Patient Capital Trust update, January 2017

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Mitchell Fraser-Jones 16 February 2017 Est. reading: 6 min read

Home > Words > Insights > Patient Capital Trust update, January 2017

The Woodford Patient Capital Trust portfolio delivered a modestly positive return during the first month of 2017.

The largest positive contribution to performance came from hybrid estate agent, Purplebricks. Its shares have now doubled since its IPO in December 2015 as the stock market has started to appreciate the long-term growth opportunity that exists for the company in disrupting the UK’s traditional estate agency business model. Furthermore, a trading update during the month also confirmed that the roll-out of its Australian business is progressing well, providing further evidence of the substantial international opportunity that exists for Purplebricks.

Meanwhile, shares in Horizon Discovery climbed higher, with a trading update confirming that it is on track to deliver a profit this year. The company offers a suite of gene-editing technologies to other healthcare businesses which are used in the development of personalised medicines. We believe the company is very well-placed to deliver strong growth in the years ahead, as the field of personalised medicine, which offers many advantages over more traditional drug development methods, gains traction.

Other positive performers included animal health business Benchmark and innovative laundry business Xeros, both of which released positive trading updates during the month. By contrast, Allied Minds, Theravance Biopharma and Prothena detracted from performance, despite a lack of news during the month.

Company spotlight: Oxford Nanopore (by Saku Saha)

Oxford Nanopore was spun out of University of Oxford in 2005 in order to transform nanopore sensing from a conceptual science into a platform technology accessible to a broad customer base. Twelve years on, the company has fulfilled its initial goal and it’s now aiming to democratise molecular analysis by making it possible for anyone, no matter where they are, to analyse any living thing.

The company has developed a highly disruptive, next generation nanopore platform technology, which enables the analysis of biological molecules, such as DNA. Its portable DNA sequencer – the MinION – can be acquired at a fraction of the cost of existing technologies and it runs in real-time, allowing the analysis of sequenced data immediately, rather than waiting for days. Oxford Nanopore joined the Woodford Patient Capital Trust portfolio in July 2015 but we’ve known the business and its management for much longer – Neil’s first investment in the company was in April 2011 and it has been a constituent of the Woodford Equity Income Fund since August 2014.

Over the years, Oxford Nanopore has made tremendous progress in developing its technology, at the heart of which is a manufactured nanopore protein – a tiny tube only a few nanometres in diameter. To put into context just how small a nanopore protein is, 1 millimetre equals 1 million nanometres. Thousands of these nanopore proteins are inserted into a synthetic membrane, contained in a consumable item called a flow cell. An ionic current is passed through these tiny tubes so that biological molecules that enter the tube pass through the nanopores or near to their aperture, causing distinctive disruptions in the currents. These disruptions can be measured and analysed to identify the molecules.

The company has built a diverse range of products that harness the power of its nanopore technology to deliver real-time, low cost molecular analysis. Its first commercially available product, the MinION, is a pocket-size DNA sequencer designed for users who need a simple and fast device that can generate real-time data without being confined to a laboratory environment. The MinION has already been successfully used to sequence the human genome (a huge feat in itself), perform surveillance of the Ebola and Zika viruses, to research cancer genetics and to understand the biological composition of complex environments such as seawater and ice.

A key and differentiating feature of the MinION is its long reads which enables the easier and more complete analysis of genetic data. For example, if you are sequencing the human genome, it can be thought of as a jigsaw with 6 billion data units. Current sequencing techniques can only produce ‘reads’ (‘jigsaw pieces’) from 150 to ~10,000 data units at a time. This results in a very small jigsaw pieces, from which a complete picture needs to be assembled. Oxford Nanopore’s MinION can read tens or hundreds of thousands of data units in one ‘read’, resulting in very large jigsaw pieces from which the complete genome can be assembled. This offers clear advantages in analysing not only the human genome but any organism.

Oxford Nanopore is currently releasing PromethION, a desktop-scale, on-demand-DNA sequencer that was designed to satisfy the needs of customers who wish to produce larger data sets, or analyse large numbers of samples. Based on the same core technology as the MinION, it benefits from the long reads feature and real time data generation except on a scale that is designed to compete with the most powerful machines currently on the market.

