BACIT plans to expand its investment policy and grow its assets under management with a couple of deals. This will nudge the fund towards becoming more of a life sciences company.
BACIT is hoping to acquire Syncona LLP, a limited partnership vehicle founded by Wellcome Trust. this has an existing portfolio of life science investments. The managers of the Syncona LLP would come to work for BACIT. It also hopes to buy all or a majority interest in the CRT Pioneer fund from Cancer Research UK. Wellcome Trust and Cancer Research UK will end up with a stake in BACIT in return – £319m worth for Wellcome Trust and £17m worth for Cancer Research UK. Existing shareholders and new investors will be able to buy new shares up to a limit – BACIT doesn’t want these deals to push its net asset value beyond £1bn. The issue price will be 101.35% of NAV. £100m a year of BACITs assets will be invested in life sciences until this accounts for the whole portfolio. At least 25% of the life sciences portfolio will be invested in oncology projects and businesses. They want to keep the charitable donations and the policy of growing their dividend each year. The target return, over the long-term, will be 15% per annum. The name of the company will change to Syncona Limited.
Exit opportunity
BACIT will also offer a share sale facility to permit existing Shareholders who do not wish to remain invested in the Company following implementation of the Proposals to sell their shares at the Offer Price less dealing costs (the “Liquidity Facility”).
Some detail
BACIT talked to its major shareholders before publishing the proposals. They want to continue to make investments in alternative investment funds until
such time as it requires financing for specific life science investments. In a departure from previous practice, BACIT would reserve the right to make new alternative investments on a fee bearing basis.
The investments owned by Syncona are principally early stage life science investments:
- Blue Earth Diagnostics Limited is a Cancer imaging company capturing a leading share of the prostate cancer imaging market with its FDA approved product. The first investment was made in 2014. GBP29.3 million invested and committed to-date. Syncona holds a 90 per cent. stake on a fully-diluted basis. they think, if it is successful, it could reach a valuation in excess of GBP500 million
- Autolus Limited provides cell-based immunotherapy that involves re-engineering a patient’s immune cells (T-cells) to target and destroy cancerous cells and provide long-term protection from disease. First investment in 2015. GBP30 million invested and committed to-date. An estimated further GBP100 million of funding required in the future. Syncona holds a 37 per cent. stake on a fully-diluted basis. If successful, could reach a valuation in excess of GBP1 billion.
- Achilles Therapeutics Limited provides immunotherapy for the treatment of late stage solid-tumour disease (which accounts for around 80 per cent. of all cancer disease). First investment in 2016. GBP12 million invested and committed to-date. An estimated further GBP100 million of funding required in the future. Syncona holds a 66 per cent. stake and the CRT Pioneer Fund holds a minority stake. If successful, could reach a valuation in excess of GBP1 billion.
- NightstaRx Limited’s underlying technology is a one-off injection of a gene therapy product with the aim of halting the progression of a rare disease, Choroideremia, which causes permanent loss of eyesight. First investment in 2014. GBP22.4 million invested and committed to-date. An estimated further GBP40 million of funding required in the future. Syncona holds a 55 per cent. stake on a fully-diluted basis. If successful, could reach a valuation in excess of GBP1 billion.
- Freeline Therapeutics Limited develops treatments for blood disorders (such as Haemophilia) and other similar similarly debilitating conditions. First investment in 2015. GBP33.5 million invested and committed to-date. An estimated further GBP100 million of funding required in the future. Syncona holds a 75 per cent. stake on a fully-diluted basis. If successful, could reach a valuation in excess of GBP500 million.
- Gyroscope Therapeutics Limited is developing a gene therapy product for a disease which causes permanent loss of eyesight and which has a large unmet clinical need. First investment in 2016. GBP15 million invested and committed to-date. An estimated further GBP70 million of funding required in the future. Syncona holds a 78 per cent. stake on a fully-diluted basis. If successful, could reach a valuation in excess of GBP1 billion.
- Cambridge Epigenetics Limited is developing research tools which provide detailed resolution of epigenetic changes to DNA, a key piece of information which has clear research utility and clinical potential as a diagnostic tool for diseases such as cancer. First investment in 2013. GBP2.4 million invested and committed to-date. An estimated further GBP10 million of funding required in the future. Syncona holds a 12 per cent. stake on a fully-diluted basis. If successful, could reach a valuation in excess of GBP50 million.
