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Syncona well-placed to back its portfolio through adverse market

Syncona’s results for the financial year ended 31 March 2022 show an NAV total return of just 0.3%. However, this was a long way ahead of the -12% return on the NASDAQ Biotechnology Index. A significant NAV uplift achieved through the sale of Gyroscope to Novartis and multiple successful private financings offset the decline in share prices of its three listed companies, Autolus, Freeline and Achilles, with the value of these holdings reducing by £278.5m.

The manager’s statement notes that these listed holdings were impacted by volatility in the equity markets and challenging market sentiment towards cell and gene therapies.

There have been some challenges identified across the cell and gene therapy sector, namely around safety in certain gene therapy approaches and the complexity of cell therapy manufacturing, which have impacted sentiment towards early stage businesses operating in this space. These are not new issues and, as part of our investment thesis, we work to navigate and address these challenges as we found and build our companies. We are comfortable that our companies are continuing to strive to deliver safe and effective treatments for patients.”

In the case of Freeline, the COVID-19 pandemic also led to operational challenges in the business, which Syncona has worked closely with the company to address. It says that, for Autolus and Achilles, the focus is on executing well on their clinical plans and the new leadership team at Freeline has driven efficiencies and increased focus on execution across the pipeline. It goes on to say that clinical data is the key driver of value in the sector and all three are well positioned and well funded to deliver on their key upcoming clinical milestones.

The company continues to donate 0.35% of its assets each year to fund medical research.

Syncona ended the year with a portfolio of 11 companies diversified across the development cycle and therapeutic focus areas, with four at clinical stage and Quell, SwanBio and Neogene expected to enter the clinic in the next 12 months.

The annual report has detailed information on each of Syncona’s investments and interested readers should read the statement in full. Below are some extracts from the manager’s report.

Extracts from the manager’s statement

In December 2021, we announced our largest exit to date, the sale of retinal gene therapy company, Gyroscope, to Novartis, for up to $1.5 billion (£1.1 billion). The transaction generated upfront cash proceeds of $442.2 million (£325.8 million) for our holding in Gyroscope, a 2.9 multiple on cost and 50 per cent IRR.

We have shown through the sales of Nightstar, Blue Earth and now Gyroscope, that we can deliver strong risk-adjusted returns for our shareholders. These three exits have generated returns of >£930 million, an aggregate 4.6 multiple on our invested capital.

We founded Gyroscope in 2016 upon the research of the late Sir Peter Lachmann into complement factor I, and in under six years built it from an idea to a leader in retinal gene therapy; a platform company with world-class delivery and manufacturing capability, and an exciting therapy advancing through Phase II development for the treatment of geographic atrophy (GA) secondary to dry age-related macular degeneration (dAMD).

In addition to the upfront cash proceeds, the sale of Gyroscope will potentially generate a further £255.3 million for Syncona, through future milestone payments, which, if received, would take total proceeds to £581.1 million, a 5.1 multiple on original cost. At 31 March 2022, we are valuing these potential future payments, on a risk-adjusted and discounted valuation basis, at $65.4 million (£49.8 million). Syncona is also positioned to benefit from any future commercialisation of Gyroscope’s lead programme via a low single-digit royalty on future sales revenue.

We believe this transaction further validates our strategy that a long-term approach to ownership and focus on delivering approved medical products ensures that we are able to build globally competitive businesses and can deliver cash returns to fund exciting opportunities in the portfolio and in our pipeline.

A well-funded portfolio with $712.2 million of capital raised

Our portfolio companies have continued to attract substantial capital commitments from specialist institutional and strategic investors, with financings announced across seven of our portfolio companies in the financial year: Autolus, Quell, Anaveon, Gyroscope, Clade, Freeline and Resolution Therapeutics (Resolution), totalling $712.2 million (£531.8 million), of which Syncona committed $126.4 million (£97.7 million).

This significant investment into the portfolio continued post period end. In April, OMass announced an oversubscribed Series B financing of £75.5 million, with Syncona committing £15.0 million alongside a leading global syndicate of new and existing investors including GV, Northpond, Sanofi Ventures, Oxford Science Enterprises and Oxford University. In May, we also announced a $53.7 million (£43.6 million) commitment to SwanBio in a $55.9 million (£45.3 million) Series B financing, which will provide further funding to the company as it prepares to dose the first patient in its lead SBT101 programme, as well as develop its broader pipeline.

Capital deployment to increase over the next financial year

During the financial year, Syncona has deployed £123.2 million of capital into the portfolio, underpinned by our strong capital base, which has increased to £784.9 million following the recent sale of Gyroscope. This provides us with a strategic advantage to fund our companies over the long term and attract world-class leaders to our portfolio, as well as the ability to support our portfolio companies during challenging market conditions, such as we see today.

We have reviewed our approach to capital pool asset allocation in light of the current inflationary environment, including our approach to foreign exchange exposure, resulting in a decision to selectively introduce a number of fund investments to the capital pool, and to hold more US dollars on an ongoing basis to align against future US dollar portfolio investment requirements. We continue to balance liquidity and access to capital to protect the value of the capital pool.

We expect to deploy £150-£250 million of capital in FY2022/3 as we found new companies, our existing portfolio companies continue to scale, and we hold a select number of companies privately for longer.

Innovative cell therapy company added to the portfolio and a strong pipeline of opportunities ahead

We continue to be excited about the opportunities we see in our sector. We welcomed Clade to our portfolio, an innovative, next generation stem-cell based therapeutics company, leading a $87.1 million Series A financing alongside a syndicate of long-term investors. This investment provides us with exposure to the allogeneic cell therapy field, and further builds out our cell therapy portfolio.

 We have a strong pipeline of potential new Syncona companies as well, with multiple advanced opportunities that are in late-stage due diligence. We are excited by the diverse opportunities for new investment that we continue to see across therapeutic and domain areas, including in gene therapy, cell therapy, small molecules, biologics, antibodies, and other Third Wave modalities such as nucleic acid therapies, as we continue to leverage the team’s expertise in identifying exceptional science that has the potential to deliver dramatic efficacy in areas of high unmet medical need.

We look to continue to add on average two to three companies per year.

SYNC : Syncona well-placed to back its portfolio through adverse market

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