Final Results

Intl. Biotechnology Trust PLC 18 October 2007 For immediate release 18 October 2007 International Biotechnology Trust Plc The Board of International Biotechnology Trust Plc ('IBT') today announces its unaudited Annual Results for the twelve months ended 31 August 2007. Highlights â€¢ Net asset value (NAV) per Ordinary share increased 1.5% to 144.40p per share â€¢ This compares to a rise of 1.75% in the NASDAQ Biotech Index and a fall of 3.5% in the Merrill Lynch Small Cap Biotech Index in sterling terms â€¢ NAV increased for fifth consecutive year â€¢ Share price up 7.3% from 130.0p to 139.5p â€¢ Discount narrowed to 3.4% at 31 August 2007 (2006: 8.6%) â€¢ Proceeds from significant realisations re-invested in unquoted and quoted portfolios â€¢ At year end IBT was fully invested, including the proceeds of the C share issue (2006: 13.3% cash) â€¢ Unquoted portfolio being re-seeded after large realisations â€¢ C Share issue successful and complete raising Â£36.1m net of costs â€¢ 22,577,422 C Shares converted to Ordinary shares on 22 May 2007 â€¢ No shares bought back for cancellation or retention in Treasury â€¢ 950,000 Ordinary shares issued on 13 July 2007 after block listing application, raising Â£1.4m net of costs â€¢ Geographical split of the Ordinary share portfolio at 31 August 2007 was: U.S. (72.9%), Australia (3.6%) and Europe (23.9%) â€¢ At year end IBT Ordinary shares had investments in 55 companies - 41 quoted (representing 92.0% of NAV) and 14 unquoted companies (representing 7.4% of NAV, with 2.6% in legal commitments and 2% in reserves due in 2008/ 2009) â€¢ Total net assets at 31 August 2007: Â£102.36m (2006: Â£66.95m) For further information, please contact: International Biotechnology Trust plc Andrew Barker, Chairman 020 7658 6501 SV Life Sciences Managers LLP Kate Bingham / Andy Smith 020 7421 7070 Lansons Communications Henrietta Guthrie / Kim Atkins 020 7490 8828 Cenkos Securities Will Rogers 020 7397 8900 Website: www.internationalbiotrust.com INTERNATIONAL BIOTECHNOLOGY TRUST PLC Unaudited Results for the year to 31 August 2007 This preliminary announcement of unaudited results was approved by the Board of Directors on 18 October 2007. CHAIRMAN'S STATEMENT RESULTS: NAV: 145.0p (+2.2p; +1.9%) SHARE PRICE: 139.5p (+9.5p; +7.3%) I am pleased to report a rise in net asset value (NAV) for the fifth consecutive year and, for the period under review, what I consider to be a satisfactory result given the second half falls in stock markets caused by problems in the US credit markets. NAV increased by 1.9% to 145.0p per share over the year. This increase compares to an increase of 1.7% in the Nasdaq Biotech Index (NBI) and a fall of 3.5% in the Merrill Lynch Small Cap Biotech Index (MLSCBI), both in sterling terms. The share price rose by 7.3% to 139.5p over the year. This increase partly reflects the rise in NAV but also reflects a reduction in the discount at which the shares sell in relation to the NAV. The discount narrowed from 8.6% last year to 3.8% at 31 August 2007. We consider that there are several reasons for the improvement in rating. I certainly hope that the recent strong record of IBT and the attractions of the biotechnology sector, which has been out of favour for some time, are now becoming more widely recognised. The impressive results achieved for us in recent years by our Manager, SV Life Sciences, a leader in their specialist sector, must also be a factor, along with our recently-introduced discount control mechanism as outlined below. The major positive factor affecting our results was the high level of merger and acquisitions (M&A) activity in both the public and private biotechnology sectors. In the unquoted portfolio, the acquisition of PowderMed by Pfizer was announced in October 2006. In the quoted portfolio, the acquisition of Myogen by another of our investments, Gilead Sciences, was announced in October 2006, the acquisition of Solexa by Illumina in November 2006 and the acquisition of New River Pharmaceuticals by Shire plc in February 2007. All these transactions have been completed and each one has made a positive contribution to NAV. Significant realisations were made in both the unquoted and quoted portfolios during the year and the proceeds have been invested in the shares of both quoted and unquoted companies. Further information about our investments appears in the Investment Manager's Review. The performance of IBT's quoted portfolio, calculated on a time weighted return basis (assuming mid-month cash flows) showed an increase of 0.24% during the year under review. On an unweighted basis (ignoring the timing of transactions) the return was (1.73)% for the same period. At 31 August 2007, IBT was fully invested, after holding 13.3% in cash at the end of the previous year, and 5.7% at the end of the first half of the reporting period. Whilst the Board keeps the situation under review, its current policy remains not to hedge the currency exposure of the portfolio. As a consequence, no currency hedges were entered into in the financial year. VALUATION POLICY In the year to 31 August 2007 the net effect of the changes in the Directors' valuation of unquoted securities was an increase in net assets of Â£1.2 million. By the end of the period Â£7.6 million was invested in the securities of unquoted companies, representing 7.4% of overall net assets. The Manager seeks to invest up to 30% of the Company's assets in unquoted companies with a current guideline of normally no more than 40% unquoted company exposure (after allowing for valuation write-ups and further follow-on investments). The Board has reviewed this guideline and continues to consider that this level is appropriate. The year under review has been one of re-seeding the unquoted portfolio after the previous periods of large realisations at significant profits. These included our holdings in the securities of Eyetech Pharmaceuticals, Glycofi and KuDOS. You will read in note 14 of the Annual Report that we have further commitments and reserves, subject to the fulfilment of certain conditions, totalling Â£2.7 million, representing 2.6% of total assets at the year end. LONGER-TERM RESULTS (2002/07): NAV: +47.2% NASDAQ BIOTECH INDEX (Â£): +27.5% In the six years since SV Life Sciences took on the investment management of your Company, we have seen the full range of stock market cyclicality and volatility (except for a prolonged bull market in the biotechnology sector). SV Life Sciences took on the investment management of IBT in the challenging aftermath of the late 1990s/2000 peak in technology and biotechnology, following which significant write downs in some of the unquoted investments were made. The Board is greatly encouraged by the progress made in recent years. Over the last five years, for example, NAV has risen by 47.2% which compares to the rise of 27.5% in the sterling-adjusted value of the Nasdaq Biotech Index. Over the last five years, the share price has risen by 82.4%. 