RTW Venture Fund (RTW) announced annual results for the year ended December 31 2022. NAV fell 10.2%, while shares were down -32% underperforming both of the company’s benchmarks with the Russell 2000 Biotech and Nasdaq Biotech indices down -31.3% and -10.9% respectively. The company’s discount fell to as low as 37% for the year although has since recovered to trade at around 20%.
Within the fund, the main detractor to the NAV was the markdown in Ji Xing (c. -2.2% contribution), after the IPO was delayed due to market conditions, despite a positive operating performance. The mark to market share price performance of Prometheus Biosciences (c. +9.1% contribution) and the realised gain in RTW Royalty Holdings 1 (c. +4.9% contribution), following the successful sale to Bristol Myers Squibb, were two outstanding results for the year.
The sector suffered from the wider rotation away from more risky market sectors which was, perhaps, exacerbated by a change in US tax regulation affecting publicly traded partnerships (PTPs) which RTW falls into. This year also saw actual drug pricing reform as part of the Inflation Reduction Act, which was signed into US federal law in August. The manager noted that this should not have an impact on revenue growth until 2026, limiting the immediate impact on equities. However, there are likely to be some unintended consequences that will need careful navigation.
Regarding the outlook, William Simpson commented:
“Public market valuations are still near historic lows, while innovation remains at an all-time high. The valuation metrics of the sector and our portfolio are truly compelling by historic standards, with many companies developing great potential therapies trading at a fraction of long-term valuation norms.
“The private portfolio is well funded and fairly valued and a sector bear market from February 2021 to June 2022 has created significant opportunities for a skilled investor, such as RTW, that has both scale of scientific resources and understanding, together with extensive capital markets experience and solutions to outpace their less experienced and less-resourced rivals. The investment manager believes that there remains significant demand for reliable capital to support the discovery and development of scientific innovation, and that there is an opportunity to grow their footprint in the UK and EU as an active local participant in the biotech ecosystem. The Investment Manager therefore intends to seek additional ways of growing demand for the Company’s shares with the ambition of restoring a premium valuation that can lead to the growth of the Group and its portfolio. This growth would assist in the financing of an exciting pipeline of new ideas, based upon the Group’s strategy of founding, investing, and supporting companies developing next-generation therapies and technologies that can significantly improve patients’ lives. Accordingly, the board expects the group to continue to achieve a strong performance over the long term and create value for shareholders”
RTW : RTW wraps up challenging year for BioTech