Preliminary Announcement of Audited Results
NEWS RELEASE
31 May 2011
Preliminary Audited Results for the year ended 31 March 2011
The Biotech Growth Trust PLC (Company Registration Number 3376377) today
announces preliminary audited results for the year ended 31 March 2011.
31 March 31 March % change
2011 2010
Shareholders' funds (£'000) 120,818 120,417 +0.3
Net asset value per share 186.0p 182.6p +1.9
Share price 166.0p 175.8p -5.6
Discount of share price to net asset value 10.8% 3.7% -
per share
NASDAQ Biotechnology Index (sterling 647.9 618.1 +4.8
adjusted)
Total expense ratio * 1.2% 1.2% -
*Based on the average amount of shareholders' funds during the year - excludes
performance fee accrued/written back -see note 3.
For and on behalf of Frostrow Capital LLP - Company Secretary
31 May 2011
- ENDS -
The following are attached:
* Chairman's Statement
* Review of Investments
* Income Statement
* Statement of Changes in Equity
* Statement of Financial Position
* Statement of Cash Flows
* Notes to the Financial Statements
For further information please contact:
Alastair Smith, Frostrow Capital LLP 020 3 008 4911
Mark Pope, Frostrow Capital LLP 020 3 008 4913
Jo Stonier, Quill Communications 020 7758 2230
Chairman's Statement
PERFORMANCE
During the year ended 31 March 2011, the Company's net asset value per share
rose by 1.9% compared to a rise of 4.8% in the Company's benchmark during the
same period. The Company's share price, however, fell by 5.6%, as the discount
of share price to net asset value per share widened from 3.7% at 31 March 2010
to 10.8% at the year-end.
This disappointing result was due in part to the strong performance of a small
number of stocks which were in the Index against which we measure our
performance but which were not in our own portfolio. We also suffered from
being underweight in some mid capitalisation stocks which performed
particularly well in the second half of the year and overweight in major
biotechnology
companies which underperformed the mid and small capitalisation companies. A
weakening of the U.S. dollar during the year had a negative impact on the
Company's absolute performance. Further information on the Company's
investments can be found in the Review of Investments.
Active management of a portfolio will inevitably lead to periods of relative
out and underperformance. For example in the two preceding financial years our
net asset value per share rose by 32.4% and 33.4% respectively, substantially
outperforming the Index throughout that period.
RETURN PER SHARE AND DIVIDEND
The total return per share amounted to 3.0p for the year (2010: return of
51.8p), comprising a revenue deficit of 0.5p per share (2010: deficit of 0.6p)
and a capital gain of 3.5p (2010: gain of 52.4p). No dividend is recommended in
respect of the year ended 31 March 2011(2010: Nil).
GEARING
Following a change in the Company's custodian in December 2009, the Company's
borrowing requirements are met through a loan facility, negotiated on
competitive terms, provided by the custodian Goldman Sachs & Co, New York. This
loan facility was used by the Company at various times during the year but on
31 March 2011 it was undrawn.
CAPITAL
The Board has continued to implement its policy of active discount management
and to buy back shares when necessary in the event of the market price being at
a discount greater than 6% to the net asset value per share. During the year, a
total of 1,005,180 shares was bought back for cancellation, at an average
discount to net asset value per share of 7.9%. The cost was £1,601,000
(including expenses).
As mentioned above, the discount of the Company's share price to the net asset
value per share was 10.8% at the year-end, emphasising that the discount can
sometimes temporarily exceed the target of 6%. This reflects the overall
balance between supply and demand for the Company's shares in the secondary
market and the volatility of the biotechnology asset class.
The average month end share price discount during the year was 6.1% and the
execution and timing of any share buy-backs will continue to be at the absolute
discretion of the Board. Shareholder approval to renew the authority to
buy-back shares will be sought at the Annual General Meeting.
DEVELOPMENTS IN THE INVESTMENT TRUST SECTOR
HM Treasury's review of the tax and company law rules affecting investment
trusts set out in its consultation document last summer has now resulted in
sensible and beneficial amendments which should be advantageous to the whole
industry. These amendments include a softening of the rules so that inadvertent
and minor breaches that are remedied without delay will not cause the
investment trust concerned to suffer adverse tax consequences. Our trade
association, the Association of Investment Companies (AIC), played a leading
role in reaching this satisfactory conclusion of the review.
The Alternative Investment Fund Managers Directive was passed into law by the
European Parliament last summer, but there is much detail still to emerge
before this Directive takes effect in 2013. It is, however, clear that much of
the over-bureaucratic regulation first proposed has been abandoned in favour of
more pragmatic measures and the AIC again played a major role in achieving
this.