'C' SHARE ISSUE AND CONVERSION As reported in the Interim Statement, a total of 24,777,433 'C' shares were allotted on 12 February 2007 at 150p per share to new and existing shareholders as part of the successful 'C' share issue, which raised a total of Â£36.1 million (net of costs). We were very pleased with the outcome. Initially a large part of the proceeds was invested in quoted companies but by early May, when over 85% of the proceeds were invested, the 'C' share portfolio had invested in two new unquoted investments and had benefited from the acquisition of New River Pharmaceuticals by Shire plc. The 'C' share issue shares were converted to 22,577,197 Ordinary shares on 24 May 2007. We note that the Ordinary share price at the year end was below the 'C' share issue price, largely through changes to stock markets. Once again we emphasise that shareholders should take a longer-term view. SHARE BUY BACKS, TREASURY SHARES AND ORDINARY SHARE ISSUES In the year the Company did not buy back any shares either for cancellation or for retention in Treasury. The Directors will seek the renewal of the share buy back and Treasury share authorities at the forthcoming Annual General Meeting (AGM). As previously announced the Board would like to maintain the discount to net asset value at which the Ordinary shares are quoted on the London Stock Exchange at no greater than 8%. Given the nature of the Company's portfolio, the need for the Manager to have access to any available cash for investment opportunities and any changes in general market conditions and/or peer group company ratings, the Board will review this target discount level from time to time. The Company applied for the block listing of 1,741,067 Ordinary shares in July 2007, of which 950,000 Ordinary shares were issued on 13 July 2007 at a premium to net asset value, raising Â£1.4 million (net of costs). The Board will continue to monitor opportunities to issue Ordinary shares under the block listing but only when such an issue enhances the NAV per share; it will seek renewal of the authority to issue Ordinary shares at the forthcoming AGM. CONTINUATION VOTE The Articles of Association of the Company contain provisions requiring the Directors to put a proposal for the continuation of the Company to shareholders at two yearly intervals. The next continuation vote will be put to shareholders at the forthcoming AGM. In considering whether to recommend to shareholders that the Company should continue in business as an investment trust, the Board of Directors has reviewed five particular aspects of its business: The prospects for the biotechnology sector; The prospects for the portfolio; The strength and depth of our management; The appropriateness of the investment trust structure; and The number of investment vehicles offering investors liquid biotechnology exposure. We consider the fundamentals of the biotechnology sector to be compelling and these are highlighted in the Sector Overview and Investment Manager's Review in the annual report. The 'C' share prospectus sent to shareholders in February 2007 also outlined the attractions of the sector in some detail. Our Investment Manager continues to manage a portfolio of public and private biotechnology investments which we judge are well positioned to benefit from an increase in valuations within the sector. We believe that your Company has as its Investment Manager a leading team in the biotechnology field with considerable skill, diligence and resources to apply to the management of the portfolio. Investment trusts are one of the few investment vehicles that can provide investors a liquid investment in a portfolio of private and illiquid quoted investments; furthermore their management is overseen by an active, but non-executive, independent Board of Directors. For these reasons, the Board unanimously recommends that the Company continues as an investment trust and the Directors will be voting their 200,865 shares in favour of the ordinary resolution as proposed. BOARD OF DIRECTORS Your Board has put procedures in place to ensure that the Company complies with the best practice provisions set out in the Combined Code as appropriate as well as substantially with the AIC Code on Corporate Governance. Full details are given in the Corporate Governance section of the Annual Report. In accordance with the Company's Articles of Association, Mr Alan Clifton and Dr David Clough will retire at this year's AGM and, being eligible, offer themselves for re-election. In addition, Mr Peter Collacott retires on grounds of tenure, having served as a Director for ten years. The Board has met to consider the attributes and contributions of the individuals concerned and, following this review, has no hesitation in recommending their re-election. ELECTRONIC COMMUNICATIONS AND AMENDMENT TO THE ARTICLES There have been a number of recent changes to company law and practice permitting the use of electronic communications as an alternative to traditional means of communication. We are therefore proposing to adopt revised Articles of Association which will allow the Company, where a shareholder agrees, to send certain information relating to the Company (e.g. notices, proxy forms and accounts) by electronic means or by placing this information on the Company's website, but only if the shareholder has been sent notice that it is available in this way and has not objected to the change. CHANGE IN AUDITORS Following a review of Audit services during the year, KPMG Audit plc resigned as Auditors and PricewaterhouseCoopers LLP were appointed in their place. Resolutions to appoint PricewaterhouseCoopers and to authorise the Directors to determine their remuneration will be proposed at the forthcoming AGM. Further details of the change in Auditors are set out in the Annual Report. ANNUAL GENERAL MEETING The AGM will be held at 12.00 noon on Wednesday, 28 November 2007 at 31 Gresham Street, London EC2V 7QA. As in previous years, the meeting will include a presentation by SV Life Sciences. PROSPECTS Stock market sentiment towards the biotechnology sector has not been positive in recent years despite the increase in M&A activity which has provided a boost to performance. However, we believe that the attractive valuations and fundamentals of the biotechnology sector will soon begin to be appreciated by generalist investors once again. While the recovery, when it comes, may initially favour the shares of the larger stock market capitalisation companies, where IBT does not usually invest, this, we believe, is likely to be a short-term phenomenon, after which the shares of the smaller stock market capitalisation companies, where IBT does usually invest, should benefit. As I have often stated in the past, a longer term perspective is recommended. Our Manager has been rebuilding the unquoted portfolio and we are making new investments there. We expect a high level of corporate activity