TIDMWWH
17 November 2021
LONDON STOCK EXCHANGE ANNOUNCEMENT
Worldwide Healthcare Trust PLC
Unaudited Half Year Results for the six months ended
30 September 2021
This Announcement is not the Company's Half Year Report & Accounts. It is an
abridged version of the Company's full Half Year Report & Accounts for the six
months ended 30 September 2021. The full Half Year Report & Accounts, together
with a copy of this announcement, will also shortly be available on the
Company's website: www.worldwidewh.com where up to date information on the
Company, including daily NAV, share prices and fact sheets, can also be found.
The Company's Half Year Report & Accounts for the six months ended 30 September
2021 has been submitted to the UK Listing Authority, and will shortly be
available for inspection on the National Storage Mechanism (NSM): https://
data.fca.org.uk/#/nsm/nationalstoragemechanism
For further information please contact: Mark Pope, Frostrow Capital LLP 020
3008 4913.
Company Summary / Performance
Six months to One year to
30 September 31 March
2021 2021
Net asset value per share (total return)* # 0.4% 30.0%
Share price (total return)* # (1.5%) 27.4%
Benchmark (total return)^ # 13.0% 16.0%
30 September 31 March Six months
2021 2021 change
Net asset value per share 3,700.7p 3,703.0p (0.1%)
Share price 3,625.0p 3,695.0p (1.9%)
Discount of share price to the net asset value 2.0% 0.2%
per share*
Leverage* 14.7% 7.6%
Ongoing charges* 0.8% 0.9%
Ongoing charges (including performance fees 1.3% 0.9%
crystallised during the period)*
# Source - Morningstar.
^ Benchmark - MSCI World Health Care Index on a net total return, sterling
adjusted basis (see glossary)
* Alternative Performance Measure. Leverage calculated under the
Commitment Method (see glossary)
Chairman's Statement
Sir Martin Smith
Performance
Following a period of strong relative and absolute performance, the first six
months of the current financial year have proved to be challenging for the
Company. While the Company's net asset value per share total return ended the
period in positive territory (+0.4%), it significantly underperformed the
Company's Benchmark, the MSCI World Healthcare Index, measured on a net total
return, sterling adjusted basis, which rose by 13.0%. Sterling depreciated by
2.3% against the U.S. dollar over the period; the U.S. dollar being the
currency in which the majority of the Company's investments are denominated.
The Company's share price total return of -1.5% fared less well and, as a
result, the discount of the Company's share price to the net asset value per
share widened to 2.0% as at 30 September 2021 from 0.2% at the beginning of the
period.
The principal reasons for this underperformance were the significant overweight
positions in poorly performing Emerging Biotechnology* and China, a strategy
that had previously served the Company well. These sectors were subject to
significant volatility as investors rotated to larger stocks in more developed
markets, which is why they were the largest contributors to the reported
relative underperformance. In addition, absolute performance was affected by
the political uncertainty arising from the incoming new Presidential
administration in the U.S.
Looking at specific names in the portfolio, the largest contributions during
the reporting period came from UK pharmaceutical and biotechnology company
AstraZeneca, Indian multinational hospital chain company Apollo Hospitals
Enterprise and U.S. medical supplies company DexCom. The largest detractors
from performance were Chinese pharmaceutical company Jiangsu Hengrui Medicine
and U.S. biopharmaceutical companies Vor Biopharma and Haemonetics. Further
information regarding the Company's investments and performance can be found in
the Review of Investments.
The Company had, on average, leverage of 10.9% during the period which
contributed 0.04% to performance. As at the half year-end leverage stood at
14.7% compared to 7.6% at the beginning of the period. Our Portfolio Manager
continues to adopt both a pragmatic and a tactical approach to the use of
leverage.
The underperformance of the Benchmark in the period has resulted in a reversal
of the performance fee provision of £18.9m, which now stands at zero. In
accordance with the terms of the performance fee arrangements*, following an
exceptional period of outperformance in the period to 30 June 2020, which was
maintained to June 2021, a performance fee of £12.9m became payable as at 30
June 2021. Further details are provided in note 3.
* See Glossary.
As I have mentioned previously, the Company is able to invest up to 10% of the
portfolio, at the time of acquisition, in unquoted securities. Our Portfolio
Manager, through its extensive private equity research capability, has
continued to identify opportunities which have been added to the portfolio.
Exposure to unquoted equities accounted for 7.5% of the total portfolio at the
half year-end, and these holdings made a positive contribution of 1.9% to the
Company's performance during the period under review.
Capital
The Board continues to monitor closely the relationship between the Company's
share price and the net asset value per share. As a result of continued
investor demand, a total of 1,122,500 new shares were issued at a premium to
the cum income net asset value per share during the half year, raising £41.7
million of new funds. Following the half year end to 16 November 2021, a
further 75,000 new shares were issued at a premium to the cum income net asset
value per share, raising £2.8 million of new funds. No shares were repurchased
by the Company during the period under review and to 16 November 2021.
As mentioned at the Company's year-end, the ongoing share issuance programme
triggered the requirement for the Company to produce a prospectus which was
published on 13 July 2021. The prospectus provides authority for the issuance
of 20 million new shares. A copy of the prospectus can be found on the
Company's website at www.worldwidewh.com
Revenue and Dividends
The revenue return for the period was £9.0 million, compared to £5.6 million in
the same period last year. This increase was due primarily due to a rise in
portfolio income. The Board has declared an increased interim dividend of 7.0p
per share, for the year to 31 March 2022 (2021: 6.5p), which will be payable on
11 January 2022 to shareholders on the register of members on 19 November 2021.
The associated ex-dividend date is 18 November 2021.
I remind shareholders that it remains the Company's policy to pay out dividends
at least to the extent required to maintain investment trust status. These
dividend payments are paid out of the Company's net revenue for the year and,
in accordance with investment trust rules, only a maximum of 15% of income can
be retained by the Company in any financial year.
It is the Board's continuing belief that the Company's capital should be
deployed rather than paid out as dividends to achieve a particular target
yield.
Outlook
Our Portfolio Manager continues to believe that despite this disappointing
half-year, the positive investment themes which underpin the healthcare sector
remain intact and they will continue to focus on the selection of investments
with strong prospects for capital growth. They further believe that innovation
will continue to be the primary value driver for the healthcare sector. In
addition, an expected increase in mergers and acquisitions activity, a
relatively benign political environment in the U.S. and a return to favour of
both emerging markets healthcare stocks and Emerging Biotechnology companies
will lead to an improvement in the Company's performance.
Sir Martin Smith
Chairman
17 November 2021
Review of Investments
Markets
The hallmark of equity markets so far in 2021 has been that share price returns
are being primarily driven by global factors and events. Whether it be the
pandemic "recovery" trade, growth-to-value rotation, large capitalisation
companies over small, inflation concerns, interest rate gyrations, or other
"factor" influences, the effect of these factors often swamped company specific
fundamental factors in moving share prices. As a specialist investor in a
highly complex and idiosyncratic industry like healthcare, it was, at best, a
frustrating six?month period.
Of course, the global pandemic wrought by the SARS-Cov-2 virus has not ended
with the administration of billions of COVID-19 vaccine doses worldwide.
Despite the explosion of the highly contagious Delta-variant in mid-2021 across
continents, global equity markets continued to move higher, with multiple
indices reaching record highs in the period.
At a high level, one critical driver of global equities over the past
six-months has been investor sentiment about the global economic outlook.
