I think it’s worth reporting back on the Syncona Capital Markets day which was held on Tuesday.
For the record, I’ve long been a fan of this life sciences venture capital firm (formerly BACITs, a fund). I’ve invested all the way through, took some profits a year and a bit ago, and have invested more money because of the recent share price weakness.
I’d draw attention to a bunch of observations from the investor afternoon, the first of which is the sheer number of people who attended. The event was at 1 Moorgate Place and by my estimation, there must have been well over 200 to 300 people present. The venue was rammed. That in itself tells an interesting story.
It was also an interesting event because the management wanted to move the narrative on from past successes to future potential.
To date far Syncona has had great success with its initial portfolio of businesses. It founded Nightstar, then sold it with a return (IRR) of 72% – this transaction was the 3rd largest UK biotech transaction in the last 20 years. Syncona also founded Blue Earth Diagnostics, also sold on for an 87% IRR. Overall since listing in December 2016, the total shareholder return for Syncona has been 68%.
But the narrative on display was that the real focus should now be on the Stage 2 wave of businesses, plus the last remaining stage 1 business, Autolus (where there’s plan to initiate a product programme this year or next), in which Syncona has invested £147m to date and has a 29% stake (comprising 10.8% of portfolio value).
In phase two we principally have:
- Freeline – early data from products programme expected 2021 and clinical stage within 24 months. To date £149m with a 79% stake. Focused on systemic gene therapy production platform
- Gyroscope – initial data on products coming in 2022, capital invested to date £56m, with an 80% stake. Focused on retinal gene therapy
- Achilles – initial data on products expected 2022, capital invested to date £49m, for a 44% stake
Overall this fits into a plan to add 2 to 3 new portfolio companies per annum to the portfolio, building up to 15 to 20 companies in total over 10 years of which 3 to 5 companies have products ready for approval. That’s an impressive target and if it succeeds the upside from here might be huge.
Sitting beyond these phase two companies are the 3rd generation businesses, most of which one suspects won’t really be doing very much of anything for at least another two years:
- Swanbio, gene therapy focused on neurological disorders
- Quell- cell therapy approach using T regulatory cells
- Anvveon – an immune-oncology company
Overall, I think the emphasis on the stage 2 businesses made sense and one got a real sense of focus and potential, though quite whether any of these businesses will ever make money is as far as I can see a complete unknown.
One observation – if we assume 10 to 15 portfolio businesses, and 3 to 5 businesses producing products ready for approval, then we’re assuming a fairly high 30% hit rate. That strikes me as punchy, but what do I know. I would have thought 10 to 15% might be a better bet.
The other striking thing about the presentation was that Syncona clearly explained its unique company formation model. Unlike many VCs who I assume think about areas they’d like to invest in and then try and find the right teams to approach them afterwards, Syncona operates a build and then find the right people to build it model. i.e it identifies an area of gene therapy, finds the best minds and practitioners and then builds the business.
This is a differentiated strategy and one that clearly has focus. But it also carries the usual narrative-led behavioural challenge i.e what happens if your vision of the world or market opportunity is plain wrong?
With the Wait and let them approach us VC model, you can fish for the best ideas and then blame the entrepreneurs when things go wrong, which they inevitably do most times. With the Syncona model, you only really have your own staff and partners to blame if it all goes wrong, as it will most of the time.
One last observation. In the Q and A session three really smart questions came up. The first is that the sheer number of approvals for novel therapies is apparently diminishing every year, I guess because of the sheer cost of developing this stuff. That means a large number of Life Sciences VCs are chasing after a smaller pie. That could work to Syncona’s advantage if it has scale, but it could also spell vastly increased R&D spending.
Which brings us to the next question – has Syncona got enough cash. Asked this, the CEO seemed relatively sanguine but one has to wonder whether it has enough pounds and dollars sitting around in the treasury to run the fund for another five or more years without any quick wins.
The last question follows on – that R&D pipeline will be manageable if the share price shoots up, allowing Syncona to raise more cash. But the share price has been becalmed in recent months and one audience member asked what’s happening to the share price? For which there seemed to be no real answer. And of course, there is only real answer any Vc CEO can give – you need successful exits, which in turn means showing a big return on that Autolus stake.
Overall though I came away more than re-assured and my hunch is that if you are looking to invest in the next wave of gene technologies, then Syncona has to be your best way of playing it via private (fast growing) businesses.
In asset allocation terms, my own view is that any self respecting long term growth investor needs 20% to 30% exposure to this sector and at least half of that needs to be in private businesses. For me that means investing in Syncona.