The company managed to simplify the very complex and time-consuming process of preparing biological samples before they are sequenced.  Its latest kits enable users to prepare a sample in 5-10 minutes, compared to hours or days with traditional technologies. Also, Oxford Nanopore is now launching an automated preparation device called VolTRAX, allowing clients without laboratory-related skills to prepare DNA samples. Additionally, the company has also set up a wholly owned spin-out company called Metrichor, that provides complete data analysis solutions.

We believe the commercial opportunity that lies ahead for Oxford Nanopore’s ingenious platform technology is truly extraordinary. While the current client-base for sequencing technology is primarily academic, with some corporates using it for R&D purposes, this next generation of technology takes sequencing to a much wider potential audience of ‘applied markets’. There is a significant opportunity for Oxford Nanopore’s devices to more routinely access important biological information in a broad range of industries, for an array of different purposes, such as identifying contamination or pathogens in food or water supply chains. These applications include healthcare, agriculture, defence and surveillance, environmental monitoring and forensics – many of these are potentially billion dollar markets in their own right.

Oxford Nanopore’s commercial model is very straightforward. Using just a debit or credit card, interested clients can sign up on the company’s website to receive the MinION starter pack. This starts at $1,000, a small fraction of the current price of hundreds of thousands of dollars for any other DNA sequencing technology on the market, and includes the MinION device, and a range of support services and kits. Remote training is also provided to ensure that all clients make the most out of their nanopore sequencing technology. Users of its nanopore technology continue to purchase consumables, such as the cell flow in large volumes and at discounted prices.

The driving force behind Oxford Nanopore’s success is a dedicated and talented management team with a breadth of experience in developing, manufacturing and commercialising disruptive technologies including DNA sequencing. We hold the company’s management in very high regard and are confident that they will continue to create substantial shareholder value by efficiently executing their strategic vision and further growing the business.

As with many disruptors, the company’s journey hasn’t always been smooth. In 2012-13, Oxford Nanopore had technical challenges around the membrane that held its nanopores. As a result, it had to invest extra time and capital in developing an alternative solution, delaying its introduction to market for more than a year. Ultimately, however, all the effort and investment has paid off. When you identify a company with strong leadership, a clear strategic vision and a powerful technology with large commercial potential, it is important to take a long-term view and support the business on its journey towards reaching maturity.

Oxford Nanopore has come a long way – it is a great example of how it can take a long time to develop and commercialise genuine innovation. Oxford Nanopore is now starting its serious commercial journey, and we believe it is on the cusp of some major breakthroughs that can revolutionise the DNA sequencing industry and beyond, as its technology continues to be applied across multiple industries. We are very excited about Oxford Nanopore’s future growth prospects and highly confident that it will create substantial further shareholder value in the years ahead.

Turning to portfolio activity, we participated in a follow-on founding round for Inivata, the clinical genomics company which uses its proprietary liquid biopsy technology to improve cancer diagnosis. The company has achieved a number of operational milestones since the initial investment in January 2016, including the initiation of a clinical study in non-small lung cancer and demonstrating that its facilities are up to the regulatory standard. This further funding will enable the company to continue to grow and further develop its liquid biopsy technology. Elsewhere, we took advantage of share price weakness to add to the position in Theravance Biopharma.

In conclusion, we remain very confident in the trust’s ability to deliver double-digit annualised returns over the long term.

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Conversations

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  1. Any update on Reneuron?

    1. Reneuron CTX cell therapy candidate was featured in a BBC documentary, “Andrew Marr: My Brain and Me”, which was screened 14/02/17 for the first time on BBC2. It is available on BBC iplayer. Their shares have halved since WPCT bought at 5p. At close today they stood at 2.5p. Seems whilst all seems extremely, any gains made are wiped out by speculators selling. Seems a high liquidity in the share where some 2-4m are traded daily. Until they have finished their trials and approach commercial sales the shares will not move much. However when they do the chances are they will be bought by a larger group and thats when WPCT will realise value which could be like 5x investment at 25p? So that is the nature of the investment funds which WPCT invests in. One has got to play the long game and hold your nerve. As Warren Buffet says “Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.” But I think we will see returns on Reneuron much earlier as both CEO and FD exercised their share options which run for three years (last October 2016)

    2. Hi Daniel,

      We’re very encouraged with progress at ReNeuron. This is a great example of how poorly an indicator the stock market is as a judge of the progress of early-stage businesses. The company has made significant clinical progress in recent months with its stem cell programmes.