Concerns about U.S. tax reform, global inflation, supply chain disruption and
unemployment were ignored as stocks moved higher. Recurring waves of COVID-19
infections across the globe were also ignored by investors as stocks once again
moved higher. Globally, investor sentiment was buoyed by an economy that was
expected to expand at a pace not seen in 80 years.
Overall, we saw an MSCI World Index total return of 10.7% in the half-year
period (sterling adjusted). In the U.S., the S&P 500 finished up 9.2% (dollar)
on a total return basis. In the U.K., the FTSE All Share total return was 7.9%
(sterling). For healthcare, the Benchmark return was 13.0%. Similarly, the S&P
500 Healthcare Sub-Index (sterling adjusted) rose 12.7% on a total return
basis.
Performance
For the six-month period ended 30 September 2021, the Company posted a net
asset value total return of +0.4%. and a share price total return of -1.5%.
This performance lagged the Benchmark return of +13.0%. The Company's
underperformance was due to multiple factors but was focussed on three primary
factors.
* First, two subsectors in which we have long held a strategic overweight
position - Emerging Biotechnology and China - significantly underperformed.
* Second, a backdrop of a rotation by investors from growth-to-value and from
small capitalisation to large capitalisation stocks, hurt the Company's
relative performance.
* Third, the persistent threat of U.S. drug price reform created an overhang
for some parts of healthcare.
Our investment strategy, centred around innovation, resulted in
underperformance during the six-month period. Our preferences for biotechnology
over pharmaceuticals, growth over value, and small capitalisation over large
capitalisation companies all conspired against relative performance. Despite
this recent challenging performance, we plan to maintain this strategy going
forward. Whilst this strategy is susceptible to short-term volatility, it has
proven successful over the longer term.
Since its inception as of 28 April 1995, the Company's NAV has posted a
+4,505.8% total return, or an average of +15.6% per annum through to 30
September 2021. The Company's share price return over the same period has been
+4,282.2%, or +15.4% per annum. This compares to a Benchmark return of
+1,990.8%, or +12.2% per annum over the same investment horizon and is a
testament to the long-term success of our investment approach.
Sector Review
Two sectors that are long term, key strategic overweight positions for the
Company, Emerging Biotechnology and China, were subject to some extreme
volatility in the six-month period and were the largest factors in the reported
underperformance versus the benchmark. Partially offsetting this poor
performance, however, were contributions from other sectors and regions, most
notably Medical Devices Pharmaceuticals, and India, as well as from the
Company's portfolio of "unquoteds" (a mix of private companies and fixed
income).
Biotechnology
Following record performance in 2020, the biotechnology sector, and in
particular small and mid-capitalisation stocks, has dramatically underperformed
the overall market thus far in 2021. With the post-election political overhang,
some negative fundamental news flow, and the abundance of "macro" and sentiment
factors driving investor behaviour, the sector has materially underperformed to
a record extent.
Additionally, investor concerns about news flow from the U.S. Food and Drug
Administration (FDA) increased during the period which applied further pressure
to biotechnology valuation levels. In 2021, there were several unexpected
regulatory trends from the FDA, notably: surprise Complete Response Letters
(effectively "non?approvals" of new drugs), clinical holds (halting a clinical
trial due to safety concerns), and deferrals on target action dates (when more
time is required to review a new drug application). Also, of note, was the
stretched workload of the FDA due to COVID-19 related responsibilities,
delaying a plethora of clinical trials, advisory committees, manufacturing site
visits, new drug reviews, and vaccine reviews.
The controversial approval of Biogen's Aduhelm (aducanumab) by the FDA, despite
mixed clinical trial data and a negative recommendation by an external advisory
committee, also hurt investor confidence in the agency, leading investors to
become increasingly wary of potential regulatory risks and uncertainties in
biotechnology.
Further, the Emerging Biotechnology sector has been plagued by several
high-profile negative news events in 2021, including multiple late-stage
clinical trial failures as well as unexpected safety problems across clinical
trials. This includes some safety concerns among high profile new technologies,
like gene editing.
Other issues also created headwinds for biotechnology stocks, including modest
levels of mergers and acquisitions (M&A) in the period, a paucity of positive
clinical catalysts, and a significant "growth-to-value" rotation that resulted
in dramatic underperformance of biotechnology stocks (as measured by the S&P
Biotech ETF or XBI) when compared to the S&P 500 Index.
Nevertheless, we remain positive on the outlook for the sector, and believe the
broad valuation reset within biotechnology could catalyse strategic action from
acquirors, which could help reignite investor interest. These companies remain
the cradle of innovation within the sector and will remain a strategic
overweight for the Company.
Emerging Markets
Another strategic overweight for the Company that experienced volatility was
Emerging Market stocks, specifically in China, in the latter part of the
reported six-month period. Like biotechnology stocks described above, emerging
market healthcare names experienced robust returns in 2020, in part due to
COVID-19 related tailwinds. Many Chinese healthcare stocks, especially vaccine
players, digital healthcare and hospital operators were favoured by investors
during the pandemic and valuations rose accordingly.
However, with richer valuations, we witnessed some profit taking in 2021. This
selling pressure was exacerbated by investor concerns over potential tightening
of government regulations in the Chinese healthcare sector, which first
occurred in other industries such as the internet and education. Harsher
government intervention in these sectors caused investors to worry about
additional regulations that may come in healthcare, creating a "wait and see"
sentiment which allowed share prices to fall further still.
Despite the recent volatility, we believe the correction in valuations in China
is largely done and investor sentiment may be swinging positive. Further, the
China biopharmaceutical industry remains innovation-driven and there has been
an increasing number of molecules being licensed to overseas players, a
critical point of validation for the burgeoning research and development (R&D)
activity coming out of China.
Of course, macro tailwinds remain strong. With a declining number of new-borns,
an aging population remains one of the largest issues in China. As a result,
government investment in the healthcare system, including private hospitals,
internet/ digital healthcare and medical insurance remains the primary focus of
government in the next five-year plan.
Healthcare
The current calendar year has been challenging for healthcare stocks. The
outcome of the 2020 U.S. Presidential election created a "Blue Wave" with the
Democrats in full control of the White House, the House of Representatives, and
the Senate.
This final election outcome increased the possibility that the incoming
administration would be both motivated and capable of passing industry-changing
legislation - specifically on drug pricing - that would be harmful to
healthcare stocks. Whilst this has yet to happen (and we believe that it will
not), the compression in valuation compared to the broader market became
evident as many generalist investors chose to avoid what is seen as a complex
area of the market.
This is not without precedent. Previously healthcare stocks have traded at a
steep relative discount due to generalist investor fears over federal
legislative changes related to prescription drug pricing, notably the
Democratic controlled Presidencies of Bill Clinton in 1993 ("Hillarycare") and
Barack Obama in 2009 ("Obamacare"). In both cases, the discount eventually
reversed after legislation went nowhere or proved benign or even positive for
the healthcare industry. Ultimately, we expect a similar reversal in valuations
under Joe Biden.
Life Sciences
The Life Science Tools and Services sector is another which benefited
significantly from COVID-19 tailwinds in 2020 and this has continued into 2021.
Whilst the Company did enjoy some modest positive contribution from the sector
in the reporting period, it was below the Benchmark return. The
underperformance was principally due to our positioning in the sector, where we
favour companies we view as long-term secular winners based on novel and
exciting new innovations, as opposed to the more mature large-capitalisation,
diversified companies that make up much of this sector.
