Preliminary Announcement of Results
NEWS RELEASE
16 June 2010
Preliminary Results for the year ended 31 March 2010
The Biotech Growth Trust PLC today announces preliminary results for the year
ended 31 March 2010.
31 March 31 March % change
2010 2009
Shareholders' funds (£'000) 120,417 70,208 71.5
Net asset value per share 182.6p 136.9p 33.4
Share price 175.8p 130.5p 34.7
Discount of share price to net asset value 3.7% 4.7% -
per share
NASDAQ Biotechnology Index (sterling 618.1 477.5 29.4
adjusted)
Total expense ratio * 1.1% 1.6% -
*Based on the average amount of shareholders' funds during the year - excludes
performance fee accrued/written back -see note 3. However, this includes the
VAT repayment received during the year ended 31 March 2010.
For and on behalf of Frostrow Capital LLP - Company Secretary
16 June 2010
- ENDS -
The following are attached:
* Chairman's Statement
* Review of Investments
* Income Statement
* Statement of Changes in Equity
* Balance Sheet
* Cash Flow Statement
* 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
Following the strong performance reported at the interim stage, I am delighted
to report that the Company continued to deliver good returns during the second
half of its financial year. During the full year ended 31 March 2010, the
Company's net asset value per share rose by 33.4% compared to a rise of 29.4%
in the Company's benchmark during the same period. The Company's share price
also outperformed the benchmark, rising by 34.7%, as the discount of share
price to net asset value per share narrowed slightly from 4.7% at 31 March 2009
to 3.7% at the year-end.
This outperformance was achieved, in part, due to positive news flow concerning
drugs being developed by companies held in the portfolio such as Curis,
Dendreon, InterMune, Celgene and BioMarin Pharmaceutical and, in part, from
continued high levels of merger acquisition activity in the biotechnology
sector. Three of the Company's holdings (Tepnel Life Sciences, Genentech and
Cougar Biotechnology) were the subject of take over activity during the year.
The Company's fine performance in sterling terms was achieved in spite of the
headwind from the appreciation of sterling against the U.S. dollar.
Further information on the Company's investments can be found in the Review of
Investments.
PLACING AND OFFER FOR SUBSCRIPTION
I am pleased to report that a total of 16,006,227 new shares was issued on 4
December 2009 at a price of 149.18p per share, raising £23.9m of additional
funds for the Company. I would like to welcome our new shareholders and to add
that I hope they, and indeed all our shareholders, will be delighted at the
7.6% increase in the Company's share price since the date of our new issue. The
funds raised were invested quickly by our Investment Manager to take advantage
of rising markets.
RETURN PER SHARE AND DIVIDEND
The total return per share amounted to 51.8p for the year (2009: return of
32.0p), comprising a revenue deficit of 0.6p per share (2009: deficit of 0.7p)
and a capital gain of 52.4p (2009: gain of 32.7p). No dividend is recommended
in respect of the year ended 31 March 2010 (2009: Nil).
GEARING
Following a change in the Company's custodian in December 2009, the Company's
borrowing requirements are met through a loan facility, which is repayable on
demand, provided by the new custodian, Goldman Sachs & Co New York. At 31 March
2010 a total of £8.5m from this facility was drawn down.
CAPITAL
The Board has continued to implement its policy of active discount management
and to buy back shares 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
1,342,779 shares was bought back for cancellation, at an average discount to
net asset value per share of 8%, costing £1,779,000 (including expenses). The
execution and timing of any share buy-back will continue to be at the absolute
discretion of the Board.
Shareholder approval to renew the authority to buy in shares will be sought at
the Annual General Meeting.
ALTERNATIVE INVESTMENT FUND MANAGER (`AIFM') DIRECTIVE
Our trade association, the Association of Investment Companies continues to
work towards ensuring that the AIFM Directive, the draft legislation being
considered in Europe which will regulate `alternative investment funds'
including investment trusts, will accommodate the UK investment company
structure. The Association appears to be making progress with this and your
Board will continue to keep shareholders informed of major developments
concerning the Directive as they arise.
