TIDMRTW
RNS Number : 8473U
RTW Venture Fund Limited
31 March 2023
LEI: 549300Q7EXQQH6KF7Z84
31 March 2023
RTW Venture Fund Limited
Annual Report and Audited Financial Statements for the Year
Ended 31 December 2022
Benchmark outperformance, realising significant value through
successful portfolio company IPOs and disposals
RTW Venture Fund Limited (the "Group" or the "Company"), a
London Stock Exchange-listed investment company focused on
identifying transformative assets with high growth potential across
the life sciences sector, is pleased to announce its Annual Results
for the year ended 31 December 2022.
Financial Highlights -
RTW Venture Fund Limited Year-end reporting period Previous Year-end reporting Admission (30/10/2019)
(01/01/2022-31/12/2022) period (01/01/2021-31/12/2021) to 31/12/2022
Ordinary NAV US$326.1 million US$363.0 million US$326.1 million
-------------------------- ------------------------------- -----------------------
NAV per Ordinary Share US$1.54 US$1.71 US$1.54
-------------------------- ------------------------------- -----------------------
NAV movement per Ordinary Share -10.2% -9.9% 47.6%
-------------------------- ------------------------------- -----------------------
Price per Ordinary Share US$1.21 US$1.78 US$1.21
-------------------------- ------------------------------- -----------------------
Share price return (i) -32.0% -5.3% 16.4%
-------------------------- ------------------------------- -----------------------
Benchmark returns (ii)
----------------------------------------------------------------------------------------------------------------------
Russell 2000 Biotech -31.3% -26.9% -5.3%
-------------------------- ------------------------------- -----------------------
Nasdaq Biotech -10.9% -0.6% 24.7%
-------------------------- ------------------------------- -----------------------
(i) Total shareholder return is an alternative performance measure.
(ii) Source: Capital IQ.
Portfolio Highlights
-- As of 31 December 2022, the Group held 39 core portfolio companies (2021: 42)
o 14 of which are publicly-listed (2021: 17)
o 25 of which are privately-held (2021: 25)
-- 68% (2021: 67%) of the core portfolio companies' pipeline
products are in clinical stage programs
-- As of 31 December 2022, 70.9% of NAV was invested in core portfolio companies (2021: 66.4%)
-- During the year to 31 December 2022, 2 portfolio companies
(Cincor and Third Harmonic Bio), completed an initial public
offering (IPO)
-- The Group added 3 new companies to its portfolio in 2022 (
Lenz Therapeutics, Mineralys and Apogee Therapeutics), while
disposing of 6 core public portfolio companies (Athira, Biomea,
iTeos, Pyxis, Pulmonx, and Landos), and 1 core private position,
RTW Royalty Holdings 1 (Mavacamtem)
Roderick Wong, MD, Managing Partner and Chief Investment Officer
of RTW Investments, LP (the "Investment Manager") commented:
"We are pleased to report another robust set of results for the
RTW Venture Fund in 2022. We find ourselves in unprecedented market
conditions, having witnessed the second consecutive year of a bear
market in the biotech sector.
"Given these challenging times, we are happy to report that the
Group has once again significantly outperformed the Russell 200
Biotech Index (the most appropriate performance comparator), with a
-10.2% NAV return for the period, against a -31.3% return for the
Index.
"The Group's successful strategy of selecting high-quality
transformative assets with significant growth potential could be
seen in our core portfolio, which held up well, contributing +0.2%
to NAV during 2022. Whilst only a modest return, it compares
favourably to the weak performance of the Group's sector
indices.
"Due to the adverse market conditions, 2022 saw just two of our
portfolio companies IPO. RTW added three new companies to the
portfolio and disposed of seven. Disposals crystalised a +1.6%
contribution to NAV for the year with the proceeds being redeployed
into other public opportunities.
"Most importantly, we continue to see public market valuations
at significant discounts to historic levels, providing extremely
compelling investment opportunities, with many of potential
best-in-class therapeutics trading at notable lows compared to
their long-term benchmarks. Our resources and expertise place us in
an excellent position to capitalise on these trends and achieve
significant value for shareholders over the medium- to
long-term."
For Further Information
RTW Investments, LP +44 (0)20 7959 6361
Woody Stileman, Managing Director
---------------------
Elysium Fund Management Limited +44 (0)14 8181 0100
---------------------
Joanna Duquemin Nicolle, Chief Executive
Officer
Sadie Morrison, Managing Director
---------------------
J.P. Morgan Cazenove +44 (0)20 7742 4000
---------------------
William Simmonds
Jérémie Birnbaum
James Bouverat (Sales)
---------------------
BofA Securities +44 (0) 20 7628 1000
---------------------
Edward Peel
Kieran Millar
---------------------
Buchanan +44 (0)20 7466 5107
---------------------
Charles Ryland
Henry Wilson
George Beale
---------------------
Morgan Stanley Fund Services USA
LLC +1 (914) 225 8885
---------------------
About RTW Venture Fund Limited:
RTW Venture Fund Limited (LSE: RTW & RTWG) is an investment
fund focused on identifying transformative assets with high growth
potential across the biopharmaceutical and medical technology
sectors. Driven by a long-term approach to support innovative
businesses, RTW Venture Fund invests in companies developing
next-generation therapies and technologies that can significantly
improve patients' lives.
RTW Venture Fund Limited is managed by RTW Investments, LP, a
leading healthcare-focused entrepreneurial investment firm with
deep scientific expertise and a strong track record of supporting
companies developing life-changing therapies.
Visit the RTW website at www.rtwfunds.com for more
information.
Chairman's Statement
Building disruptive companies through innovative investing
RTW Venture Fund Limited (the "Company"), passed its third
anniversary since admission to the London Stock Exchange ("LSE") on
30 October 2022. Since admission, the Company's NAV per ordinary
share has grown by +48% and it has outperformed its relevant
benchmarks through good times for the sector and, recently, through
bad. Despite a -10% decline in NAV this year, I am pleased to say
that the Group (including the Company's new wholly-owned
subsidiary) outperformed the smaller capitalisation Russell 2000
Biotech Index by approximately 20% as we begin to witness the early
stages of a recovery for the sector, which I am confident that we
are very well positioned to capture.
2022 Overview
After the flood comes the drought. 2021 was a record-breaking
year for private and public biotech financing activity. Then 2022
saw IPOs fall to the lowest levels in ten years and follow-on
financings return to 2016 levels, which is when the sector
experienced a significant drug pricing panic. This year saw actual
drug pricing reform as part of the Inflation Reduction Act, which
was signed into US federal law in August. At a sector level there
is no impact on revenue growth potential through 2026, which limits
its impact on equities today, and in fact resolves significant
policy uncertainty. However, there are likely to be some unintended
consequences that will need careful navigation.
As a result, of the decline in IPOs, the Group's cadence of new
investments and IPOs also slowed, albeit not as dramatically as the
sector as a whole. During 2022, the Group added three portfolio
companies, Lenz Therapeutics, Mineralys and Apogee Therapeutics,
and exited six core public portfolio companies, Athira, Biomea,
iTeos, Pyxis, Pulmonx, and Landos and one core private position,
RTW Royalty Holdings 1 (Mavacamtem). In total, the exits
crystalised a c.+1.8% contribution to NAV. Two private portfolio
companies, Cincor and Third Harmonic Bio successfully went public
and one, Orchestra BioMed, announced its intention to combine with
RTW's Health Sciences Acquisitions Corporation 2, a deal which
subsequently completed in January 2023.
At the end of the period, the Group had thirty-eight core
portfolio companies, of which twenty-five were privately held and
thirteen were publicly listed. All core portfolio companies were
initiated as private investments by the Investment Manager
including three company creations. The core portfolio represented
c. 71% of NAV at the end of the reporting period, up from 66% at
the end of 2021. For the balance of the portfolio, to mitigate any
drag on performance due to excess cash awaiting deployment into new
private assets, the Group invests in a portfolio of listed
companies selected by the Investment Manager to be representative
of positions that are also held in its other investment funds. At
the end of the reporting period, this represented c. 29% of NAV,
down from 37% at the end of 2021.
In the year ended 31 December 2022, the NAV declined by -10.2% %
from US$363.0 million or US$1.71 per Ordinary Share to US$326.1
million or US$1.54 per Ordinary Share. The main detractor to the
NAV was the markdown in Ji Xing (c. -2.2% contribution), after the
IPO was delayed due to market conditions, despite a positive
operating performance. The mark to market share price performance
of Prometheus Biosciences (c. +9.1% contribution) and the realised
gain in RTW Royalty Holdings 1 (c. +4.9% contribution), following
the successful sale to Bristol Myers Squibb, were two outstanding
results in a year that saw the Russell 2000 Biotechnology Index
decline by 32.0%. Since admission, the Company's NAV per Ordinary
Share has appreciated by 47.6% against a -5.3% decline for the
Russell 2000 Biotechnology Index. By any standard, this is a
commendable and consistent degree of outperformance and testament
to the Investment Manager's robust business model and
expertise.
The Company's share price fell to a discount to NAV this year as
did those of many of our investment company peers, especially those
that provide growth financing to private companies. This was,
perhaps, exacerbated by a change in U.S. tax regulation affecting
publicly traded partnerships (PTPs), which the Company was formerly
classified as for U.S. tax purposes. A number of custodians
effecting transactions in the Company's Ordinary Shares informed
the Company's shareholders that, as a result of the imposition of a
new U.S. withholding tax obligation, they would no longer hold or
deal with the Ordinary Shares if the Company continued to be
classified as a PTP. This likely led to some selling pressure on
the shares as the 1 January 2023 deadline approached until the
Company changed its tax status on 1 December, which was
subsequently ratified by an EGM held on 19 December 2022. We thank
our shareholders for their support through this and are pleased
that the share price has recovered significantly since. We are
optimistic that it will continue to do so with further NAV
accretion in an improving market environment.
Outlook
Public market valuations are still near historic lows, while
innovation remains at an all-time high. The valuation metrics of
the sector and our portfolio are truly compelling by historic
standards, with many companies developing great potential therapies
trading at a fraction of long-term valuation norms. The private
portfolio is well funded and fairly valued and a sector bear market
from February 2021 to June 2022 has created significant
opportunities for a skilled investor, such as RTW, that has both
scale of scientific resources and understanding, together with
extensive capital markets experience and solutions to outpace their
less experienced and less-resourced rivals.
The Investment Manager believes that there remains significant
demand for reliable capital to support the discovery and
development of scientific innovation, and that there is an
opportunity to grow their footprint in the UK and EU as an active
local participant in the biotech ecosystem. The Investment Manager
therefore intends to seek additional ways of growing demand for the
Company's shares with the ambition of restoring a premium valuation
that can lead to the growth of the Group and its portfolio. This
growth would assist in the financing of an exciting pipeline of new
ideas, based upon the Group's strategy of founding, investing, and
supporting companies developing next-generation therapies and
technologies that can significantly improve patients' lives.
Accordingly, the Board expects the Group to continue to achieve a
strong performance over the long term and create value for
shareholders.
2023 AGM
The Company will hold its Annual General Meeting on 21 June 2023
to review the annual results and provide portfolio updates.
We would like to dedicate a part of the meeting to address
questions from our shareholders. At the present time, we anticipate
holding it at Royal Chambers, St Julian's Avenue, St Peter Port,
Guernsey. We encourage our shareholders to share their questions
here and we will endeavour to answer as many as we can:
RTWVentureFund@rtwfunds.com .
On behalf of the Board, I would like to express my gratitude for
your continued support and wish you all the best for 2023.
William Simpson
Chairman of the Board of Directors
RTW Venture Fund Limited
30 March 2023
Report of the Investment Manager
Together we are harnessing the potential to accelerate the
revolution in medicine
Executive summary
Since its listing on the London Stock Exchange in October 2019,
the Group has grown the NAV attributable to Ordinary Shareholders
from US$168.0 million to US$326.1 million by a combination of
investment returns and the issue of additional Ordinary Shares. The
NAV per Ordinary Share has grown 47.6% from $1.04 to $1.54 as of 31
December 2022. Since admission to the year-end, the share price has
lagged NAV growth, returning +16.4%, as the shares fell, albeit by
much less than the wider market as represented by the Russell 2000
Biotechnology Index this year.
Table 1. Financial Highlights
RTW Venture Fund Limited Year-end reporting period Previous Year-end reporting Admission (30/10/2019)
(01/01/2022-31/12/2022) period (01/01/2021-31/12/2021) to 31/12/2022
Ordinary NAV - start of period US$363.0 million US$375.3 million US$168.0 million
-------------------------- ------------------------------- -----------------------
Ordinary NAV - end of period US$326.1million US$363.0 million US$326.1million
-------------------------- ------------------------------- -----------------------
NAV per Ordinary Share - start US$1.71 US$1.96 US$1.04
of period
-------------------------- ------------------------------- -----------------------
NAV per Ordinary Share - end of US$1.54 US$1.71 US$1.54
period
-------------------------- ------------------------------- -----------------------
NAV movement per Ordinary Share -10.2% -12.8% 47.6%
-------------------------- ------------------------------- -----------------------
Price per Ordinary Share - US$1.78 US$1.88 US$1.04
start of period
-------------------------- ------------------------------- -----------------------
Price per Ordinary Share - end US$1.21 US$1.78 US$1.21
of period
-------------------------- ------------------------------- -----------------------
Share price return (i) -32.0% -5.3% 16.4%
-------------------------- ------------------------------- -----------------------
Benchmark returns (ii)
----------------------------------------------------------------------------------------------------------------------
Russell 2000 Biotech -31.3% -26.9% -5.3%
-------------------------- ------------------------------- -----------------------
Nasdaq Biotech -10.9% -0.6% 24.7%
-------------------------- ------------------------------- -----------------------
(i) Total shareholder return is an alternative performance measure.
(ii) Source: Capital IQ.
RTW Investments, LP (the "Investment Manager", "us", "we"), a
leading global healthcare-focused investment firm with a strong
track record of supporting companies developing life-changing
therapies, created the Company as an investment fund focused on
identifying transformative assets with high growth potential across
the biopharmaceutical and medical technology sectors. Driven by our
deep scientific expertise and a long-term approach to building and
supporting innovative businesses, we invest in companies developing
transformative next-generation therapies and technologies that can
significantly improve patients' lives.
As of 31 December 2022, approximately 71% of the portfolio was
invested in the core portfolio (private and public), a 5% increase
versus 31 December 2021. Within that, the mix changed slightly.
Core private exposure stands at 25% of NAV, a 3% reduction on last
year, while core public exposure increased by 10% to 46%. We define
core public companies as companies that were initially added to our
portfolio as private investments, reflecting the key focus of the
Company's strategy. Our investment approach is defined as full life
cycle and, therefore, involves retaining our private investments
well beyond their IPO, hence our core portfolio consists of both
privately-held and publicly-listed companies.
Approximately 29% of the Company's NAV is currently invested in
other publicly listed companies in lieu of holding cash for future
private investments. This portfolio of assets has been carefully
selected by us, matching, on a pro-rated basis, the long
investments held in our other funds. The investments represented in
this portfolio are similarly categorised as innovative
biotechnology and medical technology companies developing and
commercialising potentially disruptive and transformational
products.
The -10.2% reduction in NAV during 2022 was largely driven by
the "other public" portfolio's (-9.3% contribution), which declined
roughly in line with the Russell 2000 Biotech Index. The core
portfolio made a small positive contribution to NAV with the core
public portfolio contributing +0.2% and the core private portfolio
detracting -0.1%. Within our core private portfolio we crystallised
gains of +4.9% of NAV when RTW Royalty Holdings sold Mavacamten to
Bristol Myers Squibb. These gains were offset by write-downs across
the majority of our private portfolio based on declining public
market comparables. The positive return of the core portfolio, in a
year when small cap biotech companies, particularly newly public
ones, performed very poorly, highlights the selectivity of our
process, quality of our investments and value of our full life
cycle approach. Income and Expense (offset by both the mark to
market on the Performance Allocation Share for the period from 1
January 2022 through 30 November 2022 and Non-Controlling Interest
for the period from 1 December 2022 through 31 December 2022) make
up the balance of returns (-0.7% contribution).
Figure 1. Performance drivers as of 31 December 2022
[chart]
On listing, the Company's core portfolio included six companies,
four of which were developing clinical-stage therapeutics and two
medtech companies developing transformative devices. The Group now
has thirty-eight core portfolio companies having added three new
companies in 2022 alongside seven disposals. Core portfolio
companies added in 2022 are listed below.
Our 2022 new investments include:
Company name Description % NAV
(1)
Clinical stage biopharma company developing
Lenz Therapeutics treatments for presbyopia 0.4%
------------------------------------------------------ ------
Clinical stage biopharma company developing
Mineralys Therapeutics treatments for hypertension 0.3%
------------------------------------------------------ ------
Pre-clinical biopharma company developing treatments
Apogee Therapeutics for inflammation 0.6%
------------------------------------------------------ ------
(1) On 31 December 2022
As of 31 December 2022, the portfolio was diversified across
treatment modalities, therapeutic focus, and the clinical stage of
programs (Figure 2A-C). While the portfolio remains dominated by
US-based companies (Figure 2D), we are committed to adding UK and
EU-based scientists and companies in an effort to support the best
assets across the globe and foster local biotech ecosystems. By
constructing the portfolio in such a way, investors can gain
exposure to the most innovative parts of a highly specialised
sector with the explosive potential of companies such as Prometheus
Biosciences (which we expand on below).
Figure 2. Core portfolio breakdown, by (A) modality, (B)
therapeutic focus, (C) clinical stage and (D) geography as of 31
December 2022
(A) [chart] (B) [chart]
(C) [chart] (D) [chart]
Key updates for Core Portfolio Companies during 2022:
Clinical milestones
-- In January 2022, Immunocore received an FDA approval for
Kimmtrak (tebentafusp), its first-in-class T-cell therapy for the
treatment of uveal melanoma.
-- In April, C4 Therapeutics shared Phase 1 first-in-human
clinical data for its targeted protein degradation program in
multiple myeloma that unfortunately had limited efficacy and needed
to refine its treatment regimen.
-- In May, Rocket Pharmaceuticals shared positive top line data
for its registrational gene therapy program for Leukocyte Adhesion
Deficiency-I (LAD-I), a rare genetic disorder of immunodeficiency
in young children.
-- In May, Tarsus Pharmaceuticals shared positive data in the
second Phase 3 trial for their blepharitis demodex treatment. The
company filed a New Drug Application ("NDA") with the FDA in
September.
-- In June, Beta Bionics shared results of the multi-center
randomised Insulin-Only Bionic Pancreas Pivotal Trial for Type 1
diabetes patients at the American Diabetes Association ("ADA")
conference. The trial met key endpoints and showed consistent mean
HbA1c reductions across various patient subgroups.
-- In August, Cincor Pharma shared positive Phase 2 data for its
hypertension program.
-- In August, Ventyx Biosciences shared positive Phase 1 data
for its TYK2 program for autoimmune and inflammatory
conditions.
-- In October, Avidity Biosciences announced an FDA partial
clinical hold on new participant enrolment in its lead program for
myotonic dystrophy.
-- In September, Immunocore shared first in human data on its
PRAME program.
-- In November, Rocket Pharmaceuticals presented a positive data
update on its LADI clinical trial. Then, in December, it provided
an update on its Danon program, stating that the company
anticipates starting a pivotal clinical trial in H1'23.
-- In November, Mineralys Therapeutics shared positive Phase 2
data for its hypertension program.
-- In December, Prometheus Biosciences reported positive Phase 2
data for its antibody therapy for inflammatory diseases, suggesting
a best-in-class profile.
-- In December, Avidity Biosciences announced a positive
clinical update on its proof-of-concept Phase 1 trial for is
antibody-siRNA therapy.
-- In December, Third Harmonic Bio announced the discontinuation
of its Phase 1b study for the treatment of chronic inducible
urticaria.
-- In December, Cincor Pharma announced the failure of its Phase
2 trial of baxdrostat for uncontrolled hypertension by missing a
statistically significant difference between its treatment and
placebo arms.
Financing and commercial developments
-- In January 2022, Cincor Pharma announced pricing of its IPO
at US$16.00 per share, raising US$193.6 million and beginning to
trade on Nasdaq Global Market under ticker "CINC".
-- In January 2022, Magnolia Medical Technologies raised US$46
million in a follow-on cross-over round where RTW served as a
co-lead investor. Ovid Amadi, PhD, Senior Analyst at RTW joins
Magnolia's Board of Directors.
-- In February 2022, the Company and other affiliated funds of
the Investment Manager participated in a follow-on Series C
financing round in Beta Bionics.
-- In April, Ji Xing announced an exclusive licensing agreement
with Lenz Therapeutics to develop and commercialise LNZ100 and
LNZ101 for the treatment of presbyopia in Greater China. As a part
of the transaction, Lenz Therapeutics has also become the latest
addition to the Company's portfolio.
-- In April, Mavacamten, the underlying asset of RTW Royalty
Holdings 1 received FDA approval. Soon after, the Company sold its
stake in the royalty to Bristol Myers Squibb for a significant
gain.
-- In June, the Company and other affiliated funds of the
Investment Manager participated in a Series B financing round in
Mineralys Therapeutics, a clinical-stage biopharma working on
hypertension.
-- In September, Third Harmonic Bio announced the pricing of its
IPO at US$17.00 per share, raising US$185.3 million and beginning
to trade on Nasdaq Global Market under ticker "THRD".
-- In July, Orchestra BioMed announced a strategic collaboration
with Medtronic, the closing of US$110 million private equity
financing round, and plans to list on Nasdaq through a merger with
RTW sponsored Health Sciences Acquisitions Corporation 2.
-- In July, Immunocore announced a PIPE financing round that RTW
participated in and then announced continued success in the
commercial launch of Kimmtrak for uveal melanoma.
-- In December, the Group announced a US$2 million investment in
Apogee Therapeutics, which is working on developing best-in-class
medicines for immunological and inflammatory diseases. RTW co-lead
the Series B round.
-- In December, Takeda announced the acquisition of Nimbus'
TYK2-targeting drug, providing a positive read-through for RTW
Venture Fund Ltd.'s holding in Ventyx Biosciences, which is also
advancing a TYK2-targeting therapy.
Portfolio performance and updates
The Company's NAV has significantly outperformed biotech
benchmarks since admission on 30 October 2019, returning +47.6%
versus -5.3% and +24.7% for the Russell 2000 Biotechnology Index
and the Nasdaq Biotechnology Index, respectively. This marks the
third consecutive full year of outperformance against the more
comparable Russell 2000 Biotechnology Index. However, the Company's
share price has lagged NAV, returning +16.4% since admission after
a -32.0% return in 2022 compared with a -31.1% return for the
Russell 2000 Biotechnology Index in 2022 and -10.9% for the Nasdaq
Biotechnology Index in 2022. Having traded at a premium for most of
the time from admission to 31 December 2021, the shares fell to a
discount in 2022 alongside most investment companies that have
exposure to growth stage private companies.