This reflects our longer-term thesis around compelling investment opportunities
across key themes such as liquid biopsy and spatial genomics. However, in the
period, there was significant volatility across the stocks tied to these newer
trends, unlike the general strength in the larger, more diversified names who
were able to weather COVID-19 related disruptions to their end markets.
Looking ahead, we continue to see the most attractive opportunity set in our
preferred high growth areas of innovation, where relative valuations have been
recently depressed and which investors may appreciate attractive upside moving
into the end of the calendar year and into 2022.
Major Contributors to Absolute Net Asset Value Performance
As has been an important hallmark of the Company's performance over the years,
major contributors to performance are represented by a very diverse and
distinct set of companies. Key contributors in the six-month period ended
30 September 2021 included a large capitalisation pharmaceutical company from
the UK, a major hospital operator in India, and three U.S. based companies: a
specialty drug developer, the maker of an artificial pancreas, and a
cardiovascular medical device maker.
The COVID-19 pandemic brought industry, governments, and academia together in
unison to attempt to thwart one of the most deadly pandemics in modern history.
But it was not without controversy. One company that attempted to do the right
thing, AstraZeneca, was perhaps the pre-eminent example. Imperfect execution
across trial design, trial logistics, manufacturing, and communication led to
over promising and under delivery of a vaccine and (so far) a therapeutic for
COVID-19.
With it, came share price volatility that obfuscated the company's
best-in-class growth profile generated by some of the best innovation and
business development in the industry across a wide range of therapeutic
categories, including oncology, diabetes, respiratory, and cardiometabolic
medicine.
We invested in the company during the tumult and now that the pandemic related
headlines have subsided, the company has maintained a top tier growth
trajectory despite a difficult operating environment with the share price
responding accordingly.
Apollo Hospitals Enterprise is the largest hospital chain in India with 71
hospitals and over 10,000 beds as of June 2021. Alongside this, Apollo has the
largest retail pharmacy in India with over 4,000 pharmacies. The company has
recently entered digital healthcare in a significant way under the umbrella
brand, "Apollo 24*7". Impressive share price performance, including record
highs, came from several factors. First, occupancy rates have shown a strong
recovery through 2021, to near pre-pandemic highs, though it had COVID-19
related occupancy as well. The company's strong execution in terms of cost
control and managing case-mix led to healthy average revenues per operating
bed. Second, multiple new business initiatives have fuelled investor
enthusiasm; another reason for the share price re-rating. These include "Apollo
Healthco" (a recent carve out from the existing business), "PharmEasy" (a
potential IPO with a prospective U.S.$9 billion valuation), and other new
initiatives showing results and margin accretion such as proton therapy,
clinics, and diagnostics.
Dexcom is a California-based medical device company that is the market leader
in continuous glucose monitoring (CGM). The company is ushering in a new
paradigm in diabetes care - an artificial pancreas. Historically, monitoring
blood glucose was done via needle-based finger pricks and external devices
which gave only individual data points that were of modest value. Today, using
the company's innovative technology, patients can now receive real-time
indications of their blood glucose on their mobile phone, which can detect
whether the user's blood sugar is improving or worsening, and even communicate
with an insulin pump to mimic a pancreas by automatically and algorithmically
administering insulin.
With up to eight million diabetics requiring daily insulin in their core
markets and hundreds of millions of diabetics globally, Dexcom has been working
tirelessly to drive adoption of this innovative technology. The past six months
were strong operationally for the company, in particular it posted a very
strong second quarter result, suggesting the current business is accelerating
at the same time as the company moves closer to the expected launch of its next
generation product; G7. As a result, the share price reached record highs in
the period.
Horizon Pharmaceuticals is a US-based specialty pharmaceutical company that
presided over one of the most successful drug launches ever in 2020, Tepezza
(teprotumumab) which was developed by the company to treat "TED" or thyroid eye
disease, a painful, disfiguring, and debilitating disorder of the musculature
of the eye. Launched in January 2020, the drug was well on its way to
blockbuster status despite the commercial headwinds of the COVID-19 pandemic.
Despite a temporary government-mandated shutdown in the manufacturing of
Tepezza due to the prioritisation of COVID?19 vaccine production, the re-launch
of the product in April 2021 exceeded expectations. Management has continued to
raise near-term estimates for Tepezza sales, pushing the stock to all-time
highs during the reported period.
Another distinct and unique example of innovation is Edwards Lifesciences, a
developer of tissue replacement heart valves, and more specifically
transcatheter heart valves (THV). The company's current valve portfolio is
largely comprised of aortic heart valves, a market which continues to grow
solidly in the double-digit range and has remained relatively well insulated
from COVID-19 disruptions, given the severity of the disease that this
technology is designed to treat: aortic stenosis.
A strong competitive position and growing demand have allowed the company to
continue to outperform its peer group with respect to organic sales and
earnings growth rates, resulting in solid share price performance during the
six-month period. Importantly, there have been several positive updates on the
company's product pipeline, specifically around mitral heart valve
technologies, which has led to increased investor confidence in sustained high
sales growth for the next several years.
Major Detractors from Absolute Net Asset Value Performance
Theravance Biopharma is a biopharmaceutical company specialising in the
discovery and development of organ-selective medicines. The company offers the
marketed drug, Yupelri (revefenacin), a once-daily, nebulised long-acting
muscarinic antagonist for use in the treatment of chronic obstructive pulmonary
disease (COPD). The company's pipeline is also innovative and includes a novel
mechanism - pan-janus kinase (JAK) inhibition - for the treatment of both
ulcerative colitis and asthma.
Unfortunately, the share price dropped in the reported period after two
separate but high-profile pipeline failures: (1) TD?1473 - a gut-selective JAK
inhibitor for the treatment of ulcerative colitis and (2) ampreloxetine - a
norepinephrine reuptake inhibitor in neurogenic orthostatic hypotension. Both
TD-1473 and ampreloxetine were discontinued due to a lack of efficacy shown in
their respective clinical trials. The stock fell as a result, however, the
company immediately implemented a significant cost reduction programme to focus
on reaching profitability, which helped buoy the valuation after these
disappointing catalysts.
Another notable detractor which fell victim to the broader biotechnology
sell-off was Boston-based Ikena Oncology, which develops targeted cancer
therapies and modulators of the tumour microenvironment. The company's lead
programme, IK-930, targets solid tumours with defined genetic mutations. The
company expects this asset to enter clinical development by the end of 2021 and
has a promising pipeline of earlier stage programmes that should also generate
company value. However, in the absence of clinical data, the shares have been
weak following its March 2021 IPO amidst a broader sell off of early-stage
biotechnology companies.
Haemonetics is the largest provider of equipment and consumables used for
plasma collection in the world. The company has worked to provide value for its
customers by pioneering an innovative new machine and collection process that
can significantly enhance collection plasma yields per donor, at a time when
collections have been significantly challenged due to the COVID-19 pandemic.
Notable players, like Takeda, were readily adopting this new technology.
Unfortunately, however, one of the company's largest customers, CSL of
Australia, announced in April 2021 that they would not be renewing their
contract with Haemonetics and would instead be moving to a new entrant into the
market. The share price fell as a result, and on the basis of this new
information we exited the stock.
Vor Biopharma is a Massachusetts-based biotechnology company developing
cellular therapies for the treatment of acute myeloid leukemia. The company's
lead programme utilises CRISPR/Cas9-based gene editing technology to disrupt
the expression of a very specific protein coding gene (called CD33) in stem
cells that produce blood cells in bone marrow. This is in effort to reduce the
toxicity of CD33-targeted agents including Mylotarg, an antibody-drug
conjugate, and of chimeric antigen receptor T cell therapy. The share price for
the company has waned since its February 2021 IPO, again reflecting a lack of
current investor interest in the small cap biotechnology space.
