derivatives		505,300	453,237
Transaction costs**		-	(1,045)
Net cash inflow from investing activities		45,694	13,032
Financing activities
Gross proceeds from the issue of shares		–	2,097
Cost of share issuance		–	(4)
Repurchase of own shares for cancellation		(20,910)	(6,933)
Finance costs – interest paid		(792)	(175)
Net (repayment)/drawdown of the loan facility		(15,330)	2,622
Net cash outflow from financing activities		(37,032)	(2,393)
Net increase/(decrease) in cash and cash equivalents		2,772	(1,502)
Cash and cash equivalents at start of year		–	1,502
Cash and cash equivalents at end of year+		2,772	–

* Includes dividends earned during the year of £283,000 (2022: £1,027,000) bond income of £nil (2022: £37,000) and deposit interest of £11,000 (2022: £3,000).

** In the current year, transaction costs have been disclosed as operating activities, hence it is zero compared to the prior year.

+ Collateral cash held at Goldman Sachs (2022: £nil).

CHANGES IN NET DEBT ARISING FROM FINANCING ACTIVITIES

	2023	2022
	£’000	£’000
Balance as at 1 April	31,741	26,779
Net cash flow on the loan facility	(15,330)	2,622
Foreign exchange losses	3,759	2,340
Loan balance at 31 March	20,170	31,741

The accompanying notes are an integral part of this statement.

NOTES TO THE FINANCIAL STATEMENTS

1. ACCOUNTING POLICIES

(A) BASIS OF PREPARATION

The financial statements of the Company have been prepared in accordance with UK-adopted International Accounting Standards and with the requirements of the Companies Act 2006 as applicable to companies reporting under those standards.

The principal accounting policies adopted are set out below.

The financial statements have been prepared under the historical cost convention, except for the measurement at fair value of investments. Where presentational guidance is set out in the Statement of Recommended Practice (the SORP) for Investment Trust Companies and Venture Capital Trusts produced by the Association of Investment Companies (AIC) issued in July 2022, the Directors have sought to prepare the financial statements on a basis compliant with the recommendations of the SORP.

The Board has considered an assessment of the Company’s ability to meet its liabilities as they fall due, including stress and liquidity tests which modelled the effects of significant reductions in market liquidity on the Company’s financial position and cash flows. The results of the tests showed that the Company would have sufficient cash through access to the J.P. Morgan loan facility, or the ability to liquidate a sufficient proportion of its listed holdings, to meet its liabilities as they fall due. Based on the information available to the Directors at the time of this report, including the results of the stress tests and the liquidity of the Company’s listed investments, the Directors are satisfied that the Company has adequate financial resources to continue in operation for at least the next 12 months and that, accordingly, it is appropriate to adopt the going concern basis in preparing these financial statements.

The Company’s financial statements are presented in sterling and all values are rounded to the nearest thousand pounds (£’000) except when otherwise indicated.

Judgements and key sources of estimation and uncertainty

The preparation of the financial statements requires the Directors to make judgements, estimates and assumptions that affect the amounts reported for assets and liabilities as at the Statement of Financial Position date and the amounts reported for revenues and expenses during the year. However, the nature of estimation means that actual outcomes could differ from those estimates. In the process of applying the Company’s accounting policies, the Directors have made the following estimate:

Fair value of the unquoted investments estimate

The Board has established a Valuation Committee to review the valuations and the valuation methodologies of the Company’s unquoted investments. The Board has approved the valuations of the unquoted investments on the recommendation of the Valuation Committee.

The unquoted investment in OrbiMed Asia Partners L.P. has been valued using the Net Asset Value presented in the Statement of Partner’s Capital Activity as at 31 March 2023, as permitted under the IPEV guidelines. The Consolidated Financial Statements of the partnership for the year ended 31 December 2022 were audited by KPMG LLP (New Jersey Headquarters) and were approved on 30 March 2023.

The following two investments, StemiRNA and XtalPi have been valued by Kroll, an independent valuer, using the probability – weighted expected returns methodology (PWERM). Under the PWERM, fair value is determined through consideration of the values of the investment under a range of scenarios. These scenarios range from the “partial recovery” or “full recovery” of the amount invested, through to a number of IPO or similar exit scenarios. Each scenario is assigned a probability, with the value of the investment reflecting the sum of each scenario’s valuation weighted by the probability of its occurrence. Examples of the inputs into the valuation models are:

• The probability assigned to potential future outcomes;

• Likely exit scenarios; and

• The discount rate used to calculate the present value of future outcomes.

AWAKN warrants have been valued using the Black Scholes model with the volatility having been assessed by Kroll.

(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 dividends or increases in fair value, investments are classified as fair value through profit or loss (FVTPL) 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 classified 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 weighted expected returns, 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.

Transfers between levels of fair value hierarchy are deemed to have occurred at the date of the event or change in circumstances that caused the transfer.

Gains and losses on disposal and fair value changes are also recognised in the Income Statement.

(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. 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. The requirements are to distribute net revenue but only so far as there are positive revenue reserves.

(D) INVESTMENT 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. Foreign dividends are grossed up at the appropriate rate of withholding tax, with the withholding tax recognised in the taxation charge.

Dividends from investments in unquoted shares and securities are also recognised when the Company’s right to receive payment is established.

Income from fixed interest securities is recognised on a time appointment basis so as to reflect the effective interest rate.

In deciding whether a dividend should be regarded as a capital or revenue receipt, the Company reviews all relevant information as to the reasons for and sources of the dividend on a case by case basis depending upon the nature of the receipt.

