RTW Biotech Opportunities — Use of Prometheus Biosciences’ sale proceeds
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RTW Biotech Opportunities (LSE: RTW)

Last close As at 21/12/2024

1.36

0.00 (0.00%)

Market capitalisation

286m

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Research: Investment Companies

RTW Biotech Opportunities — Use of Prometheus Biosciences’ sale proceeds

In June 2023, RTW Biotech Opportunities (RTWBIO) changed its name from RTW Venture Fund to more accurately reflect the company’s full life cycle approach to biotech investing. On 5 July 2023, RTWBIO announced its capital allocation plans for the proceeds received from Merck’s acquisition of Prometheus Biosciences which, when announced, was the company’s largest holding at 14.8% of NAV. The acquisition price was a 75.4% premium to the pre-bid level. Prometheus is a good example of RTW’s long-term, full life cycle investment approach, which supports businesses ranging from new company formation to mid-stage venture to pre-IPO and public markets. Investing in early-stage private assets provides RTWBIO with access to experimental data that typically are not widely available and provides time to build relationships with entrepreneurs and management teams. Given RTWBIO’s blend of public and private investments, there is no pressure to sell a company after its IPO.

Melanie Jenner

Written by

Mel Jenner

Director, Investment Trusts

Investment Companies

RTW Biotech Opportunities

Use of Prometheus Biosciences’ sale proceeds

Investment companies
Biotechnology

5 July 2023

Price

$1.26

Market cap

$268m

Total assets

$365m

NAV*

$1.72

Discount to NAV**

26.7%

*At 31 May 2023. **Based on current share price and last published NAV.

Yield

0.0%

Ordinary shares in issue

212.4m

Codes

RTW ($), RTWG (£)

Primary exchange

LSE

AIC sector

Biotechnology & Healthcare

52-week high/low

$1.34

$0.98

NAV* high/low

$1.72

$1.40

*Including income

Fund objective

RTW Biotech Opportunities (RTWBIO) is managed by global healthcare specialist RTW Investments (RTW). RTWBIO was launched on 30 October 2019 and is focused on identifying transformative assets with high growth potential across the biopharmaceutical sector. The portfolio contains private as well as publicly listed companies. RTWBIO’s performance is measured against an index of small-cap biotech stocks and the NASDAQ Biotechnology Index.

Analyst

Mel Jenner

+44 (0)20 3077 5700

RTW Biotech Opportunities is a research client of Edison Investment Research Limited

In June 2023, RTW Biotech Opportunities (RTWBIO) changed its name from RTW Venture Fund to more accurately reflect the company’s full life cycle approach to biotech investing. On 5 July 2023, RTWBIO announced its capital allocation plans for the proceeds received from Merck’s acquisition of Prometheus Biosciences which, when announced, was the company’s largest holding at 14.8% of NAV. The acquisition price was a 75.4% premium to the pre-bid level. Prometheus is a good example of RTW’s long-term, full life cycle investment approach, which supports businesses ranging from new company formation to mid-stage venture to pre-IPO and public markets. Investing in early-stage private assets provides RTWBIO with access to experimental data that typically are not widely available and provides time to build relationships with entrepreneurs and management teams. Given RTWBIO’s blend of public and private investments, there is no pressure to sell a company after its IPO.

RTWBIO invested $8.4m in Prometheus and received total proceeds of $99.1m ($6.7m prior to the acquisition plus $92.4m from Merck), which represented an 11.8x return on investment. The company made a series of investments in Prometheus, initially in November 2020 when it co-led a private financing round to advance Prometheus’s lead antibody programme (PRA023). RTWBIO then increased its holding at Prometheus’s IPO in March 2021, and participated in a further fund-raise in December 2022 to advance PRA023 into Phase III trials.

Merck completed the Prometheus acquisition on 16 June 2023 and RTWBIO’s board has carefully considered the company’s capital allocation framework. The biotech sector is recovering from the second deepest and longest bear market in its history, valuations are attractive, fundamentals have improved, and merger and acquisition activity is picking up. Hence, part of the Prometheus sale proceeds will be used to invest in attractive opportunities in private, core public and other public holdings over the medium term.

With tight financing conditions in the biotech sector, RTWBIO will use another part of the Prometheus sale proceeds for royalty financing, which is an example of its ability to offer strategic financing solutions. Capital will be allocated to RTW’s 4010 Royalty Fund; there will be no double charging as fees will only be taken at the company level. The board believes that this investment represents an attractive, uncorrelated, income-generating opportunity to complement RTWBIO’s core portfolio. Its royalty exposure will be limited to around 15% of NAV including the current royalty holding.

Given RTWBIO is trading at a wide discount to NAV, which the board considers is unjustified, it will initiate a share repurchase programme, which will be implemented over time and at its discretion. Buybacks of up to $10m are expected, which equates to around 3.7% of RTWBIO’s current market capitalisation.

General disclaimer and copyright

This report has been commissioned by RTW Biotech Opportunities and prepared and issued by Edison, in consideration of a fee payable by RTW Biotech Opportunities. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

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Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

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United Kingdom

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London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

General disclaimer and copyright

This report has been commissioned by RTW Biotech Opportunities and prepared and issued by Edison, in consideration of a fee payable by RTW Biotech Opportunities. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2023 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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