      Data from its first product, CTX, in a Phase II trial for stroke disability showed positive results. Whilst it missed the primary endpoint, due to patients taking longer than expected to respond to the treatment, the clinical improvement in patients over a longer time period was excellent; compelling enough for the company to now apply for pivotal clinical trials. ReNeuron also reported good pre-clinical data from its retinal stem cells potential treatment for retinitis pigmentosa (a degenerative eye disease).

      Its share price however has halved over the last 18 months, with its market cap now being around £80m, over half of which is accounted for by cash. This means that the market is applying very little value to company’s technology or the progress it has made. Ultimately, the value of this business will be determined by continued success in the clinic. That will take time however, but we are confident that ReNeuron will ultimately be worth significantly more than the current market valuation implies.

      Hope that helps.

      Kind regards,
      Saku

      1. bernard curran 19 Feb 2017 at 10:39 am

        GREAT REPLY THANKS AND MUCH APPRECIATED

  2. I must confess this Fund has been , and continues , to be a great disappointment to me,I don’t like losing money , and paying for the privilege. It got off to a flying start,so why the drop and what is being done to rectify the situation.

    1. Andrew McMorran 16 Feb 2017 at 3:52 pm

      I guess patience is the operative word. Been in since the start and am hesitant to bail now and miss out on the upswing. Here’s hoping.

      1. Every time without fail someone comes out with the ‘patience’ word!!

        Patience is now the official excuse for the poor performance!

        1. Personally I don’t think ‘patience’ is being used an excuse. It was a clear caveat in the prospectus that patient meant 5 – 10 years.

          1. 5-10 years for what?
            To start moving?
            To break even?
            Quite simply, this fund already has some serious catching up to do.

      2. John Broadbent 16 Feb 2017 at 4:49 pm

        Yes, I too have have been hanging in since the start, but watching this fund flounder while everything else in my portfolio is actually posting double digit returns over the same timescale has lead to me selling my entire holding this week. Even if it now delivered its own double digit return from the current price it would still only be break even. Very disillusioned with this fund.

        1. At last some truthful views!

          The expectations for this fund set out in the prospectus were for annualised double digit returns per annum hence the frustration and disappointment.

          This update ends with the paragraph: “In conclusion, we remain very confident in the trust’s ability to deliver double-digit annualised returns over the long term”.

          Well it really does need to start performing otherwise the market will become more and more negative towards it.

      3. interested to know when this fund will actually make any money – depending when bought – maybe not at £1 – maybe much more – it has LOST and LOST and never made it back – and has lost badly – it was supposed to make 10% a year

    2. We were creeping up nicely this week, above 94p……….Update comes out and down 1.5% to 92p !! Deary me.

  3. H since launch 16 Feb 2017 at 5:00 pm

    Investors are becoming weary of these excuses for what can only be described as inadequate fund management. Patience, is indeed a shoddy excuse for this poor performance since launch. Most below average tracker funds have more appeal.
    Good job Mr Woodford is not a football manager!

  4. How come Eve has gone up significantly in portfolio percentage ? Did you add more funds or was it given a rerating – or both ? Thanks.

    1. Correction, I meant Atom Bank

      1. Hi Robert,

        As part of our ongoing monitoring and revaluation process, the external valuations team revisited the Atom Bank holding and concluded that the valuation should be revised upwards to reflect the steady growth and progress of the business.

        Kind regards,
        Paul

  5. Seems like quite a few people do not understand the meaning of word “patient”.
    This is for marathon runners.
    What matters is where you are at the end of the race not these early stages.

    1. Completely agree. This trust has always been a 7+ year play. That was made very clear at the launch.

  6. Very poor so far. I think you need to get back to where you were as a leading fund manger before you went off on your own. You intend to float a new launch in the coming weeks. Is it worth investing again with you and having another lame duck?