OUTLOOK
2009 was an exceptional year in terms of a recovery in the fortunes of markets,
with fears of a return to a global recession, not seen for a generation, giving
way to signs of a developing recovery thanks to radical and unprecedented
stimulus packages from central governments. With the uncertainty surrounding
healthcare reform in the U.S. having abated, our Investment Manager believes
strongly that the sector, and biotechnology companies in particular, will
continue to benefit from this. In addition, continued merger and acquisition
activity, a benign environment for initial public offerings ("IPOs") and a
number of expected high profile product approvals will all be key drivers for
the sector. Your Board believes that the Company is well positioned to take
advantage of this bright outlook.
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 Friday, 16 July 2010 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
PERFORMANCE REVIEW
The Company's net asset value per share increased by 33.4% during the year. The
Company also outperformed our benchmark index, the NASDAQ Biotechnology Index
(measured on a sterling adjusted basis), which rose 29.4% during this period.
The top contributors to performance in the portfolio were Curis, Dendreon,
InterMune, Celgene, and BioMarin Pharmaceutical. Curis' shares have increased
as its promising anti-cancer drug partnered with Roche progressed through
mid-stage trials. Dendreon reported positive phase III trial results for
Provenge, its prostate cancer treatment, which drove the shares up over 700%
during the fiscal year. Celgene was the top-performing major biotechnology
stock due to successful clinical trial results for its drug Revlimid, used to
treat first-line myeloma. InterMune received a positive vote for approval from
a U.S. Food and Drug Administration ("FDA") advisory panel for its lead drug
pirfenidone for idiopathic pulmonary fibrosis. BioMarin rebounded from a
difficult prior year as investors turned their focus to two new product
opportunities currently in clinical trials for rare genetic diseases: GALNS for
MPS IV and PEG-PAL for phenylketonuria.
The biggest losses were from positions in Medivation and Genmab, which both
reported negative phase III trial data. Medivation's Dimebon failed to show a
benefit in Alzheimer's disease despite prior positive data. Genmab's Arzerra
showed a lower than expected response rate in the treatment of non-Hodgkin's
lymphoma.
The Company's financial year began a few weeks after the general markets
reached a bottom in March 2009. At the time, there were legitimate concerns
that many of the smaller unprofitable biotechnology companies would be unable
to finance, which negatively affected their share prices. As the markets
recovered and these concerns abated, the emerging biotechnology sector tended
to outperform the major biotechnology sector during the financial year.
Furthermore, concerns about the impact of healthcare reform in the United
States on major biotechnology companies dampened interest from generalist
investors and created an overhang for these stocks. Although the overall NASDAQ
Biotech Index increased some 29%, the major capitalisation components of the
index increased approximately 8% while the smaller capitalisation components of
the index increased 37%.
HEALTHCARE REFORM IN THE U.S.
President Obama made healthcare reform one of the key initiatives of his new
administration. This started a year-long process to craft acceptable
legislation. In addition to significant political debates, this process created
uncertainty for healthcare investors about the future profitability of the
industry. In March 2010, the United States congress passed the final reform
bill into law. We believe that the changes to the healthcare system are
manageable for the biotechnology industry and will be positive in the long
term. Fortunately the most potentially damaging options that were contemplated,
such as the creation of a public insurance plan, were omitted from the final
legislation. In the short term there are relatively small changes that
adversely impact biotechnology and pharmaceutical companies such as a reduction
in the rate of payment for drugs under Medicaid (which covers the poor) and the
creation of a small industry tax for drug makers. Over the longer term the
reform will increase the number of insured individuals by about 30 million,
which we believe could create volume growth of drug sales of three to five per
cent.