OUTLOOK
The outlook for most markets has tended to improve over the last two years, not
least on
account of the expansive monetary policies adopted by many central banks. The
Company's
share price has risen from 130.5p to 180.0p since 31 March 2009. Serious
structural problems still persist, however, in many industrial countries,
particularly in the United States and in Europe. The dangers of inflation
remain another growing source of concern.
OrbiMed, our Investment Manager, believes that the outlook for the healthcare
sector is good although volatility in the sector may increase if the
Republicans decide to reform the current U.S. healthcare bill. But healthcare
shares in general, and mature biotechnology shares in particular, are at
historically low levels as measured by criteria such as a company's price/
earnings to growth ratio and OrbiMed are well positioned to take advantage of
the investment opportunities which arise. Continued merger and acquisition
activity and the release of important product data will both be key drivers for
the sector. In addition, there are a number of expected high profile and
innovative product approvals due in 2011 which could prove very significant for
the sector.
Despite disappointing performance in the year under review your Board is
confident that the Company is well positioned to take advantage of current
market conditions.
Our focus continues to be on the selection of stocks with strong prospects for
capital enhancement and we continue to believe that the long term investor in
our sector will be well rewarded.
ANNUAL GENERAL MEETING
The Annual General Meeting of the Company will be held at the Barber-Surgeons'
Hall, Monkwell Square, Wood Street, London EC2Y 5BL on Thursday, 14 July 2011
at 12 noon, and we hope as many shareholders as possible will attend. This will
be an opportunity to meet the Board and to receive a presentation from our
Investment Manager.
John Sclater, CVO
Chairman
Review of Investments
The Company's net asset value per share increased by 1.9% during the year. A
weakening of the U.S. dollar negatively impacted the Company's absolute
performance by approximately 5%. The Company's benchmark index, the NASDAQ
Biotechnology Index (measured on a sterling adjusted basis), rose 4.8% during
this period. The underperformance is partially attributed to a relative
overweight position in major biotechnology companies which underperformed the
mid and small capitalisation companies during the year.
The top contributors to performance in the portfolio were Ariad
Pharmaceuticals, Genzyme, Pharmasset, Illumina, and Shire. Ariad reported
positive results from two programmes during the year which drove positive share
performance: Ponatinib showed strong activity against the treatment of
refractory chronic myelogenous leukaemia and Ridaforolimus demonstrated a
benefit in sarcoma. Genzyme was acquired by Sanofi-Aventis at a 40% premium to
the price before rumours of the unsolicited bid emerged. Pharmasset reported
positive results from early stage trials for two of its HCV (Hepatitis C)
polymerase inhibitors, PSI-7977 and PSI-938. Over the course of the year, it
has become clear that Pharmasset is a front-runner among the next "wave" of
direct acting antiviral drugs for HCV, and has the potential to be the first
company with an all-oral combination regimen for HCV. Illumina's share price
performance was driven by the launch of the company's new HiSeq 2000 next
generation sequencing system in early 2010, which exceeded sales expectations
over the course of the fiscal year. There has been keen investor interest in
next generation genetic sequencing for both research and diagnostic purposes
and Illumina remains the leading company in that area. Shire's share price
performance was driven by earnings upside due to manufacturing difficulties at
a key competitor and the absence of broad generic competition to its legacy
attention deficit disorder compound Adderall XR.
The largest losses were from positions in Allos Therapeutics, Curis, Amgen, and
Celgene. Allos' shares were weak as the launch of their drug Folotyn for
peripheral T-cell lymphoma came in below estimates. Furthermore, they reported
underwhelming data for Folotyn for the treatment of lung cancer, a key
expansion indication. We continue to hold the shares as we believe that the
reset expectations for Folotyn in 2011 are achievable. Curis reported negative
data for their "hedgehog inhibitor" licensed to Roche in colorectal cancer.
This failure suggests that the drug may be limited to the relatively small
market of basal cell carcinoma, where it does possess dramatic activity.
Amgen's shares remained subdued during the year due to a
slower-than-anticipated launch of its osteoporosis drug Prolia, investor
concerns about the company's capital allocation policy and continued headwinds
for the company's anaemia franchise. Celgene's shares underperformed during the
year as investors began to question the longer term growth potential of the
company. Additionally, data presented in December caused some concern about the
potential for Revlimid, Celgene's lead drug for myeloma, to cause secondary
cancers and thus limit uptake in the maintenance setting.
Outlook: new product momentum continues
The outlook for new innovative products from the biotechnology sector remains
strong. A number of the drugs approved or expected to be approved in 2011 have
"blockbuster" potential (conventionally defined, a blockbuster is a drug with
over $1 billion in annual sales). We would highlight four new products that
will be launched in 2011: Benlysta, Esbriet, Telaprevir, and Ruxolitinib.