Special dividends of a revenue nature are recognised through the revenue column of the Income Statement. Special dividends of a capital nature are recognised through the capital column of the Income Statement.

(E) EXPENSES AND FINANCE COSTS

All expenses are accounted for on an accruals basis. Expenses are charged through the Income Statement as follows:

• transaction costs on 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;

• during the year, AIFM and Portfolio Management fees were charged 95% to the capital column of the Income Statement as the Directors had expected that in the long term virtually all of the Company’s returns would come from capital;

• during the year, loan interest was charged 95% to the capital column of the Income Statement as the Directors had expected that in the long term virtually all of the Company’s returns would come from capital;

• performance fees are charged 100% to the capital column of the Income Statement. Performance fees are recognised as a liability of the Company when they crystalise and become due for payment. Details of the performance fee are set out on pages 48 and 49 of the Annual Report; and

• all other expenses are charged to revenue column of the Income Statement.

(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 are not liable for taxation on capital gains.

Current tax is provided at the amounts expected to be paid or recovered.

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, or Other Comprehensive Income (OCI), in which case the deferred tax is also dealt with in equity or OCI respectively.

(G) FUNCTIONAL AND PRESENTATION CURRENCY

The financial information is shown in sterling, being the Company’s presentation 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 would be 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.

(H) FOREIGN CURRENCIES

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 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.

(I) RESERVES

Ordinary share capital

• represents the nominal value of the issued share capital.

Share premium account

• represents the surplus of net proceeds received from the issue of new shares over the nominal value of such shares. The Share premium account is non-distributable.

Capital redemption reserve

• a transfer will be made to this reserve on cancellation of the Company’s own shares purchased, equal to the nominal value of the shares. This reserve is non-distributable.

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 policies;

• increases and decreases in the valuation of investments held at year-end; and

• shares which have been bought back by the Company for cancellation.

Realised Capital Reserves are distributable by way of a dividend.

Revenue reserve

• reflects all income and expenditure recognised in the revenue column of the Income Statement. Amounts standing to the credit of the Revenue Reserve are distributable by way of dividend.

(J) CASH AND CASH EQUIVALENTS

Cash and cash equivalents are defined as cash in hand, demand deposits and short-term deposits with a maturity of three months or less, highly liquid investments readily convertible to known amounts of cash and subject to insignificant risk of changes in value.

(K) OTHER RECEIVABLES AND OTHER PAYABLES

Other receivables and payables are typically settled in a short time frame and are carried at the amount due to be settled. As a result, the fair value of these balances is considered to be materially equal to the carrying value.

(L) LOAN

The Company has a loan facility repayable on demand, provided by J.P. Morgan Securities LLC (“J.P. Morgan”). As part of the arrangements with J.P. Morgan they may take assets as collateral, up to 140% of the value of the loan drawn down. Such assets taken as collateral by J.P. Morgan may be used, loaned, sold, rehypothecated† or transferred. Any of the Company’s assets taken as collateral are not covered by the custody arrangements provided by J.P. Morgan. Loans payable on demand are carried at the undiscounted amount of the cash or other consideration expected to be paid. Interest on the facility is charged at the U.S. overnight bank funding rate plus 45 basis points. Finance costs are apportioned 95% to capital in accordance with the policy set out under note 1(e) expenses and finance costs.

† See glossary.

(M) 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 this sole operating segment.

(N) FINANCIAL INSTRUMENTS INCLUDING DERIVATIVE FINANCIAL INSTRUMENTS

Financial assets and financial liabilities are recognised on the Statement of Financial Position when the Company becomes a party to the contractual provisions of the instrument. Financial assets are derecognised when the Company’s contractual right to the cash flows from the asset expires or substantially all the risks and rewards of ownership are transferred. Financial liabilities are derecognised when the contractual obligation is discharged, with gains and losses recognised in the income statement.

The Company uses derivative financial instruments, namely equity swaps. All derivative instruments are valued initially, and at subsequent reporting dates, at fair value in the Statement of Financial Position.

The equity swaps are accounted for as current assets or current liabilities.

(O) ADOPTION OF NEW AND REVISED STANDARDS

Standards and amendments to existing standards effective 1 January 2022

The Company has applied the following standards and amendments for the first time for its annual reporting period commencing 1 April 2022:

• IFRS 9 Financial Instruments – clarification of fees which should be included in the 10% test for derecognition of financial liabilities became effective on 1 January 2022.

This amendment did not have any impact on the amounts recognised in both current and prior years.

New standards, amendments and interpretations effective after 1 January 2023 which have not been early adopted

A number of new standards, amendments to standards and interpretations will become effective for annual periods beginning after 1 January 2023, and have not been early adopted in preparing these financial statements. The new standards, amendments to standards and interpretations include the following:

• Disclosure of Accounting Policies – Amendments to IAS 1 and IFRS Practice Statement 2

• Definition of Accounting Estimate – Amendments to IAS 8

• Deferred tax related to assets and liabilities arising from a single transaction – Amendments to IAS 12

None of these is expected to have a material effect on the financial statements of the Company.

