Half Yearly Report

RNS Number : 2028F

Intl. Biotechnology Trust PLC

22 April 2014

 



INTERNATIONAL BIOTECHNOLOGY TRUST PLC (the "Company")

Half Yearly Report for the six months ended 28 February 2014

This announcement contains regulated information.

Chairman's Statement

Summary

I am pleased to report another strong return for Shareholders for the six months ended 28 February 2014. The Net Asset Value ("NAV") per share rose 21.5%, reaching an all-time high of 397.3p per share during the last month of the period under review. The share price return, meanwhile, was 23.0%.

The quoted portfolio, representing close to 88% of net assets, had an excellent six months, with a gain of 25.7%. The unquoted portfolio also performed and grew by 4.2%.  The effect of currency moves negatively impacted the portfolio with an overall loss of £17.1m.  The Company's policy continues to be not to hedge currency.

The biotechnology sector has been performing to the promised potential of the past two decades, driven by the industry's ability to innovate and investors' appetite for growth.  Biotechnology companies have become much closer in profile to Pharmaceutical companies in size, revenues and profitability, but with better growth prospects and they now compete to purchase smaller, nimbler biotechnology assets.

The quoted portfolio's excellent returns reflect the strength of the sector as a whole, while the unquoted portfolio benefitted from the flotation of Ophthotech on NASDAQ in September 2013 and the sale of assets of Affinium to Debiopharm in February 2014.

Longer-term Results

The Company's longer-term performance, over a five year period, is also now very satisfactory, with our NAV per share ahead by 176%, compared to a return of 130% from the FTSE All-Share Index.

AIFMD

The Alternative Investment Fund Managers Directive ("AIFMD"), which became law in July 2013, requires that an Alternative Investment Fund Manager ("AIFM") and a depository be appointed by the Company. The Board have agreed to appoint SV Life Sciences Managers LLP as the AIFM and a submission for regulatory approval, by the Financial Conduct Authority, was submitted in March 2014 ahead of the deadline for approval in July 2014. Progress in appointing a depositary is advanced. Agreements, fees and operating procedures are being developed to comply with these new rules and the Board expect the Company to comply with the AIFMD ahead of the implementation deadline.

Prospects

The period under review has been another exceptional half year for Shareholders in the Company. I believe that the future for this industry remains very bright as exciting therapies continue to be developed to meet unmet medical needs and transform patients' lives, so that with fundamentals as robust as ever, strong returns are justified.

It is also encouraging to see good activity in the unquoted portfolio. In September 2013, Ophthotech listed on the NASDAQ at a healthy increase above cost, TransEnterix merged with SafeStitch and in February Debiopharm purchased the assets of Affinium Pharmaceuticals at a multiple of cost.  Following the period end in March 2014, Icon agreed to acquire the portfolio company Aptiv Solutions at a healthy premium to our holding value.

The unquoted portfolio has not performed in line with the quoted portfolio, in part because the biotechnology focused stock exchange indices have outperformed historical averages over the past eighteen months by an exceptional amount. The unquoted portfolio will always provide returns that are uncorrelated with public market indices and so form a useful component of the Company's portfolio, but they are unlikely to provide spectacular short-term returns.  Their value will be seen over rather longer-time horizons.

The biotechnology sector continues to innovate and develop new solutions to improve medical treatment and I believe the industry will maintain its abiility to provide very strong returns for our Shareholders over the long run notwithstanding periodic short-term volatility.

Alan Clifton

Chairman

22 April 2014

Investment Manager's Review

Summary

The six months ended 28 February 2014 saw the Company's NAV per share increase by 21.5%. The NASDAQ Biotechnology Index ("NBI") increased by 26.6%, while the S&P500 and FTSE All-Share increased by 6.5% and 8.8%, respectively. All figures are Sterling-adjusted.

By subsector, 76% of the portfolio was invested in therapeutics, 11% in specialty pharmaceuticals, 9% in life science tools, diagnostics and services and 4% in medical devices. Cash, money market instruments and other net liabilities were (3)% of NAV.

At 28 February 2014, the quoted portfolio represented 90% of NAV at £189.3m. The unquoted portfolio represented 13% of NAV at £25.8m. Net liabilities, including overdraft represented (3)%.

Quoted Portfolio

During the six months under review, the quoted portfolio contributed a gain in NAV of £37m, or 67.5p per share. The return of the quoted portfolio was 25.7% which compared to the NBI which returned 26.2%.