* Benylsta, from Human Genome Sciences and partnered with GlaxoSmithKline, is
an anti-BLyS antibody for the treatment of lupus, an autoimmune disease
with high unmet need. It is the first drug to be approved in the United
States for lupus in 50 years.
* Esbriet, from InterMune, has been approved in Europe for idiopathic
pulmonary fibrosis, a fatal lung disease with no other effective drug
therapy.
* Telaprevir, from Vertex Pharmaceuticals, is a protease inhibitor for
Hepatitis C. This drug dramatically increases the cure rate compared with
current standard of care and will greatly expand the number of patients
treated annually for Hepatitis C.
* Ruxolitinib, from Incyte, is a Janus kinase inhibitor for myelofibrosis, a
progressive scarring of the bone marrow. The drug has shown impressive
activity in reducing spleen size and improving symptoms of the disease.
The number of holdings in the portfolio remains at approximately 40, exclusive
of unquoted investments and warrants. The geographic distribution of assets is
90% North America, 9% Europe and 1% Asia. Currently approximately 45% of the
Company's assets are invested in major biotechnology, and 55% are invested in
emerging biotechnology. We believe that the level of high profile new drug
launches, the favourable valuation of major biotechnology companies and the
potential for continued merger and acquisition activity will drive strong
performance in the coming year.
Sven Borho
OrbiMed Capital LLC
Investment Manager
Income Statement
for the year ended 31 March
2011 2010
Revenue Capital Total Revenue Capital Total
£000 £000 £000 £000 £000 £000
Income
Investment income ( note 69 - 69 31 - 31
2)
Other income ( note 2) - - - 34 - 34
Total income 69 - 69 65 - 65
Gains and losses on
investments
Gains on investments - 2,691 2,691 - 30,979 30,979
held at fair value
through profit or loss
Exchange gains/(losses) - 402 402 - (725) (725)
on currency balances
Expenses
Investment management, - (752) (752) - (1,365) (1,365)
management and
performance fees ( note
3)
Refund of VAT previously - - - - 168 168
paid on management fees
Other expenses (398) - (398) (417) - (417)
(Loss)/profit before (329) 2,341 2,012 (352) 29,057 28,705
finance costs and
taxation
Finance costs (11) - (11) (3) (13) (16)
(Loss)/profit before (340) 2,341 2,001 (355) 29,044 28,689
taxation
Taxation (1) - (1) - - -
(Loss)/profit for the (341) 2,341 2,000 (355) 29,044 28,689
year
Basic and diluted / (0.5)p 3.5p 3.0p (0.6)p 52.4p 51.8p
(loss) earnings per
share ( note 4)
The Company does not have any income or expenses which are not included in the
profit for the year. Accordingly, the "profit for the year" is also the "total
comprehensive income for the period", as defined in IAS 1 (revised) and no
separate Statement of Comprehensive Income has been presented.
All of the profit and total comprehensive income for the period is attributable
to the owners of the Company.
The "Total" column of this statement represents the Company's Income Statement,
prepared in accordance with International Financial Reporting Standards (IFRS).
The "Revenue" and "Capital" columns are supplementary to this and are prepared
under guidance published by the Association of Investment Companies.
All items in the above statement derive from continuing operations.