2. INCOME

	2023	2022
	£’000	£’000
Investment income
Overseas dividend income	283	1,027
Bond income	–	37
Other income
Derivatives	16	17
Deposit interest	11	3
Total income	310	1,084

3. AIFM, PORTFOLIO MANAGEMENT AND PERFORMANCE FEES

			2023			2022
	Revenue	Capital	Total	Revenue	Capital	Total
	£’000	£’000	£’000	£’000	£’000	£’000
AIFM fee – Frostrow Capital LLP	53	1,010	1,063	72	1,369	1,441
Portfolio management fee – OrbiMed Capital LLC	123	2,345	2,468	165	3,128	3,293
Performance fee written back during the year*	–	–	–	–	(10,729)	(10,729)
	176	3,355	3,531	237	(6,232)	(5,995)

* During the financial year under review, due to underperformance against the Benchmark and in accordance with the performance fee arrangements in place, no performance fee was earned (2022: reversal of £10,729,000).

As at 31 March 2023, no performance fees were accrued or payable (31 March 2022: £nil).

Further details of the AIFM, portfolio management fee and the performance fee basis can be found in the Report of the Directors.

4. OTHER EXPENSES

	2023	2022
	Total	Total
	£’000	£’000
Directors’ emoluments	165	173
Fees payable to the Company’s auditor for the audit of the Company’s financial statements	50	40
Fees payable to the Company’s auditor for other services to the Company+	–	5
Registrar fees	35	35
Depositary fees	58	68
Marketing and PR costs	68	70
Legal and professional fees^	51	103
Broker fees	39	34
Listing fees	37	46
Printing costs	32	30
Other costs	137	74
Total expenses charged to Revenue	692	678
Professional fees charged to Capital*	51	124
Total expenses	743	802

^ Includes quarterly valuation fees in relation to the valuation of the unquoted investments.

* Professional fees in respect of acquisition of unquoted and pre-IPO investments.

+ See page 58 of the Annual Report for further information.

Details of the amounts paid to Directors are included in the Directors’ Remuneration Report.

5. FINANCE COSTS

			2023			2022
	Revenue	Capital	Total	Revenue	Capital	Total
	£’000	£’000	£’000	£’000	£’000	£’000
Loan interest	40	752	792	9	166	175
	40	752	792	9	166	175

6. TAXATION

(A) ANALYSIS OF CHARGE IN THE YEAR:

			2023			2022
	Revenue	Capital	Total	Revenue	Capital	Total
	£’000	£’000	£’000	£’000	£’000	£’000
Overseas tax suffered	39	–	39	149	–	149
Corporation tax charge†	17	–	17	–	–	–
Total taxation for the year (see note 6(b))	56	–	56	149	–	149

† Corporation tax was paid during the year under review due to the large performance fee reversed in 2022 which was captured by the corporate loss restrictions rules.

(B) FACTORS AFFECTING TOTAL 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 higher than the standard rate of corporation tax in the UK of 19% (2022: 19%). The differences are explained below:

			2023			2022
	Revenue	Capital	Total	Revenue	Capital	Total
	£’000	£’000	£’000	£’000	£’000	£’000
Net (loss)/profit before taxation	(598)	(40,644)	(41,242)	160	(202,430)	(202,270)
Corporation tax at 19% (2022: 19%)	(114)	(7,722)	(7,836)	30	(38,462)	(38,432)
Effects of:
Non-taxable losses on investments	–	6,932	6,932	–	39,591	39,591
Non-taxable overseas dividends	(54)	–	(54)	(195)	–	(195)
Overseas tax suffered	39	–	39	149	–	149
Excess expenses unused	168	790	958	165	(1,129)	(964)
Corporation tax charge	17	–	17	–	–	–
Total tax charge	56	–	56	149	–	149

(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 profit 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.

At 31 March 2023, the Company had unutilised management expenses and other losses of £83,627,000 (2022: £78,625,000) that are available to offset future taxable revenue.

A deferred tax asset of £20,907,000 (25% tax rate) (2022: £19,656,000 (25% tax rate)) arising as a result of these excess management expenses and other losses has not been recognised because the Company is not expected to generate sufficient taxable income in future periods in excess of the available deductible expenses. Given the composition of the Company’s portfolio, it is not likely that this asset will be used in the foreseeable future and therefore no asset has been recognised in the financial statements.

7. BASIC AND DILUTED (LOSS)/EARNINGS PER SHARE

			2023			2022
	Revenue	Capital	Total	Revenue	Capital	Total
	pence	pence	pence	pence	pence	pence
(Loss)/earnings per share	(1.6)	(100.9)p	(102.5)p	0.0	(488.5)	(488.5)

The total loss per share of 102.5p (2022: loss of 488.5p) is based on the total loss attributable to equity shareholders of £41,298,000 (2022: loss £202,419,000).

The revenue loss per share 1.6p (2022: profit of 0.0p) is based on the revenue loss attributable to equity shareholders of £654,000 (2022: profit of £11,000). The capital loss per share of 100.9p (2022: loss of 488.5p) is based on the capital loss attributable to equity shareholders of £40,644,000 (2022: loss of £202,430,000).

The total loss per share is based on the weighted average number of shares in issue during the year of 40,287,724 (2022: 41,441,570).

There are no dilutive instruments issued by the Company (2022: none).

8. INVESTMENTS

As at 31 March 2023, all investments with the exception of the unquoted investments have been classified as level 1. The unquoted investments have been classified as either level 2 or level 3. See note 14 for further details.

