RTW Biotech Opportunities (RTW) is to extend share buybacks by $15m (£11m) following a flurry of four bids for portfolio companies since 30 June.
This is in addition to the $24.2m of capital the £397m investment trust has returned to shareholders through share repurchases since launching a $30m buyback programme in 2023.
The updated capital allocation plan reflects RTW’s belief that its 23% share price discount “materially undervalues this performance and the clear value in the company’s portfolio” which the spate of mergers and acquisitions (M&A) has demonstrated.
Winterflood analyst Alex Trett agreed the valuation gap was “unjustified”, adding: “We view the board’s additional share buyback commitment as a favourable and prudent use of proceeds.”
Biotech M&A has spiked in the past 10 weeks in anticipation of cuts in US interest rates and signs the sector has reached an accommodation with the Trump administration. That has lifted shares in RTW and other London-listed rivals such as Biotech Growth (BIOG) and International Biotechnology Trust (IBT).
The four latest deals that have directly benefited RTW are:
- On 9 July Merck’s $10bn acquisition of Verona at a 23% premium;
- Biogen agreeing on 18 September to buy private portfolio company Alcyone for $85m upfront, a 242% uplift on the carrying value.
- Just over a week later Genmab struck a deal to buy Merus for $8bn at a 41% premium;
- On 9 October, Novo Nordisk bought Akero for $4.7bn upfront, a 42% premium to the closing price on 19 May before speculation about the deal surfaced.
RTW believes the trend will continue. “With large pharma companies facing significant patent cliffs in the years ahead, many would be considered strategically interesting targets to fill pharma pipelines.”
Since launch six years ago, RTW says it has outperformed its peer group and benchmarks with an annualised underlying investment return of 12.5%. However, that has not been reflected in the share price that has lagged the portfolio’s performance.
After a blistering start from their $1 listing, RTW shares peaked at $2.44 in September 2021 before declining in the sector’s bear market to $1.14 in April. They have rallied to $1.63 today but over five years have generated a total return of just 7.2%. That could change significantly if the recent recovery continues and the discount closes.