Jiangsu Hengrui Medicine is the largest pharmaceutical company listed in China
and is an example of a "blue-chip" healthcare stock which we target as a
strategic investment in emerging markets. Their innovative oncology franchise
consists of many "hot targets" including novel therapies in immuno-oncology
(PD-1 inhibitors) and targeted therapies (tyrosine kinase inhibitors and PARP
inhibitors). The company's large and robust generic franchise spans many
therapeutic categories including oncology, cardiovascular, pain, and
antibiotics.
Declines in the share price in the reporting period reflected two factors.
First, the company suffered some reimbursement and pricing setbacks in the
Chinese Group Purchasing Organisation (GPO) programme that concluded during the
period, adversely impacting the company's revenue in 2021. Second, changes to
regulatory guidelines in China for new cancer drug approvals (i.e., the
requirement of a comparator arm) was a negative development for the company's
innovative oncology franchise. Intensified debate over pricing for new cancer
drugs in China also hurt the share price after the company's PD-1 inhibitor,
AiRuiKa (camrelizumab), faced a government mandated price revision of over 50%.
Contribution from Unquoted Holdings
During the six months ended 30 September 2021, the Company continued to take
advantage of a favourable market in crossover investments (i.e. investment in
the last financing round before a company goes public) and we continue to
believe they offer an attractive combination of near-term liquidity and
financial return.
As of 30 September 2021, investments in unquoted companies (excluding debt
securities) accounted for 7.5% of the Company's net assets versus 5.3% as of 31
March 2021, and 1.0% as of 31 March 2020. The Company initiated positions in
three China-based unquoted investments during the period; one investment,
Erasca , completed its initial public offering in July 2021 despite a difficult
market environment for biotechnology new issues in the United States. For the
period under review, unquoted equities contributed 1.9% to the Company's
performance.
Leverage Strategy
Historically, the typical leverage level employed by the Company has been in
the mid-to-high teens level. Considering the market volatility during the past
financial year, we have, more recently, used leverage in a more tactical
fashion. For example, after the dramatic "V"-shape market recovery of April
2020, leverage was significantly reduced by over 10% month-over-month, to 3%
and ultimately to 1% in May 2020. This low level of leverage was maintained for
a period of months but was increased ahead of and into the U.S. Presidential
election in November 2020 and decreased in the post-election period heading
into 2021.
However, given the sell-offs in Emerging Biotechnology and China healthcare
stocks during the six-month period under review, leverage was again increased,
effectively increasing month-over-month thereafter in 2021. The significant
potential for a positive resolution to the U.S. drug pricing reforms has also
pushed gearing up as of the end of October 2021. We expect to continue with a
tactical approach to leverage in 2022.
Derivative Strategy
The Company has the ability to use equity swaps and options. During the current
review period the Company employed single stock equity swaps to gain exposure
to emerging market Chinese and Indian stocks. The exposure via swaps averaged
6.7% on a gross basis during the period and detracted 0.6% from the Company's
performance. Analysis of the Company's investments in emerging markets is set
out earlier in this report. Further explanation regarding swaps can be found in
the Glossary.
Looking Ahead
We have long espoused the "Golden Era" of innovation that has been the primary
creator of value for biopharmaceuticals for nearly ten years now. We have no
reason to believe that this is going to change. In fact, the industry's
response to the COVID-19 pandemic is just the latest example of the
unprecedented innovation and societal benefit that the industry can offer.
Despite not attracting as much headline attention as vaccines, the novel
therapeutics developed to treat and potentially prevent the COVID-19 illness
are just as impressive as the vaccine initiatives. The development of multiple
antibodies, antibody cocktails and anti-virals to reduce the severity of
symptoms, prevent hospitalisations, and lower mortality have been critical in
the public fight against COVID-19. The re-purposing of many already approved
medicines to combat the disease burden has been under reported. Also, the
development of oral therapies to reduce illness and prevent death will be
another critical arrow in the quiver against the pandemic.
The FDA has certainly been in the spotlight in 2021. From its efforts to combat
to COVID-19, to much scrutinised delays for some new drug approvals, to the
controversial approval of new Alzheimer's drug, and the on-going lack of an
appointed Commissioner; there has certainly been reason for investor concern.
But what are the facts?
First and foremost, we expect another near record number of new drug approvals
in 2021. With 41 novel approvals in the first three quarters of the calendar
year, the Agency has approved one more drug compared to the same time period a
year ago and has the potential for 58 approvals in 2021 (source: Washington
Analysis). This would be the second highest level of annual approvals of all
time and would represent the most productive five-year period in FDA history.
On 7 June 2021, the FDA approved Aduhelm (aducanumab) for the treatment of
Alzheimer's disease. However, this unexpected approval set off a maelstrom of
controversy given the debatable clinical efficacy of the drug and the fact that
an external advisory committee voted against recommending approval of the drug.
The ultimate approval debunks the myth that the FDA cannot operate properly or
is too conservative in the absence of a full-time commissioner. We believe this
view underappreciates the importance of the permanent staff and career
employees who do almost all of the primary due diligence on behalf of the FDA.
What else can we expect from the Biden Administration in Washington? Both
Medicare expansion and drug pricing reform have featured prominently in debates
regarding the social spending bill. The most realistic Medicare proposals being
discussed are incremental; including the expansion of benefits and lowering the
cost of premiums. In the effort to lower the cost of prescription drugs to
patients, there is a notable lack of consensus regarding the preferred size and
scope of such reforms. We feel that these disagreements may derail drug pricing
legislative efforts completely or produce a significantly watered-down update,
either of which would be welcomed by investors.
M&A has been a common industry staple in healthcare for decades, especially in
the therapeutics space, and a core part of the Company's investment strategy.
The fragmented and heterogeneous nature of the industry, coupled with clinical
and technological complexity, will continue to generate many
business-development deals. That said, there is an ebb and flow to M&A, a
variable cyclicality driven by influences from capital markets, IPOs, and
crossovers, plus considerations like valuation, large capitalisation company
appetites, and of course, the impact of the pandemic.
The summer of 2021 certainly saw an "ebb" in M&A activity with a total
transaction value of only U.S.$6 billion across eight deals. This inflected in
earnest in October when Merck announced its intention to acquire Acceleron
Pharma for U.S.$11.5 billion. We do expect an uptick in M&A given the limited
cash flow disruption for likely acquirors arising from the pandemic, continued
solid balance sheets and the positive tone from large capitalisation companies
about potential M&A.
In our current and fast-changing society, new and novel technologies abound and
have impacted many industries. Healthcare is no exception and technological
advances are the primary pillar for our positive outlook on the industry. We
see an unprecedented level of innovation across the spectrum, from therapeutics
to services, from devices to diagnostics. Moreover, advances in genomics and
biotechnology have pushed the therapeutics space to such frontiers that the
number of known disease states and druggable targets are at an all-time high.
Novel platform technologies have enabled more therapies to target diseases that
were previously thought to be untreatable.