to continue in the unquoted sector, which is encouraging. The combination of attractively valued quoted biotechnology securities and the opportunity that unquoted biotechnology securities offers us, gives the Board and management confidence that we can continue to produce attractive returns for shareholders. Andrew Barker Chairman 18 October 2007 INVESTMENT MANAGER'S REVIEW MARKET REVIEW At the start of IBT's year in September 2006, the equity markets paused briefly before advancing from October 2006 until late February 2007. After February 2007, as has often been the case, the U.S. biotechnology market led the broad stock markets down until early August 2007. Part of the reason for this underperformance was the American Society for Clinical Oncology (ASCO) post-conference effect where traditionally the shares of oncology companies run up to the ASCO conference, in anticipation of good results, and then sell-off after the conference as investors take profits. There was a rebound in the Nasdaq Biotech Index (NBI) from early April until mid-May when the sub-prime mortgage issues started to impact, firstly the U.S. market, then the financial sector, and ultimately broad global stock markets. These concerns, in particular as applied to the financial sector, are likely to extend through the first quarter of 2008. For nearly three years the biotechnology sector has been out of favour with generalist investors despite the merger and acquisitions (M&A) activity that has occurred during that period. In the year to 31 August 2007, whilst M&A activity continued through the first part of IBT's year, the number of transactions seemed to slow in the second part of the year as acquirers probably became concerned with their own share prices. This may only be a temporary pause in M&A since, while 18 new medicines were approved by the U.S. Food and Drug Administration FDA in 2006 (20% more than in 2005), 19 faced generic competition for the first time. What was more interesting was the acquisition of portfolio company Medimmune by AstraZeneca. The acquisition of Medimmune by AstraZeneca for $15bn was the first M&A foray by a big-cap pharmaceutical company to big-cap biotechnology. The integration of Medimmune and its effects on AstraZeneca are being closely watched by other pharmaceutical companies. One of the main reasons while the biotechnology and pharmaceutical sectors appear to have been out of favour with investors is the continued cautious nature of the FDA with respect to drug and medical device approvals. This caution has not been helped by the delay to re-authorise the Prescription Drug User Fee Act (PDUFA) under which the FDA receives its funding to approve drugs and medical devices. In early October 2007, the President signed the PDUFA into law. Notable casualties from the FDA's cautious stance in the year to 31 August 2007 include former portfolio companies Pozen and Encysive Pharmaceuticals, where, respectively, second and third approvable letters were received. Further new drug applications (NDAs) were rejected at Replidyne and IDM Pharma, and approvable letters contingent on further clinical studies issued to Dendreon and former portfolio companies Adolor and Avanir. This is not to say that biotechnology companies were not able to register new drugs for approval in the year to 31 August 2007 as a number of companies including New River Pharmaceuticals, Celgene, Genentech, Alexion, Gilead Sciences and Acambis either received new drug approvals, or received a further approval for a new indication of an already approved drug. The year to 31 August 2007 has also been punctuated by clinical trial successes and failures which on the positive side have included the phase III studies for Alexion's drug for a bleeding disorder and Onyx's Nexavar for liver cancer. More focus however has been on the negative side and there have been the usual, and even expected, clinical failures, for example Antigenics' cancer vaccine in phase III and Onyx's Nexavar in melanoma. There have also been two high profile phase III failures in the year which have captured investors' attention. Telik reported three phase III results for its anti-cancer drug Telcyta on Boxing Day 2006. The drug failed to show a survival benefit over placebo in one study in non-small cell lung cancer and two studies in ovarian cancer. In mid-March 2007, Atherogenics announced that its phase III study for its lead cardiovascular drug AGI-1067 failed to show a difference over placebo in the composite endpoint of death or major adverse cardiovascular events. Even these two high profile late-stage clinical failures were not fully responsible for the relatively bearish tempo amongst biotechnology investors in the year to 31 August 2007; that dubious honour can been ascribed to the trials and tribulations of what was the largest biotechnology company by market capitalisation, Amgen. Amgen's problems first started in late March 2007 when they stopped a clinical trial of their antibody Vectibix in colon cancer patients when an interim analysis showed that Vectibix, when added to the existing standard therapy (including Genentech's antibody, Avastin), gave a lower survival rate than the standard therapy alone. In early April the results of a number of studies became available which indicated that Amgen's erythropoietin stimulating agents (ESAs) were associated with increased risks of death and heart problems when used excessively in some patients. Amgen's ESA franchise was responsible for about half of their 2006 sales or more than $7bn. The area of ESA use and their adverse effects has subsequently become hotly debated throughout 2007 with other studies published by Amgen showing no (positive or negative) survival effect in cancer patients but the FDA, National Kidney Foundation and Medicare subsequently applied warnings on prescribing, restrictions on usage, and restrictions on re-imbursement, respectively. These negative pressures are still feeding through to Amgen's ESA franchise but have already stopped Amgen's plans to expand to a new campus, and also resulted in a restructuring and the loss of 2,600 jobs. Amgen's problems have also been mirrored, although to a lesser extent at Genentech, where in late March a phase III study in lung cancer patients was stopped because of a digestive tract disorder. Genentech had previously disappointed investors earlier in March 2007 when it said that it expected first-quarter U.S. product sales to be essentially flat compared with the previous quarter. The concern now from IBT's perspective is that traditionally, a recovery in the biotechnology sector is first associated with the biggest capitalisation stocks, before moving on to the small and mid-capitalisation space where IBT concentrates. Without a recovery in large-capitalisation stocks, IBT can at best, be expected only to slightly outperform a falling index (hopefully with a positive return depending on the magnitude of the fall in broad