				2023				2022
			Derivative				Derivative
			Financial				Financial
	Quoted		Instruments		Quoted		Instruments
	Investments	Unquoted	– Net	Total	Investments	Unquoted	– Net	Total
	£’000	£’000	£’000	£’000	£’000	£’000	£’000	£’000
Opening book cost	512,894	22,943	–	535,837	534,610	29,098	–	563,708
Opening investment holding (losses)/gains	(119,725)	11,287	–	(108,438)	70,926	8,636	(618)	78,944
Valuation at 1 April 2022	393,169	34,230	–	427,399	605,536	37,734	(618)	642,652
Movement in the year
Purchases at cost	465,360	–	–	465,360	424,962	13,284	–	438,246
Sales proceeds	(505,787)	–	–	(505,787)	(450,556)	(123)	2,167	(448,512)
Transfer between levels	9,887	(9,887)	–	–	19,625	(19,625)	–	–
Net movement in investment holding losses	(25,667)	(4,076)	(1,202)	(30,945)	(206,398)	2,960	(1,549)	(204,987)
Valuation at 31 March 2023	336,962	20,267	(1,202)	356,027	393,169	34,230	–	427,399
Closing book cost at 31 March 2023	392,482	14,341	–	406,823	512,894	22,943	–	535,837
Investment holding (losses)/gains at 31 March 2023	(55,520)	5,926	(1,202)	(50,796)	(119,725)	11,287	–	(108,438)
Valuation at 31 March 2023	336,962	20,267	(1,202)	356,027	393,169	34,230	–	427,399

The sales proceeds of £505,787,000 (2022: £448,512,000) includes transaction costs of £991,000 (2022: £649,000). The book cost of these investments when they were purchased was £594,374,000 (2022: £465,513,000).

These investments have been revalued over time and until they were sold any unrealised gains/loss were included in the fair value of these investments.

GAINS ON INVESTMENTS

	2023	2022
	£’000	£’000
Losses on investments	(30,945)	(204,987)
Transaction costs	(1,782)	(1,045)
Losses on investments held at fair value through profit or loss	(32,727)	(206,032)

The total transaction costs for the year were £1,782,000 (31 March 2022: £1,045,000) broken down as follows: purchase transaction costs for the year to 31 March 2023 were £791,000 (31 March 2022: £396,000), sale transaction costs were £991,000 (31 March 2022: £649,000). These costs consist mainly of commission. Transaction costs are recorded in the capital column of the Income Statement.

9. DERIVATIVE FINANCIAL INSTRUMENTS

	2023	2022
	£’000	£’000
Fair value of OTC equity swaps (assets)	–	–
Fair value of OTC equity swaps (liabilities)	(1,202)	–
	(1,202)	–

(See note 1(n) for further details).

10. OTHER RECEIVABLES

	2023	2022
	£’000	£’000
Future settlements – sales	487	–
Prepayments and accrued income	21	49
	508	49

11. OTHER PAYABLES

	2023	2022
	£’000	£’000
Future settlements – purchases	6,206	452
Amounts due to brokers in respect of shares repurchased by the Company for cancellation	1,695	–
Other creditors and accruals	945	1,047
	8,846	1,499

12. ORDINARY SHARE CAPITAL

	2023	2022
	Number of	Number of
	Shares	Shares
Allotted, issued and fully paid at 1 April 2022	41,158,682	41,584,769
Issue of new shares	–	150,000
Shares bought back for cancellation during the year	(2,421,263)	(576,087)
At 31 March 2023	38,737,419	41,158,682

During the year no new ordinary shares were issued (2022: 150,000 new ordinary shares were issued for a consideration of £2,093,000 net of issue costs of £4,000). 2,421,263 shares were bought back for cancellation for a consideration of £22,618,000 (2022: 576,087 shares were bought back for a consideration of £6,933,000).

	2023	2022
	£’000	£’000
Allotted, issued and fully paid shares of 25p	9,684	10,289

13. NET ASSET VALUE PER SHARE

	2023	2022
Net asset value per share	852.6p	957.8p

The net asset value per share is based on the net assets attributable to equity shareholders of £330,291,000 (2022: £394,208,000) and on 38,737,419 (2022: 41,158,682) shares in issue at 31 March 2023.

14. RISK MANAGEMENT POLICIES AND PROCEDURES

As an investment trust, the Company invests in equities and other investments for the long term in order to achieve its investment objective. 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 also considers (iv) fair value measurement and (v) capital management.

The Board reviews and agrees policies regularly for managing and monitoring each of these risks.

OTC EQUITY SWAPS (See glossary for further details)

The Company uses OTC equity swap positions to gain access to Chinese markets where the Company is not locally registered to trade directly. During the year the Company entered into an OTC equity swap contract related to Beigene, with Goldman Sachs as the counterparty.

1. MARKET PRICE RISK:

The Company’s portfolio is exposed to fluctuations in market prices in the biotechnology sector and the regions in which it invests. Market-wide uncertainties which have recently caused increased volatility in the markets include the war in Ukraine, increasing political, military and commercial tensions between the US/West and China, and increased inflationary pressures.

The Company’s portfolio is exposed to market price fluctuations which are monitored by the AIFM and the Portfolio Manager in pursuance of the investment objective. Further information on the composition of the portfolio is set out on page 7 and 8 of the Annual Report.

This market risk comprises three elements – foreign currency risk, interest rate risk and other price risk.

(a) Foreign currency risk:

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 the risk

The AIFM and the Portfolio Manager monitor the Company’s exposure to foreign currencies on a continuous basis and report to the Board regularly. The Company does not hedge against foreign currency movements to manage market price risk.

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 £345,049,000 (2022: £395,486,000) of investments denominated in U.S. dollars and £10,978,000 (2022: £31,913,000) in other non-sterling currencies.