Figure 3. RTW NAV per Ordinary Share vs. RTW.L Share Price and
Benchmarks as of 31 December 2022
[chart]
Table 2. Performance of all private and core public portfolio
investments since inception as of 31 December 2022
Portfolio Holding Initial Investment Valuation/Exit Date MOC (1) XIRR (1) Holding Period (yrs)
Inivata (2) 24/12/2020 18/06/2021 2.62 635.5% 0.5
-------------------- --------------------- -------- --------- ---------------------
Prometheus Biosciences 30/10/2020 31/12/2022 14.05 268.6% 2.2
-------------------- --------------------- -------- --------- ---------------------
RTW Royalty Holdings 1 (2) 13/11/2020 30/12/2022 3.38 129.6% 2.1
-------------------- --------------------- -------- --------- ---------------------
Ventyx Biosciences 26/02/2021 31/12/2022 3.36 110.8% 1.8
-------------------- --------------------- -------- --------- ---------------------
Iteos Therapeutics (2) 24/03/2020 17/03/2022 3.63 108.2% 2.0
-------------------- --------------------- -------- --------- ---------------------
Frequency Therapeutics (2) 17/07/2019 23/03/2021 2.79 85.3% 1.7
-------------------- --------------------- -------- --------- ---------------------
HSAC 2 17/07/2020 31/12/2022 4.31 83.0% 2.5
-------------------- --------------------- -------- --------- ---------------------
Athira Pharma (2) 29/05/2020 30/06/2022 1.65 56.8% 2.1
-------------------- --------------------- -------- --------- ---------------------
Immunocore 13/08/2019 31/12/2022 2.83 39.5% 3.4
-------------------- --------------------- -------- --------- ---------------------
Avidity Biosciences 08/11/2019 31/12/2022 2.42 32.5% 3.1
-------------------- --------------------- -------- --------- ---------------------
Prometheus Laboratories 31/12/2020 31/12/2022 1.41 18.9% 2.0
-------------------- --------------------- -------- --------- ---------------------
RTW Royalty Holdings (2) 05/05/2021 31/12/2022 1.32 18.8% 1.7
-------------------- --------------------- -------- --------- ---------------------
Mineralys 01/06/2022 31/12/2022 1.08 14.6% 0.6
-------------------- --------------------- -------- --------- ---------------------
Pulmonx Corporation (2) 17/04/2020 04/11/2022 1.31 13.1% 2.6
-------------------- --------------------- -------- --------- ---------------------
Acelyrin 20/10/2021 31/12/2022 1.12 11.6% 1.2
-------------------- --------------------- -------- --------- ---------------------
Ji Xing Pharmaceuticals 10/02/2020 31/12/2022 1.11 7.4% 2.9
-------------------- --------------------- -------- --------- ---------------------
Encoded Therapeutics 12/06/2020 31/12/2022 1.18 6.8% 2.6
-------------------- --------------------- -------- --------- ---------------------
Magnolia Medical 02/07/2021 31/12/2022 1.05 4.8% 1.5
-------------------- --------------------- -------- --------- ---------------------
Tarsus Pharma 24/09/2020 31/12/2022 1.05 2.1% 2.3
-------------------- --------------------- -------- --------- ---------------------
Nikang Therapeutics 09/09/2020 31/12/2022 1.03 1.6% 2.3
-------------------- --------------------- -------- --------- ---------------------
Numab Therapeutics 07/05/2021 31/12/2022 1.02 1.4% 1.7
-------------------- --------------------- -------- --------- ---------------------
Ancora Heart 20/01/2021 31/12/2022 1.01 1.0% 1.9
-------------------- --------------------- -------- --------- ---------------------
Apogee Therapeutics 15/11/2022 31/12/2022 1.00 0.0% 0.1
-------------------- --------------------- -------- --------- ---------------------
Neurogastrx 25/06/2021 31/12/2022 0.99 -0.3% 1.5
-------------------- --------------------- -------- --------- ---------------------
Milestone Pharma 23/07/2020 31/12/2022 0.96 -1.9% 2.4
-------------------- --------------------- -------- --------- ---------------------
Lenz Therapeutics, Inc. 13/04/2022 31/12/2022 0.99 -2.0% 0.7
-------------------- --------------------- -------- --------- ---------------------
Artiva Biotherapeutics 23/02/2021 31/12/2022 0.94 -3.4% 1.9
-------------------- --------------------- -------- --------- ---------------------
Nuance Biotech 07/12/2020 31/12/2022 0.92 -4.1% 2.1
-------------------- --------------------- -------- --------- ---------------------
Kyverna 09/11/2021 31/12/2022 0.95 -4.3% 1.1
-------------------- --------------------- -------- --------- ---------------------
Beta Bionics 28/06/2019 31/12/2022 0.86 -5.0% 3.5
-------------------- --------------------- -------- --------- ---------------------
C4 Therapeutics 02/06/2020 31/12/2022 0.88 -5.8% 2.6
-------------------- --------------------- -------- --------- ---------------------
Orchestra Biomed 28/06/2019 31/12/2022 0.86 -7.5% 3.5
-------------------- --------------------- -------- --------- ---------------------
Cincor Pharma 22/09/2021 31/12/2022 0.90 -7.6% 1.3
-------------------- --------------------- -------- --------- ---------------------
Lycia Therapeutics 02/09/2021 31/12/2022 0.89 -8.3% 1.3
-------------------- --------------------- -------- --------- ---------------------
Artios Pharma 27/07/2021 31/12/2022 0.87 -9.1% 1.4
-------------------- --------------------- -------- --------- ---------------------
Biomea Fusion (2) 23/12/2020 24/01/2022 0.89 -10.2% 1.1
-------------------- --------------------- -------- --------- ---------------------
GH Research Ireland 09/04/2021 31/12/2022 0.79 -12.9% 1.7
-------------------- --------------------- -------- --------- ---------------------
Umoja Biopharma 09/06/2021 31/12/2022 0.78 -14.5% 1.6
-------------------- --------------------- -------- --------- ---------------------
RTW Holdings LLC (Yarrow) 14/05/2021 31/12/2022 0.88 -16.2% 1.6
-------------------- --------------------- -------- --------- ---------------------
Monte Rosa Therapeutics 12/03/2021 31/12/2022 0.73 -16.2% 1.8
-------------------- --------------------- -------- --------- ---------------------
Swift Health Systems 27/08/2021 31/12/2022 0.74 -20.1% 1.3
-------------------- --------------------- -------- --------- ---------------------
Landos Biopharma (2) 09/08/2019 02/11/2022 0.08 -55.0% 3.2
-------------------- --------------------- -------- --------- ---------------------
Tenaya Therapeutics 17/12/2020 31/12/2022 0.16 -59.1% 2.0
-------------------- --------------------- -------- --------- ---------------------
Alcyone Therapeutics 08/06/2021 31/12/2022 0.25 -66.2% 1.6
-------------------- --------------------- -------- --------- ---------------------
Pyxis Oncology (2) 08/03/2021 08/07/2022 0.22 -70.5% 1.3
-------------------- --------------------- -------- --------- ---------------------
Third Harmonic Bio, Inc. 17/12/2021 31/12/2022 0.26 -73.1% 1.0
-------------------- --------------------- -------- --------- ---------------------
Visus Therapeutics 26/01/2021 31/12/2022 0.00 -99.4% 1.9
-------------------- --------------------- -------- --------- ---------------------
AVERAGE 1.54 23.0% 1.88
----------------------------------------------------------------------- -------- --------- ---------------------
1 Alternative Performance Measure
2 Exited the position
Table 3. Performance of Rocket Pharmaceuticals from admission to
31 December 2022
Share price at admission Share price at 31 December 2022 Share price return %
Rocket Pharmaceuticals US$14.00 US$19.57 +39.8%
-------------------------- --------------------------------- ---------------------
Table 4. NAV capital breakdown as of 31 December 2022
Portfolio grouping % of NAV
Core private 24.6%
---------
Core public 46.3%
---------
"Other" public 29.8%
---------
Cash, due to/from brokers, other (including liabilities
such as other payables and accrued expenses) -0.7%
---------
Total 100.0%
---------
As of 31 December 2022, our top five holdings in the "other
public" portfolio were:
- 4.2% of NAV in Argenx (ticker: "ARGX"), a commercial stage
multi-pipeline immunology company;
- 1.8% of NAV in Axsome Therapeutics (ticker: "AXSM") a
commercial staged biotech focused on CNS treatments;
- 1.7% of NAV in Masimo Corporation (ticker: "MASI") a global
medtech company focused on patient monitoring;
- 1.5% of NAV in PTC Therapeutics ("PTCT"), a biotech company
developing therapies for rare genetic diseases;
- 1.4% of NAV in Ultragenyx Pharmaceuticals (ticker: "RARE") a
biopharma company addressing rare diseases.
We expect to deploy the capital invested in "other public"
assets into private companies as the opportunities arise.
Table 5. Overview of core portfolio companies' valuations and
Company shareholding on 31 December 2022
Portfolio Company % of Company's Private (1) / Company's % shareholding Valuation of YTD P&L US$
net assets Public (2) Company's
investment in
US$
Prometheus Bio 15.2% Public <1% $52,760,400 $33,198,288
------------------ ------------------ ------------------------- ----------------- ------------
Rocket 13.5% Public <5% $46,982,775 -$6,604,656
------------------ ------------------ ------------------------- ----------------- ------------
Immunocore 7.4% Public <1% $25,908,924 $9,935,999
------------------ ------------------ ------------------------- ----------------- ------------
Ji Xing (4) 7.3% Private <15% $25,225,606 -$8,036,798
------------------ ------------------ ------------------------- ----------------- ------------
Avidity 4.2% Public <5% $14,502,829 -$1,268,910
------------------ ------------------ ------------------------- ----------------- ------------
RTW Royalty
Holdings
(Urogen) 4.0% Private <20% $14,074,846 $1,510,287
------------------ ------------------ ------------------------- ----------------- ------------
Ventyx 2.3% Public <1% $8,025,353 $3,454,534
------------------ ------------------ ------------------------- ----------------- ------------
Beta Bionics 1.6% Private <5% $5,633,890 -$766,537
------------------ ------------------ ------------------------- ----------------- ------------
Orchestra 1.3% Private <5% $4,490,264 -$500,961
------------------ ------------------ ------------------------- ----------------- ------------
NiKang 1.3% Private <5% $4,416,891 -$227,399
------------------ ------------------ ------------------------- ----------------- ------------
Ancora 1.2% Private <5% $4,163,943 $9,122
------------------ ------------------ ------------------------- ----------------- ------------
Tarsus 0.9% Public <1% $3,169,037 -$2,050,561
------------------ ------------------ ------------------------- ----------------- ------------
GH Research 0.9% Public <1% $2,981,309 -$4,174,446
------------------ ------------------ ------------------------- ----------------- ------------
Milestone (5) 0.8% Public <5% $2,871,141 -$2,125,030
------------------ ------------------ ------------------------- ----------------- ------------
Umoja 0.7% Private <1% $2,540,152 -$852,790
------------------ ------------------ ------------------------- ----------------- ------------
Magnolia 0.7% Private <5% $2,403,543 $95,829
------------------ ------------------ ------------------------- ----------------- ------------
Encoded 0.7% Private <1% $2,364,636 -$1,872,579
------------------ ------------------ ------------------------- ----------------- ------------
Cincor 0.6% Public <1% $2,175,674 -$683,084
------------------ ------------------ ------------------------- ----------------- ------------
Apogee
Therapeutics 0.6% Private <1% $2,102,903 $0
------------------ ------------------ ------------------------- ----------------- ------------
Numab
Therapeutics AG 0.5% Private <1% $1,768,384 $49,888
------------------ ------------------ ------------------------- ----------------- ------------
Acelyrin 0.5% Private <1% $1,650,669 $179,485
------------------ ------------------ ------------------------- ----------------- ------------
Nuance 0.5% Private <1% $1,622,898 -$148,311
------------------ ------------------ ------------------------- ----------------- ------------
Neurogastrx 0.5% Private <1% $1,612,974 -$8,329
------------------ ------------------ ------------------------- ----------------- ------------
Kyverna 0.4% Private <1% $1,455,105 -$74,908
------------------ ------------------ ------------------------- ----------------- ------------
Lenz Therapeutics 0.4% Private <5% $1,449,836 -$21,412
------------------ ------------------ ------------------------- ----------------- ------------
Monte Rosa 0.4% Public <1% $1,402,744 -$2,361,254
------------------ ------------------ ------------------------- ----------------- ------------
Alcyone (4) 0.4% Private <5% $1,280,484 -$3,820,806
------------------ ------------------ ------------------------- ----------------- ------------
Mineralys 0.3% Private <1% $1,119,555 $85,324
------------------ ------------------ ------------------------- ----------------- ------------
Lycia 0.3% Private <1% $1,008,626 -$122,674
------------------ ------------------ ------------------------- ----------------- ------------
RTW Holdings, LLC
(Yarrow) (4) 0.3% Private <5% $1,001,854 -$133,869
------------------ ------------------ ------------------------- ----------------- ------------
C4 Therapeutics 0.3% Public <1% $926,459 -$7,565,568
------------------ ------------------ ------------------------- ----------------- ------------
Tenaya 0.3% Public <1% $881,791 -$7,331,469
------------------ ------------------ ------------------------- ----------------- ------------
Artiva 0.3% Private <1% $880,074 -$298,454
------------------ ------------------ ------------------------- ----------------- ------------
Artios 0.2% Private <1% $675,895 -$98,421
------------------ ------------------ ------------------------- ----------------- ------------
Swift Health 0.2% Private <1% $649,150 -$228,531
------------------ ------------------ ------------------------- ----------------- ------------
Third Harmonic 0.1% Public (3) <1% $347,952 -$1,088,132
------------------ ------------------ ------------------------- ----------------- ------------
Prometheus Labs 0.1% Private <1% $186,504 $54,524
------------------ ------------------ ------------------------- ----------------- ------------
Visus 0.0% Private <1% $149 -$2,352,170
------------------ ------------------ ------------------------- ----------------- ------------
Pulmonx 0.0% Public <1% $27 -$896,517
------------------ ------------------ ------------------------- ----------------- ------------
1 Valuations for private portfolio companies on a fair value
basis as of 31 December 2022.
2 The valuations of public positions have been calculated using
their market capitalisation as at 31 December 2022.
3 In accordance with its valuation policy, the Group applies a
discount to its investments in private portfolio companies which
become public portfolio companies that are subject to customary
post-IPO lock-up provisions. The valuation policy also includes
Level 1 securities purchased at or after portfolio company IPO.
4 Excludes convertible note.
5 Includes pre-funded warrants.
Table 6. RTW representation on portfolio companies' boards
Portfolio company (1) RTW representative on the board
Alcyone Piratip Pratumsuwan
-------------------------------------------
Ji Xing Rod Wong, Peter Fong
-------------------------------------------
Magnolia Ovid Amadi
-------------------------------------------
Nikang Rod Wong
-------------------------------------------
Rocket Rod Wong, Gotham Makker, Naveen Yalamanchi
-------------------------------------------
Yarrow Rod Wong, Peter Fong
-------------------------------------------
1 In aggregate these represented 23% of the NAV of the Group at
31 December 2022
Summary of top fifteen core portfolio companies as of 31
December 2022:
As of 31 December 2022, the Group's core portfolio included
thirty-eight companies comprised of pre-clinical to commercial
stage biotechnology companies, companies developing traditional
small molecule pharmaceuticals, and med-tech companies developing
or commercializing transformative devices. We selected the Group's
portfolio companies based upon our rigorous assessment of
scientific and commercial potential, opportunities to positively
impact value, and with regard to the valuation of the assets at the
time of investment. The table below includes the top fifteen
portfolio companies at the end of the reporting period.
Table 7. RTW Venture Fund core portfolio - Top fifteen positions
as of 31 December 2022
Portfolio Company Therapeutic Area Clinical Stage Description Expected Catalyst % NAV
Precision medicine
company focused on
IBD, a chronic
inflammatory
disease of GI tract
with
the lead antibody
program against Data updates in Q2
Prometheus Bio Inflammation Phase 2 TL1A. 2023 15.2%
--------------------- ---------------- --------------------- ---------------------- ------
Gene therapy
platform company
for rare paediatric
diseases. Four
clinical programs
for Fanconi
anaemia, Danon, Data updates in H1
Rocket Rare Disease Phase 2 LAD, and PKD. 2023 13.5%
--------------------- ---------------- --------------------- ---------------------- ------
T-cell receptor
therapy company
focused on oncology
and infectious
disease. Lead
program for Launch updates in H1
Immunocore Oncology Commercial uveal melanoma. 2023 7.4%
--------------------- ---------------- --------------------- ---------------------- ------
NewCo focused on
acquiring rights
for innovative
therapies for
development and
Cardiovascular, commercialisation
Ji Xing Ophthalmology Phase 3 in China. Series D in H2 2023 7.3%
--------------------- ---------------- --------------------- ---------------------- ------
Antibody conjugated
RNA medicines
company. Lead
program for
myotonic dystrophy,
a degenerative
disease with no Data updates in Q2
Avidity Myotonic Dystrophy Phase 1 therapy. 2023 4.2%
--------------------- ---------------- --------------------- ---------------------- ------
Royalty as a part of
RTW-Urogen deal
based on revenues
RTW Royalty Holdings of both Jelmyto and
(Urogen) Oncology Commercial UGN--102. - 4.0%
--------------------- ---------------- --------------------- ---------------------- ------
Clinical stage
biotech advancing a
promising
immunology pipeline
for autoimmune and
inflammatory Data updates in Q2
Ventyx Autoimmune Phase 2 diseases. 2023 2.3%
--------------------- ---------------- --------------------- ---------------------- ------
Closed-loop
pancreatic system
for automated and
autonomous delivery
Beta Bionics Type 1 Diabetes Pivotal of insulin. - 1.6%
--------------------- ---------------- --------------------- ---------------------- ------
Medical device
company focused on
developing products
for the treatment
of coronary artery
disease and Data updates in H1
Orchestra Cardiovascular Pivotal hypertension. 2023 1.3%
--------------------- ---------------- --------------------- ---------------------- ------
Biotech using a
structure-based
design to develop
innovative small
molecules against
promising
molecular targets Data updates in H1
NiKang Oncology Phase 1 in oncology. 2023 1.3%
--------------------- ---------------- --------------------- ---------------------- ------
Medical device
company dedicated
to developing
products which
target dysfunction
of the left
ventricle, the
underlying cause of
Ancora Cardiovascular Pivotal heart failure. - 1.2%
--------------------- ---------------- --------------------- ---------------------- ------
Clinical stage
biotech developing
first-in-class
therapeutics for
ophthalmic
Tarsus Ophthalmology Phase 3 conditions. PDUFA Aug 25, 2023 0.9%
--------------------- ---------------- --------------------- ---------------------- ------
Clinical stage
biotech developing
therapies to manage
GH Research CNS Phase 2 mental disease. - 0.9%
--------------------- ---------------- --------------------- ---------------------- ------
Clinical stage
company developing
interventions for
Milestone Cardiovascular Phase 3 tachycardias. FDA filing H2 2023 0.8%
--------------------- ---------------- --------------------- ---------------------- ------
Preclinical stage
biotech company
developing cell
therapies in
cancer. The lead
program is
focused on B cell
Umoja Oncology Preclinical malignancies. - 0.7%
--------------------- ---------------- --------------------- ---------------------- ------
Sector review and outlook
[chart]
We already knew that 2021 was an historic year for small cap
biotech. The Russell 2000 Biotech Index finished -27%, behind only
2008's -31% and 2002's -54%. Then 2022 tied 2008 for second from
the bottom, with a drop of -31%, a rare two down years in a row. As
a result, the absolute number and percentage of companies trading
at less than 1x market capitalisation to cash remains near historic
highs (37%). This is despite some meaningful advances in biotech
innovation, most importantly Biogen/Eisai's lecanemab for
Alzheimer's.
[charts]
Funding for smaller public companies is scarce. The IPO market
is at its lowest level in a decade and follow-on offerings declined
for the second year in a row, back to the lowest level since 2016's
drug pricing panic. In sharp contrast, big was beautiful this year.
The NYSE Arca Pharmaceutical Index (DRG) finished +5% on the year.
In fact, the 36% performance gap between large and small cap
therapeutics adds to last year's 50% gap, totaling the largest
outperformance for pharma since 1997-98. Investors are setting
aside long-term risks (most notably Medicare price negotiation and
patent cliffs beginning in 2026) and are placing high value on
recession-resistant near-term growth, which pharma is delivering
with its own innovation breakthrough, the Glp1s. The Glp1s are the
first class of medicines to deliver meaningful weight loss with an
attractive safety profile, and early sales momentum suggests the
potential to create one of, if not the largest drug class in
history. Eli Lilly and Novo Nordisk have surpassed Pfizer and Merck
as the second and third largest biopharma companies, thanks to the
success of Mounjaro and Rybelsus.
The large-cap-weighted Nasdaq Biotech Index lost -11% in 2022.
Companies with consistent growth, or those who can plug pharma
patent holes with de-risked blockbuster potential have been first
to recover. Overall, we believe this is consistent with a biotech
recovery that is in its earliest innings.
A year ago, our optimism for 2022 stemmed from expectations for
a return to normalcy at the FDA, clarity on drug pricing, increased
M&A, and the historically large performance gap between biotech
and the broader markets. The 2022 volume (of deals worth over
US$500 million) totaled US$58 billion, a nice pick-up from 2021's
US$52 billion, the lowest in the past eight years. Pharma (DRG +5%)
and large cap biotech (NBI -11%) significantly outperformed the
broader market and (S&P500 -19%), narrowing the performance
gap. In sum, we have seen significant progress against each of
these items. Unfortunately, small caps have so far been left behind
(Russell 2000 Biotechnology Index -31% and XBI -26%), and our
concentration here has correspondingly affected 2022 NAV
performance.
Volume of deals worth over US$500 million totaled
$58b
2021: $52 billion
After the last two years, we think investors have priced in
failure for much of the wave of companies that experienced setbacks
after going public too early. Of the IPO classes of 2020-2021, the
average performance is -37% and -50%, with 74% trading below cash.
Notable breakthroughs in the past year have only minimally improved
sentiment. This includes several potential first-in-class therapies
for blockbuster markets. In addition to Biogen and Eisai's
Alzheimer's breakthrough, Axsome is launching the first new class
of oral antidepressants in over half a century, Karuna reported
positive Phase 3 schizophrenia data for a first-in-class muscarinic
receptor directed therapy, and Madrigal reported the first
successful Phase 3 study ever conducted for fatty liver
disease.
[chart]
FDA approved novel new drugs
37
2021: 50
Drugs from new modalities
13
2021: 9
In total, the FDA approved 37 novel new drugs (two of which came
from RTW portfolio companies: Kimmtrak from Immunocore and Camzyos
(mavacamten) from RTW Royalty Holdings 1). This is down from last
year's 50 and likely reflects an FDA that has struggled post-COVID.
Importantly, however, drugs from new modalities continue to
increase: 13 vs 9 last year. It includes an impressive four gene
therapies (vs zero last year), two bispecifics, an RNAi, mRNA, cell
therapy, ADC, radiotherapy, and the first ever TCR and microbiome
therapies. With innovation from new modalities continuing to mature
and accelerate, we think the swing of the sentiment pendulum from
optimism to pessimism for small companies creates asymmetric
opportunity in front of future potential breakthroughs.
Importantly, several of our core early-stage therapeutic companies
that have suffered either alongside other small caps or due to
their own setbacks remain key positions in the portfolio. Those
that have cleared our re-underwriting efforts have made operational
progress this past year and many are nearing their next value
inflection points. We like the asymmetric risk reward in front of
these more mature data readouts in 2023.
Recent cases suggest that the market environment may be
increasingly more likely to reward strong data. In December,
positive data translated to significant moves for Madrigal
Pharmaceuticals (+320%), and our own Prometheus Biosciences (+167%)
and Avidity (+91%).
We continue to expect M&A to accelerate given patent
expiries and headwinds from the Inflation Reduction Act of 2022 in
the second half of the decade, growing pharma cash balances, small
company cost of capital, and lower valuations. This should help
drive better performance for the sector, which has never been down
three years in a row.
Executing on our strategy
We are scientists and entrepreneurs who aspire to change the
lives of patients through innovation, and our mission is at the
heart of everything we do. We power breakthrough therapies that
transform the lives of millions. True value realisation from
transformative products takes time, and in order to capture that
value, it is critical to be involved in and invested in such
companies throughout the various stages of their development. As a
full life cycle investor, we recognise the importance of providing
growth capital along with the support of an experienced team, if
and when it is needed, at any critical inflection point in an
asset's life cycle. Scientific development rarely follows a linear
path, which is why we are always thinking about the optimal way to
support a company. This can be achieved through providing growth
capital, creative financing solutions, capital markets expertise,
or guidance through investing our time and sharing our collective
experience as directors and stewards of tomorrow's most exciting
and disruptive companies.
Our full life cycle approach and broad offering of financial
solutions for investee companies allows us to capture a diverse
opportunity set. In the first half, this was most clearly
demonstrated when we sold our royalty stake in Mavacamten, the
underlying asset of RTW Royalty Holdings 1, to Bristol Myers Squibb
soon after the drug had achieved the primary endpoint of its Phase
3 trials, achieving a greater than 3x return on our initial
investment in November 2020. We originally acquired the royalty
asset as part of a multi-solution transaction with Cytokinetics, a
promising mid-stage cardiovascular company, which also included an
equity investment, a regional partnering deal with Ji Xing, and
future clinical trial funding. It was a ground-breaking transaction
because, as a single counterparty, we were able to move quickly to
simplify and de-risk the execution of a process that would
otherwise have taken much longer with the involvement of multiple
partners. We believe that we are the only investment manager who
could have accomplished what we did.
In the second half of the year, our second SPAC, Health Sciences
Acquisitions Corporation 2, announced a proposed combination with
Orchestra BioMed, one of the Group's core private holdings. The
combination subsequently closed after year-end and, on 27 January
2023, Orchestra started trading on Nasdaq Global Market under the
ticker "OBIO". Simultaneously, the company cemented a strategic
collaboration with Medtronic, a global leader in medical
technology, services and solutions, to develop its "BackBeat
Cardiac Neuromodulation Therapy" as a potential integrated
treatment for cardiac pacemaker patients. We always believed that
Orchestra had promising data and a leadership team with an
exceptional track record of bringing novel medical technologies to
market; now they have that, a new partnership with a global leader
and the financial resources to help accelerate their clinical
development and position them for commercial success. In our
opinion, this deal validates our view on and approach to SPACs,
which is that they can be an especially useful tool to bring
public-ready companies to the next stage of their life cycle when
the capital markets are temporarily closed for business.
Our global reach continues to expand with new offices opened in
London and Shanghai. In China, our NewCo Ji Xing, continues to
build out its clinical pipelines with the addition of an exclusive
licensing agreement with Lenz Therapeutics for their LNZ100 and
LNZ101 treatments for presbyopia. As part of the transaction, Lenz
Therapeutics also became the latest addition to the Group's
portfolio, underlining the value of our multi-asset approach. In
London, we have continued to support the development of Immunocore
with our participation in a US$140 million PIPE (Private Investment
in Public Equity) alongside a small handful of other investors in
July. As a firm, we have been supporting Immunocore since their
Series A in 2015 and we are proud to be part of a significant UK
success story as the company received FDA approval in January for
Kimmtrak (tebentafusp), its first-in-class T-cell therapy for the
treatment of uveal melanoma, which subsequently surpassed most
people's expectations on its commercial launch. We expect to
receive clinical updates from their highly promising PRAME
(Preferentially Expressed Antigen of Melanoma) program, which could
be a blockbuster drug, in 2023.
