Patient Capital Trust update, July 2016

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Mitchell Fraser-Jones 12 August 2016 Est. reading: 5 min read

The Woodford Patient Capital Trust delivered a strong return in July, a month during which the market very quickly regained its poise following the post-referendum sell-off in June.

By far, the most significant individual contribution to performance came from US biotech, Prothena. Early in the month, the company announced very encouraging trial data from its Phase I/II study in NEOD001, its potential treatment for AL amyloidosis. This provided further convincing evidence of the drug’s effectiveness with excellent patient response rates and a clean safety profile. The market’s response was initially muted but it has started to warm to the importance of this news, with Prothena’s share price rising by over 50% by month end. In our view, this new data significantly derisks the registration trial for the drug, which is due to read out towards the end of 2017 or early 2018. We met management during the month for a full update on the company’s pipeline development progress. We remain convinced that the current share price is profoundly undervaluing Prothena’s long-term potential, not just in NEOD001, but also in the Parkinson’s disease therapy that it is developing in partnership with Roche and in other earlier-stage but very promising drug development candidates.

Elsewhere, Vernalis issued a very reassuring trading update during the month which confirmed that it is fundamentally on track. The company also reported the successful completion of the CCP-08, bioavailability study, its third extended-release product targeting the US prescription cough-cold market. We remain very confident that the company offers significant upside potential as it successfully executes the US cough-cold opportunity.

ReNeuron, meanwhile, also delivered some very promising pre-clinical data in its retinal stem cell technology, which highlighted the therapy’s safety, tolerability and efficacy profile. Data from its Phase II trial in stroke patients is due to read out towards the end of this year and we remain very excited about this young company’s long-term prospects.

Company spotlight: Idex (by Stephen Lamacraft)

Idex is a Norwegian technology company founded in 1996 to pioneer miniaturised fingerprint sensors. The company aims to provide consumers with a secure and user-friendly use of personal ID by developing and commercialising fingerprint imaging, recognition and authentication technology. Idex first joined the portfolio in May 2015 but our interest in the company predates this investment by several years. The company has been showing great progress on its journey towards becoming a world leader in the advanced fingerprint sensors market.

Idex has been developing its know-how for 20 years and its fingerprint technology has been backed by several global technology companies that show an increasing interest in its products. The company benefits from an incredibly experienced management team with a breadth of expertise in the technology sector and which we hold in very high regard.

Initially, Idex is looking to market its products in the growing sector of mobile devices where its technology is increasingly regarded as a ‘must have’ feature. The company is also looking to tap into the fast-developing credit card and security ID markets and in the expanding ‘internet of things’. The company has good potential to scale-up its fingerprint technology that can be embedded in many products of everyday use.

Idex has a number of products in the pipeline, two of which are on the brink of commercialisation and one which is not far behind. Importantly, Idex is the only biometric1 company that provide both off-chip2 and silicon sensors – Eagle is its next generation, off-chip sensor with superior wet-dry finger usability which provides superior imaging with greater image size, while Cardinal is a full silicon sensor used for fast image acquisition and ‘tap and go’ transactions. The company’s Cardinal sensor was a feature on the LG Stylo 2 Plus phone that was launched in June of this year. This was a significant commercial milestone for Idex signifying the start of meaningful revenues in addition to strong validation from a major global mobile manufacturer.

Having developed two types of sensor families, Idex has a strong advantage in serving a broad range of clients. The company’s most exciting innovation, however, has yet to come to market. The company is developing an in-glass sensor which offers enhanced image quality, aesthetics and robustness. The in-glass technology is being built upon Eagle’s off-chip architecture which enables the company to integrate it into different composite materials, including cover glass. This provides Idex with the perfect formula for a fingerprint technology that can be quickly scalable in today’s growing smartphone market. Idex will start sampling the in-glass sensor later this year with the aim of progressing it towards commercialisation. The off-chip technology has also enabled Idex to develop a unique, bendable, low-cost fingerprint sensor suitable for card integration.

Looking forward, it seems almost inevitable that the world will become ever more dependent on technology, with touch screen mobile devices, such as smartphones and tablets, becoming more advanced and integral to our lives. Moreover, the company’s innovative technology is very well protected by an impressively robust intellectual property portfolio. We are therefore, confident that Idex is very well-positioned for significant long-term expansion – growth that will be very rewarding for its shareholders.

There was also highly encouraging clinical data from 4D Pharma which reported a positive response from its Blautix treatment for irritable bowel syndrome in its first in-man trial. This is a very early-stage trial but the company has enough confidence in the results to advance the drug to the next stage of its clinical development. 4D Pharma is leading the way in the brand new field of live biotherapeutics, which use naturally-occurring bacteria in the human gut to potentially treat an extraordinarily diverse range of conditions, from Crohn’s disease through to autism spectrum disorder. In contrast to Prothena, Vernalis and ReNeuron, however, 4D Pharma’s share price inexplicably declined during the month. Nevertheless, we continue to be very positive on the company’s long-term prospects.

In terms of portfolio activity, we added a new position to the trust in the form of Econic, a highly innovative catalyst technology company that operates within the fast-evolving polymer science industry. Econic develops novel catalysts that help plastic manufacturers to make their products more cost-efficient and environmentally-friendly by using carbon dioxide. The company’s underlying technology was originally developed at Imperial College London and has been nurtured thus far by Imperial Innovations.

In the same sector, we also participated in Revolymer’s placing to raise capital for the acquisition of Itaconix, a US speciality polymer company. Itaconix’s, already commercially-proven technology is complementary to Revolymer’s own product lines and the acquisition also provides the company with a foothold in the important North American market.

Elsewhere in the portfolio, we added to the portfolio’s holding in 4D Pharma at what we consider to be a very attractive share price. Meanwhile, we were able to add to the trust’s unquoted holding in Oxford Nanopore when a line of stock from another shareholder became available.

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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