Foreign currency sensitivity

The fair value of the Company’s monetary items that have foreign currency exposure at 31 March 2023 is shown below.

Where the Company’s equity investments (which are not monetary items) are priced in a foreign currency they are shown separately in the analysis as to show the overall level of exposure.

	2023	2022
	£’000	£’000
Sterling equivalent of US$ and other non-sterling exposure
Current assets	3,257	19
Creditors	(6,206)	(452)
Spot currency contracts	(1,692)	–
Loan (non-sterling)	(20,167)	(31,709)
Foreign currency exposure on net monetary items	(24,808)	(32,142)
Investments held at fair value through profit or loss including derivative equity swap	356,027	427,399
Total net foreign currency exposure	331,219	395,257

The table below details the sensitivity of the Company’s profit or loss after taxation for the year (investment values) to a 10% increase and decrease in the value of sterling compared to the U.S. dollar and other non-sterling currencies (2022: 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 the AIFM and portfolio management fees.

If sterling had weakened against the U.S. dollar and other non-sterling currencies, as stated above, this would have had the following effect:

	2023	2022
	£’000	£’000
Impact on revenue return	–	–
Impact on capital return	43,302	43,500
Total return after tax/effect on shareholders’ funds	43,302	43,500

If sterling had strengthened against the U.S. dollar and other non-sterling currencies, as stated above, this would have had the following effect:

	2023	2022
	£’000	£’000
Impact on revenue return	–	–
Impact on capital return	(24,220)	(35,592)
Total return after tax/effect on shareholders’ funds	(24,220)	(35,592)

(b) Interest rate risk:

Interest rate risk is the risk that the fair value of a financial instrument will fluctuate because of changes in market interest rates.

Interest rate exposure

The Company’s main exposure to interest rate risk is through its loan facility with J.P. Morgan Securities LLC which is repayable on demand. Interest is charged at the U.S. overnight bank funding rate plus 45 basis points.

At the year-end financial assets and liabilities subject to interest rate risk were as follows:

	Fixed	Floating	Floating
	rate	rate	rate
	2023	2023	2022
	£’000	£’000	£’000
Loan facility with J.P. Morgan Securities LLC	–	20,170	31,741
Gross exposure on OTC equity swaps	–	6,224	–
Total liabilities subject to interest rate risk	–	26,394	31,741
Cash held at Goldman Sachs	-	2,772	-
Total net liabilities subject to interest rate risk	-	23,622	31,741

Management of the risk

The level of borrowings is approved and monitored by the Board and the AFIM on a regular basis.

Interest rate sensitivity

The majority of the Company’s financial assets are equity shares and other investments which neither pay interest nor have a maturity date. The amount subject to interest rate risk as at 31 March 2023 was £26,622,000 (2022: £31,741,000). If the rate increased by 1%, the impact on the profit or loss and net assets would be expected to be £236,000 (2022: £317,000).

(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 20% higher or lower (2022: 20% higher or lower) while all other variables had remained constant, the return and net assets attributable to shareholders for the year ended 31 March 2023 would have increased/decreased by £71,762,000 (2022: £84,668,000), after adjusting for an increase or decrease in the AIFM and the Portfolio management fees. The calculations are based on the portfolio valuations as at the respective Statement of Financial Position dates.

Other price risk exposure

			2023			2022
			Notional			Notional
	Assets	Liabilities	exposure*	Assets	Liabilities	exposure*
	£’000	£’000	£’000	£’000	£’000	£’000
Investments	357,229	–	357,229	427,399	–	427,399
OTC equity swaps	–	(1,202)	(1,202)	–	–	–
	357,229	(1,202)	356,027	427,399	–	427,399

* Calculated in accordance with AIFMD requirements, see glossary for further details.

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 that are readily realisable within one week, in normal market conditions. Stress tests have been performed to understand how long the portfolio would take to realise in such situations. The Board is comfortable that in such situations the Company would be able to meet its liabilities as they fall due. Short-term funding flexibility can be achieved through the use of the bank loan facility. The maximum amount of gearing permitted by the Board is 20% of net assets which equated to £66,058,000 at the year end.

The Board gives guidance to the Portfolio Manager as to the maximum amount of the Company’s resources that should be invested in any one company.

Liquidity exposure and maturity

Contractual maturities of the financial liabilities as at 31 March 2023, based on the earliest date on which payment can be required, are as follows:

	2023	2023	2022	2022
	3 months	3 to	3 months	3 to
	or less	12 months	or less	12 months
	£’000	£’000	£’000	£’000
Loan facility (repayable on demand)	20,170	–	31,741	–
Future settlements	6,206	–	452	–
Performance fees accrued	–	–	–	–
Derivative – OTC equity swaps	–	1,202	–	–
Other creditors and accruals	2,640	–	1,047	–
	29,016	1,202	33,240	–

3. CREDIT RISK:

Credit risk is the risk of failure of a counterparty to discharge its obligations resulting in the Company suffering a loss.

J.P. Morgan Securities LLC (“J.P. Morgan”) may take assets with a value of up to 140% of the loan as collateral. Such assets held by J.P. Morgan are available for rehypothecation†.

As at 31 March 2023, the maximum value of assets available for rehypothecation was £28,238,000 being 140% of the loan balance of £20,170,000 (31 March 2022: £44,437,000 being 140% of the loan balance of £31,741,000).

See page 32 of the Annual Report for further details on the loan facility and the associated credit risk.

† See glossary.

Management of the risk

The risk is not significant and is managed as follows:

J.P. Morgan

• by receiving and reviewing regular updates from the Custodian and Prime Broker and Depository.