stock markets) by benefiting from exit activity in the unquoted portfolio. This is exactly what has happened in the year to 31 August 2007. In the year under review the largest capitalisation biotechnology companies have been supporting their share prices by significant share buy-backs. Many billions of dollars have been spent at Amgen and Biogen IDEC, for example, purchasing shares at a level higher than was the case at the end of IBT's year. This strategy has been so unsuccessful that Amgen have recently stated that they may now pay a dividend in order to appease investors. It is becoming increasingly apparent that small- to mid-capitalisation biotechnology companies are distinct from their large capitalisation counterparts. This is because a large capitalisation biotechnology company with slowing sales that has a significant share buy-back programme and pays a dividend is, apart from its products, almost indistinguishable from a traditional large capitalisation pharmaceutical company. At the time of writing, the fourth and fifth largest U.S. biotechnology companies, Genzyme and Biogen IDEC, have made bullish forecasts of earnings growth over the next three to five years. These may not be possible on organic growth alone and with the emergence of biogenerics. The year to 31 August 2007 has seen another factor common to the pharmaceutical industry appear on the horizon of the largest capitalisation biotechnology companies - the approval of biogenerics or biosimilars. There have been two generic biologic medicines approved in Europe in the last year and much debate on how to allow the FDA to approve similar molecules in the U.S. With an impending change to the U.S. Presidential administration in the next year, the pressure for generic biologics is likely to increase. When generic biologics are approved in the U.S., the earnings of the largest biotechnology companies are likely to slow dramatically and they will be incentivised, like their large pharmaceutical counterparts, to address these issues with M&A activity in the small- to mid-cap biotechnology space. PORTFOLIO SUMMARY At 31 August 2007, IBT held investments in 55 companies: 41 quoted (representing 92.0% of NAV) and 14 unquoted (representing 7.4% of NAV). The remaining less than 0.6% of NAV comprised current assets, whilst 2.6% of NAV is committed to further unquoted investments. At the end of IBT's interim period, 5.7% of NAV comprised cash and money market instruments and this, together with the realisation proceeds from the acquisition of New River Pharmaceuticals by Shire, was mostly invested in the period of weakness lasting through IBT's year end. Members of SV Life Sciences sat on the Boards of sixteen portfolio companies at the end of the year under review: Achillion, Affibody, Archemix, Dynogen, ESBATech, EUSA, FAB, GTx, Intranasal Therapeutics, Lux, Micromet, Oxagen, Ricerca, Santarus, Spinal Kinetics and Trine. The geographical diversification of net assets at 31 August 2007 was 72.5% in North America, 17.7% in the U.K., 6.2% in Continental Europe and 3.6% in Australia. By sub-sector, 78.9% of NAV was invested in biopharmaceuticals, 18.0% in medical devices and 3.0% in other areas. The remaining less than 1.0% of NAV comprised of cash and other net assets. The companies which SV Life Sciences estimated as having less than one year of cash at 31 August 2007 were Acambis, Allergy Therapeutics, Avalon Pharmaceuticals, Genosis, Affinium, ESBATech and Ricerca, representing 7.4% of NAV. Of these, Affinium, ESBATech and Ricerca are unquoted companies and are expected to receive a funding tranche in the next year (which are reflected in the 2.6% of commitments to unquoted investments), and Acambis is expected to receive a five year, $30m a year, warm base contract from the U.S. Government before the end of 2007 for its smallpox vaccine which was approved by the FDA on 31 August 2007. IBT continues to offer investors a broad exposure to biotechnology at different stages of clinical development, with a global perspective and across a range of therapeutic areas. As a publicly quoted investment portfolio, IBT offers an actively managed public and private biotechnology investment portfolio, that is otherwise very difficult for investors to replicate. UNQUOTED INVESTMENT ACTIVITY At 31 August 2007, IBT's unquoted portfolio (value Â£7.6m) represented 7.4% of net assets. This had decreased from 9.5% the previous year due to the divestment of PowderMed, the IPO of Achillion and the release of small escrows from the sales of Kudos and Aderis. Much of the unquoted investment focus of the year under review has been on re-seeding the portfolio with new unquoted investments - a process that will extend over a number of years. In the last year, four new investments were made: Affinium, EUSA, Respivert and Ricerca, representing Â£2.4m committed in total, of which Â£1.8m actually invested to date. Since the year end, IBT has made a new investment in Fundamental Applied Biology (FAB), a new biotherapeutics company representing Â£0.5m committed; Â£0.15m closed to date, and is in the final stages of closing an investment in a biosimilar company, Itero, representing a Â£0.5m commitment. The risks of investing in unquoted companies are minimised by splitting the investment rounds into a number of tranches or drawdowns contingent on the company achieving specific milestones. The total size of commitments that IBT has made for its current unquoted companies is Â£2.7m (2.6% NAV) which are due in the next 12-18 months. In addition to legal commitments, IBT has reserved sums for future investments into its unquoted companies which are not legally binding, but prudent forward planning. These reserves total Â£7m or 7% NAV, of which Â£2.1m or 2% of NAV are planned in the next 12-18 months. The unquoted portfolio will often be in a state of flux with the dynamics being new investments, further investments and exits (either through acquisition, or to the public markets). In the year under review, as in the future, this has resulted in a higher than normal unquoted investment rate, but a small initial amount invested, balanced by a larger amount committed. No unquoted investment was written down in the year to 31 August 2007. One investment, PowderMed, was written up from Â£0.5m to Â£3.1m in October 2006 following the announcement of its proposed acquisition by Pfizer and has subsequently been exited, with a small escrow still remaining. A second investment, Archemix, which has subsequently filed to go public on Nasdaq, was written up in June 2007 to reflect investments made by other investors. The net change in the Directors' valuations of the unquoted investments was Â£1.2m, representing 1.8% of NAV at the start of the year under review QUOTED INVESTMENT ACTIVITY The M&A activity was largely concentrated in the first half of the year ending 31 August 2007 resulting in realisations that completed in April and May 2007 in the cases of