From a science perspective, our primary areas of focus remain in
genetic medicines, rare diseases, small molecules, targeted
oncology, medical technologies, antibodies, and next generation
antibody therapies. Our science-led, full life cycle approach was
clearly demonstrated this year by Prometheus Biosciences'
transformational data from their Phase 2 studies in ulcerative
colitis and Crohn's disease. The company's Anti-TL1A antibody is a
new mechanism of action in inflammatory bowel disease ("IBD") which
also leverages companion diagnostics that may enable a more
personalised and effective treatment for patients suffering from
the condition. With best-in-disease efficacy against existing,
commercially validated, mechanisms of action, we believe Prometheus
is set up to capture a significant portion of the
multibillion-dollar IBD market. On the heels of the Phase 2 data,
Prometheus successfully raised US$500 million in a follow-on
financing to advance into Phase 3 development. We have been
following the company for several years, starting in February 2020
when we observed proof-of-concept data from Pfizer, which alerted
us to the possibilities of the TL1A mechanism of action. After
further scrutinizing the science and gaining a better understanding
of its companion diagnostic platform (something which Pfizer was
not considering at the time), we co-led the crossover financing in
November 2020 when they raised US$130 million ahead of anchoring
their IPO and US$220 million raise in March 2021 at a US$660
million valuation. Prometheus' market cap now stands at US$5.5
billion.
None of this is possible without a sound foundation. Our
foundation, or core, is built on our rigorous assessment of the
best private market investment opportunities, which then go on to
realise their ultimate value in the public markets. We have always
been highly selective in this area, focusing only on companies with
well-founded science and attractive commercial opportunities. We
are now benefiting from this discipline in a challenging capital
markets environment as our private portfolio is a reasonable size
and is well funded. Figure 4 shows a breakdown of the approximate
cash runway of our core private companies that have negative cash
flow. Of the twenty-four companies that do so, the average cash
runway (at current burn rates) is around three years, which gives
them the time to focus on their clinical development until the
funding markets normalise . Of the six companies with less than one
year of runway, two are RTW NewCos, so that is by design. Of the
remaining four, only two are in a challenging financial
position.
Figure 4. Core private portfolio - approximate cash runway as of
31 December 2022
[chart]
Reflecting their challenged positions, these two companies,
Alcyone and Visus, were written down by RTW's Valuation Committee
to the tune of -75% and -99%, respectively, through 2022. Figure 5
shows the 2022 valuation changes for all the core private holdings
in the portfolio on 31 December 2022. It is important to note that
this does not include the value realisations from RTW Royalty
Holdings 1 or the changes arising from Cincor's or Third Harmonic's
IPOs. Last year, we marked down seventeen of the privates we now
hold by an average of 23% and marked up seven by an average of 12%.
Apogee Therapeutics' valuation remained unchanged as we only
invested in December 2022. 70% of the markdowns were primarily
driven by changes to relative comparables or market-based inputs.
On the other hand, 71% of the markups were primarily driven by
idiosyncratic company performance or a financing or transaction.
Our Valuation Committee, which includes an expert internal team,
takes a fair value approach to marking our private portfolio, doing
so on a monthly basis, with the involvement of multiple third-party
valuation companies, with the goal of ensuring there are no
surprises for our investors. The Board reviews and challenges these
valuations in two semi-annual meetings.
Figure 5. Core private portfolio on 31 December 2022 - year to
date valuation changes
[chart]
In summary, the private portfolio is in good shape and we have
been active and fair in our valuation of the individual holdings.
This foundation provides us with the capacity and the confidence to
continue to back our existing holdings should they need it and make
new investments as the opportunities arise
We believe there is a significant demand for reliable capital
providers such as ourselves, to continue to support scientific
innovation and the development of transformative therapies for
patients. We expect the portfolio's sector split to remain close to
80% biopharmaceutical assets and 20% medical technology assets. In
line with prior prospectus guidance, we anticipate two-thirds of
the new investments will be made in mid- to later-stage venture
companies and one-third focused on active company building around
the discovery and development or licensing and distribution of
promising assets.
Key portfolio company events post period end
-- In January 2023, Cincor Pharma entered into an agreement to
be acquired by AstraZeneca for a total deal value of US$1.8
billion, a 206% premium to the prior closing market value.
-- In January 2023, Orchestra BioMed combined with RTW's HSAC 2
and started trading on Nasdaq Global Markets under the ticker
symbol "OBIO".
-- On 9 February 2023, Mineralys Therapeutics announced pricing
of its IPO by offering 12 million shares at US$16.00 per share. The
shares began trading on Nasdaq Global Market on 10 February 2023
under ticker "MLYS". Since IPO, Mineralys Therapeutics shares have
traded down 7.2% as of 29 March 2023.
-- On 28 March 2023, Milestone Therapeutics announced a $125m
strategic financing from the Investment Manager to support
Milestone's operations into mid-2025, including etripamil NDA
submission and launch in PSVT.
-- Privately-held portfolio companies
-- 25
-- 2021: 25
RTW Investments, LP
30 March 2023
Our Long-Term Strategy
Transforming the lives of millions
Our long-term strategy is anchored in identifying sources of
transformational innovations by engaging in deep scientific
research and a rigorous idea generation process, which is
complemented with years of investment, company building,
transactional, and legal expertise.
Identify
Identify transformational innovations
We have developed expertise through our comprehensive study of
industry and academic efforts in targeted areas of significant
innovation. Thanks to the genome, there is more clarity around the
causes of disease. Coupled with exciting new modalities that can
address genetic diseases in a targeted way, drug innovation is
accelerating.
Engage
Engage in deep research to unlock value
We developed repeatable internal processes combining technology
and manpower to comprehensively cover critical drivers of
innovation globally. We seek to identify biopharmaceutical and
medical technology assets, ascertained through rigorous scientific
analysis that have a high probability of becoming commercially
viable products and can dramatically change the course of treatment
and in some cases bring effective and/or full curative outcomes to
patients.
Build
Build new companies around promising academic licences
We have the capabilities to partner with universities and
in-license academic programs, by providing capital and
infrastructure to entrepreneurs to advance scientific programs.
Particularly working in rare diseases, often areas with little
existing research and treatment options, means that forming a rare
disease-focused company is a way of shining a light on this space
and creating a roadmap to eventually developing a curative
treatment.
Support
Support full life cycle investment
A key part of our competitive advantage is the ability to
determine at what point in a company's life cycle we should support
the target asset or pipeline. As a full life cycle investor, we can
provide growth capital, creative financing solutions, capital
markets expertise, or guidance through investing our time and
sharing our collective experience as directors and stewards of
tomorrow's most exciting and innovative companies. Taking a
long-term full life cycle approach and having a true evergreen
structure enables us to avoid the pitfalls and structural
constraints of venture-only or public-only vehicles. Our focus is
on becoming the best investors and company builders we can be,
delivering exceptional results to shareholders and making a
positive impact on patients' lives.
Our Strategy in Action
Identify transformational innovations
Avidity Biosciences
RTW focuses on identifying transformational innovations across
the life sciences space, specifically backing scientific programs
that have the potential to disrupt the prevailing standard of care
in their respective disease areas.
Learn more about Avidity Biosciences,
www.aviditybiosciences.com
NAV
4.2%
2021: 4.3%
Portfolio company ownership
<5%
2021:<5%
The need
It is estimated that about 40,000 Americans suffer from myotonic
dystrophy, a rare genetic muscular dystrophy with no approved
treatment options for patients and their families.
Mission
Avidity is developing antibody oligonucleotide conjugate
(AOC(TM)) therapeutics, which combines the tissue selectivity of
monoclonal antibodies and the precision of oligonucleotide-based
therapeutics to overcome barriers to the delivery of
oligonucleotides and target genetic drivers of disease.
Status
In December, Avidity Biosciences announced a positive clinical
update on its proof-of-concept Phase 1 trial for AOC 1001, its
antibody-siRNA therapy, for myotonic dystrophy. The company is also
expanding its pipeline in other rare muscle disorders such as
Facioscapulohumeral Muscular Dystrophy, Duchenne Muscular Dystrophy
and others.
Next milestone
Avidity is expected to share AOC 1001 Phase 1 clinical progress
in H1 2023.
Engage in deep research to unlock value
Prometheus
Our team is comprised of individuals with medical and advanced
scientific training and legal and banking experience, enabling a
deeply differentiated approach to research, idea generation and
strategic investment.
Learn more about Prometheus Biosciences
www.prometheusbiosciences.com
NAV
15.2%
2021: 5.6%
Portfolio company ownership
<5%
2021: <5%
The need
Inflammatory Bowel Disease (IBD) is a chronic inflammatory
condition of the GI tract. The pathology of the disease is mixed
and without a definitive cause, therefore it represents an area of
a high unmet need for a large proportion of patients. Prometheus
Biosciences is developing an antibody targeting TL1A, a novel
target in IBD. RTW has been an investor in Prometheus since the
firm co-led the company's crossover financing US$130 million raise
in 2020.
Mission
Prometheus is a biotechnology company developing novel
therapeutic and companion diagnostic product candidates for the
treatment of immune-mediated diseases, starting with IBD. Its
transformational approach brings the power of big data to immune
biology, changing lives through patient-centric drug design.
Status
In December 2022, Prometheus shared positive Phase 2 clinical
data for ulcerative colitis and Crohn's disease clinical trials
with a successful use of companion diagnostic in IBD. The data
suggests a best-in-class profile for an IBD therapy.
Next milestone
Prometheus is expected to present further clinical data updates
from its Phase 2 trials in IBD in H1 2023.
Building new companies
We engage in new company formation around promising academic
licences and beyond. We have the capabilities to partner with
universities and in-license academic programs, by providing capital
and infrastructure to entrepreneurs to advance scientific programs.
We are well-placed to offer support to early-stage life sciences
companies and NewCos.
Company creation
Rocket
Danon Disease (AAV) - Halfway between Phase 1 and 2
Fanconi Anaemia (LVV) - Phase 2
Leukocyte Adhesion Deficiency (LVV) - End of Phase 1
Pyruvate Kinase Deficiency (LVV) - Phase 1
BAG3-Associated Dilated Cardiomyopathy - Lighter tint - End of
Preclinical
PKP2-Associated Dilated Cardiomyopathy - Lighter tint - Mid of
Preclinical
JiXing
OMECAMTIV MECABRIL: HfrEF - End of Phase 3
AFICAMTEN: oHCM - Phase 3
AFICAMTEN: nHCM - Phase 2
AFICAMTEN: HfpEF - Phase 2
ETRIPAMIL: PSVT - Phase 3
ETRIPAMIL: Atrial fibrillation (Afib) - Phase 3
OC-01: Dry eye disease - Phase 3
OC-02: Dry eye disease - Phase 3
LNZ100/101: Presbyopia - Phase 3
JX08: Demodex blepharitis - Lighter tint - Halfway between
Preclinical and Phase 1
Yarrow
ASO TECHNOLOGY - Preclinical
Support full life cycle investment
Orchestra (OBIO)
Drug development is not a linear process. There are advancements
and setbacks and we are structured to maximise value creation at
any point beginning with company creation to late-stage venture and
into publicly traded markets. We let the fundamentals and not
market movements dictate our investment.
Learn more about Orchestra Biomed
www.orchestrabiomed.com
NAV
1.3%
2021: 0.6%
Portfolio company ownership
<1%
2021: <1%
The need
Orchestra BioMed is a biomedical innovation company accelerating
high-impact technologies to patients. Its flagship product
candidates include BackBeat Cardiac Neuromodulation Therapy(TM)
(CNT(TM)) for the treatment of hypertension, a significant risk
factor for death worldwide, and Virtue(R) Sirolimus
AngioInfusion(TM) Balloon (SAB) for the treatment of
atherosclerotic artery disease, the leading cause of mortality
worldwide. The Company has been invested in Orchestra Biomed since
the time of its listing on LSE in 2019.
Mission
Orchestra Biomed's partnership-enabled business model focuses on
forging strategic collaborations with and licensing patented
technologies to leading medical device companies to drive
successful global commercialisation of product candidates we
develop. The company focuses on advancing promising therapeutic
solutions, such as BackBeat CNT and Virtue SAB, through late-stage
clinical research and regulatory approvals, while our partners
focus on leveraging their commercial expertise and existing
infrastructure to bring our product candidates to global markets
quickly and efficiently.
Status
In July 2022, Orchestra Biomed announced its plans to list on
Nasdaq through a merger with Health Sciences Acquisitions
Corporation 2 (HSAQ), an RTW-sponsored SPAC. The RTW team has been
delighted to support Orchestra in a turbulent public markets
environment and provide an alternative path to becoming a public
company.
Next milestone
The business merger occurred in January 2023 with Orchestra
Biomed trading on Nasdaq under ticker "OBIO". The transaction had
negligible P&L impact as we had anticipated a successful
completion in our 31 December 2022 NAV.
Our Business Model
Shaping tomorrow's most disruptive companies
We are full life cycle investors creating value and offering
support at any stage, from academic programs all the way to mature
publicly traded companies.
What we need to create value
EXPERIENCED TEAM
A collaborative team of doctors, academics, and drug developers
coupled with seasoned venture capitalists, investment bankers,
lawyers and company operators with a strong culture of
compliance.
SCIENTIFIC RIGOUR
Our research process combines wide data-gathering with deep
analysis to identify the most compelling assets, technologies, and
modalities with the best chance of reaching patients.
FULL LIFE CYCLE INVESTING
Taking a long-term, full life cycle approach and having a true
evergreen structure helps us avoid the structural constraints of
venture-only or public-only vehicles.
GLOBAL REACH
Great science takes place everywhere in the world. Our priority
is to unlock value by advancing early-stage scientific development
and delivering innovative therapies to patients in need.
How we create value
We power breakthrough therapies that transform the lives of
millions.
Identify transformative assets with high growth potential across
the biopharmaceutical and medical technology sectors. Driven by our
deep scientific understanding and long-term approach to supporting
innovative businesses, we invest in companies developing
next-generation therapies and technologies that can significantly
improve patients' lives.
IDENTIFY TRANSFORMATIONAL INNOVATIONS AND UNMET NEEDS
We focus on identifying transformational innovations and unmet
needs across the life sciences space, specifically backing
scientific programs that have the potential to disrupt the
prevailing standard of care in their respective disease areas.
INVEST IN DEEP RESEARCH AND LONG-TERM RELATIONSHIPS
We believe in developing long-term relationships with great
entrepreneurs and scientists who are as passionate about medicine
as we are and working closely with our peers to support companies
at any stage of their life cycle.
SUPPORT THROUGH FULL LIFE CYCLE INVESTMENT
A key part of our competitive advantage is the ability to
determine at what point in a company's life cycle we should support
the target asset or pipeline. As a full life cycle investor, we can
provide growth capital, creative financing solution, capital
markets expertise, or guidance through investing our time and
sharing our collective experience as leaders of tomorrow's most
exciting and disruptive companies.
Value created
PATIENT BENEFITS
Innovation is the best medicine. We believe solving unmet
patients' needs is the best way to create value.
Number of drugs commercialised by our 10 most successful
investments since inception
11 (2021: 10)
Core portfolio companies with clinical stage programs
25 / 39 (2021: 28 / 42)
SHAREHOLDERS
Privileged access to private markets and bespoke negotiated
opportunities
Total shareholder return since admission
+16.3% (2021: 71%)
NAV per ordinary share growth since inception
+47.6% (2021: 38.1%)
PORTFOLIO COMPANIES
We support teams through the inevitable setbacks that occur when
introducing a first-in-class or disruptive therapy.
NAV deployed into core portfolio companies
70.9% (2021: 66%)
RTW CHARITABLE FOUNDATION
Founded as the Charitable Foundation arm of RTW, RTWCF partners
with organisations conducting disease research and championing
humanitarian causes.
Number of humanitarian grants
10 (2021: 9)
- 8 COVID Recovery grants in NYC, 1 STEM education grant in NYC
(BioEYES), and 1 emergency response grant for Ukraine (Razom).
Operational and Financial Review for the Year
Leading with innovative asset creation
MARKET CAPITALISATION
The Company's market capitalisation declined from US$378 million
at 31 December 2021 to US$257 million at 31 December 2022. The
Company issued no shares during the year and did not repurchase any
shares so the decline in the market capitalisation of its shares is
solely attributable to the decline in the Company's share
price.
ORDINARY NAV
The Ordinary NAV of the Company declined from US$363 million to
US$326 million during the year. The main driver of the decline was
the share price performance of publicly-listed portfolio companies
within the Group's portfolio as realised gains from the sale of
private investments were offset by fair value write downs of the
remaining private investments. The majority of the private
portfolio's fair value (excluding royalty investments) is made up
of convertible preferred stock and convertible notes, which offers
a degree of downside protection given their senior positioning in
the capital structure. Additionally, in the last three months
before year end, the majority of the private investment valuations
were updated by independent third-party valuers.
An approximate attribution of the Group's performance is
provided below
Private Core Realised
Gain +4.9%
Private Core Mark to
Market -5.2%
Public Core Mark to
Market +0.1%
Other Public Mark to
Market -9.3%
Income, Expense and
Other Offsets (1) -0.7%
-------
Net Performance -10.2%
-------
(1) Other Offsets are both the mark to market on the Performance
Allocation Share for the period from 1 January 2022 through 30
November 2022 and Non-Controlling Interest for the period from 1
December 2022 through 31 December 2022.
NAV PER ORDINARY SHARE
The -10.2 % decline in NAV per Ordinary Share was driven by the
decline in the Company's ordinary NAV as the number of shares in
issue did not change during the year.
PREMIUM / DISCOUNT
The Company's shares traded on average at a c. 12% discount due
to reduced market demand for growth and venture capital assets
during the reporting period. At the year-end, the Company's
Ordinary Shares were trading at a 21.2% discount to NAV (2021: 4.1%
premium to NAV; 2020: 4.1% discount to NAV).
TOTAL RETURN TO SHAREHOLDERS BASED ON ORDINARY NAV
As the Company has not paid dividends, the negative total return
for the year of -10.2 % (2021: -12.8%) equates to the decline in
NAV per Ordinary Share. There was no performance allocation
triggered during the reporting period as the total shareholder
return based on ordinary NAV movements was negative.
TOTAL RETURN TO SHAREHOLDERS BASED ON SHARE PRICE
The negative share price return of -32.0% in the year compared
to the NAV movement of -10.2% was the result of a decline in demand
for growth companies that are not currently profitable as interest
rates increased in the US and UK. Investors also assumed that
private companies within venture capital portfolios would be
subject to substantial market-based valuation adjustments leading
to a cyclical widening of share price discounts. Companies with the
highest proportion of private growth assets experienced the most
significant widening.
ONGOING CHARGES
The Group's ongoing charges ratio is 1.92%, calculated in
accordance with the AIC recommended methodology, which excludes
non-recurring costs and interest payable and uses the average NAV
in its calculation.
Highlights
Market Capitalisation as of 31 Dec 2022
2022: US$257m
2021: US$378m
2020: US$360m
Ordinary NAV as of 31 Dec 2022
2022: US$326m
2021: US$363m
2020: US$375m
Premium to NAV discount as of 31 Dec 2022
2022: -21.2%
2021: +4.1%
2020: -4.1%
Ongoing charges as of 31 Dec 2022
2022: 1.92%
2021: 1.73%
2020: 1.96%
Our Key Performance Indicators
Measuring our performance
The Board has identified the following indicators for assessing
the Group's annual performance in meeting its objectives:
Financial KPIs
NAV Growth
PERFORMANCE
Performance of the portfolio companies and cash management
strategy net of all fees and costs
KEY FACTORS
-- Portfolio performance and progression through clinical trials
-- Cash management
-- Capital pool and deployment
-- Scientific and financial risks
PROGRESS
Ordinary NAV
2022: -10.2%
2021: -12.8%
During the reporting period this was largely driven by public
companies' share price performance.
FUTURE INTENT
Achieve superior long-term capital appreciation; target an
annualised total return of 20% over the medium term
LINK TO STRATEGY
Identify
Engage
Build
Support
LINK TO PRINCIPAL RISKS
Failure to achieve investment objective
Exposure to global political and economic risks
Clinical Development & Regulatory Risks
Total shareholder return
PERFORMANCE
Delivering value to the shareholders
KEY FACTORS
-- Portfolio performance
-- Liquidity of RTW.L shares
-- General market sentiment
PROGRESS
Return
2022: -32.0%
2021: -5.3%
FUTURE INTENT
Achieve superior long-term capital appreciation; target an
annualised total return of 20% over the medium term
LINK TO STRATEGY
Identify
Engage
Build
Support
LINK TO PRINCIPAL RISKS
Failure to achieve investment objective
Exposure to global political and economic risks
Clinical Development & Regulatory Risks
Premium/discount to NAV
PERFORMANCE
The level of supply and demand for the Company's shares
KEY FACTORS (in order of impact at year end)
-- The percentage of private growth assets within the Group's portfolio
-- Portfolio performance
-- Liquidity of the Company's shares
-- Governance
PROGRESS
Premium/discount to NAV (average during the year)
2022: -12%
2021: 10%
FUTURE INTENT
Return to par or a premium to NAV such that total shareholder
returns more closely match NAV performance
LINK TO STRATEGY
Identify
Engage
Build
Support
LINK TO PRINCIPAL RISKS
Failure to achieve investment objective
Exposure to global political and economic risks
Percent of NAV invested in core portfolio companies
PERFORMANCE
Level of capital deployment into core portfolio companies
KEY FACTORS
-- Level of capital deployment and investment pace, as well as
availability of funds to be deployed into new portfolio companies
or for follow-on investments into existing portfolio companies
PROGRESS
NAV invested in core portfolio
2022: 71%
2021: 66%
Deployed into core portfolio companies
FUTURE INTENT
Identify transformative assets with high growth potential across
the biopharmaceutical and medical technology sectors
LINK TO STRATEGY
Identify
Engage
Build
Support
LINK TO PRINCIPAL RISKS
Clinical Development & Regulatory Risks
The Investment Manager relies on key personnel
Exposure to global political and economic risks
Non-financial KPIs
Geographic & therapeutically diversified portfolio
PERFORMANCE
Measures the Group's commitment to invest in best-in-class
science and innovative assets worldwide
KEY FACTORS
-- Continue to diversify within life sciences sector, looking
for opportunities globally and also support local biotech
ecosystems
PROGRESS
Therapeutic areas addressed
2022: 10
2021: 10
Core portfolio companies' focus spans multiple therapeutic
areas, treatment modalities and geographies.
FUTURE INTENT
Continue investing in and supporting companies developing next
generation therapies and technologies that can significantly
improve patients' lives
LINK TO STRATEGY
Identify
Engage
Build
Support
LINK TO PRINCIPAL RISKS
Clinical Development & Regulatory Risks
Exposure to global political and economic risks
Active and robust pipeline
PERFORMANCE
Delivers transformational new treatments and medical devices to
patients in need.
KEY FACTORS
-- Balance and breadth of the pipeline across all clinical stages
-- Data readouts and progress through multiple clinical stages
-- Commercial opportunity and competitive landscape
PROGRESS
Portfolio companies have leading programs in a clinical
stage
2022: 68%
2021: 67%
Capturing a spectrum of early-stage Phase 1 to late stage
Pivotal
FUTURE INTENT
Progress towards delivering transformational treatments to
patients in areas of high unmet need.
LINK TO STRATEGY
Identify
Engage
Build
Support
LINK TO PRINCIPAL RISKS
Clinical Development & Regulatory Risks
Exposure to global political and economic risks
Imposition of pricing controls
Risk Management
Applying deep scientific expertise with a long-term investment
horizon
Our long-term strategy is anchored in identifying transformative
assets with high growth potential across the biopharmaceutical and
medical technology sectors. Driven by our deep scientific
understanding and a long-term approach to supporting innovative
businesses, we invest in companies developing next-generation
therapies and technologies that can significantly improve patients'
lives. With this significant opportunity also comes risk.
Our risk framework is overseen by the Audit Committee under
delegation from the Board. Multiple parties contribute to managing
risk, including the Board, the RTW team, and the Group's other
advisers.
Risk framework
Our risk framework begins with the Investment Policy, and the
Board, which oversees the Company's operation in accordance with
the Investment Policy and the process to ensure a robust assessment
of principal and emerging risks and potential future risks, and
receives an update at each Board meeting. A risk register is
maintained that sets out our principal and emerging risks and how
we mitigate them. The RTW team is responsible for day-to-day
operation and oversight of the risk framework. The RTW team has a
culture of transparency, ensuring that any developments are shared
and addressed effectively with the benefit of input from the whole
team, and reported to the Board where appropriate. We rely on
having highly experienced personnel to support and manage issues as
they arise.
The Audit Committee oversees and monitors the risk framework,
including reviewing the risk register to ensure it properly
captures the principal and emerging risks, overseeing the framework
for identifying risks (including potential future risks), reviewing
the ongoing operation and effectiveness of our control environment
to manage the principal and emerging risks we face, and ensuring
that any actions identified are taken forward by the RTW and
Elysium teams as appropriate. This review process provides a focus
to drive continuous improvement in our risk processes.
Identifying principal and emerging risks
We evaluate our principal and emerging risks on an ongoing basis
using both top-down and bottom-up inputs. We also continuously
assess future risks that could have a potential impact. During the
year the Board and the Investment Manager had ongoing discussions
to consider current and potential risks of the Group. The
discussions also generated insights into a range of potential
emerging risks and have helped to focus attention on additional
areas for monitoring by the Board and the Investment Manager.
The RTW team carries out a bottom-up review, considering each of
our life science companies and our internal operations, both as a
specific exercise and on an ongoing basis through regular
monitoring of our portfolio companies. In doing this we draw on the
underlying assessments by the management teams of each of our life
science companies. These inputs are brought together in our risk
register, which is reviewed by the Audit Committee in detail each
year. The principal and emerging risks identified by the Board are
set out on below. These have not substantially changed in the last
year, although COVID-19 is no longer considered to be a principal
risk of the Group. The Board also monitors future risks that may
arise, including the longer-term risks of changes to US
pharmaceutical drug pricing and US FDA productivity.
