Since April’s launch, we have been actively building the portfolio for the Woodford Patient Capital Trust and it is already taking shape. By the end of the period, more than 75% of the funds raised had been deployed.
Initially, our activity was focused towards building exposure to the mid and large capitalisation businesses that account for about a quarter of the portfolio. The larger and more liquid of these, such as AstraZeneca, GlaxoSmithKline, Legal & General and Rolls-Royce, we were able to build quickly and we were assisted by placings in mid-cap stocks such Allied Minds and IP Group. Placings in Circassia and Oxford Pharmascience also allowed us to quickly scale up our exposure to these other exciting businesses. Positions in smaller, less liquid securities, such as Vernalis, 4D Pharma and Xeros, took longer to build but, by being patient and disciplined, we have been able to build the positions that we sought.
At launch, we mentioned that we also had a number of unquoted opportunities in the pipeline and many of these are already represented in the portfolio. These include Proton Partners International, which is bringing the first proton beam cancer therapy centres to the UK and Oxford Sciences Innovation, which represents a critical new link in Oxford’s science innovation infrastructure and an important part of the UK’s burgeoning technology commercialisation industry. There are several more unquoted businesses in the pipeline which we would expect to enter the portfolio over the remainder of the year. We now anticipate that the portfolio will be fully invested by the end of this year.
Although it is very early days, we are pleased that the Company’s net asset value has moved forward modestly. Much of the positive performance to date has been delivered by holdings we would classify as early-stage. Indeed, our blue-chip holdings have typically detracted from performance thus far, with GlaxoSmithKline and AstraZeneca in particular showing short-term share price weakness.
More positively, within the UK biotech sector, Vernalis also contributed positively, following FDA approval of its first cough cold product Tuzistra at the end of April. Investors continue to significantly undervalue the potential of Vernalis’ cough cold franchise, in our view. 4D Pharma, which is making good progress with two new biotherapeutic treatments: Blautix, for irritable bowel syndrome, and Thetanix, for Crohn’s disease, also performed well. During May, the company announced that both drugs are moving towards first-in-man clinical studies, whilst it is also making good progress in other areas such as asthma and rheumatoid arthritis.
Our US biotech exposure, principally Prothena and Northwest Biotherapeutics, has contributed positively to performance. Again, we would caution that it is a very short time period over which to be commenting on performance in what is clearly a very long-term strategy. Nevertheless, the market does seem to be warming to the positive investment cases for these exciting businesses. There is a great deal of enthusiasm in the US biotech sector about new potential treatments for cancer and in other areas of high unmet clinical need, as well as hopes of acquisitions by cash-rich pharmaceutical majors. Although this has led to several US biotech stocks trading on bubble- like valuations, we have focused our exposure on stocks where future potential is, in our view, significantly undervalued by the market – Prothena, Northwest Biotherapeutics and Alkermes, all trade on valuations more in line with those we see on this side of the Atlantic. Hence, each of them represents significant positions in the portfolio.
Outside of the health care industry, RM2 International performed well. The business is still at an early-stage of its development but has tremendous potential to disrupt the pallet industry. Although it has suffered setbacks over the past few years, its recent contract win with PPG International is very positive news, in our view, and could herald the broader adoption of its composite pallets, which are superior to wooden pallets in almost every way: lighter, more durable and more cost-effective, as well as more environmentally friendly. Norwegian technology business Idex, which is developing a unique and very promising in-glass fingerprint sensor solution which has enormous potential in the tablet & smartphone industry, also contributed positively.
There follows below a brief introduction to the top 10 holdings in the Woodford Patient Capital Trust. The full portfolio, as at the end of the interim period is available here and we commit to fully disclosing the portfolio at each month end from now on. We also intend to provide more information on other holdings as we move through the remainder of the year and will provide a monthly roundup of portfolio news. We recommend that investors subscriberegister to be notified of these regular updates.
In conclusion, we are delighted with the shape of the portfolio and by the positive, albeit early, net asset value progression. More importantly, we are pleased with the operational progress being made by our investee companies and very excited by the long-term potential that they collectively represent. We are very positive about the portfolio’s ability to deliver outsized long-term returns to investors and view the future with great confidence.