Sven H. Borho and Trevor M. Polischuk
OrbiMed Capital LLC
Portfolio Manager
17 November 2021
Principal Stock Contributors to and Detractors from Absolute Net Asset Value
Performance
For the Six Months Ended 30 September 2021
Top Five Contributors Contribution Contribution
£'000 per share
£
AstraZeneca 25,830 0.4
Apollo Hospitals Enterprise 24,314 0.4
Dexcom 24,034 0.4
Horizon Therapeutics 20,342 0.3
Edwards Lifesciences 18,870 0.3
Top Five Detractors
Jiangsu Hengrui Medicine (15,075) (0.2)
Vor Biopharma (16,320) (0.2)
Haemonetics* (17,511) (0.3)
Ikena Oncology (18,044) (0.3)
Theravance Biopharma (23,738) (0.4)
Based on 65,108,269 shares being the weighted average number in issue during
the period.
* Not held at 30 September 2021
Source: Frostrow Capital LLP
Portfolio
At 30 September 2021
Country/ Market value % of
Investments Region £'000 investments
Merck USA 142,736 5.5
Bristol-Myers Squibb USA 137,650 5.3
AstraZeneca United 130,247 5.1
Kingdom
Boston Scientific USA 116,803 4.5
Horizon Therapeutics USA 107,162 4.1
Mirati Therapeutics USA 97,106 3.8
AbbVie USA 87,273 3.4
SPDR S&P Biotech Fund USA 83,707 3.3
UnitedHealth Group USA 77,142 3.0
Natera USA 73,070 2.8
Top 10 investments 1,052,896 40.8
Vertex Pharmaceuticals USA 70,291 2.7
Edwards Lifesciences USA 67,420 2.6
Intuitive Surgical USA 65,578 2.5
DexCom USA 61,592 2.4
Guardant Health USA 60,004 2.3
Humana USA 56,437 2.2
Stryker USA 55,561 2.2
Zimmer Biomet Holdings USA 48,380 1.9
Novartis Switzerland 46,563 1.8
Caris Science (unquoted) USA 42,556 1.7
Top 20 investments 1,627,278 62.9
Neurocrine Biosciences USA 38,982 1.5
Anthem USA 38,724 1.5
Erasca USA 34,077 1.3
Progyny USA 33,060 1.3
Deciphera Pharmaceuticals USA 32,336 1.2
ImmunoGen USA 28,454 1.1
CRISPR Therapeutics Switzerland 27,417 1.1
Thermo Fisher Scientific USA 25,705 1.0
Oak Street Health USA 25,231 1.0
Biogen USA 23,556 0.9
Top 30 investments 1,934,820 75.0
Alphamab Oncology China 23,475 0.9
HCA Healthcare USA 23,405 0.9
Joinn Laboratories China China 22,332 0.9
Select Medical Holdings USA 22,154 0.8
Arrail (unquoted) USA 19,772 0.8
Turning Point Therapeutics USA 17,859 0.7
Jinxin Fertility Group China 17,721 0.7
Shanghai Bioheart Pharmaceutical (unquoted) China 17,660 0.7
Crossover Health (unquoted) USA 17,358 0.7
Galapagos Belgium 16,759 0.6
Top 40 investments 2,133,315 82.7
Country/ Market value % of
Investments Region £'000 investments
EDDA (unquoted) China 16,759 0.6
Yidu Tech China 16,298 0.6
Iovance Biotherapeutics USA 16,136 0.6
Arcutis Biotherapeutics USA 16,017 0.6
Ikena Oncology USA 15,088 0.6
SI-BONE USA 14,941 0.6
Beijing Yuanxin Technology (unquoted) China 14,870 0.6
Shanghai Kindly Medical Instruments China 14,831 0.6
MeiraGTx USA 14,531 0.6
Theravance Biopharma USA 14,298 0.6
Top 50 investments 2,287,084 88.4
Celldex Therapeutics USA 14,275 0.5
Visen (unquoted) China 14,164 0.5
Ruipeng Pet Group (unquoted) China 13,922 0.5
Tenet Healthcare USA 13,173 0.5
Dingdang Health Technology Group (unquoted) China 13,083 0.5
New Horizon Health China 13,038 0.5
Seagen USA 12,461 0.5
Burning Rock Biotech China 12,385 0.5
Rimag (unquoted) China 11,704 0.5
uniQure Netherlands 11,664 0.5
Top 60 investments 2,416,953 93.3
CSPC Pharmaceutical Group China 11,142 0.4
NanoString Technologies USA 11,106 0.4
Hangzhou Tigermed Consulting China 11,079 0.4
RxSight USA 9,889 0.4
Vor BioPharma USA 9,654 0.4
Danaher USA 9,652 0.4
Daiichi Sankyo Japan 9,564 0.4
Shenzhen Hepalink Pharmaceutical Group China 9,299 0.4
Medlive Technology China 9,278 0.3
Harpoon Therapeutics USA 8,580 0.3
Top 70 investments 2,516,196 97.0
Apollo Hospitals Enterprise India 8,447 0.3
Achilles Therapeutics USA 7,988 0.3
CVRx USA 7,949 0.3
Shandong Weigao Group Medical Polymer China 7,809 0.3
Passage USA 7,502 0.3
United Laboratories International Holdings China (HK) 6,528 0.3
China Medical System China 6,391 0.3
MabPlex International (unquoted) China 5,736 0.2
Abbisko (unquoted) China 5,714 0.2
NanoString Technologies 2.63% 01/03/2025 (unquoted) USA 5,681 0.2
Top 80 investments 2,585,941 99.8
Country/ Market value % of
Investments Region £'000 investments
Shanghai Junshi Biosciences China (HK) 5,623 0.2
Simcere Pharmaceutical Group China 4,778 0.2
Convey Holding Parent USA 4,050 0.2
Hansoh Pharmaceutical China (HK) 1,196 0.0
AiQ Warrant 13/10/2027 (unquoted) USA 1,187 0.0
Peloton (DCC**- unquoted) USA 501 0.0
Total equities and fixed interest investments 2,603,276 100.8
OTC Equity Swaps - Financed
JPMorgan iDex US SMID Biotech Index* United 47,284 1.8
States
Apollo Hospitals Enterprise India 36,693 1.4
Jiangsu Hengrui Medicine China 32,354 1.3
Shandong Pharmaceutical China 23,138 0.9
BGI Genomics China 21,304 0.8
Takeout* China 12,984 0.5
Less: Gross exposure added through financed swaps (195,211) (7.5)
Total OTC Swaps (21,454) (0.8)
Total investments including OTC Swaps 2,581,822 100.0
* Basket Swap. See Glossary.
Summary
Market value % of
Investments £'000 investments
Quoted equities 2,402,609 93.1
Unquoted equities 194,986 7.5
Unquoted debt securities 5,681 0.2
Equity swaps (21,454) (0.8)
Total of all investments 2,581,822 100.0
** DCC = deferred contingent consideration.
See note 1 for further details in relation to the OTC Swaps.
Interim Management Report
Principal Risks and Uncertainties
The Directors continue to review the Company's key risk register which
identifies the risks and uncertainties that the Company is exposed to and the
controls in place and the actions being taken to mitigate them. This is set
against the backdrop of increased levels of risk and uncertainty in evidence
since early 2020, as a result of the impact of the COVID?19 pandemic. The
Directors have considered the impact of this continued uncertainty on the
Company's financial position and, based on the information available to them at
the date of this report, have concluded that no adjustments are required to the
accounts as at 30 September 2021.
A review of the half-year and the outlook for the Company can be found in the
Chairman's Statement and the Review of Investments. The principal risks and
uncertainties faced by the Company include the following:
* Exposure to market risks and those additional risks specific to the sectors
in which the Company invests, such as political interference in drug
pricing.