SECTOR UPDATE
An encouraging driver of sector growth over the coming years is the resurgent
level of new biotechnology product launches. The following table lists the
major recent and prospective launches by companies listed in the portfolio. The
biotechnology industry continues to deliver impressive research and development
productivity (in contrast to most traditional large pharmaceutical companies)
and now routinely accounts for over half of new product introductions in the
U.S. Furthermore the products from biotechnology companies tend to be
innovative, rather than "me-too" drugs. For example, Provenge, from Dendreon,
is the first "cancer vaccine" which treats prostate cancer by sensitising the
patient's immune system to fight cancer with limited additional side effects.
Also, Benlysta, from Human Genome Sciences, takes a unique approach to
down-regulating B-cells in lupus, and is expected to be the first drug approved
for that condition in 40 years.
Product Market Indication Launch Year Revenue
Potential
Folotyn Allos T-cell Lymphoma 2009 $500 million
Therapeutics
Arzerra Genmab/Glaxo CLL 2009 $500 million
Denosumab Amgen Osteoporosis 2010 $5 billion
Ampyra Acorda Multiple Sclerosis 2010 $500 million
Krystexxa Savient Gout 2010 $500 million
Benlysta HGS/Glaxo Lupus 2010 $2 billion
Provenge Dendreon Prostate cancer 2010 $2 billion
Telaprevir Vertex Hepatitis C 2011 $5 billion
As we have noted in prior reports, merger and acquisition activity is a key
theme for biotechnology sector investing. During the financial year, the
Company benefitted from the acquisition of portfolio holding Cougar
Biotechnology by Johnson and Johnson at a 16% premium, and the announced
hostile offer for OSI Pharmaceuticals by Astellas at a 40% premium. Acquisition
candidates within the portfolio that have late stage assets include Allos
Therapeutics, Dendreon, Human Genome Sciences, and Savient Pharmaceuticals.
With the removal of the overhang of healthcare reform, the low current
valuation of the group, the strong fundamentals in terms of pipeline progress
and financial results, we believe the biotech sector is poised for
outperformance.
Sven Borho
OrbiMed Capital LLC
Investment Manager
Income Statement
for the year ended 31 March 2010
2010 2009
Revenue Capital Total Revenue Capital Total
£000 £000 £000 £000 £000 £000
Investment income
Investment income ( note 31 - 31 39 - 39
2)
Other income ( note 2) 34 - 34 - - -
Total income 65 - 65 39 - 39
Gains and losses on
investments
Gains on investments - 30,979 30,979 - 19,774 19,774
held at fair value
through profit or loss
Exchange losses on - (725) (725) - (469) (469)
currency balances
Expenses
Investment management, - (1,365) (1,365) - (871) (871)
management and
performance fees ( note
3)
Refund of VAT previously - 168 168 - - -
paid on management fees
Other expenses (417) - (417) (408) (7) (415)
Profit/(loss) before (352) 29,057 28,705 (369) 18,427 18,058
finance costs and
taxation
Finance costs (3) (13) (16) (7) (75) (82)
Profit/(loss) before (355) 29,044 28,689 (376) 18,352 17,976
taxation
Taxation - - - - - -
Profit/(loss) for the (355) 29,044 28,689 (376) 18,352 17,976
year
Earnings/(loss) per (0.6)p 52.4p 51.8p (0.7)p 32.7p 32.0p
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 2010
Share Share Special Capital Capital Retained Total
capital premium redemption earnings
£'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
For the year ended 31 March 2009
Share Share Special Capital Capital Retained Total
capital premium redemption earnings
£'000 account reserve reserve £'000 £'000
£'000 reserve
£'000 £'000
£'000
At 31 March 2008 15,596 - 46,065 1,535 3,574 (2,273) 64,497
Net profit/ (loss) - - - - 18,352 (376) 17,976
for the year
Buyback of shares (2,772) - (12,265) 2,772 - - (12,265)
At 31 March 2009 12,824 - 33,800 4,307 21,926 (2,649) 70,208
Balance Sheet
As at 31 March
2010 2009
£'000 £'000
Non current assets
Investments held at fair 132,618 71,256
value through profit or
loss
Current assets