PowderMed and New River Pharmaceuticals, respectively. This, combined with the 'C' Share issue that completed in early February, has meant that the period from February to late summer 2007 was a period of significant investment in the quoted portfolio with an over-allocation of the 'C' Share proceeds to quoted investments in lieu of new investment in the unquoted portfolio. This strategy, together with the gradual investment approach taken with the 'C' Share proceeds, resulted in a distinctly defensive 'C' Share portfolio in the period from February to late summer 2007, when shares in biotechnology companies weakened throughout that period. The investment of the proceeds from the 'C' Share issue, and the divestments from M&A activity, were spread across the portfolio of new and existing investments, although the weighting of the highest risk investments, such as Paion and Micromet, were not increased. New quoted investments in the year to 31 August 2007 include two companies in late and early-stage development of cancer drugs: Cell Genesys and Avalon pharmaceuticals respectively. In addition, two existing investments in the area of surgical robotics and diagnostics were bolstered in the year in review by the addition of new holdings in Hansen Medical and Celera, both of which have sales in these sub-sectors, although neither is yet profitable. Two investments from Germany were divested in the year in review: Paion before and after they released phase III results which showed that their drug desmoteplase did not benefit stroke patients, and GPC biotech, before their NDA was reviewed by the FDA. PORTFOLIO HIGHLIGHTS In late February 2007, Shire announced the acquisition of its partner New River Pharmaceuticals to gain the full rights to the drug Vyvanse (formally NRP-104) for attention deficit hyperactivity disorder. Both companies were IBT Ordinary and 'C' Share portfolio companies when the acquisition was announced and the share prices of both companies rose on the announcement. Alexion Pharmaceuticals received FDA approval for its first drug (Solaris) in March 2007 and received a positive opinion for European approval in late April. Solaris has been approved for a rare bleeding indication, paroxysmal nocturnal haemoglobinuria, and a concern after the initial approval was that this would translate into low sales. The share price of Alexion reacted positively in late July when they reported the first quarter of sales of Solaris which exceeded most analysts' expectations. Despite the caution of the FDA in approving new drugs, leading to what some observers have proposed as being the current 'approvals drought', Alexion and New River Pharmaceuticals were two portfolio companies receiving FDA approval for their drugs in the year to 31 August 2007. Other portfolio companies receiving FDA approvals included Celgene, Gilead Sciences and, on the last day of IBT's financial year, Acambis. The German oncology company GPC Biotech had been an excellent contributor to NAV for the year, due to the positive phase III results for its oral treatment for prostate cancer, Satraplatin, which were announced in September 2006. After the American Society for Clinical Oncology (ASCO) conference in May 2007 when further data on the phase III study was presented, GPC Biotech became our largest holding and we began to divest in order to reduce the risk to NAV from a single investment. This reduction in holding continued on valuation grounds until GPC Biotech was fully divested from the portfolio prior to the FDA's review documents being published. In late July, Satraplatin was reviewed by an FDA panel and a number of issues with the clinical trial were highlighted by the panel members and the FDA reviewers. This led to the NDA for Satraplatin being withdrawn in late July and a restructuring at the company. Other contributors to performance for the year included CSL, Australia's largest biotechnology company which has started to receive royalties from the sale of Merck's cervical cancer vaccine, Medimmune, which was acquired by AstraZeneca and Actelion, the last of which was divested completely in the year. Negative contributors to performance included Nuvelo which had two phase III failures for its thrombolytic drug, Adolor which received a second approvable letter for it's lead drug for the complications of opiate pain medication (and was divested), and Noven Pharmaceuticals, which made an acquisition close to the year ending 31 August 2007. OUTLOOK The year to 31 August 2007 was very different from the prior year both for the Company and the biotechnology sector. The sterling-adjusted NBI had a negative return to 31 August 2006 and a low single-digit positive return in the year under review. The NAV and share price of IBT has shown positive returns over both periods outperforming the sterling-adjusted NBI. However, gains in the first half were somewhat offset by losses in the second half due to the combination of the post-ASCO fall-out and the U.S. sub-prime mortgage issues. The Company's unquoted portfolio has also been through two very different years with significant realisations extending through the year to 31 August 2007, followed by a period of re-investment to the year under review. During the year to 31 August 2007, significant realisations from merger and acquisition (M&A) activity in the unquoted and quoted portfolios and in addition, from the proceeds of the 'C' Share issue, were re-invested in the public market and in new unquoted investments. It may take time for a recovery in sentiment towards the sector to be seen such that generalist investors focus on biotechnology again. During this period we are optimistic that the earlier unquoted investments will begin to bear fruit. SV Life Sciences 18 October 2007 Twenty Largest Investments Year ended 31 August 2007 ------------------------------------------------------------------------------------- Investment* Country Sector Market % of value Net Business Activity Â£'000 assets ------------------------------------------------------------------------------------- 1 MGI Pharma USA Biopharmaceuticals 3,800 3.7 MGI Pharma is an oncology and acute care focused biopharmaceutical company that acquires, researches, develops and commercialises a portfolio of proprietary pharmaceuticals in oncology and acute care. MGI markets Aloxi (R) (palonosetron hydrochloride). ------------------------------------------------------------------------------------- 2 CSL Australia Biopharmaceuticals 3,649 3.6 CSL manufactures and markets pharmaceutical and diagnostics derived from human plasma. CSL's products also include paediatric and adult vaccines including a seasonal influenza vaccine. CSL has Australian rights and ex-Australian royalties on the sale of the cervical cancer preventative vaccines marketed by Merck and under review by GlaxoSmithKline. ------------------------------------------------------------------------------------- 3 Gen-Probe USA Biopharmaceuticals 