Patient Capital Trust update, April 2017

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Mitchell Fraser-Jones 15 May 2017 Est. reading: 4 min read

The Woodford Patient Capital Trust delivered a positive return during April, with the largest contribution to performance coming from the unquoted part of the portfolio.

Ultrahaptics was revalued upwards following the successful completion of a further funding round which will provide additional capital needed to support the company’s global expansion and its entry into virtual and augmented reality markets. We are delighted with the progress that Ultrahaptics is demonstrating and remain very excited about its long-term prospects – as we said in the company spotlight in November last year, capturing just a small fraction of the potential that exists for the company’s innovative technology will result in substantial shareholder value being created.

Norwegian businesses Idex and Thin Film also performed well. Both companies announced incrementally positive news during the month. Idex announced that its flexible, off-chip fingerprint sensor technology will be featured in Mastercard’s next generation biometric card. Idex expects to start commercial deployment of its technology in this application later this year. This is a very positive development for the company as it puts it in a strong position to capitalise on the growing market opportunity for biometric cards and it further raises the profile of its innovative fingerprint technology. Meanwhile, Thin Film continued to build its network of partners that are interested in its technology. The company entered a collaboration with the Korean Red Cross to provide it’s near field communication SpeedTap tags (which enable instant product authentication). Thin Film’s disruptive technology will be used to verify delivery and receipt of relief items such as food, clothing and medication without the need for the highly inefficient paper-based process which is currently in place.

On a less positive note, shares in Allied Minds performed poorly, following the announcement of its decision to halt funding to seven subsidiaries. As we stated in the March update, we have built the investment case in Allied Minds around its more promising subsidiaries in which we have substantial confidence. These include Federated Wireless, Precision Biopsy, and SciFluor Life Sciences – we have co-invested directly in each of these businesses and several others, all of which are, in our view, significantly undervalued and offer tremendous growth potential. For example, the opportunity that lies ahead for Federated Wireless, which is developing a mobile telecommunications spectrum sharing technology, could justify a higher valuation than that of its parent on its own. We expect positive news from Allied Minds and the subsidiary companies it is now concentrating its attention towards, in the months ahead as it accelerates the process of commercialisation.

Shares in Vernalis also disappointed following the announcement of a delay in the approval process for its second cough-cold programme, CCP-07.

In terms of portfolio activity, we added to the position in Abzena through its equity offering during the month. Abzena licences its proprietary technologies and provides complementary services to biotechnology organisations around the world to support the development and manufacturing of better treatments for patients. The additional financial firepower will enable the company to further progress its development through investment in its facilities, equipment and personnel. Meanwhile, we participated in the latest funding rounds for Ultrahaptics and Atom Bank. There were no disposals during the month.

Proposed amendments to investment objective and policy

For investors who have yet to see the 2016 Annual Report for the Woodford Patient Capital Trust, published last month, we are taking this opportunity to outline some proposed changes. In the light of the progress being made across much of the portfolio, we have undertaken an analysis of how the shape of the portfolio may change over time, as material success on a stock-specific basis emerges. This analysis has highlighted a rationale for amending the current investment objective and policy in order to avoid unintentionally constraining Neil’s management of the portfolio in the future.

Consequently, the board is proposing the following amendments:

  • To update the trust’s investment objective to account for future stock-specific successes which may change the geographical profile of the portfolio – as companies mature, the portfolio may become more global in nature for reasons such as an overseas listing or as a result of changes to the capital value of a non-UK company – consequently, it is being proposed that the constraint which limits overseas exposure to 30% of net asset value be removed
  • To consolidate the investment policy to reflect that, as the trust’s portfolio positively develops, its maturity profile may change – it is being proposed, therefore, that the guidance on the portfolio’s likely exposure to different maturity stages be dropped and that the maximum exposure to unquoted securities be raised from 60% to 80%
  • To give the opportunity to participate in future funding rounds in companies that are progressing successfully but that already represent large positions in the portfolio, by increasing the aggregate investment limit in any investee company from 15 per cent to 20 per cent of the trust’s net asset value.

The board believes that these amendments are in the best interests of shareholders, as they will enable Neil to flexibly manage the portfolio, make the most of investment opportunities and avoid constraints in the future.

You can find all the proposed amendments in the annual report’s appendix at page 95. Shareholders will have the opportunity to vote on these proposed amendments the Annual General Meeting which will take place at 11am on the 12th of June at Modern Art Oxford.

Please bear in mind that only those shareholders entered on the Company’s register of members will be allowed to vote. If you hold your shares indirectly (via a stockbroker, bank, or investment platform, for instance) contact your intermediary as they may be able to help you attend or vote. We hope to see you there.

Woodford Patient Capital Trust plc
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What are the risks?

  • Long-term outcomes are more binary – extremely attractive rewards for success but some businesses will inevitably fail to fulfil their potential and this may expose investors to the risk of capital losses
  • As it can take years for young businesses to fulfil their potential, this investment requires patience
  • The value of the trust as well as any income it pays will fluctuate which may partly be the result of exchange rate changes
  • The price of shares in the trust is determined by market supply and demand, and this may be different to the net asset value of the trust. This means the price may be volatile in response to changes in demand
  • The trust may invest in overseas securities and be exposed to currencies other than pound sterling – as a result, exchange rate movements may cause the sterling value of investments to decrease or increase
  • The trust may invest in unquoted securities, which may be less liquid and more difficult to value, because they are generally not publicly traded – the lack of an open market may also make it more difficult to establish fair value
  • Young businesses have a different risk profile to mature blue-chip companies – risks are much more stock-specific, which implies a lower correlation with equity markets and the wider economy

Important information

We do not give investment advice so you need to decide if an investment is suitable for you. If you are unsure whether to invest, you should contact a financial adviser. The trust currently intends to conduct its affairs so that its securities can be recommended by IFAs to ordinary retail investors in accordance with the FCA’s rules in relation to non-mainstream investment products and intends to continue to do so for the foreseeable future. The securities are excluded from the FCA’s restrictions which apply to non-mainstream investment products because they are shares in an investment trust.

Woodford Investment Management Ltd is authorised and regulated by the Financial Conduct Authority (firm reference number 745433). Incorporated in England and Wales, company number 10118169. Registered address 9400 Garsington Road, Oxford OX4 2HN.

Woodford Patient Capital Trust plc is incorporated in England and Wales, company number 09405653. Registered as an investment company under section 833 of the Companies Act 2006. Registered address Beaufort House, 51 New North Road, Exeter, EX4 4EP.

© 2019 Woodford Investment Management Ltd.
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