Other receivables 304 1,066
Cash and cash equivalents - 2,161
304 3,227
Total assets 132,922 74,483
Current liabilities
Other payables 4,016 1,136
Bank loan 8,489 3,139
12,505 4,275
Net assets 120,417 70,208
Equity attributable to
equity holders
Ordinary share capital 16,490 12,824
Share premium account 19,298 -
Special reserve 32,021 33,800
Capital redemption reserve 4,642 4,307
Capital reserve 50,970 21,926
Retained earnings (3,004) (2,649)
Total equity 120,417 70,208
Net asset value per share 182.6p 136.9p
( note 5)
Cash Flow Statement
For the year ended 31 March
2010 2009
£'000 £'000
Operating activities
Profit before tax 28,689 17,976
Add back interest paid 16 82
Less: gain on investments (30,979) (19,774)
held at fair value through
profit or loss
Add exchange losses on 725 469
currency balances
Purchases of investments (109,571) (55,870)
held at fair value through
profit or loss
Sales of investments held 82,788 67,658
at fair value through
profit or loss
Increase in other (17) (9)
receivables
Increase in other payables 667 229
Net cash (outflow)/inflow (27,682) 10,761
from operating activities
before interest and
taxation
Interest paid (16) (82)
Net cash (outflow)/inflow (27,698) 10,679
from operating activities
Financing activities
Issue of shares 23,299 -
Buyback of shares (2,387) (11,999)
Draw down of bank loan 5,350 3,139
Net cash outflow/(outflow) 26,262 (8,860)
from financing
(Decrease)/increase in (1,436) 1,819
cash and cash equivalents
Cash and cash equivalents 2,161 811
at start of year
Effect of foreign exchange (725) (469)
rate changes
Cash and cash equivalents - 2,161
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 2009.
2 Income
2010 2009
£'000 £'000
Investment Income 2 20
Money market dividends 29 17
Overseas income - 2
Unfranked interest
31 39
Other operating income 34 -
Interest receivable (including
interest on VAT repayment from
HMRC)
Total Income 65 39
3 Investment Management, Management and Performance Fees
Revenue Capital Total Revenue Capital Total
2010 2010 2010 2009 2009 2009
£'000 £'000 £'000 £'000 £'000 £'000
Investment - 544 544 - 449 449
Management
Periodic fee
Management fee - 247 247 - 198 198
Performance - 574 574 - 224 224
fee accrued
- 1,365 1,365 - 871 871
In accordance with the performance fee arrangements currently in place, a
performance fee of £574,000 was accrued at the year end. In addition, the
performance fee of £224,000 accrued at 31 March 2009, crystallised and became
payable.
Notes to the Financial Statements(continued)
4 Earnings/ (loss) per share
Total gain per share of 51.8p (2009: gain 32.0p) is based on the total gain
attributable to equity shareholders of £28,689,000 (2009: gain £17,976,000).
The revenue loss per share of 0.6p (2009 loss: 0.7p) is based on the revenue
loss attributable to equity shareholders of £355,000 (2009: £376,000).
The capital gain per share of 52.4p (2009: gain 32.7p) is based on the capital
gain attributable to equity shareholders of £29,044,000 (2009: gain £
18,352,000).
Total gain, revenue loss and capital gain per share are based upon the weighted
average number of shares in issue during the year of 55,422,574 (2009:
56,196,626).
5 Net asset value per share
The net asset value per share is based on the net assets attributable to equity
shareholders of £120,417,000 (2009: £70,208,000) and on 65,959,861 (2009:
51,296,413) shares in issue at 31 March 2010.
6 Financial information
This preliminary statement is not the Company's statutory accounts. The above
results for 2010 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 2010 accounts have been prepared in accordance with
International Financial Reporting Standards ("IFRS").
The statutory accounts for the year end 31 March 2009 have been delivered to
the Registrar of Companies and those for 31 March 2010 will be despatched to
shareholders shortly. The 2010 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
16 June 2010
- ENDS -
The Biotech Growth Trust PLC
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