Risk management structure
Board of Directors
Risk management leadership
Audit Committee
Reviews and monitors the risk framework
RTW Team
Risk management is integral to the investment process and
financial management Implementing and monitoring risk controls;
risk reporting
Other advisers
Risk identification; risk reporting
Portfolio companies' management teams
Risk identification and mitigation
Risk appetite
The Board is willing to accept a level of risk in managing our
business to achieve our strategic goals. As part of the risk
framework, the Board sets the risk appetite in relation to each of
the principal and emerging risks and monitors the actual risk
against that. Where a risk is approaching or moves to the higher
end of what the Board deems to be acceptable, the Board will
consider the actions being taken to manage it. This year the Audit
Committee carried out a detailed review of the defined risk types,
to ensure they continue to reflect the understanding of the Board
and accurately reflect the risks we take. Following that review the
Audit Committee recommended to the Board that the risk appetite
remained appropriate, and the Board has accepted that
recommendation.
Principal and Emerging Risks and Uncertainties
Principal risks and how we mitigate them
Under the FCA's Disclosure Guidance and Transparency Rules the
Directors are required to identify the material risks to which the
Group is exposed, and the steps taken to mitigate those risks.
The Group has five categories of risks in its risk register
namely:
-- Investment Risks
-- Operational Risks
-- Governance/Reputational Risks
-- External Risks
-- Emerging Risks
Investment Risks
1. FAILURE TO ACHIEVE INVESTMENT OBJECTIVE
RISK DESCRIPTION
The Group's target return on net assets is not guaranteed and
may not be achieved.
RISK CONTROL MEASURES
The Board will monitor and supervise the Group's performance,
compared to the target return, similar investment funds and broader
market conditions. Where performance is unsatisfactory, the Board
will discuss the appropriate response with the Investment
Manager.
DECREASING
STRATEGIC LINK
Build
Support
Operational Risks
2. COUNTERPARTY RISK
RISK DESCRIPTION
The Group has the potential to be exposed to the
creditworthiness of trading counterparties in OTC derivatives
contracts, its prime broker in the event of re-hypothecation of its
investments and any counterparty where collateral or cash margin is
provided or where cash is deposited in the normal course of
business.
RISK CONTROL MEASURES
The Group uses Goldman Sachs, Morgan Stanley and Bank of America
Merrill Lynch, JP Morgan and Jefferies as prime brokers and Cowen,
UBS, Bank of America Merrill Lynch, Goldman Sachs, Jefferies, and
Morgan Stanley as ISDA counterparties. To monitor counter party
risk, the Investment Manager monitors fluctuations in share prices,
percentage changes in daily, monthly, and annual 5-year CDS spreads
and S&P credit ratings. If a counterparty group share price
moves up or down in excess of 20%, the trader at the Investment
Manager is alerted immediately. In case of an alert, the trader
notifies RTW's Chief Compliance Officer. There has been no
disruption in operations with the Group's counterparties to date.
The Group's bankers are an offshore branch of Barclays Bank PLC and
are also included in the Investment Manager's CDS monitoring
program.
STABLE
STRATEGIC LINK
Identify
Engage
Build
Support
Governance/Reputational Risks
3. THE INVESTMENT MANAGER RELIES ON KEY PERSONNEL
RISK DESCRIPTION
The Investment Manager relies on the founder of RTW, Roderick
Wong M.D. Roderick Wong is a key figure at the Investment Manager
and is extensively involved in investment decisions.
RISK CONTROL MEASURES
In the event that Roderick Wong was to no longer work for the
Investment Manager or was incapacitated, the Board is able to
terminate the Investment Management Agreement within 180 days if a
suitable replacement has not been found and would consider whether
it was appropriate to wind up the Group and return capital to
shareholders, or to appoint a new Investment Manager.
STABLE
STRATEGIC LINK
Identify
Engage
Build
Support
4. PORTFOLIO COMPANIES MAY BE SUBJECT TO LITIGATION
RISK DESCRIPTION
Portfolio Companies may be subject to product liability claims.
Such liability claims would have a direct financial impact and may
impact market acceptance even if ultimately rebutted.
RISK CONTROL MEASURES
The Investment Manager's due diligence process includes
considering the risk that innovative therapies may have unforeseen
side effects, based on the Investment Manager's extensive sector
knowledge and experience, published research, and publicly
available information.
STABLE
STRATEGIC LINK
Identify
Engage
Build
Support
External Risks
5. EXPOSURE TO GLOBAL POLITICAL AND ECONOMIC RISKS
RISK DESCRIPTION
It is anticipated that approximately 75% of investments will be
in US companies or licensing agreements with US institutions and
25% of investments will be made outside of the US. The Group's
investments will be exposed to foreign exchange, and global
political, economic, and regulatory risks.
RISK CONTROL MEASURES
The Investment Manager has extensive experience transacting
across the global healthcare marketplace and will be responsible
for identifying relevant events and updating the investment plans
appropriately.
STABLE
STRATEGIC LINK
Engage
Build
Support
6. CLINICAL DEVELOPMENT & REGULATORY RISKS
RISK DESCRIPTION
New drugs, medical devices and procedures are subject to
extensive regulatory scrutiny before approval, and approvals can be
revoked.
RISK CONTROL MEASURES
The Investment Manager's due diligence process includes a
rigorous process of assessing preclinical and clinical assets and
their probabilities of success to become an approved product
utilizing scientific, clinical, commercial and regulatory
benchmarks. Additionally, the Investment Manager's process of
evaluation includes assessing the likely attitude of regulators
towards a potential new therapy. The due diligence will also
consider the unmet need of the disease and whether the therapy
offers advantages over the current standard of care.
STABLE
STRATEGIC LINK
Identify
Engage
Build
Support
7. IMPOSITION OF PRICING CONTROLS FOR CLINICAL PRODUCTS AND
SERVICES
RISK DESCRIPTION
Portfolio Company products may be subject to price controls,
price gouging claims and other pricing regulation in the US and
other major markets; or government healthcare systems may be the
major purchasers of the products.
RISK CONTROL MEASURES
While future political developments cannot be reliably forecast,
the Investment Manager's due diligence process includes an
assessment of political risk, and the likely acceptability of the
investee's pricing intentions.
STABLE
STRATEGIC LINK
Build
Support
8. INFLATION
RISK DESCRIPTION
The unprecedented level of fiscal and monetary stimulus that has
been applied to the global economy has caused US inflation to surge
to a 40-year high and resulted in sharp falls in the share prices
of technology firms without current earnings.
RISK CONTROL MEASURES
The creation of value through innovation in the biotechnology
sector outweighs the singular and/or short-term adjustment to
valuation levels arising from changes in discount rates as a result
of rising inflation. The Investment Manager holds investments that
have current earnings and cash-flows and has significant exposure
to Phase 3 products which have a high probability of achieving
cash-flows in the near-term. Whilst the pace of interest rate rises
has moderated in reaction to reductions in US inflation it is not
possible to say that this risk is reducing yet as inflationary
pressures remain.
STABLE
STRATEGIC LINK
Identify
Engage
Build
Support
9. UKRAINE WAR
RISK DESCRIPTION
The ongoing war in Ukraine has led to the imposition of harsh
sanctions on Russia and substantial restrictions on the ability to
transact in Russian securities and trade with Russian companies.
These sanctions and the corresponding impact on commodity and
transport costs have weighed on the global economy.
RISK CONTROL MEASURES
The Investment Manager has confirmed that the Group has no
direct or indirect exposure to Russian securities or assets.
STABLE
STRATEGIC LINK
Identify
Engage
Build
Support
Emerging Risks
10. AVAILABILITY OF CAPITAL
RISK DESCRIPTION
Funding for early stage venture companies through smaller public
companies is much reduced in comparison to recent years. The IPO
market is at its lowest level in a decade and follow-on offerings
declined for the second year in a row, back to the lowest level
since 2016's drug pricing panic. The Russell 2000 Biotech Index of
listed LifeSci companies has declined for a second year in a row to
give a cumulative drawdown of 49.8%, with the 69.9 % fall from 8
February 2021 to 11 May 2022 approaching the worst in recent
decades, being the 84.7% decline from 6 March 2000 to 11 March
2003. With a record number of companies trading at less than 1x
their cash balances, the market appears to believe that not all
companies will survive. With reduced availability of capital
allocation to the sector, in particular through the absence of
generalist investors, there may be the risk that not all sponsors
have enough capital to support the continued financing of all
investees.
RISK CONTROL MEASURES
The Investment Manager is a long-standing full life-cycle
investor in the sector, in many instances supplying commercial
expertise and advice to investees in addition to supporting
successive financing rounds. The Investment Manager is experienced
in identifying potential in companies that have strong fundamentals
at attractive valuations that create an asymmetric and attractive
risk/reward profile. The Board formally reviews the financing
status of the Group's private portfolio with the Investment Manager
at least twice each year at Board meetings. 25% of the Group's NAV
is exposed to private companies of which only one quarter will need
refinancing within the next 12 months and most of these companies
have re-financing plans in place. Out of these six private
companies (amounting to 6.25% of NAV) two are RTW NewCos, so that
is by design. Approximately 29% of the Group's NAV is currently
invested in other publicly listed companies in lieu of holding cash
for future private investments with a further 46% of NAV invested
in core publicly listed holdings that could also be sold. The Group
has no net borrowings. The Group therefore retains significant
access to sources of liquid capital to enable it to support
investees for the foreseeable future.
INCREASING
11. LIQUIDITY RISK
RISK DESCRIPTION
Many investees are not yet at a stage of their life cycle where
they are inherently cash-generative and enjoy stable, predictable
free cash-flow. They have typically raised significant amounts of
cash which are then held in bank deposits and liquid securities to
meet operational requirements until their next planned capital
raising round or IPO. In recent weeks there have been several
high-profile bank failures, some of which, but not all, are to some
extent attributable directly or indirectly to rising policy
interest rates and rising long-term yields in response to sustained
inflationary pressures. To the extent that investees keep their
cash on deposit at such banks, there is a risk that they may suffer
a partial or total loss of their capital and suffer a consequent
liquidity crisis threatening their ability to continue their
planned development.
RISK CONTROL MEASURES
The Investment Manager closely monitors counterparty exposures
in its portfolio companies. Exposures to recent bank failures have
been minimal in that four portfolio companies totalling 1.68% of
Group NAV had some exposure to Silicon Valley Bank. Portfolio
companies will typically manage their treasury functions on a
prudent basis, spreading exposure over several counterparties
thereby avoiding catastrophic losses from any single failure. Where
the Investment Manager becomes aware of significant risk
concentration it will engage with investees to encourage more
prudent diversification. The Board also notes that, to date,
regulators have ensured that no depositors have lost funds in such
banking failures although it recognises that this may not
necessarily be achieved in the future.
STABLE
Longer Term Viability Statement
Realising a robust and resilient company
ASSESSING THE PROSPECTS OF THE GROUP
The corporate planning process is underpinned by scenarios that
encompass a wide spectrum of potential outcomes. These scenarios
are designed to explore the resilience of the Group to the
potential impact of significant risks set out below.
The scenarios are designed to be severe but plausible and take
full account of the availability and likely effectiveness of the
mitigating actions that could be taken to avoid or reduce the
impact or occurrence of the underlying risks and which would
realistically be open to management in the circumstances. In
considering the likely effectiveness of such actions, the
conclusions of the Board's regular monitoring and review of risk
and the Investment Manager's internal control systems is taken into
account.
The Board reviewed the impact of stress testing the quantifiable
risks to the Group's cash flows as detailed in risk factors 1-5 and
concluded that the Group, would have sufficient working capital to
fund its operations in the following extreme scenario:
(1) The Group incurred NAV losses of 39% of NAV over a
three-year period ending 28 February 2026.
(2) No new capital was raised.
(3) US$45 million of private investments were funded from cash
and by selling public portfolio investments.
To provide some context for this scenario, the NASDAQ Biotech
Index was in a 26% drawdown at the end of February and the
additional 39% drawdown that we have modelled simulates a total
drawdown of approximately 55% which has only been exceeded on a
rolling 3-year basis once in the life of the index in Q1 2003 at
the end of the technology bubble .
The Board considers that this stress testing-based assessment of
the Group's prospects is reasonable in the circumstances of the
inherent uncertainty involved.
THE PERIOD OVER WHICH WE CONFIRM LONGER TERM VIABILITY
Within the context of the corporate planning framework discussed
above, the Board has assessed the prospects of the Group over a
three-year period ending 28 February 2026. Whilst the Board has no
reason to believe the Group will not be viable over a longer
period, given the inherent uncertainty involved, the period over
which the Board considers it possible to form a reasonable
expectation as to the Group's longer-term viability, based on the
stress testing scenario planning discussed above, is the three-year
period to February 2026. This period is used for the Investment
Manager's business plans and has been selected because it presents
the Board and therefore readers of the Annual Report with a
reasonable degree of confidence whilst still providing an
appropriate longer-term outlook.
CONFIRMATION OF LONGER-TERM VIABILITY
The Board confirms that it has carried out a robust assessment
of the emerging and principal risks facing the Group, including
those that would threaten its business model, future performance,
solvency or liquidity. Based upon the robust assessment of the
principal and emerging risks facing the Group and its stress
testing-based assessment of the Group's prospects, the Board
confirms that it has a reasonable expectation that the Group will
be able to continue in operation and meet its liabilities as they
fall due over the period to February 2026.
On behalf of the Board
William Simpson
Chairman
30 March 2023
Section 172
Close collaborators and committed partners
Section 172 of the Companies Act 2006 applies directly to UK
domiciled companies. Nonetheless the AIC Code requires that the
matters set out in section 172 are reported on by all companies,
irrespective of domicile, provided this does not conflict with
local company law.
Section 172 recognises that directors are responsible for acting
in a way that they consider, in good faith, is the most likely to
promote the success of the Group for the benefit of its
shareholders as a whole. In doing so, they are also required to
consider the broader implications of their decisions and operations
on other key stakeholders and their impact on the wider community
and the environment. Key decisions are those that are either
material to the Group or are significant to any of the Group's key
stakeholders. The Group's engagement with key stakeholders and the
key decisions that were made or approved by the Directors during
the year are described below.
Stakeholder group Methods of Benefits of engagements
engagement
Shareholders
Continued access to capital The Group In the financial year
is vital to the Group's engages with the Group issued:
longer term growth objectives, its * 10 portfolio updates by way of RNS
and therefore, in line shareholders
with its objectives, through
the Group seeks to maintain the issuance * 12 monthly NAV announcements by way of RNS
shareholder satisfaction of regular
through: portfolio
* Positive risk-adjusted returns updates in * Fact sheets on a quarterly basis
the form of
RNS
* Continuous communication of portfolio updates announcements * Annual and Interim Reports
and quarterly
factsheets.
The Group Through its roadshows
provides and broker outreach,
in-depth the Group has met with
commentary on 75+ investors / prospective
the investment investors.
portfolio,
corporate
governance and
corporate
outlook in its
Annual
and Interim
Reports and
financial
statements.
In addition,
the Group,
through its
brokers and
Investment
Manager,
undertakes
regular
roadshows to
meet with
existing and
prospective
investors
to solicit
their
feedback,
understand any
areas
of concern,
and share
forward
looking
investment
commentary.
The Board
receives
quarterly
feedback from
its brokers
in respect of
investor
engagement and
investor
sentiment.
---------------- --------------------------------------------------
Service providers
The Group does not have The Group has The feedback given by
any direct employees; identified the service providers
however, it works closely its key is used to review the
with a number of service service Group's policies and
providers (the Investment providers procedures to ensure
Manager, Administrator, and on an open lines of communication,
Sub-Administrator, Corporate annual basis and operational efficiency.
Secretary, auditor, third undertakes a
party valuation agent, review of
brokers and other professional performance
advisers). based on
a
The independence, quality questionnaire
and timeliness of their through
service provision is which it also
critical to the success seeks
of the Group. feedback.
Furthermore,
the Board
and its
sub-committees
engage
regularly with
its service
providers
on a formal
and informal
basis.
The Group will
also regularly
review all
material
contracts
for service
quality and
value.
---------------- --------------------------------------------------
Portfolio Companies
The Group is currently The Investment Honesty, fairness and
invested in 39 Core Portfolio Manager integrity of the management
Companies. engages on a teams of the portfolio
regular companies are vital to
basis with its the long-term success
portfolio of the Group's investments.
companies in
order to
conduct
regular
on-going
due diligence
and to
meet
obligations if
the
Investment
Manager holds
a board seat.
---------------- --------------------------------------------------
Community & Environment
The Group does not have The Group aims The Group and the Directors
direct employees. to minimise minimise air travel by
its making maximum use of
environmental video conferencing for
footprint. Company related matters.
Climate change impact
The Group does
RTW Charitable Foundation not anticipate
was created by the Investment any material To research grant recipients,
Manager with the vision impact to RTW Charitable Foundation
to work towards a world its business offers not only financial
free of ultra-rare disease. model from support, but also guidance
The Foundation funds climate gleaned from the experience
research of rare conditions change. of the Investment Manager
that do not attract significant in drug development and
outside investment due RTW Charitable company building.
to limited commercial Foundation Beyond research, RTW
opportunity represents an Charitable Foundation
extension offers support to humanitarian
of the causes, initiatives that
Investment raise disease awareness
Manager's and programs with direct
mission. Its patient impact.
research
process helps
RTW identify
important
causes of
human
suffering and
introduces
the firm to
individuals
and
organisations
trying
to make a
difference.
---------------- --------------------------------------------------
ESG: Environmental, Social and Governance Topics
Responsible investing
The Board has directed the Group to initiate an ESG assessment
in 2023, to plan for forecasted regulatory measures, including the
United Kingdom's proposed Sustainability Disclosure Requirements,
and pave the way for reporting of the Group's ESG considerations to
shareholders. The Group does not have direct employees or physical
office space, and most of its activities are performed by other
organisations. Therefore, the Group's carbon footprint should be
relatively small because it does not directly contribute to fuel
combustion or any other greenhouse gas emissions. Three of the four
Directors, as well as the Administrator, Company Secretary are all
based in Guernsey where Board meetings are held, thus reducing the
environmental impact of long commutes and flights. The Group's ESG
assessment will also address indirect impacts on ESG factors.
The Investment Manager's operations are highly concentrated in
its primary office space located in a building that is LEED Gold
Certified based on, among other things, the sustainability of its
location, water efficiency, energy and atmosphere characteristics,
use of materials and resources, indoor environmental quality, and
innovation. The Investment Manager espouses a strong culture of
compliance, risk management and ethical behaviour. It aims to
always act in the best interests of shareholders, employees and
stakeholders. Its corporate code of ethics addresses the largest
areas of risk pertaining to the alternative asset management
industry, including but not limited to conflicts of interest,
anti-bribery, employee investing, insider trading and political
contributions. Furthermore, it seeks to ensure that investments do
not lead to negative impacts on public health or well-being or
contribute to human or labour rights violations, corruption,
serious environmental harm or other actions which may be perceived
to be unethical. It seeks long-term investment partners that
evidence equivalent professional and ethical rigour. The Investment
Manager is wholly-owned by minority and/or female shareholders.
RESPONSIBLE INVESTING
The Board believes that acting and investing responsibly is a
necessary foundation for the long-term sustainability of investment
success. The Investment Manager's stated mission, to power
breakthrough therapies that transform the lives of million s, is an
approach to investing that is inherently socially conscious. Its
team of scientists and researchers work tirelessly to find
treatments and potentially cures for diseases and conditions in
order to improve quality of life across the globe. As a guiding
principle, it prioritises overall positive impact on patients and
long-term meaningful outcomes to society and believes this is the
foundation of the Group's success.
RTW CHARITABLE FOUNDATION
The Investment Manager created the RTW Charitable Foundation
("RTWCF") with its vision to work towards a world free of
ultra-rare disease. It was founded at the intersection of
scientific progress and humanitarian effort. While working to
improve human health on a global scale is an inspiring undertaking,
the RTWCF brings hope to those with conditions so rare that they do
not attract significant outside investment due to the limited
potential for commercial opportunity. RTWCF's mission is to power
rare disease research, medical innovation and humanitarian
collaborations to improve the health of underserved
communities.
It is able to provide capital, manpower, and logistical support
to help scientists push projects forward. In addition, it aims to
contribute to advocacy, disease awareness and direct support of
organisations and communities in New York City.
RTWCF provides research grant recipients financial support as
well as guidance gleaned from the Investment Manager's experience
in drug development and company building.
CASE STUDY
Improving vaccine access
In August 2021, some NYC neighbourhoods had less than 35% of
residents fully vaccinated, when the city average was roughly 55%.
The New York City Department of Health and Mental Hygiene found
that distrust in government and drug companies created hesitancy in
vaccine uptake. We say this often - RTWCF was one of the first to
support our recovery efforts and helped pave the way to our impact
and reimagined programs. We're excited to reach new heights
together. New Immigrant Community Empowerment (NICE) supports
immigrant workers and their families by advocating for workplace
safety and rights, providing skills training, and connecting
families with resources. During the pandemic, NICE expanded their
services to include food access, vaccine support, and financial
assistance. RTWCF partnered with NICE to distribute 10,000 meal and
grocery packages, conduct comprehensive community outreach around
COVID-19 vaccination safety, and throw a Vaccine Access Block
Party. In 2021, NICE helped over 5,000 people access COVID vaccines
by translating appointment registration documents, educating people
on the vaccine, and accompanying people to appointments.
CASE STUDY
Building education access
Areté Education designs interactive afterschool and summer
programs to teach students in the South Bronx about leadership
skills, wellness, diverse career paths, and arts & culture.
During the pandemic, children living in temporary housing had
limited access to education when schools moved to remote learning.
With RTWCF's support, Areté Education created the Areté Hope
Network Program to provide direct assistance to families struggling
during the pandemic. Eighteen students and families with unstable
housing received stipends, groceries, hotspots, laptops, and
mentoring to improve children's attendance rates and academic
performance. Students' engagement and attendance improved
dramatically: all students in warning groups labeled "chronically
absent" or "severely chronically absent" moved out of those warning
groups during the intervention. Ninety-three percent of
participants had attendance rates of 80% or higher including 50%
with perfect attendance through the course of the program.
Each of our days of action have been really inspirational and
powerful, it is a way to feel connected. We are really hands on,
doing the work physically not just mentally or through spirit. We
combine all of these elements on our journey at work to make a
difference.
Consolidated Statement of Assets and Liabilities
as at 31 December 2022 and 31 December 2021
(Expressed in United States Dollars)
2022 2021
ASSETS:
Investments in securities, at fair value (cost at 31 December 2022:
$259,472,596; 31 December
2021: $271,421,062) 350,125,577 409,179,507
Derivative contracts, at fair value
(cost at 31 December 2022: $2,614,659 ;
31 December 2021: $ 2,348,062) 21,467,649 10,983,574
Cash and cash equivalents 6,966,168 6,484,057
Due from brokers 22,195,456 12,323,965
Receivable from unsettled trades 439,798 200,695
Other assets 345,750 191,565
TOTAL ASSETS 401,540,398 439,363,363
------------- ------------
LIABILITIES:
Securities sold short, at fair value
(proceeds at 31 December 2022: $15,407,927 ;
31 December 2021: $ 9,620,981) 12,438,334 9,318,393
Derivative contracts, at fair value
(proceeds at 31 December 2022: nil ;
31 December 2021: $nil) 8,926,743 3,310,833
Due to brokers 25,823,016 38,019,859
Payable for unsettled trades 5,561,560 492,007
Accrued expenses 866,756 861,545
TOTAL LIABILITIES 53,616,409 52,002,637
------------- ------------
TOTAL NET ASSETS 347,923,989 387,360,726
============= ============
NET ASSETS attributable to Ordinary Shares
(shares at 31 December 2022: 212,389,138;
31 December 2021: 212,389,138) 326,079,521 363,040,222
============= ============
NET ASSETS attributable to Non-Controlling Interest 21,844,468 -
============= ============
NET ASSETS attributable to Performance Allocation Shares (shares at 31 December
2022: 0;
31 December 2021: 1) - 24,320,504
============= ============
NAV per Ordinary Share 1.5353 1.7093
============= ============
The audited consolidated financial statements of the Group were
approved and authorised for issue by the Board of Directors on 30
March 2023 and signed on its behalf by:
William Simpson Paul Le Page
Chairman Director
See accompanying notes to the consolidated financial
statements.
Consolidated Condensed Schedule of Investments
as at 31 December 2022
(Expressed in United States Dollars)
Number Percentage
Descriptions of Shares Cost Fair Value of Net Assets
--------------------------------- ----------- ------------- ------------- ---------------
Investments in securities,
at fair value
Common stocks
United States
Healthcare
Prometheus Biosciences,
Inc. 670,916 6,802,058 52,946,904 15.22
Rocket Pharmaceuticals,
Inc. 2,400,755 8,188,796 46,982,775 13.50
Others* 124,096,539 118,157,365 33.96
Total United States 139,087,393 218,087,044 62.68
Netherlands
Healthcare 4,368,486 5,345,551 1.54
Ireland
Healthcare 4,099,988 2,981,309 0.86
Canada
Healthcare 3,275,323 1,012,216 0.29
British Virgin Islands
Healthcare 547,564 997,552 0.29
China
Healthcare
Ji Xing Pharmaceuticals
Ltd. 541,205 216,482 600,738 0.17
Cayman Islands
Financials 254,581 257,459 0.07
Healthcare 188,880 194,370 0.06
------------- ------------- ---------------
Total Cayman Islands 443,461 451,829 0.13
Bermuda
Healthcare 260,330 208,004 0.06
Belgium
Healthcare 165,629 32,919 0.01
Total common stocks 152,464,656 229,717,162 66.03
* No individual investment security or contract constitutes greater
than 5 percent of net assets.
