WPCT sees small decline in Jan NAV but greater share price fall

WPCT sees small decline in Jan NAV but greater share price fall

Struggling Neil Woodford-managed Woodford Patient Capital Trust (WPCT) reported a small, ~0.6% decline in NAV in January, but has since seen a larger 11% decline in share price this month as investors have become  increasingly concerned about its poor long-term performance and outlook.

The decline in NAV in January came about despite mid/high single-digit percentage gains on two of its largest investments – the biotech company Prothena and the fixed-fee UK estate agency Purplebricks – which suggests that quoted investments outside of the trust’s top 10 have seen proportionally larger share price falls. Several of WPCT’s quoted investments did indeed see large share price falls in January including Reneuron (-36%) and  NetScientific (-23%).

The trust came in second to bottom in terms of performance in January among the sector specialist investment trusts followed by Marten & Co  (see article on Quoteddata.com), and although this is a very short period, more concerning is the fact that it came bottom for the whole of 2017 (Quoteddata.com). Furthermore, both Prothena and Purplebricks have fallen heavily so far in February, by 22% at 11% respectively, suggesting this month may see a worse performance in terms of NAV. Other holdings outside the top 10 have also fallen this month, including 4D Pharma, which is down by 34%.

Of course, it may be unfair to compare WPCT to pure biotech or healthcare specialist investment trusts, as it invests additionally in tech companies and also has a higher proportion of its assets in private companies than its peers. Ironically, the fixed value of private companies should tend to reduce the short term variations in NAV compared to peer group trusts. But the valuations of private companies may be “stale” and may not reflect their current or a realisable value. Nevertheless, WPCT does offer exposure to three high-profile private biotech companies – Benevolent AI, Immunocore and Autolus – all of which feature among its top 10 and it is likely that there are potential unrealised gains on these investments.

One of the key investor concerns for WPCT investors relates to its largest holding, Prothena, which is fast approaching the first of two clinical trial read-outs on which much of its value depends.  This is the results of a phase IIb study called Pronto with lead product NEOD001 for AL amyloidosis, which are due in the second quarter. This will be followed  with the results of a Phase III trial codenamed Vital next year. One of the key risks with this stock is the fact these studies have been conducted in parallel – a high risk strategy that makes it difficult if not impossible to incorporate any learnings from Pronto into the design of Vital.  Prothena came under a short attack from Kerrisdale Capital, a US investment firm with a reputation for this strategy (see thesis) last year  prompting a decline in its stock price from around $68/share to the current $34/share (WPCT’s average purchase price for Prothena is c$40/share). Kerrisdale predicts the failure of both studies based on complex arguments around endpoints measured.

At the current 75p/share, WPCT’s shares have lost 25% of their value since launch on 1 May 2015, a performance that stands in marked contrast to other UK biotech specialist investment trusts. WPCT has made a number of  biotech investments that have performed very poorly including Sphere Medical, Allied Minds, Northwest Biosciences, Vernalis and 4D Pharma.

WPCT’s current top holdings, based on its January update are shown in the table below.

WPCT sees small decline in Jan NAV but greater share price fall