* Macro events may have an adverse impact on the Company's performance by
causing exchange rate volatility, changes in tax or regulatory
environments, and/or a fall in market prices. Emerging markets, which a
portion of the portfolio is exposed to, can be subject to greater political
uncertainty and price volatility than developed markets.
* Unquoted investments are more difficult to buy, sell or value and so
changes in their valuations may be greater than for listed assets.
* The risk that the individuals responsible for managing the Company's
portfolio may leave their employment or may be prevented from undertaking
their duties.
* The risk that following the failure of a counterparty, the Company could be
adversely affected through either delay in settlement or loss of assets.
* The Board is reliant on the systems of the Company's service providers and
as such disruption to, or a failure of, those systems could lead to a
failure to comply with law and regulations leading to reputational damage
and/or financial loss to the Company.
* The risk that investing in companies that disregard Environmental, Social
and Governance (ESG) factors will have a negative impact on investment
returns and also that the Company itself may become unattractive to
investors if ESG is not appropriately considered in the Portfolio Manager's
decision making process.
* The risk, particularly if the investment strategy and approach are
unsuccessful, that the Company may underperform resulting in the Company
becoming unattractive to investors and a widening of the share price
discount to NAV per share. Also, falls in stock markets, such as those
experienced as a consequence of the COVID?19 pandemic, and the risk of a
global recession, are likely to adversely affect the performance of the
Company's investments.
Information on these risks is given in the Annual Report for the year ended 31
March 2021.The Board believes that the Company's principal risks and
uncertainties have not changed materially since the date of that report and are
not expected to change materially for the remaining six months of the Company's
financial year.
Related Party Transactions
During the first six months of the current financial year no material
transactions with related parties have taken place which have affected the
financial position or the performance of the Company during the period.
Going Concern
The Directors believe, having considered the Company's investment objectives,
risk management policies, capital management policies and procedures, nature of
the portfolio and expenditure projections, that the Company has adequate
resources, an appropriate financial structure and suitable management
arrangements in place to continue in operational existence for the foreseeable
future and, more specifically, that there are no material uncertainties
relating to the Company that would prevent its ability to continue in such
operational existence for at least twelve months from the date of the approval
of this half yearly financial report. For these reasons, they consider there is
reasonable evidence to continue to adopt the going concern basis in preparing
the accounts. In reviewing the position as at the date of this report, the
Board has considered the guidance issued by the Financial Reporting Council.
As part of their assessment, the Directors have given careful consideration to
the next continuation vote to be held in 2024 and also consequences for the
Company resulting from the continuing uncertainty arising from the COVID-19
pandemic. As previously reported, stress testing was also carried out in May
2021, which modelled the effects of substantial falls in markets and
significant reductions in market liquidity, on the Company's net asset value,
its cash flows and its expenses.
Directors' Responsibilities
The Board of Directors confirms that, to the best of its knowledge:
i. the condensed set of financial statements contained within the Half Year
Report have been prepared in accordance with Financial Reporting Standard
104 (Interim Financial Reporting); and
ii. the interim management report includes a true and fair review of the
information required by:
a. DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an
indication of important events that have occurred during the first six
months of the financial year and their impact on the condensed set of
financial statements; and a description of the principal risks and
uncertainties for the remaining six months of the year; and
a. DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being related
party transactions that have taken place in the first six months of the
current financial year and that have materially affected the financial
position or performance of the entity during that period; and any changes
in the related party transactions described in the last annual report that
could do so.
The Half Year Report has not been reviewed or audited by the Company's
auditors.
This Half Year Report contains certain forward?looking statements. These
statements are made by the Directors in good faith based on the information
available to them up to the date of this report and such statements should be
treated with caution due to the inherent uncertainties, including both economic
and business risk factors, underlying any such forward-looking information.
For and on behalf of the Board
Sir Martin Smith
Chairman
17 November 2021
Income Statement
For the Six Months Ended 30 September 2021
(Unaudited) (Unaudited)
Six months ended Six months ended
30 September 2021 30 September 2020
Revenue Capital Revenue Capital
Return Return Total Return Return Total
£'000 £'000 £'000 £'000 £'000 £'000
(Losses)/gains on investments - (5,449) (5,449) - 382,487 382,487
Foreign exchange losses - (4,482) (4,482) - (5,501) (5,501)
Income from investments (note 2) 11,246 - 11,246 7,785 - 7,785
AIFM, portfolio management, and (483) 9,706 9,223 (403) (22,106) (22,509)
performance fees (note 3)
Other expenses (467) - (467) (750) - (750)
Net return/(loss) before finance 10,296 (225) 10,071 6,632 354,880 361,512
charges and taxation
Finance charges (16) (308) (324) (14) (259) (273)
Net return/(loss) before finance 10,280 (533) 9,747 6,618 354,621 361,239
Taxation (1,287) - (1,287) (992) - (992)
Net return/(loss) after taxation 8,993 (533) 8,460 5,626 354,621 360,247
Return/(loss) per share (note 4) 13.8p (0.8)p 13.0p 9.9p 623.0p 632.9p
The "Total" column of this statement is the Income Statement of the Company.
The "Revenue" and "Capital" columns are supplementary to this and are prepared
under guidance published by The Association of Investment Companies.
All revenue and capital items in the above statement derive from continuing
operations.
The Company has no recognised gains and losses other than those shown above and
therefore no separate Statement of Total Comprehensive Income has been
presented.
The accompanying notes are an integral part of these statements.
Statement of Changes in Equity
For the Six Months Ended 30 September 2021
(Unaudited) (Unaudited)
Six months Six months
ended ended
30 September 30 September
2021 2020
£'000 £'000
Opening shareholders' funds 2,381,425 1,538,298
Issue of new shares 41,676 192,754
Return for the period 8,460 360,247
Dividends paid - revenue (10,085) (10,512)
Closing shareholders' funds 2,421,476 2,080,787
Statement of Financial Position
As at 30 September 2021
(Unaudited) (Audited)
30 September 31 March
2021 2021
£'000 £'000
Fixed assets
Investments 2,603,276 2,416,038
Derivatives - OTC swaps 21,226 18,864
2,624,502 2,434,902
Current assets
Debtors 19,486 18,172
Cash and cash equivalents 60,277 29,595
79,763 47,767
Current liabilities
Creditors: amounts falling due within one year (240,109) (92,932)
Derivative - OTC Swaps (42,680) (8,312)
(282,789) (101,244)
Net current assets/(liabilities) (203,026) (53,477)
Total net assets 2,421,476 2,381,425
Capital and reserves
Ordinary share capital 16,359 16,078
Share premium account 837,752 796,357
Capital reserve 1,542,095 1,542,628
Capital redemption reserve 8,221 8,221
Revenue reserve 17,049 18,141
Total shareholders' funds 2,421,476 2,381,425
Net asset value per share - (note 5) 3,700.7p 3,703.0p
Cash Flow Statement
For the Six Months Ended 30 September 2021
(Unaudited) (Unaudited)
Six months Six months
ended ended
30 September 30 September
2021 2020
Note £'000 £'000
Net cash (outflow)/inflow from operating 7 (13,453) 485
activities
Purchases of investments and derivatives (540,411) (505,070)
Sales of investments and derivatives 384,014 546,830
Realised gain/(loss) on foreign exchange (1,770) (5,282)
transactions
Net cash (outflow)/inflow from investing (158,167) 36,478
activities
Issue of shares 44,253 191,353
Equity dividends paid (10,085) (10,512)
Interest paid (324) (273)
Net cash inflow from financing activities 33,844 180,568
(Increase)/decrease in net debt (137,776) 217,531
Cash flows from operating activities includes interest received of £780,000
(2020: £1,290,000) and dividends received of £10,650,000 (2020: £7,629,000).