Gilead and Biogen surprised investors with very strong drug launches, surpassing analyst and investor expectations. Gilead's drug Sovaldi, a treatment for hepatitis C virus, delivered sales of $136m in just one month on the market. Analyst expectations for the first quarter of sales are now at $750m. Biogen, too, has had a stellar launch of their multiple sclerosis drug, Tecfidera, with full year 2014 sales expected to be in excess of $2bn.

Alexion rewarded investors by significantly raising guidance on the back of a changed tax structure.

Meanwhile, investor excitement grew around Incyte's oncology franchise including the long-term potential of the company's IDO1 inhibitor. Immune modulation is a new exciting area for the treatment of cancer. There are several candidates in development at large pharmaceutical companies, like Bristol Myers, Merck and AstraZeneca and at smaller biotech companies like Celldex and Incyte.

Finally, outside the therapeutics arena, two tools names significantly contributed to NAV returns during the period under review. Fluidigm's single-cell sequencing platform generated strong organic revenue growth and Illumina announced its new HiSeq X Ten genetic sequencing machine which can sequence the whole human genome at a cost of just $1,000.

On the negative side, Aegerion's launch of Juxtapid, an LDL-cholesterol-reducing treatment for patients with homozygous familial hypercholesterolemia, failed to reach investor's high expectations and the FDA suspended Ariad's oncology drug Iclusig over concerns that the drug may be causing serious side effects.

Unquoted Portfolio

The return for the unquoted portfolio over the six months ended 28 February 2014 was 4.2%.  The combined effect of gains and losses (+10.6%) on the unquoted investments, including currency losses (-6.4%) which were due to an adverse movement in the value of the US Dollar in which the majority of the portfolio's investments are denominated, was to increase NAV by £1.3m or 2.3 pence per share.  As at 28 February 2014, the Company held investments in 19 unquoted portfolio companies plus interests in five further companies that have been sold, but where there are contingent further payments payable, representing 13% of NAV.

The main contributors to performance came from TransEnterix, and Affinium.  In September 2013, TransEnterix merged with the Over The Counter ("OTC") listed company SafeStitch to form a new OTC listed company, TransEnterix and the company has been written up by £1.5m to reflect the merged company's rating in the market. In February 2014 Affinium Pharmaceuticals, whose cost was £0.8m, sold its assets to Debiopharm in a deal that returned £1.6m upfront with milestones worth - £0.4m to follow within a year with no conditions beyond a time delay to payment.

There were also write ups in Entellus (£0.3m) and Archemix (£0.2m) and write downs in Allocure

(-£1.3m) and Calchan (-£0.2m) to reflect setbacks in their drug development programmes. 

There was one new investment in the period, £0.4m invested into TopiVert which is a company focused on anti-inflammatory drug development.  In addition, follow-on investments were made into eight existing holdings with a value of £1.9m.

Outlook

The Company has had another satisfactory period for our Shareholders driven by robust sector fundamentals. Innovation from the previous decade is bearing fruit, with drug and other types of medical products launching that are hard to ignore.  Behind that, lies another wave of innovation which is currently not being priced into analyst models of the sectors. Investors no longer view biotechnology companies as having sporadic intermittent growth. The rolling launches and sustainable predictable growth of both revenues and profits, has provided evidence that this sector has matured.

Other factors have driven this continued momentum. Valuations are not expensive for large cap biotechnology companies. In fact, when adjusted for growth, valuations are close to long-term average levels. Concerns over drug pricing feel hollow as the newer drugs offer an improved overall cost savings for society, often as a result of keeping patients out of very expensive hospital treatment.

Concerns that the sector will grow too big and suffer the problems of the innovators of two decades ago, the pharmaceuticals sector, are fair. Those companies have struggled to create new products from within their organisations. However, we are seeing a new dynamic emerging within the larger biotech names. These companies are being smart by acquiring new innovation and not assuming the cash generated from highly profitable drug launches will necessarily continue to generate new drugs from their internal R&D efforts. Instead they have used the cash to acquire innovation to maintain growth. This is a better use of capital and investors realise this.

Gilead's acquisition of Pharmasset in retrospect was a very clever move. Their hepatitis C asset has the potential to sell $10bn per annum generating years of revenue and earnings growth. It's not just Gilead who's on the front foot. Amgen acquired Onyx in August 2013 and Celgene has embarked on numerous early-stage deals.