3,610 3.5 Gen-Probe Incorporated is a global leader in the development, manufacture and marketing of rapid, accurate and cost effective nucleic acid tests (NATs) used to diagnose human diseases and screen donated human blood. Gen-Probe markets a broad portfolio of products that use the Company's patented technologies to detect infectious micro-organisms, including those causing sexually transmitted diseases (STDs), tuberculosis, strep throat, pneumonia and fungal infections. ------------------------------------------------------------------------------------- 4 Celgene USA Biopharmaceuticals 3,572 3.5 Celegene is primarily engaged in the discovery, development and commercialization of innovative therapies designed to treat cancer and immunological diseases through regulation of genomic and proteomic targets. Driving commercial success and profitability are marketed products, which include REVLIMID < (R) (lenalidomide), THALOMID (R) (thalidomide), ALKERAN (R) (melphalan), FOCALIN (R) (dexmethylphenidate HCl), cellular and tissue therapeutics, as well as the RITALIN(R) family of drugs ------------------------------------------------------------------------------------- 5 Gilead USA Biopharmaceuticals 3,512 3.4 Gilead Sciences is a Sciences research-based biopharmaceutical company that discovers, develops and commercializes innovative medicines in areas of unmet need. With each new discovery and experimental drug candidate, we seek to improve the care of patients suffering from life-threatening diseases. Gilead's primary areas of focus include: antivirals (such as HIV/AIDS and chronic hepatitis), cardiovascular conditions (such as pulmonary arterial hypertension and resistant hypertension) and respiratory diseases (such as influenza and cystic fibrosis). ------------------------------------------------------------------------------------- 6 Inverness USA Healthcare 3,444 3.4 Inverness Medical Medical equipment and Innovations, Inc. is services a major global developer, manufacturer and marketer of advanced, pioneering consumer and professional medical diagnostic products. A leading supplier of consumer pregnancy and fertility/ovulation tests and rapid point-of-care diagnostics, Inverness Medical Innovations is committed to advancing health and creating shareholder value through a continuing flow of innovative new products brought about by our strong investment in R&D and intellectual property. Latest areas of focus are in the application of patented technologies to products in consumer and professional diagnostics, principally in the fields of Cardiology, Women's Health, and Infectious Diseases. Inverness Medical Innovations also manufactures and markets a wide variety of vitamins and nutritional supplements. ------------------------------------------------------------------------------------- 7 Pharmacopeia USA Biopharmaceuticals 3,354 3.3 Pharmacopeia is Drug committed to Discovery discovering and developing novel therapeutics to address significant medical needs. The company has a broad portfolio advancing toward clinical validation, both independently and with partners. Pharmacopeia's most advanced internal program is a dual-acting angiotensin and endothelin receptor antagonist (DARA) for hypertension and diabetic kidney disease for which a Phase 2 clinical trial is underway. Other internal proprietary programs address primarily immunoregulation. ------------------------------------------------------------------------------------- 8 GTx USA Biopharmaceuticals 3,237 3.2 GTx discovers, develops and commercialises therapeutics primarily related to the treatment of serious men's health conditions. GTx has two products in phase II clinical trials. ------------------------------------------------------------------------------------- 9 ev3 USA Healthcare 3,213 3.1 ev3 Inc. is a equipment and leading worldwide services medical device company one hundred percent focused on catheter-based or endovascular technologies for the minimally invasive treatment of vascular disease and disorders. Our name signifies our commitment to serve the three endovascular markets - Peripheral Vascular, Cardiovascular and Neurovascular - and to be a global provider of products for underserved and emerging device markets. ------------------------------------------------------------------------------------- 10 MorphoSys Germany Biopharmaceuticals 3,119 3.0 MorphoSys is one of the world's leading biotechnology companies focusing on fully human antibodies. With its proprietary technologies, MorphoSys is developing not only the next generation of therapeutic antibodies, but also antibodies for research and diagnostics purposes. HuCAL(R) (Human Combinatorial Antibody Library) is a very powerful technology for the rapid and automated production of specific antibodies. The most distinctive feature of the library is the capability to optimize fully human antibodies to pre-defined specifications, allowing MorphoSys's researchers and their partners to 'Engineer the Medicines of Tomorrow'. MorphoSys's goal is to establish HuCAL as the technology of choice for antibody generation in all market sectors. ------------------------------------------------------------------------------------- 11 Onyx USA Biopharmaceuticals 3,009 2.9 Onyx discovers and develops novel therapeutics with an emphasis on cancer. The company focuses on defining the function of certain mutated genes which are known to cause cancer, and on developing therapies to reverse the effects of the mutation or to kill the cancer cell. ------------------------------------------------------------------------------------- 12 Gyrus Group UK Healthcare 2,973 2.9 Gyrus designs and equipment and develops medical services devices. The company provides surgical instruments, scopes and implants to ear, nose and throat surgeons. Gyrus also sells generators and instruments to gynaecologists, urologists, and general surgeons. ------------------------------------------------------------------------------------- 13 Acambis UK Biopharmaceuticals 2,768 2.7 Acambis is a vaccine discovery and development company. Acambis has a smallpox vaccine approved by the FDA and others in development to prevent dengue fever, influenza and West Nile virus infection. ------------------------------------------------------------------------------------- 14 Affymax USA Biopharmaceuticals 2,748 2.7 Affymax is a clinical-stage biopharmaceutical company. The company develops peptide-based drugs for the treatment of serious and life-threatening conditions such as kidney disease and cancer. The company's lead product is in phase III clinical development. ------------------------------------------------------------------------------------- 15 Progenics USA Biopharmaceuticals 2,652 2.6 Progenics is a biopharmaceutical company focusing products for the treatment and prevention of cancer and viral diseases. The company's lead drug, methyinaltrexone has successfully completed two phase III