Reconciliation of Net Cash Flow Movement to Movement in Net Debt
(Unaudited) (Unaudited)
Six months Six months
ended ended
30 September 30 September
2021 2020
£'000 £'000
(Increase)/decrease in net debt resulting from cashflows (137,776) 217,531
Losses on foreign currency cash and cash equivalents (2,712) (219)
Movement in net debt in the period/year (140,488) 217,312
Net debt at 1 April (20,301) (150,516)
Net debt at period/year (160,789) 66,796
Notes to the Financial Statements
1. Accounting Policies
The condensed Financial Statements for the six months to 30 September 2021
comprise the Company's primary financial statements together with the related
notes below. They have been prepared in accordance with FRS 104 'Interim
Financial Reporting', the AIC's Statement of Recommended Practice issued in
October 2019 ('SORP') and using the same accounting policies as set out in the
Company's Annual Report and Financial Statements at 31 March 2021.
Going Concern
After making enquiries, and having reviewed the Investments, Statement of
Financial Position and projected income and expenditure for the next 12 months,
the Directors have a reasonable expectation that the Company has adequate
resources to continue in operation for the foreseeable future. The Directors
have therefore adopted the going concern basis in preparing these condensed
financial statements.
Fair Value
Under FRS 102 and FRS 104 investments have been classified using the following
fair value hierarchy:
Level 1 - Quoted market prices in active markets
Level 2 - Prices of a recent transaction for identical instruments
Level 3 - Valuation techniques that use:
i. observable market data; or
ii. non-observable data
AS OF 30 SEPTEMBER 2021 Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Investments held at fair value through profit 2,402,609 ... 200,667 2,603,276
or loss
Derivatives: OTC swaps (assets) - 21,226 - 21,226
Derivatives: OTC swaps (liabilities) - (42,680) - (42,680)
Financial instruments measured at fair value 2,402,609 (21,454) 200,667 2,581,822
AS OF 31 MARCH 2021 Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Investments held at fair value through 2,275,409 - 140,629 2,416,038
profit or loss
Derivatives: OTC swaps (assets) - 18,864 - 18,864
Derivatives: OTC swaps (liabilities) - (8,312) - (8,312)
Financial instruments measured at fair 2,275,409 10,552 140,629 2,426,590
value
2. Income
(Unaudited) (Unaudited)
Six months Six months
ended ended
30 September 30 September
2021 2020
£'000 £'000
Investment income 11,246 7,785
Total 11,246 7,785
3. AIFM, Portfolio Management and Performance Fees
(Unaudited) (Unaudited)
Six months ended Six months ended
30 September 2021 30 September 2020
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
AIFM fee 82 1,565 1,647 74 1,398 1,472
Portfolio management fee 401 7,617 8,018 329 6,261 6,590
Performance fee charge for the - (18,888) (18,888) - 14,447 14,447
period*
483 (9,706) (9,223) 403 22,106 22,509
* During the six months ended 30 September 2021, due to underperformance
against the Benchmark in the period, a reversal of prior period provisions
totalling £18,888,000 occurred (six months ended 30 September 2020: charge
of £14,447,000).
As at 30 September 2021 no performance fees were accrued or payable (31 March
2021: £31,748,000 accrued). Of the 31 March 2021 accrual £12,860,000
crystallised and became payable as at 30 June 2021 and £18,888,000 reversed due
to underperformance, as noted above. The performance fee paid related to
outperformance generated as at 30 June 2020 that was maintained to 30 June
2021.
The maximum amount that could become payable by 30 September 2022 is £
18,888,000. This would only be payable in full if the current period's
underperformance is reversed and the outperformance achieved as at 31 March
2021 is re-attained.
See glossary for further information on the performance fee.
4. Return/(Loss) Per Share
(Unaudited) (Unaudited)
Six months Six months
ended ended
30 September 30 September
2021 2020
£'000 £'000
The return per share is based on the following figures:
Revenue return 8,993 5,626
Capital (loss)/return (533) 354,621
Total return 8,460 360,247
Weighted average number of shares in issue for the period 65,108,269 56,922,562
Revenue return per share 13.8p 9.9p
Capital (loss)/return per share (0.8)p 623.0p
Total return per share 13.0p 632.9p
The calculation of the total, revenue and capital returns per ordinary share is
carried out in accordance with IAS 33, "Earnings per Share (as adopted in the
EU)".
5. Net Asset Value Per Share
The net asset value per share is based on the assets attributable to equity
shareholders of £2,421,476,000 (31 March 2021: £2,381,425,000) and on the
number of shares in issue at the period end of 65,432,755 (31 March 2021:
64,310,255).
6. Transaction Costs
Purchase transaction costs for the six months ended 30 September 2021 were £
461,000 (six months ended 30 September 2020: £831,000).
Sales transaction costs for the six months ended 30 September 2021 were £
403,000 (six months ended 30 September 2020: £473,000).
These costs comprise mainly commission.
7. Reconciliation of Operating Return to Net Cash Inflow from Operating
Activities
(Unaudited) (Unaudited)
Six months Six months
ended ended
30 30
September September
2021 2020
£'000 £'000
Gains before finance costs and taxation 10,071 361,512
Add: capital loss/(less: capital gain) before finance charges 225 (354,880)
and taxation
Revenue return before finance charges and taxation 10,296 6,632
Expenses charged to capital 9,706 (22,106)
(Increase)/decrease in other debtors (133) 1,198
(Decrease)/increase in provisions, and other creditors and (31,781) 15,294
accruals
Net taxation suffered on investment income (1,293) (428)
Amortisation (248) (105)
Net cash (outflow)/inflow from operating activities (13,453) 474
8. Principal Risks and Uncertainties
The principal risks facing the Company are listed in the Interim Management
Report. An explanation of these risks and how they are managed is contained in
the Strategic Report and note 16 of the Company's Annual Report & Accounts for
the year ended 31 March 2021.
9. Comparative Information
The condensed financial statements contained in this half year report do not
constitute statutory accounts as defined in section 434 of the Companies Act
2006. The financial information for the half years ended 30 September 2021 and
30 September 2020 has not been audited or reviewed by the Company's auditor.
The information for the year ended 31 March 2021 has been extracted from the
latest published audited financial statements of the Company. Those financial
statements have been filed with the Registrar of Companies. The report of the
auditor on those financial statements was unqualified, did not include a
reference to any matters to which the auditors drew attention by way of
emphasis without qualifying the report, and did not contain statements under
either section 498 (2) or 498 (3) of the Companies Act 2006.
Earnings for the first six months should not be taken as a guide to the results
for the full year.
Glossary of Terms and Alternative Performance Measures (APMs)
Alternative Investment Fund Managers Directive (AIFMD)
Agreed by the European Parliament and the Council of the European Union and
transported into UK legislation, the AIFMD classifies certain investment
vehicles, including investment companies, as Alternative Investment Funds
('AIFs') and requires them to appoint an Alternative Investment Fund Manager
('AIFM') and depositary to manage and oversee the operations of the investment
vehicle. The Board of the Company retains responsibility for strategy,
operations and compliance and the Directors retain a fiduciary duty to
shareholders.
Benchmark
The performance of the Company is measured against the MSCI World Health Care
Index on a net total return, sterling adjusted basis.
The net total return is calculated by reinvesting dividends after the deduction
of withholding taxes.