BACIT will also acquire either all or a majority of Cancer Research UK’s 35.5 per cent. stake in the CRT Pioneer Fund. BACIT currently has a GBP20 million commitment to the CRT Pioneer Fund therefore its pro forma interest in the CRT Pioneer Fund will be up to 64.3 per cent. The CRT Pioneer Fund is a GBP70 million venture life sciences fund established by Cancer Research UK and Cancer Research Technology in 2012. The fund’s objective is to bridge the investment gap between cancer drug discovery and early development by taking potential cancer drugs from discovery through to their entry into Phase II clinical trials.
Once the CRT Pioneer Fund is fully committed or at the end of its investment period, BACIT and Cancer Research UK intend to enter into a pipeline agreement, on terms materially identical to Cancer Research UK’s existing agreement in respect of The Pioneer Fund, under which Cancer Research UK would make life science investments available to BACIT on a “first look” basis, and it is expected that the investment managers of the CRT Pioneer Fund will join the Syncona Investment Team.
Management arrangements
On implementation of the Proposals, the existing Syncona investment management team will become employees of a new wholly-owned management subsidiary of BACIT whose chief executive officer will be Martin Murphy, currently the chief executive officer of Syncona. On receipt of the relevant regulatory authorisation, this new subsidiary will become BACIT’s alternative investment fund manager with investment discretion regarding the allocation and investment of BACIT’s portfolio between life science investments and alternative investment funds.
BACIT UK will continue as investment manager of the alternative investment funds portfolio, both before and after the new wholly-management subsidiary becoming the Company’s alternative investment fund manager.
The costs of the new subsidiary (including employee remuneration) are not expected to exceed 1 per cent. of net asset value per annum. In addition, a long term incentive plan will be put in place for the life science investment management personnel. BACIT UK will continue to be paid an investment management fee of 0.19 per cent. of net asset value per annum such fee to be reduced to 0.15 per cent. after an initial fixed period of 5 years and subject to a review of performance. Adoption of the long term incentive plan and the amendments to the BACIT UK investment management agreement will be subject to shareholder approval.
Comments
Tom Henderson, Founder of BACIT said: “We began BACIT in order to boost drug discoveries in the fight against cancer, both as a donor and as an investor and we have enjoyed a special relationship with The Institute of Cancer Research from the outset. That aim evolved into our investment, alongside Cancer Research UK, in the CRT Pioneer Fund. The same logic has given rise to this transaction, which will create a national champion of life science investing and accelerate the achievement of our aim: to win the battle against cancer and to create great returns for our investors at the same time.”
Martin Murphy, CEO of Syncona, said: “Aligning with the premium charitable life science funders, Wellcome and Cancer Research UK, provides a compelling opportunity to capture significant value from the commercialisation of the UK’s best life science technology while delivering life changing outcomes for patients. The UK’s world leading position in life science innovation needs the support of an expert, deep pool of long term capital that can support and develop ideas from the laboratory bench through to patient adoption. This transaction would see the creation of a UK life science champion, with the scale, capital backing and long-term vision to realise the full commercial potential of this world-class life science base.”
Dr. Jeremy Farrar, Director of Wellcome, said: “We launched Syncona with a long term vision to offer support for some of the best innovators in life sciences and to deliver impact to patients. It has already achieved great things and this proposal, which will see it align with BACIT and Cancer Research UK, will allow it to spread its wings and expand its horizons further. We see this as a logical next step for Syncona and we look forward to watching it and the companies it supports expand and prosper.”
Sir Harpal Kumar, CEO of Cancer Research UK, said: “This partnership with Wellcome and BACIT provides the opportunity to build a company with the vision and scale to bring significant long term capital to the development of oncology programmes, delivering new innovations faster to patients. This is an important step in our mission to bring forward the day when all cancers are beaten.”
Paul Workman, CEO of The Institute of Cancer Research, said: “This innovative and exciting initiative is wonderful news for the discovery and development of new treatments for cancer and other diseases in the UK. This could catalyse the transformation of the entire ecosystem.”
BACT : BACIT to become a life sciences company