See accompanying notes to the consolidated financial
statements.
Consolidated Condensed Schedule of Investments (continued)
as at 31 December 2022
(Expressed in United States Dollars)
Number Percentage
Descriptions of Shares Cost Fair Value of Net Assets
------------------------------------ ----------- ------------ ------------ ---------------
Investments in securities, at
fair value (continued)
Convertible preferred stocks
United States
Healthcare* 44,011,844 38,108,351 10.95
China
Healthcare
Ji Xing Pharmaceuticals
Ltd. 10,599,945 14,824,185 16,433,316 4.73
Others 1,771,209 1,622,898 0.47
------------ ------------ ---------------
Total China 16,595,394 18,056,214 5.20
Switzerland
Healthcare 1,729,518 1,768,384 0.51
Ireland
Healthcare 116,545 117,696 0.03
Total convertible preferred
stocks 62,453,301 58,050,645 16.69
American depository receipts
United Kingdom
Healthcare
Immunocore Holdings plc 453,985 11,440,789 25,908,924 7.45
Others 1,064,820 813,170 0.23
------------ ------------ ---------------
Total United Kingdom 12,505,609 26,722,094 7.68
Netherlands
Healthcare 8,996,563 9,918,906 2.85
Ireland
Healthcare 893,338 961,567 0.28
Sweden
Healthcare 339,248 528,539 0.15
Israel
Healthcare 372,743 98,985 0.03
Total American depository
receipts 23,107,501 38,230,091 10.99
* No individual investment security or contract constitutes greater
than 5 percent of net assets.
See accompanying notes to the consolidated financial
statements.
Consolidated Condensed Schedule of Investments (continued)
as at 31 December 2022
(Expressed in United States Dollars)
Number Percentage
Descriptions of Shares Cost Fair Value of Net Assets
----------------------------------- ----------- ------------ ------------ ---------------
Investments in securities, at fair
value (continued)
Investment in private investment
companies
Ireland
Healthcare 11,814,933 14,074,846 4.04
Total investment in private
investment companies 11,814,933 14,074,846 4.04
Convertible notes
China
Healthcare
Ji Xing Pharmaceuticals
Ltd. 762,474 7,624,737 8,191,552 2.35
United States
Healthcare 2,007,468 1,861,281 0.53
Total convertible notes 9,632,205 10,052,833 2.88
Total investments in securities,
at fair value 259,472,596 350,125,577 100.63
============ ============ ===============
See accompanying notes to the consolidated financial statements.
Consolidated Condensed Schedule of Investments (continued)
as at 31 December 2022
(Expressed in United States Dollars)
Percentage
Descriptions Cost Fair Value of Net Assets
----------------------------------------- ---------- ----------- ---------------
Derivative contracts - assets,
at fair value
Equity swaps
United States
Healthcare 16,781,963 4.83
British Virgin Islands
Healthcare 2,097,803 0.60
Ireland
Healthcare 206,563 0.06
Total equity swaps 19,086,329 5.49
Warrants
Canada
Healthcare 1,939,543 1,858,925 0.53
United States
Healthcare 674,517 522,337 0.15
Cayman Islands
Financials 599 58 0.00
Total warrants 2,614,659 2,381,320 0.68
Total derivative contracts - assets,
at fair value 2,614,659 21,467,649 6.17
========== =========== ===============
See accompanying notes to the consolidated financial
statements.
Consolidated Condensed Schedule of Investments (continued)
as at 31 December 2022
(Expressed in United States Dollars)
Percentage
Descriptions Proceeds Fair Value of Net Assets
-------------------------------------- ----------- ----------- ---------------
Securities sold short,
at fair value
Common stocks
United States
Healthcare 14,521,155 11,500,094 3.31
Netherlands
Healthcare 293,711 221,800 0.06
Cayman Islands
Financials 96,480 98,829 0.03
Healthcare 46,260 89,072 0.03
----------- ----------- ---------------
Total Cayman Islands 142,740 187,901 0.06
Total common stocks 14,957,606 11,909,795 3.43
American depository receipts
Sweden
Healthcare 450,321 528,539 0.15
Total American depository receipts 450,321 528,539 0.15
Total securities sold short,
at fair value 15,407,927 12,438,334 3.58
=========== =========== ===============
Percentage
Descriptions Fair Value of Net Assets
--------------------------------------------- ----------- ---------------
Derivative contracts - liabilities,
at fair value
Equity swaps
United States
Healthcare 7,041,281 2.02
Index 1,860,052 0.54
----------- ---------------
Total United States 8,901,333 2.56
Israel
Healthcare 25,410 0.01
Total derivative contracts - liabilities,
at fair value 8,926,743 2.57
=========== ===============
See accompanying notes to the consolidated financial
statements.
Consolidated Condensed Schedule of Investments
as at 31 December 2021
(Expressed in United States Dollars)
Number Percentage
Descriptions of Shares Cost Fair Value of Net Assets
--------------------------------- ----------- ------------- ------------ ---------------
Investments in securities,
at fair value
Common stocks
United States
Financials 108,150 106,527 0.03
Healthcare
Prometheus Biosciences,
Inc. 740,564 5,396,652 21,850,828 5.64
Rocket Pharmaceuticals,
Inc. 2,364,728 6,223,376 51,622,012 13.33
Others* 131,292,813 177,272,154 45.76
Materials 45,415 9,801 0.00
Total United States 143,066,406 250,861,322 64.76
Ireland
Healthcare 4,099,989 7,155,755 1.85
Netherlands
Healthcare 3,339,207 4,302,049 1.11
Canada
Healthcare 4,400,407 2,573,859 0.66
China
Healthcare
Ji Xing Pharmaceuticals
Ltd. 541,205 216,482 844,280 0.22
British Virgin Islands
Healthcare 226,450 689,080 0.18
Cayman Islands
Financials 422,961 414,583 0.11
Healthcare 104,050 103,530 0.03
------------- ------------ ---------------
Total Cayman Islands 527,011 518,113 0.14
Bermuda
Healthcare 260,330 262,413 0.07
Belgium
Healthcare 207,840 146,096 0.04
Switzerland
Healthcare 106,002 83,035 0.02
Total common stocks 156,450,124 267,436,002 69.05
* No individual investment security or contract constitutes greater
than 5 percent of net assets.
See accompanying notes to the consolidated financial
statements.
Consolidated Condensed Schedule of Investments (continued)
as at 31 December 2021
(Expressed in United States Dollars)
Number Percentage
Descriptions of Shares Cost Fair Value of Net Assets
-------------------------------- ----------- ------------ ------------ ---------------
Investments in securities, at
fair value (continued)
Convertible preferred
stocks
United States
Healthcare* 35,924,442 39,402,135 10.17
China
Healthcare
Ji Xing Pharmaceuticals
Ltd. 10,599,945 14,824,184 24,793,386 6.40
Others 1,771,209 1,771,209 0.46
------------ ------------ ---------------
Total China 16,595,393 26,564,595 6.86
Switzerland
Healthcare 1,704,186 1,693,165 0.44
Ireland
Healthcare 116,545 132,819 0.03
Total convertible preferred
stocks 54,340,566 67,792,714 17.50
Exchange traded funds
United States
Index
SPDR S&P 500 ETF TRUST 67,579 26,216,888 32,097,322 8.28
Total exchange traded
funds 26,216,888 32,097,322 8.28
Investment in private
investment companies
Ireland
Healthcare 11,814,933 13,068,663 3.37
United States
Healthcare 8,234,839 10,013,859 2.59
Total investment in private
investment companies 20,049,772 23,082,522 5.96
------------ ------------ ---------------
* No individual investment security or contract constitutes greater
than 5 percent of net assets.
See accompanying notes to the consolidated financial
statements.
Consolidated Condensed Schedule of Investments (continued)
as at 31 December 2021
(Expressed in United States Dollars)
Percentage
Descriptions Cost Fair Value of Net Assets
------------------------------------- ------------ ------------ ---------------
Investments in securities, at fair
value (continued)
American depository receipts
United Kingdom
Healthcare 7,368,293 12,033,889 3.11
Netherlands
Healthcare 3,786,165 3,962,050 1.02
Ireland
Healthcare 893,338 1,085,120 0.28
Sweden
Healthcare 438,397 388,133 0.10
Israel
Healthcare 372,855 308,578 0.08
China
Healthcare 549,132 202,418 0.05
Singapore
Healthcare 231,809 67,036 0.02
Total American depository
receipts 13,639,989 18,047,224 4.66
Convertible bonds
United States
Healthcare 723,723 723,723 0.18
Total convertible bonds 723,723 723,723 0.18
Total investments in securities,
at fair value 271,421,062 409,179,507 105.63
============ ============ ===============
See accompanying notes to the consolidated financial statements.
Consolidated Condensed Schedule of Investments (continued)
as at 31 December 2021
(Expressed in United States Dollars)
Percentage
Descriptions Cost Fair Value of Net Assets
----------------------------------------- ----------- ----------- ---------------
Derivative contracts - assets,
at fair value
Equity swaps
United States
Healthcare 5,442,939 1.41
British Virgin Islands
Healthcare 2,128,260 0.55
Netherlands
Healthcare 4,225 0.00
Total equity swaps 7,575,424 1.96
Warrants
Canada
Healthcare 1,939,543 3,077,816 0.79
United States
Healthcare 407,920 329,865 0.09
Cayman Islands
Financials 599 469 0.00
Total warrants 2,348,062 3,408,150 0.88
Total derivative contracts - assets,
at fair value 2,348,062 10,983,574 2.84
=========== =========== ===============
See accompanying notes to the consolidated financial
statements.
Consolidated Condensed Schedule of Investments (continued)
as at 31 December 2021
(Expressed in United States Dollars)
Percentage
Descriptions Proceeds Fair Value of Net Assets
-------------------------------------- ---------- ----------- ---------------
Securities sold short,
at fair value
Common stocks
United States
Healthcare 8,526,920 8,330,314 2.15
Materials 56,309 9,801 0.00
---------- ----------- ---------------
Total United States 8,583,229 8,340,115 2.15
Netherlands
Healthcare 278,805 324,576 0.09
Cayman Islands
Financials 96,480 97,018 0.03
Switzerland
Healthcare 106,146 83,035 0.02
Total common stocks 9,064,660 8,844,744 2.29
American depository receipts
Sweden
Healthcare 462,836 388,133 0.10
China
Healthcare 93,485 85,516 0.02
Total American depository receipts 556,321 473,649 0.12
Total securities sold short,
at fair value 9,620,981 9,318,393 2.41
========== =========== ===============
Percentage
Descriptions Fair Value of Net Assets
--------------------------------------------- ----------- ---------------
Derivative contracts - liabilities,
at fair value
Equity swaps
United States
Healthcare 3,223,278 0.83
Ireland
Healthcare 52,601 0.01
Israel
Healthcare 34,954 0.01
Total derivative contracts - liabilities,
at fair value 3,310,833 0.85
=========== ===============
See accompanying notes to the consolidated financial
statements.
Consolidated Statement of Operations
For the year ended 31 December 2022 and 31 December 2021
(Expressed in United States Dollars)
2022 2021
-------------- ---------------------
Investment income
Interest (net of withholding taxes of $nil; 31 December 2021: $nil) 635,860 363,673
Dividends (net of withholding tax rebate of $123,149; 31 December 2021:
tax expense $123,894) 332,103 294,027
Other 1,199,296 -
Total investment income 2,167,259 657,700
-------------- ---------------------
Expenses
Management fees 3,751,464 4,813,854
Professional fees 1,008,629 1,070, 317
Interest 779,988 215, 606
Research costs 742,738 237,984
Audit fees 329,557 288, 254
Administrative fees 312,003 330, 834
Directors' fees 176,722 214, 353
Listing fees - 936,615
Other expenses 357,429 346, 867
-------------- ---------------------
Total expenses 7,458,530 8,454,684
-------------- ---------------------
Net investment income/(loss) (5,291,271) (7,796,984)
============== =====================
Realised and change in unrealised gain/(loss) on investments, derivatives
and foreign currency
transactions
Net realised gain/(loss) on securities and foreign currency transactions 8,357,014 41,280,297
Net change in unrealised gain/(loss) on securities and foreign currency
translation (44,355,779) (99,115,160)
Net realised gain/(loss) on derivative contracts (2,748,269) (1,648,961)
Net change in unrealised gain/(loss) on derivative contracts 4,601,568 2,936,018
Net realised and unrealised gain/(loss) on investments, derivatives and
foreign currency
transactions (34,145,466) (56,547,806)
-------------- ---------------------
Net increase/(decrease) in net assets resulting from operations (39,436,737) (64,344,790)
============== =====================
See accompanying notes to the consolidated financial
statements.
Consolidated Statement of Changes in Net Assets
For the year ended 31 December 2022
(Expressed in United States Dollars)
Performance
Ordinary Allocation Total Shareholders' Non-Controlling
Share Class Share Class Funds Interest
------------------------------------- -------------------------------------- ------------------------------------- ----------------
Net assets,
beginning of
year 363,040,222 24,320,504 387,360,726 -
Operations
Net investment
income/( loss) (5,291,271) - (5,291,271) -
Net realised
gain/(loss) on
securities and
foreign
currency
transactions 8,357,014 - 8,357,014 -
Net change in
unrealised
gain/(loss)
on securities
and foreign
currency
translation (44,355,779) - (44,355,779) -
Net realised
gain/(loss) on
derivative
contracts (2,748,269) - (2,748,269) -
Net change in
unrealised
gain/(loss)
on derivative
contracts 4,601,568 - 4,601,568 -
Performance
Allocation 4,359,551 (4,359,551) - -
Income/(loss)
attributable to
Non-Controlling
Interest (1,883,515) - (1,883,515) 1,883,515
Net change in
net assets
resulting
from operations (36,960,701) (4,359,551) (41,320,252) 1,883,515
------------------------------------- -------------------------------------- ------------------------------------- ----------------
Capital
transactions
In-kind transfer - (19,960,953) (19,960,953) 19,960,953
Net change in
net assets
resulting
from capital
transactions - (19,960,953) (19,960,953) 19,960,953
Net change in
net assets (36,960,701) (24,320,504) (61,281,205) 21,844,468
Net assets, end
of year 326,079,521 - 326,079,521 21,844,468
===================================== ====================================== ===================================== ================
See accompanying notes to the consolidated financial
statements.
Consolidated Statement of Changes in Net Assets
For the year ended 31 December 2021
(Expressed in United States Dollars)
Performance
Ordinary Allocation Total Shareholders'
Share Class Share Class Funds
------------- ------------- --------------------
Net assets, beginning of year 375,281,126 37,330,803 412,611,929
Operations
Net investment income/( loss) (7,796,984) - (7,796,984)
Net realised gain/(loss) on securities
and foreign currency transactions 41,280,297 - 41,280,297
Net change in unrealised gain/(loss)
on securities and foreign currency
translation (99,115,160) - (99,115,160)
Net realised gain/(loss) on derivative
contracts (1,648,961) - (1,648,961)
Net change in unrealised gain/(loss)
on derivative contracts 2,936,018 - 2,936,018
Performance Allocation 8,035,379 (8,035,379) -
Net change in net assets resulting
from operations (56,309,411) (8,035,379) (64,344,790)
------------- ------------- --------------------
Capital transactions
Issuance of Ordinary Shares (net
of issuance costs of $222,883) 44,068,507 - 44,068,507
Performance Allocation distribution - (4,974,920) (4,974,920)
------------- ------------- --------------------
Net change in net assets resulting
from capital transactions 44,068,507 (4,974,920) 39,093,587
------------- ------------- --------------------
Net change in net assets (12,240,904) (13,010,299) (25,251,203)
Net assets, end of year 363,040,222 24,320,504 387,360,726
============= ============= ====================
See accompanying notes to the consolidated financial
statements.
Consolidated Statement of Cash Flows
For the year ended 31 December 2022 and 31 December 2021
(Expressed in United States Dollars)
2022 2021
-------------- ---------------------
Cash flows from operating activities
Net increase/(decrease) in net assets
resulting from operations (39,436,737) (64,344,790)
Adjustments to reconcile net change in
net assets resulting from operations to
net cash provided by/(used in) operating
activities:
Net realised (gain)/loss on securities
and foreign currency transactions (8,357,014) (41,280,297)
Net change in unrealised (gain)/loss on
securities and foreign currency translation 44,355,779 99,115,160
Net realised (gain)/loss on derivative
contracts 2,748,269 1,648,961
Net change in unrealised (gain)/loss on
derivative contracts (4,601,568) (2,936,018)
Effect of exchange rate changes on cash
and cash equivalents 149,875 -
Purchases of investments in securities (116,361,329) (202,925,739)
Proceeds from sales of investments in
securities 127,814,762 119,715,056
Proceeds from securities sold short 27,488,465 15,049,848
Payments for securities sold short (12,916,667) (5,416,866)
Proceeds from derivative contracts 1,971,402 (784,778)
Payments for derivative contracts (4,986,268) (1,466,746)
Changes in operating assets and liabilities:
Other assets (154,185) (66,990)
(Receivable from)/payable for unsettled
trades 4,830,450 830,880
Due to brokers (12,196,843) 37,658,827
Accrued expenses 5,211 331,475
Net cash provided by/(used in) operating
activities 10,353,602 (44,872,017)
-------------- ---------------------
Cash flows from financing activities
Net proceeds from issuance of shares - 44,068,507
Performance Allocation distribution - (4,974,920)
Net cash provided by/(used in) financing
activities - 39,093, 587
-------------- ---------------------
Net change in cash and cash equivalents 10,353,602 (5,778,430)
Cash, cash equivalents, and restricted
cash, beginning of the year 18,808,022 24,586,452
-------------- ---------------------
Cash, cash equivalents, and restricted
cash, end of the year 29,161,624 18,808,022
============== =====================
At 31 December 2022, the amounts categorised in cash, cash equivalents,
and restricted cash include the following:
Cash and cash equivalents 6,966,168 6,484,057
Due from brokers 22,195,456 12,323,965
Total 29,161,624 18,808,022
============== =====================
Supplemental disclosure of cash flow
information
Cash paid during the year for interest 724,317 250,980
See accompanying notes to the consolidated financial
statements.
Notes to the Consolidated Financial Statements
For the year ended 31 December 2022
(Expressed in United States Dollars)
1. Nature of operations and summary of significant accounting policies
RTW Venture Fund Limited (the "Company") is a publicly listed
Guernsey non-cellular company limited by shares. The Company was
originally incorporated in the State of Delaware, United States of
America, and re-domiciled into Guernsey under the Companies Law on
2 October 2019 with registration number 66847 on the Guernsey
Register of Companies. On 30 October 2019, all of the issued
Ordinary Shares of the Company were listed and admitted to trading
on the Specialist Fund Segment of the London Stock Exchange under
the ticker symbol: RTW. Subsequently, on 6 August 2021, the
Company's Ordinary Shares were admitted to trading on the Premium
Segment of the London Stock Exchange with the additional ticker
symbol: RTWG denoting the Sterling price. The original ticker, RTW,
continues to denote the US Dollar price.
On 1 December 2022 the Company changed its status for U.S.
federal tax purposes from a publicly traded partnership to a
corporation. The Group believes that the change in status will
cause it to be treated as a passive foreign investment company.
This change has been necessitated by recent changes to U.S. tax
legislation due to come into effect from 1 January 2023. The
Company established a new wholly owned subsidiary, RTW Venture Fund
Operating Limited (the "Subsidiary" or "OpCo"), to which it has
transferred its right to the profits and losses attributable to the
Group's portfolio of assets. This reorganisation will have no
economic impact on shareholders. All the income and expenses of the
Subsidiary are consolidated with the income and expenses of the
Group.
The Group seeks to use equity capital (from the net proceeds of
any share issuance or, where appropriate, from the net proceeds of
investment divestments or other related profits) to provide seed
and additional growth capital to the private investments. To
mitigate cash-drag, the uninvested portion is invested across
public stocks largely replicating the public stock portfolios of
RTW's existing US-based funds. The Group focuses on creating,
building, and supporting world-class life sciences,
biopharmaceutical and medical technology companies. The Group's
investment objective is to generate attractive risk-adjusted
returns through investments in securities, both equity and debt,
long and short, of companies with a focus on the pharmaceutical
sector.
Pursuant to an investment management agreement, the Group is
managed by RTW Investments, LP, a Delaware limited partnership, to
provide the Group with discretionary portfolio management, risk
management services and certain other services. The Investment
Manager is an investment adviser registered with the U.S.
Securities and Exchange Commission under the Investment Advisers
Act of 1940.
Basis of presentation
The consolidated financial statements are expressed in United
States Dollars. The consolidated financial statements which give a
true and fair view and have been prepared in accordance with US
generally accepted accounting principles ("US GAAP") and are in
compliance with the Companies (Guernsey) Law, 2008. The entities
comprised within the Group are investment companies and follow the
accounting and reporting guidance in Financial Accounting Standards
Board's ("FASB") Accounting Standards Codification Topic 946,
Financial Services - Investment Companies.
The Directors considered that it is appropriate to adopt a going
concern basis of accounting in preparing the consolidated financial
statements. In reaching this assessment, the Directors have
considered a wide range of information relating to present and
future conditions including the balance sheets, future projections,
cash flows and the longer-term strategy of the business.
Principles of consolidation
The consolidated financial statements include accounts of the
Company consolidated with the accounts of the Subsidiary. All
inter-group balances have been eliminated upon consolidation. The
Subsidiary is incorporated in Guernsey.
Non-Controlling Interest
An affiliate of the Investment Manager, RTW Venture Performance
LP, holds an interest in the Subsidiary. At 31 December 2022, the
Non-Controlling Interest of $21,844,468 represents the in-kind
transfer on 1 December 2022 of $19,960,953 and mark to market of
$1,883,515 for the period from 1 December 2022 through 31 December
2022. The Non-Controlling Interest will capture both Performance
Allocation and mark to market movements on the New Performance
Allocation Share held by RTW Venture Performance LP in the
Subsidiary. For the year ended 31 December 2022, the entirety of
the income/(loss) attributable to Non-Controlling Interest was
comprised of mark to market movements.
Cash, cash equivalents, and restricted cash
Cash represents cash deposits held at financial institutions.
Cash equivalents include short-term highly liquid investments of
sufficient credit quality that are readily convertible to known
amounts of cash and have original maturities of three months or
less. Cash equivalents are carried at cost plus accrued interest,
which approximates fair value. Cash equivalents are held for the
purpose of meeting short-term liquidity requirements, rather than
for investment purposes. As at 31 December 2022 and 31 December
2021, the Group had no cash equivalents.
Restricted cash is subject to a legal or contractual restriction
by third parties as well as a restriction as to withdrawal or use,
including restrictions that require the funds to be used for a
specified purpose and restrictions that limit the purpose for which
the funds can be used. The Group considers cash pledged as
collateral for securities sold short, cash collateral posted with
counterparties for derivative contracts and further amounts due
from brokers to be restricted cash, as outlined in Note 3.
Fair value - definition and hierarchy
Fair value is defined as the price that would be received to
sell an asset or paid to transfer a liability (i.e. the 'exit
price') in an orderly transaction between market participants at
the measurement date.
In determining fair value, the Group uses various valuation
techniques. A fair value hierarchy for inputs is used in measuring
fair value that maximizes the use of observable inputs and
minimizes the use of unobservable inputs by requiring that the most
observable inputs are to be used when available. Observable inputs
are those that market participants would use in pricing the asset
or liability based on market data obtained from sources independent
of the Group.
Unobservable inputs reflect the Group's assumptions about the
inputs market participants would use in pricing the asset or
liability based on the best information available in the
circumstances. The fair value hierarchy is categorised into three
levels based on the inputs as follows:
Level 1 - Valuations based on unadjusted quoted prices in active
markets for identical assets or liabilities that the Group has the
ability to access. Valuation adjustments are not applied to Level 1
investments. Since valuations are based on quoted prices that are
readily and regularly available in an active market, valuation of
these investments does not entail a significant degree of
judgement.
Level 2 - Valuations based on inputs, other than quoted prices
included in Level 1, that are observable, either directly or
indirectly.
Level 3 - Valuations based on inputs that are unobservable and
significant to the overall fair value measurement.
Investments in private investment companies measured using net
asset value as a practical expedient are not categorized in the
fair value hierarchy.
The availability of valuation techniques and observable inputs
can vary from investment to investment and is affected by a wide
variety of factors, including the type of investment, whether the
investment is new and not yet established in the marketplace, and
other characteristics particular to the transaction. To the extent
that valuation is based on models or inputs that are less
observable or unobservable in the market, the determination of fair
value requires more judgement. Those estimated values do not
necessarily represent the amounts that may be ultimately realised
due to the occurrence of future circumstances that cannot be
reasonably determined. Because of the inherent uncertainty of
valuation, those estimated values may be materially higher or lower
than the values that would have been used had a ready market for
the investments existed. Accordingly, the degree of judgement
exercised by the Group in determining fair value is greatest for
investments categorised in Level 3. In certain cases, the inputs
used to measure fair value may fall into different levels of the
fair value hierarchy. In such cases, for disclosure purposes, the
level in the fair value hierarchy within which the fair value
measurement falls in its entirety is determined based on the lowest
level input that is significant to the fair value measurement.