  7. Brian Crockett 16 Feb 2017 at 7:48 pm

    Looks like all the people commenting below didn’t read the prospectus before buying……for me the lower price is a buying opportunity …..the future is in the future, its not tomorrow

  8. What comments do you have on NWB? They have stated FDA has lifted the partial clinical hold and that they have reached PFS events. What is your opinion? It seems they will be proceeding to data lock.

    1. It would be good if you could commnet on NWBO (Northwest Biotherapeutics). You made some comments not so positive on the previous update and this month there has been significant news in my opinion. What do you think about it? Thanks!

  9. Reading some of the responses today, I am astonished at their naivety. I am just an investor. I have no axe to grind. But I have been an investor in Neil Woodford’s funds since 1994, yes 1994, 23 years ago. I can honestly say I have never been disappointed. If you want instant results go and do some day trading or something. In Patient Capital Neil and his colleagues are using their research to locate companies whose proposition contains promise for either or both systemic upward movement in a sector, or capturing a key place in a new market. A priori, results will not, indeed cannot, arrive immediately.

  10. Just not good enough, In from the start but sold up at a loss

  11. The performance of this fund has knocked a hole in N. Woodford’s reputation ,he ain’t so good after all, and to think how the Stock Exchanges have risen, the performance of this Fund is even more disappointing.

  12. Guys, this type of fund can only ever be a risky bet, with a hope that one stock will rocket. Disruptive business models and products are only so until they too are disrupted. I regard this as a side bet and bought a High Div tracker at the same time – funny, that is well up but it may be WPCT that pays for my care home fees…

    1. Hi All

      New to the investment game but totally agree with Carolyn’s position.

      This is an above average risk investment and you would have to be mad to allocate
      a significant proportion of your pot in this fund .

      I do like the basics of the fund as well as the fee structure . Indeed the fee structure anticipates in my opinion significant upside potential IN THE LONG TERM .

      I am sticking with it

  13. While I can understand the reasoning behind your caution over investing in the mining sector in general, is it really wise to stubbornly avoid it entirely? There are certainly some small companies which have the kind of quality fundamentals and management that you advocate, e.g. Berkeley Energia and Solgold spring to mind, and possess the long term potential for outstanding growth befitting a patient capital trust fund.

    1. What is noticeably absent are any replies/comments from the Fund Managers to the many points made here by concerned investors. That also adds to the disappointment .

    2. Berkeley Energia has had straight 5 yrs of falling revenue, negative net income, -46% returns on assets and -49% return on investment as well as never having had a positive cash flow period.
      Pure speculation no fundamentals at all.

      1. When giving Berkeley Energia as an example I did say for long term potential, looking forward not at the past 5 yrs, based on their oversubscribed fundraising, confirmed future off-take agreements at attractive rates and plan to be in production in 2018, amongst other positives. Pure speculation it certainly is not, these are facts.

        1. interesting definition of fundamentals you have the there….please go put your money where your mouth is

          1. I already had, Mark, some time ago. The long term investment case for BKY is compelling, in my opinion, just as it is for WPCT, having invested at launch.

  14. I do wish people would stop talking this fund down, potentially eroding confidence in the Trust and the manager and maybe even suppressing the share price.

    When I read the prospectus for the Patient Capital Trust, I was a complete novice (my first ever investment being in the Equity Income Fund the previous year). However, it was pretty clear to me, a novice, that this was probably not a suitable vehicle for me, as the risks and timescales were not appropriate for my needs. I did however invest the minimum at launch for each of my children, on the basis that in 10-20 years time, it might have grown into something more substantial. I supported the objectives of the Trust and was willing to take a (small) punt. What has happened to date since launch is pretty much what I expected in the early years from reading the prospectus and exercising basic common sense. I don’t think it’s fair to talk abut poor performance or blame the team, when investors have failed to undertake their own due diligence as to the suitability of the Trust for their needs.

    1. bernard curran 19 Feb 2017 at 10:42 am

      TOTALLY AGREE

    2. It is very rich to point the finger at ‘investors failing to undertake their own due dilligence’ when there is a failure the size of Northwest Biotherapeutics to recover from in the early stages of the Trust.

      Or did you pretty much see this coming too?!