The Company invests in the biotechnology sector as a whole, from the early-stage private holdings, to newly listed mid-staged companies and of course the profitable established names. As these larger companies seek new innovative drugs from smaller, more nimble and often more innovative companies, we believe investors will benefit as the Company gives them exposure to the whole industry including private companies. By selecting those sub-sectors which show most promise, we intend to provide our Shareholders exposure to this exciting area, while at the same time reducing the inherent risk of drug development.

SV Life Sciences Managers LLP

Investment Manager

22 April 2014

Principal Risks and Uncertainties

The Company's principal risks and uncertainties are detailed in the Annual Report for the year ended 31 August 2013.  A detailed explanation can be found on pages 18 to 19 of the Annual Report which is available on the Company's website at www.ibtplc.com.

In the view of the Board, there have not been any changes to the fundamental nature of these risks since the previous report and these principal risks and uncertainties are equally applicable to the remaining six months of the financial year as they were to the six months under review.

Directors' Responsibility Statement

In respect of the Half Yearly Report for the six months ended 28 February 2014, we confirm that, to the best of our knowledge:

- the condensed set of Financial Statements contained within have been prepared in accordance with IAS 34 "Interim Financial Reporting"; and

- the Chairman's Statement and Investment Manager's Review include a fair review of the information required by 4.2.7R and 4.2.8R of the Financial Conduct Authority's Disclosure and Transparency Rules.

The Half Yearly Report has not been reviewed or audited by the Company's auditors.

The Half Yearly Report for the six months ended 28 February 2014 was approved by the Board and the above Responsibility Statement has been signed on its behalf by:

Alan Clifton

Chairman

22 April 2014

Group Statement of Comprehensive Income

for the six months ended 28 February 2014

		(Unaudited)			(Unaudited)			(Audited)
		For the six months ended 28 February 2014			For the six months ended 28 February 2013			For the year ended 31 August 2013
		Revenue	Capital	Total	Revenue	Capital	Total	Revenue	Capital	Total
	Notes	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Gains on investments held at fair value		-	38,505	38,505	-	18,322	18,322	-	46,621	46,621
Exchange losses on currency balances		-	(37)	(37)	-	(25)	(25)	-	(204)	(204)
Income	2	250	-	250	140	-	140	562	-	562
Expenses
Management fees		(1,032)	-	(1,032)	(742)	-	(742)	(1,660)	-	(1,660)
Administrative expenses		(475) ----------	- ---------	(475) ---------	(425) ----------	- ---------	(425) ---------	(840) -----------	- ---------	(840) ---------
(Loss)/profit before finance costs and tax		(1,257)	38,468	37,211	(1,027)	18,297	17,270	(1,938)	46,417	44,479
Finance costs
Interest payable		(45) ----------	- ---------	(45) ---------	(11) ----------	- ---------	(11) ---------	(13) ----------	- ---------	(13) ---------
(Loss)/profit on ordinary activities before tax		(1,302)	38,468	37,166	(1,038)	18,297	17,259	(1,951)	46,417	44,466
Taxation		(16) -----------	- ---------	(16) ---------	(16) -----------	- ---------	(16) ---------	(38) -----------	- ---------	(38) ---------
(Loss)/profit for the period attributable to owners of the parent		(1,318) -----------	38,468 ---------	37,150 ---------	(1,054) ----------	18,297 ---------	17,243 ---------	(1,989) ----------	46,417 ---------	44,428 ---------
Basic and diluted (loss)/earnings per Ordinary share	3	(2.39)p =======	69.74p ======	67.35p ======	(1.90)p ======	32.99p =====	31.09p =====	(3.59)p ======	83.89p =====	80.30p ======

The total column of this statement represents the Group's Statement of Comprehensive Income prepared in accordance with International Financial Reporting Standard ("IFRS") as adopted by the European Union ("EU").

The Group does not have any other comprehensive income and hence the net (loss)/profit for the period, as disclosed above, is the same as the Group's total comprehensive income.

The revenue and capital columns are supplementary and are prepared under guidance published by the Association of Investment Companies ("AIC").

The accompanying notes form part of these Financial Statements.