Statement of Changes in Equity
For the year ended 31 March 2011
Share Share Special Capital Capital Revenue Total
capital premium redemption
£'000 account reserve reserve reserve £'000
£'000 reserve £'000
£'000 £'000
£'000
At 31 March 2010 16,490 19,298 32,021 4,642 50,970 (3,004) 120,417
Net profit/ (loss) - - - - 2,341 (341) 2,000
for the year
Issue costs refunded - 2 - - - - 2
Buyback of shares (251) - (1,601) 251 - - (1,601)
At 31 March 2011 16,239 19,300 30,420 4,893 53,311 (3,345) 120,818
For the year ended 31 March 2010
Share Share Special Capital Capital Revenue Total
capital premium redemption reserve
£'000 account reserve reserve £'000 £'000
£'000 reserve
£'000 £'000
£'000
At 31 March 2009 12,824 - 33,800 4,307 21,926 (2,649) 70,208
Net profit/ (loss) - - - - 29,044 (355) 28,689
for the year
Issue of shares 4,001 19,877 - - - - 23,878
Issue costs - (579) - - - - (579)
Buyback of shares (335) - (1,779) 335 - - (1,779)
At 31 March 2010 16,490 19,298 32,021 4,642 50,970 (3,004) 120,417
Statement of Financial Position
As at 31 March
2011 2010
£'000 £'000
Non current assets
Investments held at fair 128,346 132,618
value through profit or
loss
Current assets
Other receivables 1,161 304
Cash and cash equivalents 5,691 -
6,852 304
Total assets 135,198 132,922
Current liabilities
Other payables 14,380 4,016
Bank loan - 8,489
14,380 12,505
Net assets 120,818 120,417
Equity attributable to
equity holders
Ordinary share capital 16,239 16,490
Share premium account 19,300 19,298
Special reserve 30,420 32,021
Capital redemption reserve 4,893 4,642
Capital reserve 53,311 50,970
Revenue reserve (3,345) (3,004)
Total equity 120,818 120,417
Net asset value per share 186.0p 182.6p
( note 5)
Statement of Cash Flows
For the year ended 31 March
2011 2010
£'000 £'000
Operating activities
Profit before tax 2,001 28,689
Add back interest paid 11 16
Less: gain on investments (2,691) (30,979)
held at fair value through
profit or loss
Add exchange (gains)/ (402) 725
losses on currency
balances
Purchases of investments (98,383) (109,571)
held at fair value through
profit or loss
Sales of investments held 115,677 82,788
at fair value through
profit or loss
Increase in other (15) (17)
receivables
(Decrease)/increase in (810) 667
other payables
Net cash inflow/(outflow) 15,388 (27,682)
from operating activities
before interest and
taxation
Interest paid (11) (16)
Taxation paid (1) -
Net cash inflow/(outflow) 15,376 (27,698)
from operating activities
Financing activities
Refund of issue costs 2 -
Issue of shares - 23,299
Buy-back of shares (1,600) (2,387)
(Repayment)/drawdown of (8,489) 5,350
bank loan
Net cash (outflow)/inflow (10,087) 26,262
from financing
Increase/(decrease) in 5,289 (1,436)
cash and cash equivalents
Cash and cash equivalents - 2,161
at start of year
Effect of foreign exchange 402 (725)
rate changes
Cash and cash equivalents 5,691 -
at end of year
Notes to the Financial Statements
1 Basis of Preparation
This preliminary announcement of the Company has been prepared in accordance
with International Financial Reporting Standards ("IFRS") and using the same
accounting policies as those in the last published annual accounts, being those
to 31 March 2010.
2 Income
2011 2010
£'000 £'000
Investment Income - 2
Money market dividends 69 29
Overseas income
69 31
Other operating income - 34
Interest receivable (including
interest on VAT repayment from
HMRC)
Total Income 69 65
3 Investment Management, Management and Performance Fees
Revenue Capital Total Revenue Capital Total
2011 2011 2011 2010 2010 2010
£'000 £'000 £'000 £'000 £'000 £'000
Investment - 711 711 - 544 544
Management fee
Management fee - 322 322 - 247 247
Performance - (281) (281) - 574 574
fee (written
back)
/accrued
- 752 752 - 1,365 1,365
Notes to the Financial Statements (continued)
4 Basic and diluted (loss)/earnings per share
Total gain per share of 3.0p (2010: gain 51.8p) is based on the total gain
attributable to equity shareholders of £2,000,000 (2010: gain £28,689,000).
The revenue loss per share of 0.5p (2010 loss: 0.6p) is based on the revenue
loss attributable to equity shareholders of £341,000 (2010: £355,000).
The capital gain per share of 3.5p (2010: gain 52.4p) is based on the capital
gain attributable to equity shareholders of £2,341,000 (2010: gain £
29,044,000).
The total gain, revenue loss and capital gain per share are based upon the
weighted average number of shares in issue during the year of 65,687,388 (2010:
55,422,574).
5 Net asset value per share
The net asset value per share is based on the net assets attributable to equity
shareholders of £120,818,000 (2010: £120,417,000) and on 64,954,681 (2010:
65,959,861) shares in issue at 31 March 2011.
6 Financial information
This preliminary statement is not the Company's statutory accounts. The above
results for 2011 have been agreed with the Auditors and are an abridged version
of the Company's full accounts which have not yet been filed with the Registrar
of Companies. The 2011 accounts have been prepared in accordance with
International Financial Reporting Standards ("IFRS").
The statutory accounts for the year end 31 March 2010 have been delivered to
the Registrar of Companies and those for 31 March 2011 will be despatched to
shareholders shortly. The 2011 accounts received an audit report which was
unqualified, did not include a reference to any matter to which the auditors
drew attention without qualifying the report, and did not contain statements
under Section 498 of the Companies Act 2006.
Frostrow Capital LLP
Company Secretary
31 May 2011
- ENDS -
The Biotech Growth Trust PLC
Monday, 20th May 2024
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