• by reviewing their Internal Control reports and regularly monitor J.P. Morgan’s credit rating. J.P. Morgan has a credit rating of Aa3 (Moody’s), A+ (S&P) and AA (Fitch).

• by reviewing on a monthly basis assets which are available for rehypothecation.

Other counterparties

• by only dealing with brokers which have been approved by OrbiMed Capital LLC and banks with high credit ratings such as Goldman Sachs International who have a credit rating of A1 (Moody’s), A+ (S&P) and A+ (Fitch);

• by investing in markets that mainly operate DVP (delivery versus payment) settlement.

• all cash balances are held with approved counterparties. J.P. Morgan is the Custodian of the Company’s assets and all assets are segregated from J.P. Morgan’s own assets.

At 31 March 2023 the Company’s exposure to credit risk amounted to £3,260,000 and was in respect of amounts due from brokers in relation to future settlements and cash held as collateral (2022: £nil).

4. FAIR VALUE MEASUREMENT

Hierarchy of investments

As required under IFRS 13 “Fair Value Measurement”, the Company has classified its financial assets designated at fair value through profit or loss 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 2023	£’000	£’000	£’000	£’000
Assets	336,962	–	20,267	357,229
Derivatives: equity swap (liabilities)	–	(1,202)	–	(1,202)
Financial investments held at fair value through profit or loss	336,962	(1,202)	20,267	356,027

	Level 1	Level 2	Level 3	Total
As at 31 March 2022	£’000	£’000	£’000	£’000
Assets	393,169	303	33,927	427,399
Financial investments held at fair value through profit or loss	393,169	303	33,927	427,399

As at 31 March 2023, the investments in OrbiMed Asia Partners LP Fund has been classified as Level 3. The OrbiMed Asia Partners Fund LP has been valued at the net asset value presented in its Statement of Partners Capital Activity as at 31 March 2023, as permitted under the IPEV guidelines. If the value of the fund were to increase or decrease by 10%, while all other variables remain constant, the return and net assets attributable to shareholders for the year ended 31 March 2023 would have increased/decreased by £216,000 (2022: £175,000).

The following two investments have been valued by the Board, following recommendations received from the Valuation Committee which has reviewed in detail both the valuation and the methodologies provided by Kroll, an independent valuer. StemiRNA and XtalPi have been valued using the probability-weighted expected returns methodology (PWERM) and are classified as Level 3. If the non-observable market data: “the probability of certain scenarios” percentage were to increase or decrease by 10%, while all other variables remain constant, the return attributable to shareholders for the year ended 31 March 2023 would have increased/ decreased by £1,786,000.

These Level 3 investments include assumptions based on non-observable market data such as:

(i) the probability of certain scenarios;,

(ii) the expected time to the date of sale or realisation opportunity; and

(iii) discount rates.

The tables below set out the range of inputs applied in arriving at the fair value of the Level 3 investments valued by Kroll.

Probability of Scenario

The probability assigned to certain scenarios is determined by the independent valuer following consultation with the Portfolio Manager. The probability assigned to any scenario reflects a number of factors including the operating performance and prospects of the investee company and market receptivity for IPOs or other realisation routes.

2023	Probability of scenario	5%-35%
	Weighted average probability of scenario	20%
2022	Probability of scenario	10%-35%
	Weighted average probability of scenario	22.5%

Expected time to date of sale or realisation opportunity

The expected time to a sale or realisation opportunity is determined by the independent valuer following consultation with the Portfolio Manager and reflects a number of factors including the operating performance and prospects of the investee company and the current and expected market receptivity for IPOs and other realisation routes.

2023	Expected time to sale or realisation opportunity	1-2.5 years
	Weighted average expected time to sale or realisation opportunity	1.75 years
2022	Expected time to sale or realisation opportunity	0.3-1.8 years
	Weighted average expected time to sale or realisation opportunity	1.05 years

Discount rate

The discount rates assigned to certain scenarios are determined by the independent valuer using market surveys of discount rates used in a range of private equity and unquoted investment transactions.

2023	Discount rate	22.5%
	Discount rate weighted average	22.5%
2022	Discount rate	20.5%
	Discount rate weighted average	20.5%

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. There has been no transfer between fair value hierarchy levels.

	2023	2022
	£’000	£’000
Assets
As at 1 April	33,927	37,483
Purchase of unquoted investments	–	13,266
Sale of unquoted investments	–	(40)
Net movement in investment holding gains during the year	(3,773)	2,843
Transfer from level 3 to level 1	(9,887)	(19,625)
Assets as at 31 March	20,267	33,927

Yisheng Biopharma and Summit Healthcare Acquisition Corp. entered into a definitive agreement for a business combination and upon closing of the transaction in March 2023, the combined company was renamed as YS Biopharma Co. Ltd and became a publicly traded company on the Nasdaq.

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.

5. CAPITAL MANAGEMENT

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.

The Board’s policy is to limit gearing to a maximum of 20% of the Company’s net assets.

As at 31 March 2023 the Company was geared 7.8% (2022: 8.4%).

The capital structure of the Company consists of the equity share capital, retained earnings and other reserves shown in the Statement of Financial Position.

Shares may be repurchased by the Company.

The Company’s objectives, policies and processes for managing capital are unchanged from the preceding accounting period.

As at 31 March 2023, the maximum value of assets available for rehypothecation was £28,238,000, being 140% of the loan balance of £20,170,000 (31 March 2022: £44,437,000 being 140% of the loan balance of £31,741,000).