Fair value is a market-based measure considered from the
perspective of a market participant rather than an entity-specific
measure. Therefore, even when market assumptions are not readily
available, the Group's own assumptions are set to reflect those
that market participants would use in pricing the asset or
liability at the measurement date. The Group uses prices and inputs
that are current as of the measurement date, including periods of
market dislocation. In periods of market dislocation, the
observability of prices and inputs may be reduced for many
investments. This condition could cause an investment to be
reclassified to a lower level within the fair value hierarchy.
Fair value - valuation techniques and inputs
Investments in securities and securities sold short
Listed investments
The Group values investments in securities including exchange
traded funds and securities sold short that are freely tradable and
are listed on a national securities exchange or reported on the
NASDAQ national market at their closing sales price as of the
valuation date. To the extent these securities are actively traded
and valuation adjustments are not applied, they are categorised in
Level 1 of the fair value hierarchy. Securities traded on inactive
markets or valued by reference to similar instruments or where a
discount may be applied are categorised in Level 2 or 3 of the fair
value hierarchy. A discount for lack of marketability based on the
180-day restriction period under SEC Rule 144 is applied for
investments that the Group purchases prior to an IPO and that
subsequently begin trading on the NASDAQ national market.
Unlisted investments
Unlisted investments are valued at fair value by the Directors
following a detailed review and appropriate challenge of the
valuations proposed by the Investment Manager. As part of their
valuation process, the Investment Manager engages an Independent
Valuer to challenge their assessed fair value on certain unlisted
investments. The Investment Manager's unlisted investment valuation
policy applies to techniques consistent with the IPEV
Guidelines.
The valuation techniques applied are either a market-based
approach, an income approach such as discounted cash flows, or
where available, a net asset value practical expedient approach.
The IPEV Guidelines recognise that the price of a recent
transaction, if resulting from an orderly transaction, generally
represents fair value as at the transaction date and may be an
appropriate starting point for estimating fair value at subsequent
measurement dates. Consideration is given to the facts and
circumstances as at the subsequent measurement date including
changes in the market and/or performance of the investee company.
Milestone analysis is used where appropriate to incorporate
operational progress at the investee company level. In addition, a
trigger event such as a subsequent round of financing by the
investee company would influence the market technique used to
calibrate fair value at the measurement date.
The market approach utilizes guideline public companies relying
on projected revenues to derive an indicative enterprise value. Due
to the nature of the investments, being in the early stages of
development, the projected revenues are used as a proxy for stable
state revenue. A selected multiple is then applied based on the
observed market multiples of the guideline public companies. To
reflect the risk associated with the achievement of the projected
revenues and the early development stage of each of the
investments, the indicative enterprise value is discounted at an
appropriate rate.
The income approach utilizes the discounted cash flow method.
Projected cash flows for each investment are discounted to
determine an assumed enterprise value.
Where applicable, the indicative enterprise value has been
determined using a back-solve model based on the pricing of the
most recent round of financing. The internal rate of return for
each investment is compared to the selected venture capital rate
applied in the market approach to assess the reasonableness of the
indicated value implied by each financing round. The derived
enterprise value is allocated to the equity class on either a fully
diluted basis or using an option pricing model. The resulting
indicative value on a per share basis is then multiplied by the
number of shares to derive the fair market value.
American depository receipts
The Group values investments in American depositary receipts
that are freely tradable and are listed on a national securities
exchange or reported on the NASDAQ national market at their last
reported sales price as of the valuation date. These investments
are categorised in Level 1 of the fair value hierarchy.
Convertible bonds
Convertible bonds are recorded at fair value using valuation
techniques based on observable inputs. These instruments are
generally categorised in Level 2 of the fair value hierarchy. In
instances where significant inputs are unobservable, convertible
bonds are categorised in Level 3 of the fair value hierarchy.
Convertible notes
The Group values investments in convertible notes in accordance
with the unlisted investments section above. As of 31 December
2022, these investments are all categorised in Level 3 of the fair
value hierarchy.
Convertible preferred stock
The Group values Level 1 investments in convertible preferred
stock that are listed on a national securities exchange at their
closing sales price as of the valuation date. Level 3 investments
in convertible preferred stock are valued in accordance with the
unlisted investments section above. As of 31 December 2022, these
investments are categorised in Level 1 and Level 3 of the fair
value hierarchy.
Investment in private investment companies
The Group values investment in private investment companies
using the net asset values provided by the underlying private
investment companies as a practical expedient. The Group applies
the practical expedient to its private investment companies on an
investment-by-investment basis and consistently with the Group's
entire position in a particular investment, unless it is probable
that the Group will sell a portion of an investment at an amount
different from the net asset value of the investment.
Private investment in public equity
Private investment in public equity ("PIPE") cannot be offered
for sale to the public until the issuer complies with certain
statutory or contractual requirements. The Group generally values
PIPE at a discount to similar publicly traded companies to the
extent the restriction is specific to the security. The Group
considers the type and duration of the restriction, but in no event
does the valuation exceed the listed price on any major securities
exchange. PIPE is generally categorized in Level 2 of the fair
value hierarchy. However, to the extent that significant inputs
used to determine liquidity discounts are unobservable, PIPE may be
categorized in Level 3 of the fair value hierarchy. As of 31
December 2022 and 31 December 2021, there were no open PIPE
positions.
Derivative contracts
Equity swaps
Equity swaps may be centrally cleared or traded on the
over-the-counter market. The fair value of equity swaps is
calculated based on the terms of the contract and current market
data, such as changes in fair value of the reference asset. The
fair value of equity swaps is generally categorised in Level 2 of
the fair value hierarchy.
Warrants
Warrants that are listed on major securities exchanges are
valued at their last reported sales price as of the valuation date.
The fair value of over-the-counter ("OTC") warrants is determined
using the Black-Scholes option pricing model, a valuation technique
that follows the income approach. This pricing model takes into
account the contract terms (including maturity) as well as multiple
inputs, including time value, implied volatility, equity prices,
interest rates and currency rates. Warrants are categorised in all
levels of the fair value hierarchy.
Fair value - valuation processes
The Group establishes valuation processes and procedures to
ensure that the valuation techniques are fair and consistent, and
valuation inputs are supportable. The Group designates the
Investment Manager's Valuation Committee to oversee the entire
valuation process of the Group's investments. The Valuation
Committee comprises various members of the Investment Manager,
including those separate from the Group's portfolio management and
trading functions, and reports to the Board.
The Valuation Committee is responsible for developing the
Group's written valuation processes and procedures, conducting
periodic reviews of the valuation policies, and evaluating the
overall fairness and consistent application of the valuation
policies.
The Investment Manager's Valuation Committee meets on a monthly
basis or more frequently, as needed, to determine the valuations of
the Group's Level 3 investments. Valuations determined by the
Valuation Committee are required to be supported by market data,
third-party pricing sources, industry-accepted pricing models,
counterparty prices or other methods they deem to be appropriate,
including the use of internal proprietary pricing models.
The Group periodically tests its valuations of Level 3
investments by performing back-testing. Back-testing involves the
comparison of sales proceeds of those investments to the most
recent fair values reported and, if necessary, uses the findings to
recalibrate its valuation procedures.
On a regular basis, the Group engages the services of a
third-party valuation firm, the Independent Valuer, to perform an
independent review of the valuation of the Group's Level 3
investments and the Group may adjust its valuations based on the
recommendations from the Investment Manager's Valuation
Committee.
Translation of foreign currency
Assets and liabilities denominated in foreign currencies are
translated into United States Dollar amounts at the year-end
exchange rates. Transactions denominated in foreign currencies,
including purchases and sales of investments, and income and
expenses, are translated into United States Dollar amounts on the
transaction date. Adjustments arising from foreign currency
transactions are reflected in the consolidated statement of
operations.
The Group does not isolate that portion of the results of
operations arising from the effect of changes in foreign exchange
rates on investments from fluctuations arising from changes in
market prices of investments held. Such fluctuations are included
in net realised and change in unrealised gain/(loss) on securities,
derivatives and foreign currency transactions in the consolidated
statement of operations.
Reported net realised gain/(loss) from foreign currency
transactions arise from sales of foreign currencies; currency gains
or losses realised between the trade and settlement dates on
securities transactions; and the difference between the amounts of
dividends, interest, and foreign withholding taxes recorded on the
Group's books and the United States Dollar equivalent of the
amounts actually received or paid.
Net change in unrealised gain/(loss) from foreign currency
translation of assets and liabilities arises from changes in the
fair values of assets and liabilities, other than investments in
securities at the end of the period, resulting from changes in
exchange rates.
Investment transactions and related investment income
Investment transactions are accounted for on a trade date basis.
Realised gains and losses on investment transactions have been
calculated on a specific identification method .
Dividends are recorded on the ex-dividend date and interest is
recognised on the accrual basis.
Withholding taxes on foreign dividends have been provided for in
accordance with the Group's understanding of the applicable
country's rules and rates.
Offsetting of amounts related to certain contracts
Amounts due from and to brokers are presented on a net basis, by
counterparty, to the extent the Group has the legal right to offset
the recognised amounts and intends to settle on a net basis.
The Group has elected not to offset fair value amounts
recognised for cash collateral receivables and payables against
fair value amounts recognised for derivative positions executed
with the same counterparty under the same master netting
arrangement. At 31 December 2022, the Group had cash collateral
receivables of $16,384,706 (31 December 2021: $12,228,870) (see
Note 3) with derivative counterparties under the same master
netting arrangement.
Income taxes
On 1 December 2022, the Company changed its status for US
federal tax purposes from a publicly traded partnership ("PTP") to
a corporation. This change by the Board was necessitated due to
recent changes to US tax legislation that came into effect on 1
January 2023. Pursuant to this, the Company established OpCo, a
partnership for US federal tax purposes, to which the Company
transferred its portfolio of assets and the attributable profits
and losses. The Company, as a corporation, is expected to be
treated as a Passive Foreign Investment Company ("PFIC") for US
federal tax purposes.
The Company and Subsidiary are exempt from taxation in Guernsey
and are each charged an annual exemption fee of GBP1,200. The Group
will only be liable to tax in Guernsey in respect of income arising
or accruing from a Guernsey source, other than from a relevant bank
deposit. It is not anticipated that such Guernsey source taxable
income will arise. The Group is managed so as not to be resident in
the UK for UK tax purposes.
The Group recognises tax benefits of uncertain tax positions
only where the position is more likely than not to be sustained
assuming examination by a tax authority based on the technical
merits of the position. In evaluating whether a tax position has
met the recognition threshold, the Group must presume the position
will be examined by the appropriate taxing authority and that
taxing authority has full knowledge of all relevant information. A
tax position meeting the more likely than not recognition threshold
is measured to determine the amount of benefit to recognise in the
Group's consolidated financial statements. Income tax and related
interest and penalties would be recognised as a tax expense in the
consolidated statement of operations if the tax position was deemed
to meet the more likely than not threshold.
The Investment Manager has analysed the Group's tax positions
and has concluded no liability for unrecognised tax benefits should
be recorded related to uncertain tax positions. Further, management
is not aware of any tax positions for which it is reasonably
possible the total amounts of unrecognised tax benefits will
significantly change in the next twelve months.
The Company and OpCo each file income tax returns in the US
federal jurisdiction and, as applicable, in US state or local
jurisdictions, or non-US jurisdictions. Generally, the Group was
subject to income tax examinations by major taxing authorities for
each tax period since inception. Based on its analysis, the Group
determined that it had not incurred any liability for unrecognised
tax benefits as of 31 December 2022 or 31 December 2021.
Use of estimates
Preparing consolidated financial statements in accordance with
US GAAP requires management to make estimates and assumptions in
determining the reported amounts of assets and liabilities,
including the fair value of investments, and disclosure of
contingent assets and liabilities as of the date of the
consolidated financial statements and the reported amounts of
income and expenses during the reporting period. Actual results
could differ from those estimates.
New accounting pronouncements
In June 2022, the FASB issued ASU 2022-03, ASC Topic 820, "Fair
Value Measurement of Equity Securities Subject to Contractual Sale
Restrictions". The amendment clarifies that contractual sale
restrictions should not be considered when measuring the equity
security's fair value and prohibits an entity from recognizing a
contractual sale restriction as a separate unit of account. The
amendments in this ASU are effective for the Group beginning after
December 15, 2024. Early adoption is permitted for both interim and
annual financial statements that have not yet been issued or made
available for issuance. The Group does not expect this guidance to
have a material impact on its consolidated financial statements and
related disclosures.
2 . F air value measurements
The Group's assets and liabilities recorded at fair value have
been categorised based upon a fair value hierarchy as described in
the Group's significant accounting policies in Note 1.
The following table presents information about the Group's
assets and liabilities measured at fair value as of 31 December
2022:
Investments
measured
at net asset
Level 1 Level 2 Level 3 value* Total
-------------- ------------- ------------- -------------- --------------
Assets (at fair value)
Investments in
securities
Common stocks 225,817,734 534,871 3,364,557 - 229,717,162
Convertible preferred
stocks 117,696 - 57,932,949 - 58,050,645
American depository
receipts 38,230,091 - - - 38,230,091
Investment in private
investment companies - - - 14,074,846 14,074,846
Convertible notes - - 10,052,833 - 10,052,833
Total investments
in securities 264,165,521 534,871 71,350,339 14,074,846 350,125,577
-------------- ------------- ------------- -------------- --------------
Derivative contracts
Equity swaps - 19,086,329 - - 19,086,329
Warrants - 1,904,409 476,911 - 2,381,320
-------------- ------------- ------------- -------------- --------------
Total derivative
contracts - 20,990,738 476,911 21,467,649
-------------- ------------- ------------- -------------- --------------
264,165,521 21,525,609 71,827,250 14,074,846 371,593,226
============== ============= ============= ============== ==============
Liabilities (at fair
value)
Securities sold
short
Common stocks 11,810,966 98,829 - - 11,909,795
American depository
receipts 528,539 - - - 528,539
-------------- ------------- ------------- -------------- --------------
Total securities
sold short 12,339,505 98,829 - 12,438,334
-------------- ------------- ------------- -------------- --------------
Derivative contracts
Equity swaps - 8,926,743 - - 8,926,743
-------------- ------------- ------------- -------------- --------------
Total derivative
contracts - 8,926,743 - - 8,926,743
-------------- ------------- ------------- -------------- --------------
12,339,505 9,025,572 - - 21,365,077
-------------- ------------- ------------- -------------- --------------
* The Group's investment in private investment companies that
are valued at their net asset value are not categorized within the
fair value hierarchy.
The following table presents information about the Group's
assets and liabilities measured at fair value as of 31 December
2021:
Investments
measured
at net asset
Level 1 Level Level value* Total
2 3
------------ ----------- ----------- ---------------- ---------------------------
Assets (at fair value)
Investments in securities
Common stocks 249,490,511 16,001,524 1,943,967 - 267,436,002
Convertible preferred
stocks 615,444 - 67,177,270 - 67,792,714
Exchange traded funds 32,097,322 - - - 32,097,322
Investment in private
investment companies - - - 23,082,522 23,082,522
American depository
receipts 18,047,224 - - - 18,047,224
Convertible bonds - - 723,723 - 723,723
------------ ----------- ----------- ---------------- ---------------------------
Total investments
in securities 300,250,501 16,001,524 69,844,960 23,082,522 409,179,507
------------ ----------- ----------- ---------------- ---------------------------
Derivative contracts
Equity swaps - 7,575,424 - - 7,575,424
Warrants 6,576 3,267,566 134,008 - 3,408,150
------------ ----------- ----------- ---------------- ---------------------------
Total derivative contracts 6,576 10,842,990 134,008 - 10,983,574
------------ ----------- ----------- ---------------- ---------------------------
300,257,077 26,844,514 69,978,968 23,082,522 420,163,081
============ =========== =========== ================ ===========================
Liabilities (at fair
value)
Securities sold short
Common stocks 8,844,744 - - - 8,844,744
American depository
receipts 473,649 - - - 473,649
------------ ----------- ----------- ---------------- ---------------------------
Total securities sold
short 9,318,393 - - - 9,318,393
------------ ----------- ----------- ---------------- ---------------------------
Derivative contracts
Equity swaps - 3,310,833 - - 3,310,833
------------ ----------- ----------- ---------------- ---------------------------
Total derivative contracts - 3,310,833 - - 3,310,833
------------ ----------- ----------- ---------------- ---------------------------
9,318,393 3,310,833 - - 12,629,226
------------ ----------- ----------- ---------------- ---------------------------
* The Group's investment in private investment companies that
are valued at their net asset value are not categorized within the
fair value hierarchy.
Transfers between Levels 2 and 3 generally relate to whether
significant relevant observable inputs are available for the fair
value measurements in their entirety. See Note 1 for additional
information related to the fair value hierarchy and valuation
techniques and inputs. For the year ended 31 December 2022, the
Group had net transfers into Level 2 of $4,555,194 from Level 3 due
to conversion into publicly traded common stocks subject to an
unexpired 180-day lock-up as at 31 December 2022 (2021: $9,064,760)
and transfers into Level 1 of $nil from Level 3 due to conversion
into publicly traded common stocks (2021: $20,330,984). Transfers
between levels are deemed to occur at year end.
The following tables summarise the valuation techniques and
significant unobservable inputs used for the Group's investments
that are categorised within Level 3 of the fair value hierarchy as
of 31 December 2022 and 31 December 2021:
Fair value Significant
at 31 December unobservable Range
2022 Valuation techniques inputs of inputs
---------------- ---------------------- --------------------- -------------
Assets (at fair value)
Investments in securities
Convertible preferred Discounted cash
stocks 50,023,996 flow; WACC 13% - 33%
and/or market Revenue multiples 2.8x -
approach; 4.0x
Market
step-up 0.7x - 1.5x
multiple
Market rate of -30% -
returns 20%
7,908,953 Price of most recent
funding round n/a n/a
Discounted cash
Convertible notes 8,772,349 flow; WACC 13%
and/or market
approach; Revenue multiples 4.0x
Market step-up 0.7x -
multiple 1.1x
Market rate of
returns 0%
Probability weighted
expected return Market rate of
1,280,484 method ("PWERM") returns -30%
Recovery rate 0% - 50%
Discounted cash
Common stocks 1,208,299 flow; WACC 13%
and/or market Revenue multiples 0.2x -
approach; Market step-up 4x
multiple 0.7x -
1.1x
Market rate of
returns -10%
Probability of
2,156,109 PWERM business 95%
combination
149 Price of most recent
funding round n/a n/a
Total investments
in securities 71,350,339
================
Derivative contracts
Discounted cash
Warrants 315,589 flow; WACC 33%
Market approach; Revenue multiple 4.0x
Market rate of
returns Expected
and/or option pricing volatility 10%
model 53%
161,322 PWERM Expected volatility 25%
Total derivative contracts 476,911
================
Fair value Significant
at 31 December unobservable Range
2021 Valuation techniques inputs of inputs
---------------- --------------------- -------------------- -----------
Assets (at fair value)
Investments in securities
Convertible preferred
stocks 60,740,530 Discounted cash
flow; WACC 16% - 38%
Market approach; Exit revenue 3.0x -
multiple 4.0x
and/or option
pricing model Expected volatility 40% - 135%
Market step-up
multiple 1.0x -
1.8x
6,436,740 Price of most
recent
funding round n/a n/a
Common stocks 844,280 Market approach; Expected volatility 60%
and/or option Market step-up 1.1x -
1.7x
pricing model multiple
1,099,687 Price of most n/a n/a
recent
funding round
Convertible bonds 723,723 Price of most n/a n/a
recent
funding round
Total investments
in securities 69,844,960
================
Derivative contracts
Warrants 133,983 Price of most n/a n/a
recent
funding round
25 Discounted cash
flow; WACC 38%
Exit revenue
Market approach; multiple 3.0x
and/or option Expected volatility 45%
pricing model
Total derivative contracts 134,008
================
The significant unobservable inputs used in the fair value
measurements of Level 3 common stock, convertible preferred stocks,
convertible notes, and warrants include, but are not limited to,
WACC, revenue and/or earnings multiple, market rate of return, and
expected volatility. Increases in the WACC in isolation would
result in a lower fair value for the security, and vice versa.
Increases in multiples and/or market rate of returns in isolation
would result in a higher fair value of the security, and vice
versa. A change in volatility in isolation could result in a higher
or lower fair value for the security.
The table below presents additional information about Level 3
assets and liabilities measured at fair value. Both observable and
unobservable inputs may be used to determine the fair value of
positions that the Group has classified within the Level 3
category. As a result, the unrealised gains and losses for assets
and liabilities within the Level 3 category may include changes in
fair value that were attributable to both observable and
unobservable inputs.
Changes in Level 3 assets and liabilities measured at fair value
for the year ended 31 December 2022 were as follows:
Balance Change Ending
beginning Realised in Unrealised Transfers balance
1 January gains/ gains/ into/(from) 31 December
2022 (losses)(a) (losses)(a) Purchases Sales Level 3* 2022
Assets (at
fair value)
Investments
in securities
Convertible
preferred
stocks 67,177,270 - (17,555,053) 12,142,203 - (3,831,471) 57,932,949
Common stocks 1,943,967 - (664,647) 2,085,237 - - 3,364,557
Convertible
notes - - 420628 8,195,772 - 1,436,433 10,052,833
Convertible
bonds 723,723 - - 1,436,433 - (2,160,156) -
Total
investments
in securities 69,844,960 - (17,799,072) 23,859,645 - (4,555,194) 71,350,339
=========== =============== =============== =========== ====== ============= =============
Derivative
contracts
Warrants 134,008 - 76,306 266,597 - - 476,911
----------- --------------- --------------- ----------- ------ ------------- -------------
Total derivative
contracts 134,008 - 76,306 266,597 - - 476,911
=========== =============== =============== =========== ====== ============= =============
* Includes conversion of convertible bonds into convertible
preferred stock and convertible notes.
(a) Realised and unrealised gains and losses are included in net
realised and change in unrealised gain/(loss) on investments,
derivatives and foreign currency transactions in the consolidated
statement of operations.
Changes in Level 3 assets and liabilities measured at fair value
for the year ended 31 December 2021 were as follows:
Change Ending
Balance in balance
beginning Realised Unrealised Transfers 31
1 January gains/ gains/ into/(from) December
2021 (losses) (losses) Purchases Sales Level 3* 2021
Assets (at
fair value)
Investments
in
securities
Convertible
preferred
stocks 38,161,752 1,440,394 13,226,721 46,075,180 (2,331,033) (29,395,744) 67,177,270
Common
stocks 9,087,381 - 502,587 564,688 - (8,210,689) 1,943,967
Convertible
bonds - - - 723,723 - - 723,723
-------------------- ---------- ----------- ----------- ------------ ------------- -----------
Total
investments
in
securities 47,249,133 1,440,394 13,729,308 47,363,591 (2,331,033) (37,606,433) 69,844,960
==================== ========== =========== =========== ============ ============= ===========
Derivative
contracts
Warrants 133,983 - 1 24 - - 134,008
-------------------- ---------- ----------- ----------- ------------ ------------- -----------
Total
derivative
contracts 133,983 - 1 24 - - 134,008
==================== ========== =========== =========== ============ ============= ===========
* Conversions of preferred stock into common stock.
Changes in Level 3 unrealised gains and losses during the year
for assets still held at year end were as follows:
2022 2021
Common stocks (664,647) 497,966
Convertible notes 420,628 -
Convertible preferred stocks (13,404,700) 12,873,757
Warrants 76,306 1
Change in unrealised gains and
losses during the year for assets
still held at year end (13,572,413) 13,371,724
============= ===========
Total realised gains and losses and unrealised gains and losses
in the Group's investment in securities, derivative contracts and
securities sold short are made up of the following gain and loss
elements:
2022 2021
Realised gains 47,604,728 54,163,408
Realised losses (41,995,983) (14,532,072)
Net realised gain on securities,
derivative contracts and securities
sold short 5,608,745 39,631,336
============= =============
2022 2021
Change in unrealised
gains 112,585,347 106,379,343
Change in unrealised
losses (152,339,558) (202,558,485)
-------------- --------------
Net change in unrealised gain/(loss)
on securities, derivative contracts
and securities sold short (39,754,211) (96,179,142)
============== ==============
As at 31 December 2022 the Group had commitments (subject to
completion of certain parameters) to certain investments totalling
$2,544,486 (2021: $2,358,325).
3. Due to/from brokers
Due to/from brokers includes cash balances held with brokers and
collateral on derivative transactions. Amounts due from brokers may
be restricted to the extent that they serve as deposits for
securities sold short or cash posted as collateral for derivative
contracts.
As at 31 December 2022, restricted cash with due from brokers
totalled $22,195,456 (2021: $12,323,965). Included within due from
brokers of $5,810,750 (31 December 2021: $95,095) can be used for
investment. The Group pledged cash collateral to counterparties to
over-the-counter derivative contracts of $16,384,706 (31 December
2021: $12,228,870) which is included in due from brokers.
In the normal course of business, substantially all of the
Group's securities transactions, money balances, and security
positions are transacted with the Group's prime brokers and
counterparties, Goldman Sachs & Co. LLC, Cowen Financial
Products, LLC, UBS AG, Bank of America Merrill Lynch, Morgan
Stanley & Co. LLC, Jeffries & Co. and J.P. Morgan
Securities, LLC. The Group is subject to credit risk to the extent
any broker with which it conducts business is unable to fulfil
contractual obligations on its behalf. The Group's management
monitors the financial condition of such brokers and does not
anticipate any losses from these counterparties.