studies and is partnered with Wyeth. ------------------------------------------------------------------------------------- 16 Alexion USA Biopharmaceuticals 2,578 2.5 Alexion is a biopharmaceutical company that researches and develops proprietary immunoregulatory compounds for the treatment of cardiovascular diseases. The company's lead product, Soliris is approved in the US and Europe. ------------------------------------------------------------------------------------- 17 Barr USA Biopharmaceuticals 2,540 2.5 Barr is a speciality pharmaceutical company that develops, manufactures and markets both generic and proprietary prescription pharmaceuticals. ------------------------------------------------------------------------------------- 18 Altus USA Biopharmaceuticals 2,537 2.5 Altus is a biopharmaceutical company focused on the development and commercialisation of oral and injectable protein therapeutics for chronic gastrointestinal and metabolic disorders. ------------------------------------------------------------------------------------- 19 Premier UK Biopharmaceuticals 2,414 2.4 Premier Research is Research a contract research Group organisation (CRO) focused on the design, management and reporting of later stage clinical trials on behalf of pharma and biotech companies. The company specialises in oncology, CNS and anti-infectives. Premier Research is listed in the UK, on AIM,but operates globally and has a current market cap of Â£57m. ------------------------------------------------------------------------------------- 20 Jerini Germany Biopharmaceuticals 2,390 2.3 Jerini is a pharmaceutical company based in Berlin focusing on the discovery and development of peptide-based drugs. ------------------------------------------------------------------------------------- Total 61,119 59.7 ------------------------------------------------------------------------------------- *All Investments were quoted stocks at 31 August 2007 At 31 August 2006, the twenty largest investments represented 57.4% of net assets. (Unaudited) Consolidated Income Statement For the year ended 31 August 2007 ------------------------------- Revenue Capital Total --------- --------- ------- Return Return -------- -------- Â£'000 Â£'000 Â£'000 Losses on investments held at fair value - (774) (774) Currency losses - (54) (54) Income (note 2) 580 - 580 Expenses Management fees (1,248) - (1,248) Administrative expenses (623) - (623) -------- -------- -------- Net losses before finance costs and taxation (1,291) (828) (2,119) Interest payable (43) - (43) -------- -------- -------- Net losses before taxation (1,334) (828) (2,162) Tax on ordinary activities - - - -------- -------- -------- Net losses after taxation (1,334) (828) (2,162) -------- -------- -------- Losses per Ordinary share (pence) (note 3) (2.24) (1.39) (3.63) -------- -------- -------- Consolidated Income Statement For the year ended 31 August 2006 ------------------------------- (Comparative) --------------- Revenue Capital Total --------- --------- ------- Return Return -------- -------- Â£'000 Â£'000 Â£'000 Gains on investments held at fair value - 10,638 10,638 Currency losses - (66) (66) Income (note 2) 701 - 701 Expenses Management fees (855) - (855) Administrative expenses (567) - (567) -------- -------- -------- Net (loss)/return before finance costs and taxation (721) 10,572 9,851 Interest payable - - - -------- -------- -------- Net (loss)/return on ordinary activities before taxation (721) 10,572 9,851 Tax on ordinary activities - - - -------- -------- -------- Net (loss)/return after taxation (721) 10,572 9,851 -------- -------- -------- (Loss)/return per Ordinary share (pence) (note 3) (1.52) 22.32 20.80 -------- -------- -------- 1.The total column shown above for each year represents the Group's Income Statement, prepared in accordance with International Financial Reporting Standards. 2.The Revenue Return and Capital Return columns are supplementary to this and are prepared under guidance published by the Association of Investment Companies. The Group has no recognised gains or losses other than those disclosed in the Consolidated Income Statement and the Consolidated Statement of Changes in Equity. 3. All the items in the above statement derive from continuing operations. 4. All income is attributable to the equity holders of the parent company. There are no minority interests. Consolidated and Company Balance Sheets ----------------------------------------- (Unaudited) (Unaudited) Group Company Group Company At 31 August At 31 August At 31 August At 31 August 2007 2007 2006 2006 Â£'000 Â£'000 Â£'000 Â£'000 Non-current assets Investments held at fair value through profit or loss 101,774 101,774 58,022 58,022 --------- --------- --------- --------- 101,774 101,774 58,022 58,022 Current assets Other receivables 1,812 1,812 2,000 2,000 Investments held for trading 519 519 6,869 6,869 Cash and cash equivalents 2 2 227 227 --------- --------- --------- --------- 2,333 2,333 9,096 9,096 --------- --------- --------- --------- Total assets 104,107 104,107 67,118 67,118 Current liabilities Other payables (1,747) (2,258) (167) (678) --------- --------- --------- --------- Net assets 102,360 101,849 66,951 66,440 Equity attributable to equity holders Called up share capital 17,648 17,648 11,766 11,766 Share premium account 18,751 18,751 - - Capital redemption reserve 24,169 24,169 11,231 11,231 Share purchase reserve 65,564 65,564 65,564 65,564 Capital reserves (10,772) (11,283) (9,944) (10,455) Revenue reserve (13,000) (13,000) (11,666) (11,666) --------- --------- --------- --------- Equity shareholders' funds 102,360 101,849 66,951 66,440 --------- --------- --------- --------- Net asset value per ordinary share (pence) (note 4) 145.00 144.28 142.25 141.17 --------- --------- --------- --------- Consolidated and Company Statement of Changes in Equity (Unaudited) For the year ended 31 August 2007 Group Share Share Capital Share Capital Capital Revenue Total capital premium redemption purchase reserve reserve reserve Â£'000 Â£'000 account reserve reserve realised unrealised Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 For the year ended 31 August 2007 At 31 August 11,766 - 11,231 65,564 4,153 (14,097) (11,666) 66,951 2006 Net loss for - - - - 8,031 (8,859) (1,334) (2,162) the year Issue of 5,882 18,751 12,938 - - - - 37,571 shares ------- ------- -------- ------- ------ ------- ------- ------ At 31 August 17,648 18,751 24,169 65,564 12,184 (22,956) (13,000) 102,360 2007 ------- ------- -------- ------- ------ ------- ------- ------ Group Share Share Capital Share Capital Capital Revenue Total capital premium redemption purchase reserve reserve reserve Â£'000 Â£'000 account reserve reserve realised unrealised Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 For the year ended 31 August 2006 At 31 August 2005 11,954 - 11,043 66,467 6,737 (27,253) (10,945) 58,003 Net return for - - - - (2,584) 13,156 (721) 9,851 the year