15. TRANSACTIONS WITH RELATED PARTIES AND THE MANAGERS

Related Parties

The Directors of the Company are considered to be related parties.

Details of the remuneration of the Directors of the Company can be found on page 61 of the Annual Report. Geoff Hsu has waived his Directors’ fees. Details of the Directors’ interests in the capital of the Company can be found on page 63 of the Annual Report.

Transactions with the Managers

• Frostrow Capital LLP

• OrbiMed Capital LLC

Details of the relationship between the Company and Frostrow Capital LLP, the Company’s AIFM, and OrbiMed Capital LLC, the Company’s Portfolio Manager, are disclosed on page 48 of the Annual Report. Geoff Hsu, who joined the Board on 16 May 2018, is a General Partner at OrbiMed. Details of fees paid to OrbiMed by the Company can be found in note 3. All material related party transactions have been disclosed in notes 3 and 4.

The Company holds an interest in OrbiMed Asia Partners Fund which equates to 0.6% of the investments held at 31 March 2023.

Three current and two former partners at OrbiMed Capital LLC have a minority financial interest totalling 20% in Frostrow Capital LLP, the Company’s AIFM. Details of the fees paid to Frostrow Capital LLP by the Company can be found in note 3.

16. CAPITAL RESERVE

	2023			2022
		Capital Reserves			Capital Reserves
		Investment			Investment
		holdings			holdings
		gains/			gains/
	Other	(losses)	Total	Other	(losses)	Total
	£’000	£’000	£’000	£’000	£’000	£’000
At 1 April	399,416	(108,185)	291,231	421,917	78,677	500,594
Net (losses)/gains on investments	(90,316)	57,589	(32,727)	(19,170)	(186,862)	(206,032)
Foreign exchange losses	(3,759)	–	(3,759)	(2,340)	–	(2,340)
Expenses charged to capital	(4,158)	–	(4,158)	5,942	–	5,942
Repurchase of own shares for cancellation	(22,619)	–	(22,619)	(6,933)	–	(6,933)
At 31 March	278,564	(50,596)	227,968	399,416	(108,185)	291,231

Sums within the Total Capital Reserve less unrealised gains (those on investments not readily convertible to cash) are available for distribution. Investment holding gains in the table above are unrealised.

17. CONTINGENT LIABILITIES AND CAPITAL COMMITMENTS

As at 31 March 2023 there were no contingent liabilities or capital commitments for the Company (2022: nil).

The figures and financial information for 2022 are extracted from the published Annual Report for the year ended 31 March 2022 and do not constitute the statutory accounts for that year. The Annual Report for the year ended 31 March 2022 has been delivered to the Registrar of Companies and included the Independent Auditor’s Report which was unqualified and did not contain a statement under either section 498(2) or section 498(3) of the Companies Act 2006.

The figures and financial information for 2023 are extracted from the Annual Report for the year ended 31 March 2023 and do not constitute the statutory accounts for the year. The Annual Report for the year ended 31 March 2023 includes the Independent Auditor’s Report which is unqualified and does not contain a statement under either section 498(2) or section 498(3) of the Companies Act 2006. The Annual Report and financial statements have not yet been delivered to the Registrar of Companies.

GLOSSARY OF TERMS AND ALTERNATIVE PERFORMANCE MEASURES

ACTIVE SHARE

Active Share is expressed as a percentage and shows the extent to which a fund’s holdings and their weightings differ from those of the fund’s benchmark index. A fund that closely tracks its index might have a low Active Share of less than 20% and be considered passive, while a fund with an Active Share of 60% or higher is generally considered to be actively managed.

ADR

An American depositary receipt (ADR) is a negotiable security that represents securities of a foreign company and allows that company’s shares to trade in the U.S. financial markets. Shares of many non-U.S. companies trade on U.S. stock exchanges through ADRs, which are denominated and pay dividends in U.S. dollars, and may be traded like regular shares of stock.

AIC

Association of Investment Companies.

ALTERNATIVE INVESTMENT FUND MANAGERS DIRECTIVE (AIFMD)

Agreed by the European Parliament and the Council of the European Union and transposed into UK legislation, the AIFMD classifies certain investment vehicles, including investment companies, as Alternative Investment Funds (AIFs) and requires them to appoint an Alternative Investment Fund Manager (AIFM) and depositary to manage and oversee the operations of the investment vehicle. The Board of the Company retains responsibility for strategy, operations and compliance and the Directors retain a fiduciary duty to shareholders.

ALTERNATIVE PERFORMANCE MEASURE (APM)

An APM is a numerical measure of the Company’s current, historical or future financial performance, financial position or cash flows, other than a financial measure defined or specified in the applicable financial framework. In selecting these Alternative Performance Measures, the Directors considered the key objectives and expectations of typical investors in an investment trust such as the Company.

DISCOUNT OR PREMIUM^

A description of the difference between the share price and the net asset value per share. The size of the discount or premium is calculated by subtracting the share price from the net asset value per share and is usually expressed as a percentage (%) of the net asset value per share. If the share price is higher than the net asset value per share the result is a premium. If the share price is lower than the net asset value per share, the shares are trading at a discount.

	As at 31	As at 31
	March 2023	March 2022
	(pence)	(pence)
Share price	783.0	898.0
Net asset value per share (see note 13 for further information)	852.6	957.8
Discount of share price to net asset value per share	8.2%	6.2%

^ Alternative Performance Measure

GEARING^

Gearing represents prior charges, adjusted for net current liabilities, expressed as a percentage of net assets (AIC methodology). Prior charges includes all loans and overdrafts for investment purposes.