4. Derivative contracts
In the normal course of business, the Group utilizes derivative
contracts in connection with its proprietary trading activities.
Investments in derivative contracts are subject to additional risks
that can result in a loss of all or part of an investment. The
Group's derivative activities and exposure to derivative contracts
are classified by the primary underlying risk, equity price risk
and foreign currency exchange rate risk. In addition to its primary
underlying risk, the Group is also subject to additional
counterparty risk due to the inability of its counterparties to
meet the terms of their contracts.
Warrants
The Group may receive warrants from its portfolio companies upon
an investment in the debt or equity of a portfolio company. The
warrants provide the Group with exposure and potential gains upon
equity appreciation of the portfolio company's share price.
The value of a warrant has two components: time value and
intrinsic value. A warrant has a limited life and expires on a
certain date. As time to the expiration date of a warrant
approaches, the time value of a warrant will decline. In addition,
if the stock underlying the warrant declines in price, the
intrinsic value of an "in the money" warrant will decline. Further,
if the price of the stock underlying the warrant does not exceed
the strike price of the warrant on the expiration date, the warrant
will expire worthless. As a result, there is the potential for the
Group to lose its entire investment in a warrant.
The Group is exposed to counterparty risk from the potential
failure of an issuer of warrants to settle its exercised warrants.
The maximum risk of loss from counterparty risk to the Group is the
fair value of the contracts and the purchase price of the warrants.
The Group considers the effects of counterparty risk when
determining the fair value of its investments in warrants.
Equity swap contracts
The Group is subject to equity price risk in the normal course
of pursuing its investment objectives. The Group may enter into
equity swap contracts either to manage its exposure to the market
or certain sectors of the market, or to create exposure to certain
equities to which it is otherwise not exposed.
Equity swap contracts involve the exchange by the Group and a
counterparty of their respective commitments to pay or receive a
net amount based on the change in the fair value of a particular
security or index and a specified notional amount.
Volume of derivative activities
The Group considers the average month-end notional amounts
during the year, categorised by primary underlying risk, to be
representative of the volume of its derivative activities during
the year ended 31 December 2022:
2022 2021
--------------------------- ------------------------
Short Long Short
Long exposure exposure exposure exposure
-------------- ----------- ----------- -----------
Primary underlying Notional Notional Notional Notional
risk amounts amounts amounts amounts
--------------------- -------------- ----------- ----------- -----------
Equity price
Equity swaps 48,774,292 56,273,944 2,347,607 66,149,127
Warrants(a) 4,024,470 - 9,031,998 -
52,798,762 56,273,944 11,379,605 66,149,127
============== =========== =========== ===========
(a) Notional amounts presented for warrants are based on the
fair value of the underlying shares as if the warrants were
exercised at each respective month end date.
Impact of derivatives on the consolidated statement of assets
and liabilities and consolidated statement of operations
The following tables identify the fair value amounts of
derivative instruments included in the consolidated statement of
assets and liabilities as derivative contracts, categorised by
primary underlying risk, at 31 December 2022 and 31 December 2021.
The following table also identifies the gain and loss amounts
included in the consolidated statement of operations as net
realised gain/(loss) on derivative contracts and net change in
unrealised gain/(loss) on derivative contracts, categorised by
primary underlying risk, for the year ended 31 December 2022 and 31
December 2021.
2022
-------------------------------------------------------------
Change in
Primary underlying Derivative Derivative Realised unrealised
risk assets liabilities gain/(loss) gain/(loss)
--------------------- ----------- ------------- ------------- ------------------
Equity price
Equity swaps 19,086,329 8,926,743 (2,748,269) 5,894,995
Warrants 2,381,320 - - (1,293,427)
21,467,649 8,926,743 (2,748,269) 4,601,568
=========== ============= ============= ==================
2021
--------------------------------------------------------
Change in
Primary underlying Derivative Derivative Realised unrealised
risk assets liabilities gain/(loss) gain/(loss)
--------------------- ----------- ------------- ------------- -------------
Equity price
Equity swaps 7,575,424 3,310,833 (1,651,404) 3,061,415
Warrants 3,408,150 - 2,443 (125,397)
----------- ------------- ------------- -------------
10,983,574 3,310,833 (1,648,961) 2,936,018
=========== ============= ============= =============
5. Securities lending agreements
The Group has entered into securities lending agreements with
its prime brokers. From time to time, the prime brokers lend
securities on the Group's behalf. As of 31 December 2022 and 31
December 2021, no securities were loaned and no collateral was
received.
6. Offsetting assets and liabilities
The Group is required to disclose the impact of offsetting
assets and liabilities represented in the consolidated statement of
assets and liabilities to enable users of the consolidated
financial statements to evaluate the effect or potential effect of
netting arrangements on its financial position for recognised
assets and liabilities. These recognised assets and liabilities are
financial instruments and derivative instruments that are either
subject to an enforceable master netting arrangement or similar
agreement or meet the following right of setoff criteria: the
amounts owed by the Group to another party are determinable, the
Group has the right to offset the amounts owed with the amounts
owed by the other party, the Group intends to offset and the
Group's right of setoff is enforceable by law.
As of 31 December 2022 and 31 December 2021, the Group held
financial instruments and derivative instruments that were eligible
for offset in the consolidated statement of assets and liabilities
and are subject to a master netting arrangement. The master netting
arrangement allows the counterparty to net applicable collateral
held on behalf of the Group against applicable liabilities or
payment obligations of the Group to the counterparty. These
arrangements also allow the counterparty to net any of its
applicable liabilities or payment obligations they have to the
Group against any collateral sent to the Group.
As discussed in Note 1, the Group has elected not to offset
assets and liabilities in the consolidated statement of assets and
liabilities. The following table presents the potential effect of
netting arrangements for asset derivative contracts presented in
the consolidated statement of assets and liabilities:
31 December 2022
Gross amounts not offset
in the consolidated statement
of
assets and liabilities
------------- ------------- ------------- ------------------------------
Gross
amounts
offset in
the Gross
Gross consolidated amounts
amounts statement of
of of assets recognised Cash
recognised and assets and Financial collateral Net
Description assets liabilities liabilities instruments(a) received(b) amount
--------------- ------------- ------------- ------------- --------------- -------------
Equity swaps
Bank of
America
Merrill Lynch 12,929,367 - 12,929,367 (3,983,939) - 8,945,428
Cowen
Financial
Products, LLC 3,239,591 - 3,239,591 (1,224,200) - 2,015,391
Morgan Stanley
& Co. LLC 2,797,503 - 2,797,503 (2,797,503) - -
Jeffries & Co. 119,868 - 119,868 (119,868) - -
19,086,329 - 19,086,329 (8,125,510) - 10,960,819
============= ============= ============= =============== ============= ==========
31 December 2021
Gross amounts not offset
in the statement of assets
and liabilities
-------------- -------------- ------------- ------------- -------------------------------
Gross
amounts Gross
offset in amounts
the of
statement recognised
Gross amounts of assets assets Cash
of recognised and and Financial collateral
Description assets liabilities liabilities instruments(a) received(b) Net amount
--------------- -------------- ------------- ------------- --------------- --------------
Equity
swaps
Cowen
Financial
Products, LLC 5,777,357 - 5,777,357 (1,532,754) - 4,244,603
Bank of
America
Merrill Lynch 1,396,737 - 1,396,737 (1,190,091) - 206,646
Morgan Stanley
& Co. LLC 306,560 - 306,560 (77,393) - 229,167
Jeffries & Co. 78,710 - 78,710 (78,710) - -
UBS AG 16,060 - 16,060 (16,060) - -
-------------- ------------- ------------- --------------- -------------- ------------
7,575,424 - 7,575,424 (2,895,008) - 4,680,416
============== ============= ============= =============== ============== ============
(a) Amounts related to master netting agreements (e.g. ISDA),
determined by the Group to be legally enforceable in the event of
default and if certain other criteria are met in accordance with
applicable offsetting accounting guidance but were not offset due
to management's accounting policy election.
(b) Amounts related to master netting agreements and collateral
agreements determined by the Group to be legally enforceable in the
event of default, but certain other criteria are not met in
accordance with applicable offsetting accounting guidance. The
collateral amounts may exceed the related net amounts of financial
assets and liabilities presented in the consolidated statement of
assets and liabilities. If this is the case, the total amount
reported is limited to the net amounts of financial assets and
liabilities with that counterparty.
The following tables present the potential effect of netting
arrangements for liability derivative contracts presented in the
consolidated statement of assets and liabilities as of 31 December
2022 and 31 December 2021:
31 December 2022
Gross amounts not offset
in the consolidated statement
of
assets and liabilities
--------------- -------------- -------------- -------------- ------------------------------- -----------
Gross amounts
offset in
the
consolidated
Gross statement
amounts of assets Gross amounts Cash
of recognised and of recognised Financial collateral
Description liabilities liabilities liabilities instruments(a) pledged(b) Net amount
---------------- -------------- -------------- -------------- -----------
Equity swaps
Bank of America
Merrill Lynch 3,983,939 - 3,983,939 (3,983,939) - -
Morgan Stanley
& Co. LLC 3,372,143 - 3,372,143 (2,797,503) (574,640) -
Cowen Financial
Products, LLC 1,224,200 - 1,224,200 (1,224,200) - -
Jeffries & Co. 336,931 - 336,931 (119,868) (217,063) -
UBS AG 9,530 - 9,530 - (9,530) -
8,926,743 - 8,926,743 (8,125,510) (801,233) -
============== ============== ============== =============== ============== ===========
31 December 2021
Gross amounts not offset
in the statement of assets
and liabilities
--------------- -------------- -------------- -------------- ------------------------------- -----------
Gross amounts
offset in
Gross the statement
amounts of assets Gross amounts Cash
of recognised and of recognised Financial collateral
Description liabilities liabilities liabilities instruments(a) pledged(b) Net amount
---------------- -------------- -------------- -------------- -----------
Equity swaps
Cowen Financial
Products, LLC 1,532,754 - 1,532,754 (1,532,754) - -
Bank of America
Merrill Lynch 1,190,091 - 1,190,091 (1,190,091) - -
Jeffries & Co. 406,977 - 406,977 (78,710) (328,267) -
UBS AG 103,618 - 103,618 (16,060) (87,558) -
Morgan Stanley
& Co. LLC 77,393 - 77,393 (77,393) - -
-------------- -------------- -------------- --------------- -------------- -----------
3,310,833 - 3,310,833 (2,895,008) (415,825) -
============== ============== ============== =============== ============== ===========
(a) Amounts related to master netting agreements (e.g. ISDA),
determined by the Group to be legally enforceable in the event of
default and if certain other criteria are met in accordance with
applicable offsetting accounting guidance but were not offset due
to management's accounting policy election.
(b) Amounts related to master netting agreements and collateral
agreements determined by the Group to be legally enforceable in the
event of default, but certain other criteria are not met in
accordance with applicable offsetting accounting guidance. The
collateral amounts may exceed the related net amounts of financial
assets and liabilities presented in the consolidated statement of
assets and liabilities. If this is the case, the total amount
reported is limited to the net amounts of financial assets and
liabilities with that counterparty.
7. Securities sold short
The Group is subject to certain inherent risks arising from its
investing activities of selling securities short. The ultimate cost
to the Group to acquire these securities may exceed the liability
reflected in these consolidated financial statements.
8. Risk factors
Some underlying investments may be deemed to be highly
speculative investments and are not intended as a complete
investment program. The Group is designed only for sophisticated
persons who are able to bear the economic risk of the loss of their
entire investment in the Group and who have a limited need for
liquidity in their investment. The following risks are applicable
to the Group:
Market risk
Certain events particular to each market in which Portfolio
Companies conduct operations, as well as general economic and
political conditions, may have a significant negative impact on the
operations and profitability of the Group's investments and/or on
the fair value of the Group's investments. Such events are beyond
the Group's control, and the likelihood they may occur and the
effect on the Group cannot be predicted. The Group intends to
mitigate market risk generally by investing in LifeSci Companies in
various geographies.
Portfolio Company products are subject to regulatory approvals
and actions with new drugs, medical devices and procedures being
subject to extensive regulatory scrutiny before approval, and
approvals can be revoked.
The market value of the Group's holdings in public Portfolio
Companies could be affected by a number of factors, including, but
not limited to: a change in sentiment in the market regarding the
public Portfolio Companies, the market's appetite for specific
asset classes; and the financial or operational performance of the
public Portfolio Companies.
The size of investments in public Portfolio Companies or
involvement in management may trigger restrictions on buying or
selling securities. Laws and regulations relating to takeovers and
inside information may restrict the ability of the Group to carry
out transactions, or there may be delays or disclosure requirements
before transactions can be completed.
Equity prices and returns from investing in equity markets are
sensitive to various factors, including but not limited to:
expectations of future dividends and profits; economic growth;
exchange rates; interest rates; and inflation.
Biotech/healthcare companies
The Portfolio Companies are biotechnology companies. Biotech
companies are generally subject to greater governmental regulation
than other industries at both the state and federal levels. Changes
in governmental policies may have a material effect on the demand
for or costs of certain products and services.
Any failure by a Portfolio Company to develop new technologies
or to accurately evaluate the technical or commercial prospects of
new technologies could result in it failing to achieve a growth in
value and this could have a material adverse effect on the Group's
financial condition.
Portfolio Companies may not successfully translate promising
scientific theory into a commercially viable business opportunity.
Further, the Portfolio Companies' therapies in development may fail
clinical trials and therefore no longer be viable.
Portfolio Company products are subject to intense competition
and there are many factors that will affect whether the new
therapies released by the Portfolio Companies gain market share
against competitors and existing therapies.
Portfolio Companies may be newer small and mid-size LifeSci
Companies. These companies may be more volatile and have less
experience and fewer resources than more established companies.
Concentration risk
The Group may not make an investment or a series of investments
in a Portfolio Company that result in the Group's aggregate
investment in such Portfolio Company exceeding 15 per cent. of the
Group's gross assets, save for Rocket for which the limit is 25 per
cent. as stated in the Group's prospectus. Each of these investment
restrictions will be calculated as at the time of investment. As
such, it is possible that the Group's portfolio may be concentrated
at any given point in time, potentially with more than 15 per cent.
of gross assets held in one Portfolio Company as Portfolio
Companies increase or decrease in value following such initial
investment. The Group's portfolio of investments may also lack
diversification among LifeSci Companies and related
investments.
Concentration of credit risk
In the normal course of business, the Group maintains its cash
balances in financial institutions, which at times may exceed US
federal or UK insured limits, as applicable. The Group is subject
to credit risk to the extent any financial institution with which
it conducts business is unable to fulfil contractual obligations on
its behalf. Management monitors the financial condition of such
financial institutions and does not anticipate any losses from
these counterparties.
Counterparty risk
The Group invests in equity swaps and takes the risk of
non-performance by the other party to the contract. This risk may
include credit risk of the counterparty, the risk of settlement
default, and generally, the risk of the inability of counterparties
to perform with respect to transactions, whether due to insolvency,
bankruptcy or other causes.
In an effort to mitigate such risks, the Group will attempt to
limit its transactions to counterparties which are established,
well capitalised and creditworthy.
Liquidity risk
Liquidity risk is the risk that the Group cannot meet its
financial commitments as they fall due. The Group's unquoted
investments may have limited or no secondary market liquidity so
the Investment Manager maintains a sufficient balance of cash and
market quoted securities which can be sold if needed to meet its
commitments.
The Group's investments in quoted securities may also be subject
to sale restrictions on listing and when the Investment Manager is
subject to close periods or privy to confidential information by
virtue of their active involvement in the management of portfolio
companies.
Derivative transactions may not be liquid in all circumstances,
such that in volatile markets it may not be possible to close out a
position without incurring a loss. The illiquidity of the
derivatives markets may be due to various factors, including
congestion, disorderly markets, limitations on deliverable
supplies, the participation of speculators, government regulation
and intervention, and technical and operational or system
failures.
Foreign exchange risk
The Group will make investments in various jurisdictions in a
number of currencies and will be exposed to the risk of currency
fluctuations that may materially adversely affect, amongst other
things, the value of the Portfolio Company or the Group's
investment in such Portfolio Company, or any distributions received
from the Portfolio Company. Under its investment policy, the Group
does not intend to enter into any securities or financially
engineered products designed to hedge portfolio exposure or
mitigate portfolio risk as a core part of its investment
strategy.
9. Share capital
During the year ended 31 December 2022 the Company did not issue
any Ordinary Shares:
2022 2021
----------------- ------------
Number of
Number of Ordinary
Ordinary Shares Shares
As at 1 January 212,389,138 191,515,735
Issuance of Ordinary Shares - 20,873,403
----------------- ------------
As at 31 December 212,389,138 212,389,138
Ordinary Shares carry the right to receive all income of the
Company attributable to the Ordinary Shares and to participate in
any distribution of such income made by the Company. Such income
shall be divided pari passu among the holders of Ordinary Shares in
proportion to the number of Ordinary Shares held by them.
Ordinary Shares shall carry the right to receive notice of and
attend and vote at any general meeting of the Company, and at any
such meeting on a show of hands, every holder of Ordinary Shares
present in person (includes present by attorney or by proxy or, in
the case of a corporate member, by duly authorised corporate
representative) and entitled to vote shall have one vote, and on a
poll, subject to any special voting powers or restrictions, every
holder of Ordinary Shares present in person or by proxy shall be
entitled to one vote for each Ordinary Share, or fraction of an
Ordinary Share, held.
On 1 December 2022, the Performance Allocation Share held by RTW
Venture Performance LP was surrendered in exchange for a New
Performance Allocation Share issued by the Subsidiary. The New
Performance Allocation Share issued by the Subsidiary has identical
terms to the original Performance Allocation Share issued by the
Company. From 1 December 2022, the Performance Allocation Amount
will now be allocated at the Subsidiary level, and is presented in
the Group's financial statements as part of the Non-Controlling
Interest. The sole New Performance Allocation Share is held by RTW
Venture Performance LP. As at 31 December 2022, there were no
Performance Allocation Shares of the Company in issue (31 December
2021: one) and one New Performance Allocation Share of the
Subsidiary in issue (31 December 2021: nil).
New Performance Allocation Shares of the Subsidiary carry the
right to receive, and participate in, any dividends or other
distributions of the Subsidiary available for dividend or
distribution. New Performance Allocation Shares are not entitled to
receive notice of, to attend or to vote at general meetings of the
Company or the Subsidiary.
For all share classes, subject to compliance with the solvency
test set out in the Companies Law, the Board may declare and pay
such annual or interim dividends and distributions as appear to be
justified by the position of the Group. The Board may, in relation
to any dividend or distribution, direct that the dividend or
distribution shall be satisfied wholly or partly by the
distribution of assets, and in particular of paid-up shares or
reserves of any nature as approved by the Group.
10. Related party transactions
Management Fee
The Investment Manager receives a monthly management fee, in
advance, as of the beginning of each month in an amount equal to
0.104% (1.25% per annum) of the net assets of the Group (the
"Management Fee"). For purposes of determining the Management Fee,
private investments will be valued at the fair value. The
Management Fee will be prorated for any period that is less than a
full month. The Management Fees charged for the year ended 31
December 2022 amounted to $3,751,464 (31 December 2021: $4,813,854)
of which $nil (31 December 2021: $nil) was outstanding at the year
end.
Performance Allocation
The Performance Allocation Share held by RTW Venture Performance
LP was surrendered in exchange for a New Performance Allocation
Share issued by the Subsidiary. The New Performance Allocation
Share issued by the Subsidiary has identical terms to the original
Performance Allocation Share issued by the Company.
In respect of each Performance Allocation Period, the
Performance Allocation Amount shall be allocated at the Subsidiary
level and disclosed on the Group's financial statements within the
Non-Controlling Interest, subject to the satisfaction of a hurdle
condition.
The Performance Allocation Amount relating to the Performance
Allocation Period, which is calculated solely at the Subsidiary, is
an amount equal to:
((A-B) x C) x 20 per cent.
where:
A is the Adjusted Net Asset Value per Ordinary Share on the
Calculation Date, adjusted by:
adding back (i) the total net Distributions (if any) per
Ordinary Share (whether paid, or declared but not yet paid) during
the Performance Allocation Period; and (ii) any accrual for the
Performance Allocation for the current Performance Allocation
Period reflected in the Net Asset Value per Ordinary Share; and
deducting any accretion in the Net Asset Value per Ordinary Share
resulting from either the issuance of Ordinary Shares at a premium
or the repurchase or redemption of Ordinary Shares at a discount
during the Performance Allocation Period;
B is the Adjusted Net Asset Value per Ordinary Share at the
start of the Performance Allocation Period; and
C is the time weighted average number of Ordinary Shares in
issue during the Performance Allocation Period.
The Hurdle Amount represents an 8 per cent. annualised
compounded rate of return in respect of the Adjusted Net Asset
Value per Ordinary Share from the start of the initial Performance
Allocation Period through the then current Performance Allocation
Period.
The Performance Allocation Share Class can elect to receive the
Performance Allocation Amount in Ordinary Shares; cash; or a
mixture of the two, subject to a minimum 50% as Ordinary Shares.
The Performance Allocation Share Class entered into a letter
agreement dated 21 April 2020, pursuant to which the Performance
Allocation Share Class agreed to defer distributions of Ordinary
Shares that would otherwise be distributed to the Performance
Allocation Share Class no later than 30 business days after the
publication of the Group's audited annual consolidated financial
statements. Under that letter agreement, such Ordinary Shares shall
be distributed to the Performance Allocation Share Class at such
time or times as determined by the Boards of Directors of the
Group.
The Group will increase or decrease the amount owed to the
Performance Allocation Share Class based on its investment exposure
to the Group's performance had such Performance Ordinary Shares
been so issued. The Performance Allocation Amount for the year
ended 31 December 2022 includes the residual, undistributed
Performance Allocation Amounts from prior years that were
previously converted into a total of 14,228,208 Notional Ordinary
Shares. These Notional Ordinary Shares are subject to market risk
alongside the Ordinary Shares and incurred a mark to market loss of
$2,476,036 in 2022 (2021: notional loss of $3,559,670), which is
included in Performance Allocation within the Consolidated
Statement of Changes in Net Assets. There was no reallocation of
uncrystallized performance allocation back to Ordinary Shareholders
related to the Group's performance in the period.
Until the Group makes a distribution of Ordinary Shares to the
Performance Allocation Share Class, the Group will have an
unsecured discretionary obligation to make such distribution at
such time or times as the Board of Directors of the Group
determines. RTW Venture Performance LP has agreed to the deferral
of the distributions of the Subsidiary's Ordinary Shares in
connection with its own tax planning. The Group does not believe
that the deferral of such distributions to the Performance
Allocation Share Class will have any negative effects on holders of
the Company's Ordinary Shares.
The Investment Manager is a member of the Performance Allocation
Share Class and will therefore receive a proportion of the
Performance Allocation Amount. For the year ended 31 December 2022,
the Board did not approve a cash distribution to the Performance
Allocation Share Class (31 December 2021: $4,974,920). At the year
end the Performance Allocation Share Class of the Subsidiary is
reflected within the Non-Controlling Interest balance of
$21,844,468 and was captured within the Performance Allocation
Share Class of the Company at 31 December 2021 with a balance of
$24,320,504.
The Investment Manager is also refunded any research costs
incurred on behalf of the Group.
One of the Directors of the Group, Stephanie Sirota, is also a
partner and the Chief Business Officer of the Investment Manager.
The following table represents the number of related parties served
on the boards of directors of investments held by the Group during
the year ended 31 December 2022 and 31 December 2021:
Investments Partners Employees
Rocket Two(a) One
HSAC2 Holdings II Two(a) One
Ji Xing Two(a) One
Yarrow Biotechnology Two(b) One
(a) Roderick Wong, Naveen Yalamanchi
(b) Roderick Wong, Peter Fong
As at 31 December 2022, the number of Ordinary Shares held by
each Director was as follows:
2022 2021
-----------------
Number of Ordinary Number of
Shares Ordinary Shares
William Simpson 200,000 150,000
Paul Le Page 128,000 103,000
William Scott 305,003 150,000
Stephanie Sirota 1,010,000 1,000,000
All Directors added to their holdings during the year by
purchasing Ordinary Shares in the secondary market.
Roderick Wong is a major shareholder and also a member of the
Investment Manager. As at 31 December 2022, he held 29,593,872
Ordinary Shares in the Group (13.93% of the Ordinary Shares in
issue) (31 December 2021: 29,218,773, 13.76% of the Ordinary Shares
in issue).
The total Directors' fees expense for the year amounted to
$176,722 (31 December 2021: $214,353) of which $48,281 was
outstanding at 31 December 2022 (31 December 2021: $52,761) and is
included within accrued expenses.
All of the Directors of the Company were also appointed as
directors of the Subsidiary on its incorporation on 23 November
2022.
11. Administrative services
Elysium Fund Management Limited ("EFML") serves as Administrator
to the Group, providing administration, corporate secretarial,
corporate governance and compliance services. Morgan Stanley Fund
Services USA LLC ("MSFS") serves as the Group's
Sub-Administrator.
During the year ended 31 December 2022, EFML and MSFS charged
administration fees of $93,469 and $218,534 respectively (31
December 2021: EFML charged $107,767 and MSFS charged $223,067) of
which $6,484 and $91,099 (31 December 2021: EFML $8,396, MSFS
$76,053) was outstanding at 31 December 2022, and is included
within accrued expenses.
