Regular readers of my FT column will know that I’ve been quietly championing an investment fund that used to be called BACITs but is now known as Syncona. In its old incarnation, it was an interesting way of buying into a raft of alpha driven hedge funds and active funds i.e a fund of fund. Crucially though it had a strong charitable ethos, paying fees and profits into various cancer charities – BACITs stood for Battle Against Cancer Investment Trust. It was moderately successful in this endeavor but recently changed its investment focus to a more explicit way of buying into life sciences. It reversed Syncona, a part of the Wellcome Foundation, into the investment trust and in effect turned itself into a life sciences VC fund – fed by cash flows from its slowly diminishing pool of liquid hedge funds and asset managers.
I was an early enthusiast largely because I knew that in the VC industry Syncona was highly regarded. Its management is viewed as first rate and it has the cachet of working closely with Wellcome. I also like its more concentrated focus on a tight portfolio of businesses in a small number of clinical specialisms. This isn’t a general-purpose VC nor even a general life sciences VC. This is a focused team looking at working intensively with a small number of businesses in areas that it has chosen to highlight.
By adding in BACITS original city exposure we had what I felt was a perfect combination – real clinical expertise allied to a source of long-term capital. So, I enthusiastically backed what was in effect a kind of reverse takeover and invested in the additional placing. The fund now has a market cap of £1.1 billion and is of sufficient scale to be on many global investors radar. Frankly, if I’m honest, if I was an institutional investor I’d much rather put my money to work into Syncona than gamble on more diversified IP VCs such as IP Group (excellent though that business is).
What I didn’t expect though was that the share price would move swiftly upwards. I thought that the shares would trade at a premium, largely because most biotech VCs trade at a hefty premium – and all those conventional investment fund assets are also very liquid. With the shares currently trading at 168p, they are now on a 14.5% to 16.5% premium. In reality, the premium is actually a lot higher as the life sciences part of the portfolio is still only 32% of net assets – which by my rough calculations put the life sciences portfolio at around a 50% premium.
But the share price is being driven by positive news flow. Only yesterday, for instance, we had two important bits of news – both of which could make a major difference to the fund. The portfolio companies concerned are Nightstar and Autolus. I’ve summarised Mondays note from Numis. But for me the bottom line is clear. Syncona is now the default way of buying into focused life science assets in the UK. It’s a world-class VC with scale and expertise and a line of capital that can easily support an investment of £75m-£150m in new and existing life science investments this financial year (to 31 March 2018). Strategically the aim is to invest in a focused portfolio of 15-20 life science companies (adding 2-3 per year), with the aim of delivering 3-5 companies with successful marketed products.
My hunch is that Syncona might even go for a placing in the next few months, looking to raise extra money for its exciting programme. I’d willingly take part in such a financing and I still rate Syncona an absolute core investment.
Anyway here’s a quick summary of the news on Nightstar which has filed for IPO in the US on the NASDAQ Global Market under the ticker symbol “NITE”, with an expected price range of $13-15 per American Depositary Share . For Syncona this represents an increase in the value of its holding of £41.5m-£58.3m (6.3-8.8p per share), equivalent to an uplift of 61% to 86% over the valuation of £67.6m as at 31 July 2017. The proposed maximum offering specified in the filing is $92.46m, based on pricing at the top of the range and including a 15% over-allotment facility. Syncona currently holds a fully diluted stake of 46% in the company which would fall to less than 40% if the maximum amount is raised at IPO and the company does not purchase any ADSs (these are all new shares offered by Nightstar, rather than sales by existing investors).
If successful the IPO would increase Syncona’s last published NAV of 137.96p at 30 July 2017 by 4.6%-6.4% to 114.3p-146.8p per share, according to Numis.
According to Numis “ NightstarRx (to be reorganised as Nightstar Therapeutics) is a biopharmaceutical company focused on the development and commercialization of therapies for retinal dystrophies. Nightstar raised $45m via a C Series investment round in June 2017, with Syncona investing $12.5m (resulting in its stake reducing from 55% to 46%).” The business is set to start phase III trials for choroideremia, a rare disease which causes early blindness in males for which there is no other treatment. The gene therapy is delivered by injection into the retina, providing a faulty gene locally in the eye. Syncona’s monthly factsheet states “The technology has the potential to provide long-term correction of the disease from a single administration. There are multiple inherited forms of blindness that are addressable with Nightstar’s gene therapy technology. Nightstar is building a pipeline of products based on its manufacturing, gene therapy and retinal surgery capability”.
As for Autolus its kicked off three clinical trials. Again according to Numis, “ it is carrying out three Car-T (chimeric antigen receptor T-cell) studies, looking at a therapy called Auto2 in multiple myeloma and another called Auto3 in two separate groups: children with leukaemia and adults with lymphoma. The three clinical trials, taking place in several UK hospitals, are expected to involve about 250 patients and be completed by late 2021.” Syncona now holds a 37% stake, valued at £36.2m at 31 July, with stakes also held by Woodford Patient Capital and Arix.