Group Balance Sheet

as at 28 February 2014

		(Unaudited)	(Unaudited)	(Audited)
		At 28 February	At 28 February	At 31 August
		2014	2013	2013
		Group	Group	Group
	Notes	£'000	£'000	£'000
Non-current assets
Investments held at fair value through profit or loss		215,152 ------------	147,264 ------------	168,438 ------------
		215,152	147,264	168,438
Current assets
Current asset investments		-	2	-
Receivables		2,001	104	2,823
Cash and cash equivalents		- -----------	86 ------------	1,635 -----------
		2,001 -----------	192 ------------	4,458 -----------
Total assets		217,153	147,456	172,896
Current liabilities
Borrowings		(2,043)	(1,012)	-
Payables		(5,288) -----------	(279) ------------	(224) ------------
		(7,331) -----------	(1,291) ------------	(224) ------------
Net assets		209,822 -----------	146,165 ------------	172,672 ------------
Equity attributable to equity holders
Called up share capital		13,939	13,939	13,939
Share premium account		18,805	18,805	18,805
Capital redemption reserve		27,878	27,878	27,878
Share purchase reserve		44,918	45,596	44,918
Capital reserves	4	129,150	62,562	90,682
Revenue reserve		(24,868) ------------	(22,615) ------------	(23,550) ------------
Total equity		209,822 ------------	146,165 ------------	172,672 ------------
Basic and diluted net asset value per Ordinary share	5	380.40p =======	263.56p =======	313.05p =======

The accompanying notes form part of these Financial Statements.

Group Statement of Changes in Equity

Group
For the six months ended 28 February 2014 (Unaudited)
	Called up		Share		Capital	Share
	share		premium		redemption	purchase	Capital	Revenue
	capital		account		reserve	reserve	reserves	reserve	Total
	£'000		£'000		£'000	£'000	£'000	£'000	£'000
Balance at 1 September 2013	13,939		18,805		27,878	44,918	90,682	(23,550)	172,672
Total Comprehensive Income:
Profit/(loss) for the period	- ----------		- ----------		- ----------	- -----------	38,468 -----------	(1,318) -----------	37,150 -----------
Balance at 28 February 2014	13,939 ======		18,805 ======		27,878 ======	44,918 ======	129,150 ======	(24,868) ======	209,822 ======
Group
For the six months ended 28 February 2013 (Unaudited)
		Called up		Share	Capital	Share
		share		premium	redemption	purchase	Capital	Revenue
		capital		account	reserve	reserve	reserves	reserve	Total
		£'000		£'000	£'000	£'000	£'000	£'000	£'000
Balance at 1 September 2012		14,002		18,805	27,815	45,596	44,265	(21,561)	128,922
Total Comprehensive Income:
Profit/(loss) for the period		-		-	-	-	18,297	(1,054)	17,243
Transactions with owners, recorded directly to equity:
Shares cancelled from treasury		(63) ----------		- ----------	63 ------------	- -----------	- ------------	- -----------	- -----------
Balance at 28 February 2013		13,939 ======		18,805 ======	27,878 =======	45,596 =======	62,562 =======	(22,615) =======	146,165 =======
Group
For the year ended 31 August 2013 (Audited)
		Called up		Share	Capital	Share
		share		premium	redemption	purchase	Capital	Revenue
		capital		account	reserve	reserve	reserves	reserve	Total
		£'000		£'000	£'000	£'000	£'000	£'000	£'000
Balance at 1 September 2012		14,002		18,805	27,815	45,596	44,265	(21,561)	128,922
Total Comprehensive Income:
Profit/(loss) for the year		-		-	-	-	46,417	(1,989)	44,428
Transactions with owners, recorded directly to equity:
Shares bought back and held in treasury		-		-	-	(678)	-	-	(678)
Shares cancelled from treasury		(63) ----------		- ----------	63 ------------	- -----------	- ------------	- -----------	- ------------
Balance at 31 August 2013		13,939 ======		18,805 ======	27,878 ========	44,918 =======	90,682 =======	(23,550) =======	172,672 =======

The accompanying notes form part of these Financial Statements.

Group Cash Flow Statement

	(Unaudited)	(Unaudited)	(Audited)
	For the six months	For the six months	For the year
	ended 28 February	ended 28 February	ended 31 August
	2014	2013	2013
	Group	Group	Group
	£'000	£'000	£'000
Cash flows from operating activities
Profit before finance costs and tax	37,211	17,270	44,479
Adjustments for:
Increase in investments	(46,714)	(26,875)	(48,049)
Decrease in current asset investments	-	6,041	6,043
Decrease/(increase) in receivables	822	251	(2,468)
Increase in payables	5,049	76	25
Taxation	(16) --------------	(16) ---------------	(38) --------------
Net cash flows used in operating activities	(3,648) --------------	(3,253) ---------------	(8) --------------
Cash flows from financing activities
Share repurchase costs	-	-	(678)
Interest paid on bank overdrafts	(30) --------------	(7) --------------	(13) --------------
Net cash used in financing activities	(30) --------------	(7) --------------	(691) --------------
Net decrease in cash and cash equivalents	(3,678)	(3,260)	(699)
Cash and cash equivalents at beginning of period	1,635 --------------	2,334 -------------	2,334 -------------
Cash and cash equivalents at end of period	(2,043) ========	(926) =======	1,635 =======

The accompanying notes form part of these Financial Statements.