12. Financial highlights
Financial highlights for the year ended 31 December 2022 and 31
December 2021 are as follows:
2022 2021
Per Ordinary Share operating performance
Net Asset Value, beginning of year $ 1.71 $ 1.96
Issuance of Ordinary Shares - 0.02
Income from investments
Net investment income/(loss) (0.02) (0.04)
Net realised and unrealised gain/(loss)
on investments, derivatives and foreign
currency transactions (0.15) (0.23)
Total from investment operations (0.17) (0.27)
Net Asset Value, end of year $ 1.54 $ 1.71
Total return
Total return before Performance Allocation (10.18)% (15.35)%
Performance Allocation (excluding mark
to market) - % 2.58 %
Total return after Performance Allocation (10.18)% (12.77)%
Ratios to average net assets*
Expenses 2.47% 2.22 %
Performance Allocation (1.44)% (2.11)%
Expenses and Performance Allocation 1.03% 0.11 %
Net investment income/(loss) (1.75)% (2.04)%
NAV total return for the year (10.18)% (15.35)%
* Ratios are not annualised.
Financial highlights are calculated for Ordinary Shares. An
individual shareholder's financial highlights may vary based on
participation in new issues, different Performance Allocation
arrangements, and the timing of capital share transactions. Net
investment income/loss does not reflect the effects of the
Performance Allocation.
13. Subsequent events
These consolidated financial statements were approved by the
Board of Directors on 30 March 2023. Subsequent events have been
evaluated through this date.
General Company Information - Investment Objective and
Investment Policy
The Company
RTW Venture Fund Limited is a company that was incorporated as a
limited liability corporation in the State of Delaware, United
States of America on 16 February 2017, with the name "RTW Special
Purpose Fund I, LLC", and re-domiciled into Guernsey under the
Companies Law on 2 October 2019 with registration number 66847 on
the Guernsey Register of Companies.
The Company is registered with the GFSC as a Registered
Closed-ended Collective Investment Scheme and is an investment
company limited by shares. The registered office of the Company is
1(st) Floor, Royal Chambers, St Julian's Avenue, St Peter Port,
Guernsey, GY1 3JX.
On 30 October 2019, the issued Ordinary Shares of the Company
were listed and admitted to trading on the Specialist Fund Segment
of the Main Market of the London Stock Exchange. The ISIN of the
Company's Ordinary Shares is GG00BKTRRM22 and trades under the
ticker symbol "RTW" and "RTWG".
The Company's Ordinary Shares were admitted to trading on the
Premium Segment of the London Stock Exchange with effect from 6
August 2021.
The Subsidiary
On 1 December 2022 the Company changed its status for U.S.
federal tax purposes from a "publicly traded partnership" or "PTP"
to a corporation. The change in status caused it to be treated as a
"passive foreign investment company" or a "PFIC." This change was
necessitated by recent changes to U.S. tax legislation that came
into effect on 1 January 2023.
Related to the making of the tax election, the Company carried
out a reorganisation of the arrangements pursuant to which an
affiliate of the Investment Manager is allocated its share of the
investment performance generated by the Company. Pursuant to this,
the Company established a new wholly-owned subsidiary incorporated
in Guernsey, RTW Venture Fund Operating Limited, to which it has
transferred its right to the profits and losses attributable to the
Company's portfolio of assets. The Directors of the Subsidiary are
the same as the Directors of the Company. This reorganisation had
no economic impact on shareholders and was effected solely for the
purpose of ensuring that the share of the investment performance
generated by the Company which is allocable to an affiliate of the
Investment Manager receives the same treatment for U.S. federal tax
purposes as would have been the case if no tax election by the
Company had been compelled by the change in U.S. tax law.
As part of the reorganisation, the Investment Management
Agreement was amended to provide services to the Subsidiary. There
was no change to the investment management fee, but the Performance
Allocation Share held by RTW Venture Performance LP was surrendered
in exchange for a New Performance Allocation Share issued by the
Subsidiary. The New Performance Allocation Share issued by the
Subsidiary has identical terms to the original Performance
Allocation Share issued by the Company.
Investment Objective
The Group seeks to achieve positive absolute performance and
superior long-term capital appreciation, with a focus on forming,
building, and supporting world-class life sciences,
biopharmaceutical and medical technology companies. It intends to
create a diversi ed portfolio of investments across a range of
businesses, each pursuing the development of superior
pharmacological or medical therapeutic assets to enhance the
quality of life and/or extend patient life.
Investment Policy
The Group seeks to achieve its investment objective by
leveraging the Investment Manager's data-driven proprietary
pipeline of innovative assets to invest in life sciences
companies:
-- across various geographies (globally);
-- across various therapeutic categories and product types
(including but not limited to genetic medicines, biologics,
traditional modalities such as small molecule pharmaceuticals and
antibodies, and medical devices);
-- in both a passive and active capacity and intends, from time
to time, to take a controlling or majority position with active
involvement in a Portfolio Company to assist and in uence its
management. In those situations, it is expected that the Investment
Manager's senior executives may serve in temporary executive
capacities; and
-- by participation in opportunities created by the Investment
Manager's formation of companies de novo when a significant unmet
need has been identified and the Group is able to build a
differentiated, sustainable business to address said unmet
need.
The Group expects to invest approximately 80% of its gross in
the biopharmaceutical sector and approximately 20% of its gross
assets in the medical technology sector.
The Group's portfolio will reflect its view of the most
compelling opportunities available to the Investment Manager, with
an initial investment in each privately held Portfolio Company
("Private Portfolio Company") expected to start in a low single
digit per cent. of the Group's gross assets and grow over time, as
the Group may, if applicable, participate in follow-on investments
and/or continue holding the Portfolio Company as it becomes
publicly-traded. It is intended certain long-term holds will
increase in size and may represent between five and ten per cent.
or greater of the Group's gross assets.
The Group anticipates deploying one-third of its capital toward
early-stage and de novo company formations (including newly formed
entities around early-stage academic licenses and commercial stage
corporate assets) and two-thirds of its capital in mid- to
late-stage ventures.
The Group may choose to invest in Portfolio Companies listed on
a public stock exchange ("Public Portfolio Companies") depending on
market conditions and the availability of appropriate investment
opportunities. Equally, as part of a full-life cycle investment
approach, it is expected that Private Portfolio Companies may later
become Public Portfolio Companies. Monetisation events such as IPOs
and reverse mergers will not necessarily represent exit
opportunities for the Group. Rather, the Group may decide to retain
all or some of its investment in such Portfolio Companies or the
acquiring Company where they meet the standard of diligence set by
the Investment Manager. The Group is not required to allocate a
specific percentage of its assets to Private Portfolio Companies or
Public Portfolio Companies.
The Group also intends, where appropriate, to invest further in
its Portfolio Companies, supporting existing investments throughout
their life cycle. The Group may divest its interest in Portfolio
Companies in part or in full when the risk-reward trade-off is
deemed to be less favourable.
From time to time, the Group may seek opportunities to optimise
investing conditions, and to allow for such circumstances, the
Group will have the ability to hedge or enter into securities or
derivative structures in order to enhance the risk-reward position
of the portfolio and its underlying securities.
Investment restrictions
The Group will be subject to the following restrictions when
making investments in accordance with its investment policy:
-- the Group may not make an investment or a series of
investments in a Portfolio Company that result in the Group's
aggregate investment in such Portfolio Company exceeding 15% (or,
in the case of Rocket Pharmaceuticals, Inc., 25%) of the Group's
gross assets at the time of each such investment;
-- the Group may not make any direct investment in any tobacco
company and not knowingly make or continue to hold any Public
Portfolio Company investments that would result in exposure to
tobacco companies exceeding one per cent. of the aggregate value of
the Public Portfolio Companies from time to time.
Each of these investment restrictions will be calculated as at
the time of investment. In the event that any of the above limits
are breached at any point after the relevant investment has been
made (for instance, upon successful realisation of economic and/or
scientific milestones or as a result of any movements in the value
of the Group's gross assets), there will be no requirement to sell
or otherwise dispose of any investment (in whole or in part).
Leverage and borrowing limits
The Group may use conservative leverage in the future in order
to enhance returns and maximise the growth of its portfolio, as
well as for working capital purposes, up to a maximum of 50% of the
Group's net asset value at the time of incurrence. Any other
decision to incur indebtedness may be taken by the Investment
Manager for reasons and within such parameters as are approved by
the Board. There are no limitations placed on indebtedness incurred
in the Group's underlying investments.
Capital deployment
The Group anticipates that it will initially, upon Admission and
upon any subsequent capital raises, invest up to 80% of available
cash in Public Portfolio Companies that have been diligenced by the
Investment Manager and represent holdings in other portfolios
managed by the Investment Manager, subsequently rebalancing the
portfolio between Public Portfolio Companies and Private Portfolio
Companies as opportunities to invest in the latter become
available.
Cash management
The Group's uninvested capital may be invested in cash
instruments or bank deposits pending investment in Portfolio
Companies or used for working capital purposes.
Hedging
As described above, the Group may seek opportunities to optimise
investing conditions, and to allow for such circumstances, there
will be no limitations placed on the Group's ability to hedge or
enter into securities or derivative structures in order to enhance
the risk-reward position of the portfolio and its underlying
securities.
On an ongoing basis, the Group does not intend to enter into any
securities or financially engineered products designed to hedge
portfolio exposure or mitigate portfolio risk as a core part of its
investment strategy, but may enter into hedging transactions to
hedge individual positions or reduce volatility related to specific
risks such as fluctuations in foreign exchange rates, interest
rates, and other market forces.
Glossary (unaudited)
Defined Terms
"Adjusted Net Asset the NAV adjusted by deducting the unrealised
Value" gains and unrealised losses in respect of
private Portfolio Companies;
"Administrator" means Elysium Fund Management Limited;
"AIC" the Association of Investment Companies;
"AIC Code" the AIC Code of Corporate Governance dated
February 2019;
"AIFM" means Alternative Investment Fund Manager;
"AIFMD" the Alternative Investment Fund Managers Directive;
"Alcyone" Alcyone Therapeutics, Inc.;
"Ancora" Ancora Heart, Inc.;
"Annual General the annual general meeting of the shareholders
Meeting" or "AGM" of the Company;
"Annual Report" the Annual Report and audited consolidated
financial statements;
"Antibody" a large Y-shaped blood protein that can stick
to the surface of a virus, bacteria, or receptor
on a cell;
"Antibody-Oligonucleotide molecules that combine structures of an antibody
Conjugates" or "AOC" and an oligo;
"Artios" Artios Pharma, Inc.;
"Artiva" Artiva Biotherapeutics, Inc.;
"Athira" Athira Pharma, Inc.;
"Autoimmune diseases" conditions, where the immune system mistakenly
attacks a body tissue;
"Avidity" Avidity Biosciences, Inc.;
"Beta Bionics" Beta Bionics, Inc.;
"Biomea" Biomea Fusion, Inc.;
"C4 Therapeutics" C4 Therapeutics, Inc.;
or "C4T"
"Calculation Date" 31 December or, if such date is not a business
day, the previous business day;
"Cardiovascular conditions affecting heart and vascular system;
disease"
"CinCor" CinCor Pharma, Inc.;
"Clinical stage" a therapy in development goes through a number
or "clinical trial" of clinical trials to ensure its safety and
efficacy. The trials in human subjects range
from Phase 1 to Phase 3. All studies done
prior to clinical testing in human subjects
are considered preclinical;
"CNS" Central Nervous System
"Companies Law the Companies (Guernsey) Law, 2008 (as amended);
"
"Company " or "RTW RTW Venture Fund Limited is a company incorporated
Venture Fund Limited" in and controlled from Guernsey as a close-ended
Investment Company. The Company has an unlimited
life and is registered with the GFSC as a
Registered Closed-ended Collective Investment
Scheme. The registered office of the Company
is 1(st) Floor, Royal Chambers, St Julian's
Avenue, St Peter Port, Guernsey, GY1 3JX ;
"Company's Articles means the Company's Articles of Incorporation;
"
"Core portfolio Include private companies and public companies
companies" that were initially added to our portfolio
as private investments;
"Corporate Brokers" being J.P. Morgan Cazenove and Bank of America
;
"Crohn's Disease" a condition, in which a part(s) of digestive
tract is inflamed;
"CRS" Common Reporting Standard;
"Danon Disease" a rare genetic heart condition in children,
predominantly boys;
"Directors " or the directors of the Company as at the date
"Board" of this document, or who served during the
reporting period, and "Director" means any
one of them;
"DTR" Disclosure Guidance and Transparency Rules
of the UK's FCA;
"Encoded" Encoded Therapeutics, Inc.;
"EU " or "European the European Union first established by the
Union" treaty made at Maastricht on 7 February 1992;
"Fanconi Anemia" a rare genetic blood condition in young children;
"FATCA" the Foreign Account Tax Compliance Act;
"FCA " the Financial Conduct Authority;
"FCA Rules " the rules or regulations issued or promulgated
by the FCA from time to time and for the time
being in force (as varied by any waiver or
modification granted, or guidance given, by
the FCA);
"FDA" the US Food and Drug Administration;
"FRC" the Financial Reporting Council;
"Frequency" Frequency Therapeutics, Inc.;
"FTC" the Federal Trade Commission;
"Gene therapy" a biotechnology that uses gene delivery systems
to treat or prevent a disease;
"Genetic Medicine" an approach to treat or prevent a disease
using gene therapy or RNA medicines;
"GFSC " the Guernsey Financial Services Commission;
"GFSC Code" the GFSC Finance Sector Code of Corporate
Governance as amended in June 2021;
"GH Research" GH Research PLC;
"Group" the Company and the Subsidiary;
"HCM" or "Hypertrophic a cardiovascular disease characterised by
cardiomyopathy" an abnormally thick heart muscle;
"ImmTAC(R)" bi-specific biologic molecules designed to
fight cancer or viral infections;
"Immunocore" Immunocore Limited;
"InBrace" InBrace or Swift Health, Inc.;
"Independent Valuer" Alvarez & Marsal Valuation Services, LLC;
"Infantile Malignant a rare genetic bone disease in young children,
Osteopetrosis" or manifesting in an increased bone density;
"IMO"
"Interim Report" the Interim Financial Report;
"Investigational the FDA's investigational New Drug program
New Drug" or "IND" is the means by which a pharmaceutical company
obtains permission to start human clinical
trials;
"Investment Manager" RTW Investments, LP, also referred to as RTW;
"IPEV Guidelines" the International Private Equity and Venture
Capital Valuation Guidelines;
"IPO" an initial public offering;
"IRR" internal rate of return;
"ISDA" International Swaps and Derivatives Association;
"iTeos" iTeos Therapeutics, Inc.;
"Ji Xing" Ji Xing Pharmaceuticals, formerly China New
Co;
"Kyverna" Kyverna Therapeutics, Inc.;
"Landos" Landos Biopharma, Inc.;
"Lentiviral vector based gene therapy - a type of viral vector
or "LVV" used to deliver a gene;
"Leukocyte adhesion a rare genetic disorder of immunodeficiency
deficiency" or "LAD-I" in young children;
"LifeSci Companies" companies operating in the life sciences,
biopharmaceutical, or medical technology industries;
"Listing Rules the listing rules made under section 73A of
" the Financial Services and Markets Act 2000
(as set out in the FCA Handbook), as amended;
"London Stock Exchange London Stock Exchange plc;
" or "LSE"
"LSE" London Stock Exchange's main market for listed
securities;
"Lycia" Lycia Therapeutics, Inc.;
"MAGE-A4" a protein expressed on certain types of tumours;
"Magnolia Medical" Magnolia Medical Technologies, Inc.;
or "Magnolia"
"Medtech" medical technology sector within healthcare;
"Menin" a target for the treatment development in
oncology;
"Milestone" Milestone Pharmaceuticals, Inc.;
"MOC" Multiple on capital is the ratio of realised
and unrealised gains divided by the acquisition
cost of an investment;
"Monte Rosa" Monte Rosa Therapeutics, Inc.;
"Myotonic Dystrophy" a genetic condition that affects muscle function;
"NASDAQ Biotech" a stock market index made up of securities
of NASDAQ-listed companies classified according
to the Industry Classification Benchmark as
either the Biotechnology or the Pharmaceutical
industry;
"Net Asset Value the value of the assets of the Company less
" or "NAV" its liabilities, calculated in accordance
with the valuation guidelines laid down by
the Board;
"Neurogastrx" Neurogastrx, Inc.;
"New Performance performance allocation shares of no-par value
Allocation Shares" in the capital of the Subsidiary;
"NewCo" a new company;
"NiKang" Nikang Therapeutics, Inc;
"Non-core portfolio investments made in public companies as a
assets" part of cash management strategy;
"Notional Ordinary Performance Ordinary Shares, in which receipt
Shares" of such shares has been deferred;
"Nuance" Nuance Pharma;
"Numab" Numab Therapeutics, Inc.;
"Official List the official list of the UK Listing Authority;
"
"Oligonucleotides" short DNA or RNA molecules that have a wide
or "Oligos" range of applications in genetic testing and
research;
"Oncology" a therapeutic area focused on diagnosis, prevention
and treatment of cancer;
"OpCo" or "Subsidiary" RTW Venture Fund Operating Limited;
"Ophthalmic conditions" conditions affecting the eye;
"Orchestra BioMed" Orchestra BioMed, Inc.:
or "Orchestra"
"Ordinary Shares" the Ordinary Shares of the Company;
"Performance Allocation an allocation connected with the performance
Amount" of the Company to be allocated to the Performance
Allocation Share Class in such amounts and
as such times as shall be determined by the
Board;
"Performance Allocation each period ending on a Calculation Date and
Period" beginning on the business day immediately
following the last Performance Allocation
Period in respect of which a Performance Allocation
has been allocated ;
"Performance Allocation a class fund for the Performance Allocation
Share Class" Shares or New Performance Allocation Shares
to which the Performance Allocation will be
allocated;
"Performance Allocation performance allocation shares of no-par value
Shares" in the capital of the Company (prior to the
1 December 2022 reorganisation), or performance
allocation shares of no-par value in the capital
of the Subsidiary (with effect from the 1
December 2022 reorganisation);
"Performance Allocation the holder of Performance Allocation Shares
Shareholder" or New Performance Allocation Shares;
"PFIC" Passive Foreign Investment Company;
"Pilot study" a small-scale study;
"Private Investment is when an institutional or an accredited
in Public Equity" investor buys stock directly from a public
or "PIPE" company below market price;
"POI Law " The Protection of Investors (Bailiwick of
Guernsey) Law, 2020, as amended;
"Portfolio Companies" Private and public companies included into
the portfolio;
"PRAME" a cancer-testis antigen (CTA) that is highly
expressed in a broad range of solid and hematologic
malignancies;
"Premium Segment" Premium Segment of the Main Market of the
LSE;
"PRIority Medicines" to be accepted for PRIME, a medicine has to
or "PRIME" show its potential to benefit patients with
unmet medical needs based on early clinical
data;
"Prometheus" Prometheus Biosciences, Inc.;
"Prospectus" the prospectus of the Company, most recently
updated on 14 October 2019 and available on
the Company's website ( www.rtwfunds.com/venture-fund
);
"PTP" Publicly Traded Partnership;
"Pulmonary conditions" pathologic conditions that affect lungs;
"Pulmonx" Pulmonx Corporation;
"Pyruvate Kinase a rare genetic disorder affecting red blood
Deficiency" or "PKD" cells;
"Pyxis" Pyxis Oncology, Inc.;
"Rare disease" a disease that affects a small percentage
of the population;
"Registrar " Link Market Services (Guernsey) Limited;
"RNA medicines" a type of biotechnology that uses RNA to treat
a disease;
"Rocket Pharmaceuticals" Rocket Pharmaceuticals, Inc.;
or "Rocket"
"RTW" RTW Investments, LP, also referred to as the
Investment Manager;
"RTWCF" RTW Charitable Foundation;
"RTW Royalty" RTW Royalty Holding Company #1 and #2;
"Russell 2000 Biotech" a stock index of small cap biotechnology and
pharmaceutical companies;
"SEC Rule 144" selling restricted and control securities;
"Seed Assets" the initial portfolio of the Company, consisting
of: Beta Bionics, Frequency, Immunocore, Landos,
Orchestra BioMed and Rocket;
"SFS" Specialist Fund Segment of the London Stock
Exchange;
"Small molecule" a compound that can regulate a biologic activity;
"Sensorineural a type of hearing loss caused by damage to
hearing loss" the inner ear;
"SPAC" Special Purpose Acquisition Company;
"Sub-Administrator" Morg an S t an l ey Fun d Se r v ic e s USA
LLC;
"Subsidiary" or RTW Venture Fund Operating Limited;
"OpCo"
"Tachycardia" a heart rhythm disorder;
"Tarsus" Tarsus, Inc.;
"Tenaya" Tenaya Therapeutics. Inc.;
"TIGIT" a target for a checkpoint antibody development
in immune-oncology;
"TL1A" a target for the treatment of inflammation
associated with inflammatory bowel disease
(IBD);
"Type 1 Diabetes" a type of insulin resistance;
or "TD1"
"Total shareholder a measure of shareholders' investment in a
return" company with reference to movements in share
price and dividends paid over time;
"UK" United Kingdom;
"UK Code" the UK Corporate Governance Code 2018 published
by the Financial Reporting Council in July
2018;
"UK-Guernsey IGA" The UK-Guernsey Intergovernmental Agreement
for the Automatic Exchange of Information;
"Ulcerative Colitis" an inflammatory bowel disease that causes
sores in the digestive tract;
"Umoja" Umoja Biopharma. Inc.;
"US" the United States of America;
"US GAAP" US Generally Accepted Accounting Principles;
"Uveal melanoma" a type of eye cancer;
"Valuation Committee" Valuation Committee of the Investment Manager;
"Ventyx" Ventyx Biosciences, Inc.;
"Visus" Visus Therapeutics, Inc.;
"WACC" weighted average cost of capital;
"XIRR" an internal rate of return calculated using
irregular time intervals.
"Yarrow" Yarrow Biotechnology, Inc.
Alternative Performance Measures (unaudited)
APM Definition Purpose Calculation
Available Cash held by the A measure of Cash and cash equivalents,
Cash Group's Bankers, the Due from brokers less
Prime Broker and Group's Due to brokers on the
an ISDA liquidity, Statement of Assets
counterparty. working & Liabilities.
capital
and
investment
level.
NAV per The Company's NAV A measure of The net assets attributable
Ordinary divided by the the to ordinary shares
Share number value of one on the statement of
of Ordinary Ordinary financial position
Shares. Share. (US$326.1 million)
divided by the number
of Ordinary Shares
in issue (212,389,138)
as at the calculation
date.
Price per The Company's A measure of Extracted from the
share closing the official list of the
share price on the supply and London Stock Exchange.
London Stock demand
Exchange for the
for a specified Company's
date. shares.
NAV Growth The percentage A key measure The quotient of the
increase/decrease of NAV per share at the
in the NAV per the success end of the period (US$1.54)
Ordinary of and the NAV per share
share during the the at the beginning of
reporting period. Investment the period (US$1.71)
Manager's minus one expressed
investment as a percentage.
strategy.
Share price The percentage A measure of The quotient of the
growth/Total increase(decrease) the price per share at
Shareholder in the price per return that the end of the period
Return share during the could (US$1.21) and the price
reporting period. have been per share at the beginning
obtained of the period (US$1.78)
by holding a minus 1.00 expressed
share as a percentage. The
over the measure excludes transaction
reporting costs.
period.
Share Price The amount by A key measure The quotient of the
Premium which of price per share at
(Discount) the ordinary share supply and the end of the period
price is demand (US$1.21) and the NAV
higher/lower for the per share at the end
than the NAV per Company's of the period (US$1.54)
ordinary share, shares. A minus one expressed
expressed as a premium as a percentage.
percentage implies
of the NAV per excess
ordinary demand versus
share. supply
and vice
versa.
Multiple on The multiple that A measure to The ratio between initial
Invested measures value evaluate capital invested in
Capital that performance a portfolio company
(MOIC or MOC) an investment has of and current (as of
generated. the realised 31 December 2022) value
and of the investment.
unrealised It is a gross metric
investments. and calculation is
performed before fees
and incentive.
Extended The percentage or A measure of The rate also expressed
Internal single rate of return as a percentage that
Rate of return which is used calculates the returns
Return when applied to when on the total investment
(XIRR) all transactions multiple made with increments
in a portfolio investments through a given period
company. have been (from initial investment
made date to 31 December
over time 2022).
into
a portfolio
company.
Ongoing The recurring A measure of Calculated in accordance
charges costs the with the AIC methodology
ratio that the Group has minimum gross detailed on the web
incurred during profit link below:
the period that the https://www.theaic.co.uk/sites/default/files/documents/AICOngoingCharg
excluding Company esCalculationMay12.pdf
performance fees needs to
and one off legal produce
and professional to make a
fees expressed as positive
a percentage of return for
the Group's shareholders.
average
NAV for the
period.
Ongoing Charges 2022 2021
US$ US$
Fees to Investment Manager 3,751,464 4,813,854
Legal and professional fees 1,008,629 1,070,317
Audit fees 329,557 288,254
Administration fees 312,003 330,834
Directors' remuneration 176,722 214,353
Other expenses 1,100,167 584,851
Listing fees - 936,615
Total expenses 6,678,542 8,239,078
Non-recurring expenses (487,786) (1,176,627)
-----------
Total ongoing expenses 6,190,756 7,062,451
-----------
Average NAV 322,418,512 408,929,032
Annualised ongoing charges
(using AIC methodology) 1.92% 1.73 %
-----------
-- ENDS --
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FR FLFIDVIIIVIV
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