      1. come on guys it really is no good moaning about the word patient constantly being used its what it has always said on the tin.
        I for one wish more of the positive comments talked about the companies in the trust, surely the less patient can see how fantastic most of them will be. I wish I had put purple bricks as an add on into my fund a while back. I hope they sneak into the USA before Donald notices.
        Renueron, proton partners, nanopore, IP group, malin,etc. have you looked at any of those potential big winners ,, and I’ve set an alert so as I don’t miss out on ultrahaptics when the float, I would be in this fund for that on its own.
        guys if u didn’t see last months update check it out, I am a little older and maybe easily impressed but it truly seems ultrahaptics could be everywhere you look soon..As for the sp going down a few days ago, I thought the nav was looking better, sentiment sentiment sentiment. we are not helping on this months update are we .

        1. Bruce Marquart 09 Mar 2017 at 11:28 am

          I agree. The fact that there is so much amazing transparency in communicating the Funds holdings leaves the team open to criticism if short term expectations are not met.
          Nonetheless, don’t the critics appreciate the additional opportunities this transparency creates for long term investors?
          Just the fact that we are able to communicate directly and feed back to the team is going to be constructive.
          I personally find it thrilling to invest under these conditions, and well worth any waiting. I waited close to 20 years for my first investment in “recombinant DNA” pioneer, Genentech to pay back big and it was huge.
          I am well confident in the Patient Fund and these wonderful companies we invest in.

    3. I agree totally with your comments . I know that hindsight is a great thing but investing in a series of what could be described as ‘start ups’ you would almost expect valuations to initially fall as cash is used up before the innovators start to get it right . If you look at the video of how the fee structure for the fund operates there was almost a ‘ hint ‘that below par performance was expected by Neil and the team .

      I am not tracking this fund on a daily basis – my blood pressure wont take it – but I am happy to be patient and have trust in the fundamentals of the investment strategy and the team managing the funds .

  15. I thought it worth mentioning how pleasing it is to see the fourth largest holding, Purplebricks Group, share price progressing so positively after the update regarding the US expansion yesterday. Hopefully, it might silence a few day traders complaining about the 59th largest holding!

    Keep up the good work.

    1. Well said Craig, but even now I will bet you Neil, Mitch and all the fantastic team would remind us all that this is a long term trust..
      Not just todays big gain at purple bricks but the speed of growth since floating is impressive no? talking up another great prospect is proton partners. we’ve all heard by now of proton therapy but having looked on there pretty impressive web pages they are so much more than that and I for one feel they will fly probably as quickly as purple bricks..
      one more point to make about proton partners is that with Sir Chris Evans involved I don’t think they will be running before they can walk and they don’t seem to be that early stage to me either.

      1. This is not a reply to neal frankel but there seems to be no facility of making a new posting. Reference has been made that this fund was declared as being for the longer term, that may well be but that does not excuse no increase being replaced by a loss. People set out to be professionals for which they charge a fee and ask for and take money. In the event of producing a loss making investment fund, it would not be beyond the realms of reasonable expectation to be told why and what is going wrong, plus of course what action is in hand to rectify the situation, which has not been forthcoming.

        1. Tony, just for future reference, you can add a new comment under “Conversations” at the top of the blog.

          1. I love these updates, where else do you get this with your investments? I completely understand the negative comments as its our hard earned cash we have trusted the team with. I personally am in the woodford fan club and the fact I get both the + and the – only strengthens my conviction in WPCT . Bruce Marquart I agree with your post as I too find this exciting and fascinating but i don’t think we will need to quite that patient. I also think our investment in this will be huge. cant wait for next update and many thanks to all the team.

  16. With very early stage investment, you would expect losers to become apparent much sooner than winners, so I am unsurprised by the lack of progression in values so far.
    That said, I had not expected the amount of investment in US stocks, and many of the holdings are much later stage than I anticipated. I’d have preferred less emphasis on pharma too seemed clearly overvalued to me at the time.
    And my confidence in stockmarket nous was badly hit when there was the suggestion of further money raising when valuations had fallen. Never seemed likely to fly.

  17. Just read through many of the Comments. The clue is surely in the name of the Trust. End of story !!!

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