Notes to the Financial Statements

1. Accounting Policies

The consolidated Financial Statements have been prepared on a going concern basis, in accordance with International Accounting Standard 34 "Interim Financial Reporting", as adopted by the EU and are presented in pounds Sterling, as this is the principal currency of the primary economic environment in which the Group operates.

The financial information for each of the six month periods ended 28 February 2014 and 28 February 2013 comprises non-statutory accounts within the meaning of Sections 434 - 436 of the Companies Act 2006 (the "Act"). The financial information for the year ended 31 August 2013 has been extracted from published accounts that have been delivered to the Registrar of Companies and on which the report of the auditors was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under Section 498(2) or (3) of the Act.

The Company's principal risks and uncertainties remained unchanged to those described in the Annual Report for the year ended 31 August 2013.

The Group's accounting policies have not varied from those described in the Annual Report for the year ended 31 August 2013.

2. Income

	(Unaudited)	(Unaudited)	(Audited)
	For the six months	For the six months	For the year
	ended 28 February	ended 28 February	ended 31 August
	2014	2013	2013
	£'000	£'000	£'000
Revenue:
Income from investments held at fair value through profit or loss:
Unfranked dividends	110	143	377
Interest on debt securities	140 -----------	159 -----------	323 -----------
	250	302	700
Other income:
Income from current asset investments	-	(162)	(139)
Bank interest	- -----------	- ----------	1 -----------
	250 ======	140 ======	562 ======

3. Net (loss)/earnings per Ordinary Share

	(Unaudited)	(Unaudited)	(Audited)
	For the six months	For the six months	For the year
	ended 28 February	ended 28 February	ended 31 August
	2014	2013	2013
	£'000	£'000	£'000
Net revenue loss	(1,318)	(1,054)	(1,989)
Net capital profit	38,468 ---------------	18,297 ---------------	46,417 ---------------
	37,150 =========	17,243 =========	44,428 =========
Weighted average number of Ordinary shares in issue	55,157,663	55,457,663	55,328,622
Revenue loss per Ordinary share	(2.39)p	(1.90)p	(3.59)p
Capital profit per Ordinary share	69.74p --------------	32.99p ---------------	83.89p ----------------
Total earnings per Ordinary share	67.35p ========	31.09p =========	80.30p =========

4. Capital Reserves

The capital reserve account comprises both realised gains on investments sold and unrealised gains and losses on investments held, which are analysed as follows:

	(Unaudited)	(Unaudited)	(Audited)
	At 28 February	At 28 February	At 31 August
	2014	2013	2013
	£'000	£'000	£'000
Capital reserve - on investments sold	78,198	36,426	61,478
Capital reserve - on investments held	50,952 ------------	26,136 -------------	29,204 ------------
	129,150 =======	62,562 ========	90,682 =======

5. Net Asset Value per Ordinary Share

	(Unaudited)	(Unaudited)	(Audited)
	At 28 February	At 28 February	At 31 August
	2014	2013	2013
Net assets attributable to Ordinary Shareholders (£'000)	209,822	146,165	172,672
Ordinary shares in issue at end of period	55,157,663	55,457,663	55,157,663
Net asset value per Ordinary Share	380.40p =========	263.56p =========	313.05p =========

6. Related Party Transactions

There have been no related party transactions that have materially affected the financial position or the performance of the Group during the six months ended 28 February 2014.

7. Half Yearly Report

The Company's Half Yearly Report for the six months ended 28 February 2014 will be posted to Shareholders in April 2014. Copies of the Half Yearly Report will be available from the Registered Office of the Company at 55 Moorgate, London EC2R 6PA and on the website, www.ibtplc.com, which is a website maintained by the Company's Investment Manager, SV Life Sciences Managers LLP. A copy of the Half Yearly Report for the six months ended 28 February 2014 has been submitted to the National Storage Mechanism of the UK Listing Authority and will shortly be available for inspection at: www.Hemscott.com/nsm.do.

For further information, please contact:

Kate Bingham

Investment Manager

SV Life Sciences Managers LLP

Telephone: [phone]

Susan Gledhill

Company Secretary

BNP Paribas Secretarial Services Limited

Telephone: [phone]                              

22 APRIL 2014

 

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