	31 March	31 March
	2023	2022
	£’000	£’000
Loan	20,170	31,741
Net current liabilities (excluding loan and derivatives)*	5,565	1,450
	25,736	33,191
Net assets	330,291	394,208
Gearing	7.8%	8.4%

* current liabilities less current assets

IPO

An Initial Public Offering (“IPO”) is the process by which the shares of a previously private company are listed on a stock exchange for the first time. Through this process a company can raise new capital, offer an exit opportunity for private investors and founders, and enable the trading of its shares.

IPO LOCK-IN

When a company offers shares in an IPO, investors sometimes enter into a lock-in agreement preventing them from selling their shares for a specified period after the IPO.

LEVERAGE

The AIFMD leverage definition is slightly different from the Association of Investment Companies’ method of calculating gearing and is defined as follows: any method by which the AIFM increases the exposure of an AIF it manages whether through borrowing of cash or securities, or leverage embedded in derivative positions.

For the purposes of the AIFMD, leverage is any method which increases the Company’s exposure, including the borrowing of cash and the use of derivatives. It is expressed as a ratio between the Company’s exposure and its net asset value and can be calculated on a gross and a commitment method. Under the gross method, exposure represents the sum of the Company’s positions after the deduction of sterling cash balances, without taking into account any hedging and netting arrangements. Under the commitment method, exposure is calculated without the deduction of sterling cash balances and after certain hedging and netting positions are offset against each other.

	Gross Method	Commitment Method
Maximum limit	130.0%	130.0%
Actual as at 31 March 2023	110.5%	109.7%

MARGINABLE SECURITIES

Marginable securities are stocks, bonds, futures or other securities capable of being traded on a Margin Account and are available for rehypothecation*.

NET ASSET VALUE (NAV)

The net asset value of the Company’s assets, principally investments made in other companies and cash held, less any liabilities. The NAV is also described as “shareholders’ funds”. The NAV is often expressed in pence per share after being divided by the number of shares which have been issued. The NAV per share is unlikely to be the same as the share price, which is the price at which the Company’s shares can be bought or sold by an investor. The share price is determined by the relationship between the demand and supply of the shares in the secondary market.

* See glossary.

^ Alternative Performance Measure

NET ASSET VALUE PER SHARE TOTAL RETURN^

The net asset value per share return for the year ended 31 March 2023 is calculated by taking the percentage movement from the net asset value per share as at 31 March 2022 of 957.8p (2021: 1,446.4p) to the net asset value per share at 31 March 2023 of 852.6p (2022: 957.8p). The Company has not paid any dividends to shareholders in respect of the above mentioned years.

ONGOING CHARGES^

Ongoing charges are calculated by taking the Company’s annualised operating expenses expressed as a proportion of the average daily net asset value of the Company over the year.

The costs of buying and selling investments are excluded, as are interest costs, taxation, performance fees, cost of buying back or issuing ordinary shares and other non-recurring costs.

	31 March	31 March
	2023	2022
	£’000	£’000
AIFM & portfolio management fees (note 3)	3,531	4,734
Other re-occurring expenses (note 4)	692	678
Total ongoing charges	4,223	5,412
Average daily net assets for the year	394,525	507,333
Ongoing charges	1.1%	1.1%

OTC EQUITY SWAPS

Over-the-Counter (OTC) refers to the process of how securities are traded via a broker - dealer network, as opposed to on a centralised exchange.

An equity swap is an agreement where one party (counterparty) transfers the total return of an underlying equity position to the other party (swap holder) in exchange for a payment of the principal, and interest for financed swaps, at a set date. Total return includes dividend income and gains or losses from market movements. The exposure of the holder is the market value of the underlying equity position.

There are two main types of equity swaps:

• Funded – where payment is made on acquisition. They are equivalent to holding the underlying equity position with the exception of additional counterparty risk and not possessing voting rights in the underlying security; and

• Financed – where payment is made on maturity. As there is no initial outlay, financed swaps increase exposure by the value of the underlying equity position with no initial increase in the investments value – there is therefore embedded leverage within a financed swap due to the deferral of payment to maturity.

REHYPOTHECATION

Rehypothecation is the practice by banks and brokers of using collateral posted as security for loans as regulated by the U.S. Securities Exchange Commission.

SUSTAINABILITY ACCOUNTING STANDARDS BOARD (SASB)

The Sustainability Accounting Standards Board (SASB) is a non-profit organisation, founded in 2011 to develop sustainability accounting standards. Its stated mission is “to establish industry-specific disclosure standards across ESG topics that facilitate communication between companies and investors about financially material, decision-useful information. Such information should be relevant, reliable and comparable across companies on a global basis.”

SHARE PRICE TOTAL RETURN^

The share price total return represents the theoretical return to a shareholder, on a closing market price basis. The share price total return is calculated by taking the percentage movement from the share price as at 31 March 2022 of 898.0p (2021: 1,426.0p) to the share price as at 31 March 2023 of 783.0p (2022: 898.0p). The Company has not paid dividends to shareholders in respect of the above mentioned years.

^ Alternative Performance Measure

VARIABLE INTEREST ENTITY (VIE)

A corporate structure through which an investor can own the economic interests of shares in a company through a contractual relationship. This structure is common in China, including in the biotechnology sector.

ANNOUNCEMENT ENDS

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

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