Purchase of shares for cancellation (188) - 188 (903) - - - (903) ------- ------- -------- ------- ------ ------- ------- ------ At 31 August 2006 11,766 - 11,231 65,564 4,153 (14,097) (11,666) 66,951 ------- ------- -------- ------- ------ ------- ------- ------ Company Share Share Capital Share Capital Capital Revenue Total capital premium redemption purchase reserve reserve reserve Â£'000 Â£'000 account reserve reserve realised unrealised Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 For the year ended 31 August 2007 At 31 August 11,766 - 11,231 65,564 3,642 (14,097) (11,666) 66,440 2006 Net loss - - - - 8,031 (8,859) (1,334) (2,162) for the year Issue 5,882 18,751 12,938 - - - - 37,571 of ------- ------- -------- ------- ------ ------- ------- ------ shares At 31 August 17,648 18,751 24,169 65,564 11,673 (22,956) (13,000) 101,849 2007 ------- ------- -------- ------- ------ ------- ------- ------ Company Share Share Capital Share Capital Capital Revenue Total capital premium redemption purchase reserve reserve reserve Â£'000 Â£'000 account reserve reserve realised unrealised Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 For the year ended 31 August 2006 At 31 August 2005 11,954 - 11,043 66,467 6,226 (27,253) (10,945) 57,492 Net return for - - - - (2,584) 13,156 (721) 9,851 the year Purchase of shares for cancellation (188) - 188 (903) - - - (903) ------- ------- -------- ------- ------ ------- ------- ------ At 31 August 2006 11,766 - 11,231 65,564 3,642 (14,097) (11,666) 66,440 ------- ------- -------- ------- ------ ------- ------- ------ Consolidated and Company Cash Flow Statements (Unaudited) (Unaudited) ---------------------------------------------- Group Company Group Company Year to Year to Year to Year to 31 August 31 August 31 August 31 August 2007 2007 2006 2006 Â£'000 Â£'000 Â£'000 Â£'000 Cash flows from operating activities Net (losses) / profit before finance costs and taxation (2,119) (2,119) 9,851 9,851 Currency losses 54 54 66 66 Adjustments for: Increase in investments (43,752) (43,752) (8,795) (8,795) Decrease in current asset investments 6,350 6,350 241 241 Decrease/(increase) in receivables 188 188 (1,939) (1,939) Increase/(decrease) in payables 1,580 1,580 (564) (564) --------- --------- -------- ---------- Net cash flows from operating activities (37,699) (37,699) (1,140) (1,140) --------- --------- -------- ---------- Cash flows from financing activities Issue of shares 37,571 37,571 - - Purchase of own shares for cancellation - - (903) (903) Interest paid on bank overdrafts (43) (43) - - --------- --------- -------- ---------- Net cash from / (used in) financing activities 37,528 37,528 (903) (903) --------- --------- -------- ---------- Net decrease in cash and cash equivalents (171) (171) (2,043) (2,043) Effect of foreign exchange rate changes (54) (54) (66) (66) Cash and cash equivalents at 1 September 227 227 2,336 2,336 --------- --------- -------- ---------- Cash and cash equivalents at 31 August 2 2 227 227 --------- --------- -------- ---------- Notes 1. Accounting Policies The consolidated financial statements of the Group and Company have been prepared in accordance with International Financial Reporting Standards (IFRS), which comprise standards and interpretations approved by the International Accounting Standards Board (IASB) and International Accounting Standards Committee (IASC) as adopted by the European Union as effective at 31 August 2007. The financial statements have been prepared on a going concern basis and on the historical cost basis, except for the revaluation of certain financial instruments. Where presentational guidance set out in the Statement of Recommended Practice ('SORP') for investment trusts issued by the Association of Investments Trusts (AIC) in January 2003 and revised in December 2005 is consistent with the requirements of IFRS, the directors have sought to prepare the accounts on a basis compliant with the recommendations of the SORP. The Company's accounting policies have not varied from those described in the Report and Accounts for the year ended 31 August 2006. 2. Dividends and Other Income Dividends and Other Income comprise: 2007 2006 Â£'000 Â£'000 Dividend income 54 407 Income from current asset investments 422 250 Interest on deposits 104 33 Other income - 11 _______ _______ 580 701 ===== ===== 3. Losses per Ordinary Share The total loss per Ordinary share is calculated on the loss attributable to Ordinary shareholders of Â£2,162,000 (2006: return of Â£9,851,000) and 59,631,129 (2006: 47,357,248) Ordinary shares, being the weighted average number of shares in issue during the year. The revenue loss per Ordinary share is calculated on the loss attributable to Ordinary shareholders of Â£1,334,000 (2006: Â£721,000) and 59,631,129 (2006: 47,357,248) Ordinary shares, being the weighted average number of shares in issue during the year. The capital loss per Ordinary share is calculated on the loss attributable to Ordinary shareholders of Â£828,000 (2006: return of Â£10,572,000) and 59,631,129 (2006: 47,357,248) Ordinary shares, being the weighted average number of shares in issue during the year. 4. Net Asset Value The net asset value per Ordinary share is calculated on net assets of Â£102,360,000 (2006: Â£66,951,000) and 70,592,664 (2006: 47,065,467) Ordinary shares in issue at the year-end. Annual Report and Accounts The financial information contained in this preliminary announcement of annual results is unaudited and does not constitute statutory accounts as defined in Section 240 of the Companies Act 1985. Full statutory accounts for the year ended 31 August 2006 included a report from the Company's auditors, in accordance with Section 235 of the Companies Act 1985, which was unqualified, did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying the report and did not contain statements under Section 237 (2) and (3) of the Companies Act 1985, were filed with the Registrar of Companies. No statutory accounts in respect of any period after 31 August 2006 have been reported on by the Company's auditors or delivered to the Registrar of Companies. The statutory accounts for the year to 31 August 2007 will be finalised on the basis of the financial information presented by the Directors in this preliminary announcement and will be delivered to the Registrar of Companies following the Annual General Meeting, which will be held at 12 noon on 28 November 2007 at 31 Gresham Street, London, EC2V 7QA. The Annual Report and Accounts will be mailed to registered shareholders at their registered addresses. Copies of the Annual Report will be made available from the date of release at the Company's registered office, 31 Gresham Street, London EC2V 7QA. Enquiries: Louise Richard 020 7658 6501 Schroder Investment Management Limited Secretary 18 October 2007 This information is provided by RNS The company news service from the London Stock Exchange

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