Patient Capital Trust update, July 2017

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Mitchell Fraser-Jones 22 August 2017 Est. reading: 3 min read

As Neil said in the recently published interim results, which cover the six months to the end of June, the portfolio is in excellent shape and is showing signs of incredible operational progress across many of its holdings. This progress continued in July.

Horizon Discovery, the gene editing business, acquired Dharmacon, a GE company with a fast-growing gene editing product portfolio, for £65m. We believe this is a positive development for Horizon for a number of reasons. Firstly, Dharmacon has a strong brand among the academic and research community and therefore, the deal will expand Horizon’s customer base which was previously focused primarily on pharmaceutical companies. Secondly, the acquisition enlarges Horizon’s gene editing product offering and creates market access for the company’s gene editing technologies through an e-commerce platform and established global distribution channels. Thirdly, Dharmacon is already a profit-making business and the deal is expected to prove immediately beneficial to Horizon’s earnings as well as accelerating the company’s revenue growth profile. Consequently, in our view, the acquisition of Dharmacon further strengthens Horizon’s position in the exciting and fast-evolving field of gene editing.

Meanwhile, unquoted Kind Consumer was revalued upwards during the month. The company has developed the UK’s first medically approved non-electronic nicotine inhaler, Voke, that replicates the form and ritual of a cigarette, but without the harmful side effects. In 2016, the company ran into manufacturing and commercialisation difficulties but it has made good progress to get back on track – Kind Consumer retained the know-how, assets and intellectual property rights to Voke and is currently in the process of re-establishing its supply chain. These positive developments put the company in a better position to launch Voke into the market and are now reflected by Kind Consumer’s higher valuation.

US biotechnology business, Prothena announced that it has initiated a phase II trial for PRX002, its potential treatment for patients with Parkinson’s disease, which is being developed in collaboration with Roche. As Neil stated in the last October’s company spotlight for Prothena, PRX002 could be a game-changer for Parkinson’s because it can reach the brain to treat the causes of the disease, unlike current treatments which merely treat the symptoms. The initiation of the trial also triggered a $30m milestone payment to Prothena and, in our view is further evidence of the progress Prothena is delivering on many fronts. Its lead asset, NEOD001 (a potential treatment for AL amyloidosis), is currently in a phase III trial which is expected to read out in the second half of 2018. Based on previous highly encouraging clinical data, we believe there is a good chance of a positive read out. Meanwhile, its potential treatment for psoriatic arthritis, PRX003, is currently in a phase 1b trial and Prothena has already outlined its plans to progress this drug into a phase II study. Therefore, we expect much more to come from this innovative biotechnology company in the future.

Turning to portfolio activity, we participated in a placing for Tissue Regenix, a healthcare company which is developing a novel regenerative medical technology. The company will use part of the proceeds to finance the acquisition of CellRight Technologies, a US-based regenerative medicine business which develops human tissue products for clinical applications.

Also, we participated in a couple of funding rounds, each being a further investment tranche in line with our initial investment agreements with unquoted businesses Autolus (a biotechnology businesses developing CAR T-cell therapies1) and Evofem (a biopharmaceutical company focused on the development and commercialisation of therapeutics for women’s sexual and reproductive health). The additional capital will enable these young companies to continue to develop their technologies, bringing them a step closer towards commercialising their products. We also added to the portfolio’s Norwegian technology businesses – Idex and Thin Film Electronics.

It is pleasing that the operational progress of many of the holdings in the portfolio has started to come through in terms of performance but the share price and NAV progress we have seen in recent months is insubstantial in the context of what, we believe, lies ahead. Therefore, going forward, we remain very confident in the trust’s long-term return outlook.

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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