Discount or Premium (APM)
A description of the difference between the share price and the net asset value
per share. The size of the discount or premium is calculated by subtracting the
share price from the net asset value per share and is usually expressed as a
percentage (%) of the net asset value per share. If the share price is higher
than the net asset value per share the result is a premium. If the share price
is lower than the net asset value per share, the shares are trading at a
discount.
Emerging Biotechnology
Biotechnology companies with a market capitalisation less than U.S.$10bn.
Equity Swaps
An equity swap is an agreement in which one party (counterparty) transfers the
total return of an underlying equity position to the other party (swap holder)
in exchange for a one-off payment at a set date. Total return includes dividend
income and gains or losses from market movements. The exposure of the holder is
the market value of the underlying equity position.
Your Company uses two types of equity swap:
* funded, where payment is made on acquisition. They are equivalent to
holding the underlying equity position with the exception of additional
counterparty risk and not possessing voting rights in the underlying; and,
* financed, where payment is made on maturity. As there is no initial outlay,
financed swaps increase economic exposure by the value of the underlying
equity position with no initial increase in the investments value - there
is therefore embedded leverage within a financed swap due to the deferral
of payment to maturity.
The Company employs swaps for two purposes:
* To gain access to individual stocks in the Indian, Chinese and other
emerging markets, where the Company is not locally registered to trade or
is able to gain in a more cost efficient manner than holding the stocks
directly; and,
* To gain exposure to thematic baskets of stocks (a Basket Swap). Basket
Swaps are used to build exposure to themes, or ideas, that the Portfolio
Manager believes the Company will benefit from and where holding a Basket
Swap is more cost effective and operationally efficient than holding the
underlying stocks or individual swaps.
Leverage (APM)
Leverage is defined in the AIFMD as any method by which the AIFM increases the
exposure of an AIF. In addition to the gearing limit the Company also has to
comply with the AIFMD leverage requirements. For these purposes the Board has
set a maximum leverage limit of 140% for both methods. This limit is expressed
as a % with 100% representing no leverage or gearing in the Company. There are
two methods of calculating leverage as follows:
The Gross Method is calculated as total exposure divided by Shareholders'
Funds. Total exposure is calculated as net assets, less cash and cash
equivalents, adding back cash borrowing plus derivatives converted into the
equivalent position in their underlying assets.
The Commitment Method is calculated as total exposure divided by Shareholders
Funds. In this instance total exposure is calculated as net assets, less cash
and cash equivalents, adding back cash borrowing plus derivatives converted
into the equivalent position in their underlying assets, adjusted for netting
and hedging arrangements.
See the definition of Options and Equity Swaps for more details on how exposure
through derivatives is calculated.
As at As at
30 September 2021 31 March
2021
Fair Exposure* Fair Value Exposure*
Value
£'000 £'000 £'000 £'000
Investments 2,603,276 2,603,276 2,416,038 2,416,038
OTC equity swaps (21,454) 173,757 10,552 145,636
2,581,822 2,777,033 2,426,590 2,561,674
Shareholders' funds 2,421,476 2,381,425
Leverage % 14.7% 7.6%
* Calculated in accordance with AIFMD requirements using the Commitment
Method
MSCI World Health Care Index (The Company's Benchmark)
The MSCI information (relating to the Benchmark) may only be used for your
internal use, may not be reproduced or redisseminated in any form and may not
be used as a basis for or a component of any financial instruments or products
or indices. None of the MSCI information is intended to constitute investment
advice or a recommendation to make (or refrain from making) any kind of
investment decision and may not be relied on as such. Historical data and
analysis should not be taken as an indication or guarantee of any future
performance analysis, forecast or prediction. The MSCI information is provided
on an "as is" basis and the user of this information assumes the entire risk of
any use made of this information. MSCI, each of its affiliates and each other
person involved in or related to compiling, computing or creating any
MSCI information (collectively, the "MSCI Parties") expressly disclaims all
warranties (including, without limitation, any warranties of originality,
accuracy, completeness, timeliness, non-infringement, merchantability and
fitness for a particular purpose) with respect to this information. Without
limiting any of the foregoing, in no event shall any MSCI Party have any
liability for any direct, indirect, special, incidental, punitive,
consequential (including, without limitation lost profits) or any other
damages. (www.msci.com)
Nav Total Return ('APM')
The theoretical total return on shareholders' funds per share, reflecting the
change in NAV assuming that dividends paid to shareholders were reinvested at
NAV at the time the shares were quoted ex?dividend. A way of measuring
investment management performance of investment trusts which is not affected by
movements in discounts/premiums.
Six months One year
to to
30 31 March
September
2021 2021
(p) (p)
Opening NAV per share 3,703.0 2,868.9
(Decrease)/increase in NAV per share (2.3) 834.1
Closing NAV per share 3,700.7 3,703.0
% Change in NAV per share (0.1)% 29.1%
Impact of reinvested dividends 0.5% 0.9%
NAV per share Total Return 0.4% 30.0%
Ongoing Charges ('APM')
Ongoing charges are calculated by taking the Company's annualised ongoing
charges, excluding finance costs, taxation, performance fees and exceptional
items, and expressing them as a percentage of the average daily net asset value
of the Company over the year.
Six months One year
to to
30 31 March
September
2021 2021
£'000 £'000
AIFM & Portfolio Management fees 9,665 17,068
Other Expenses 467 1,338
Total Ongoing Charges 10,132 18,406
Performance fees paid/crystallised 12,860 -
Total 22,992 18,406
Average net assets 2,384,758 2,112,164
Ongoing Charges (annualised) 0.8% 0.9%
Ongoing Charges (annualised, including performance fees paid 1.3% 0.9%
or crystallised during the period)
Performance Fee
Dependent on the level of long-term outperformance of the Company, a
performance fee can be become payable. The performance fee is calculated by
reference to the amount by which the Company's net asset value ('NAV')
performance has outperformed the Benchmark.
The fee is calculated quarterly by comparing the cumulative performance of the
Company's NAV with the cumulative performance of the Benchmark since the launch
of the Company in 1995. Provision is also made within the daily NAV per share
calculation as required and in accordance with generally accepted accounting
standards. The performance fee amounts to 15.0% of any outperformance over the
Benchmark (see page 44 of the Company's Annual Report & Accounts for the year
ended 31 March 2021 for further information).
In order to ensure that only sustained outperformance is rewarded, at each
quarterly calculation date any performance fee payable is based on the lower
of:
i. The cumulative outperformance of the investment portfolio over the
Benchmark as at the quarter end date; and
ii. The cumulative outperformance of the investment portfolio over the
Benchmark as at the corresponding quarter end date in the previous year.
The effect of this is that outperformance has to be maintained for a
twelve-month period before the related fee is paid.
In addition, a performance fee only becomes payable to the extent that the
cumulative outperformance gives rise to a total fee greater than the total of
all performance fees paid to date.
Share Price Total Return (APM)
Return to the investor on mid-market prices assuming that all dividends paid
were reinvested.
Six months One year to
to
30 September 31 March
2021 2021
Opening share price 3,695.0 2,920.0
Increase in share price (70.0) 775.0
Closing share price 3,625.0 3,695.0
% Change in share price (1.9)% 26.5%
Impact of reinvested dividends 0.4% 0.9%
Share price Total Return (1.5)% 27.4%
For and on behalf of
Frostrow Capital LLP, Secretary
17 November 2021
- ENDS -
END
(END) Dow Jones Newswires
November 17, 2021 02:00 ET (07:00 GMT)
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