Syncona sees negative returns as it continues to invest in portfolio firms

(Sharecast News) - Healthcare investment company Syncona reported net assets of £1.37bn in its interim results on Thursday, down from £1.46bn at the end of the last financial year.
The FTSE 250 firm said that equated to 198.9p per share, and a net asset value total return of -7.2%.

Its life science portfolio was valued at £481.3m, for a -11.8% return over the six months.

The company reported uplifts from the sale of Blue Earth Diagnostics and a Series B financing in Achilles Therapeutics, although that was outweighed by a 61% decline in the Autolus share price, with the board saying it continued to believe in the company's "strong" fundamentals.

Syncona said Blue Earth and Nightstar sales generated an aggregate of £592.6m of proceeds in the six months ended 30 September.

The sale of Blue Earth to Bracco Imaging was for $476.3m, represented a 10x return on invested capital and an internal rate of return of 87%, while the sale of Nightstar to Biogen for $877m represented a 4.5x return on invested capital and an internal rate of return of 72%.

Syncona said it had strengthened its capital base in the half-year to fund its growing life science portfolio, with the capital base increased by £455.8m to £855.5m.

A total of £127.2m was invested into its life science companies, in line with its strategy, including $24m in a $109m follow-on financing in Autolus, and a commitment of £48m to Gyroscope Therapeutics in a £50.4m Series B financing.

Achilles raised £100m in an oversubscribed Series B, with Syncona being the largest investor in the round with a £35.1m commitment.

Capital deployment for the full year would increase to between £200m and £250m, the board said, up from its previous guidance of £100m to £200m and subject to the timings of financings and a "disciplined approach" to capital allocation.

The board also reported ongoing progress in its clinical pipeline, with seven live clinical trials, including encouraging initial data from Autolus in 'AUTO1' adult ALL, while Freeline commenced its second clinical programme in Fabry's Disease.

Dose optimisation was also progressing in Freeline's 'B-AMAZE' phase 1 and 2 trial in Haemophilia B, and dose escalation was ongoing in the Gyroscope phase 1 and 2 trial in dry AMD.

Since the period ended, Syncona committed £29.5m to its new portfolio company, Azeria Therapeutics, which it described as a firm developing and commercialising innovative cancer therapeutics.

Achilles also commenced patient enrolment in its first programme in non-small cell lung cancer, while Autolus announced that it would present further data from its pipeline of programmes at the American Society of Hematology conference, including 'AUTO1', 'AUTO2' and 'AUTO3'.

Looking ahead, the Syncona board said it was looking at a "rich pipeline of opportunities" around which to found new companies with the ambition of taking products to market, including across areas such as gene therapy, cell therapy, small molecules and biologics.

In its existing portfolio, it said it provided ambitious, long-term funding to its companies, which were scaling rapidly and progressing through the development cycle, enabling Syncona to retain significant ownership positions of strategic influence.

In the short term, data generated from its clinical pipeline would be a core driver of value, with the board saying it expected both Freeline's 'B-AMAZE' trial in Haemophilia B to publish data in the current financial year, and Autolus to take a decision on whether to initiate a phase 2 trial in 'AUTO3' DLBCL in mid-2020.

Long-term, the directors say they believed there was an opportunity to create "significant" value in life science through Syncona's differentiated model.

They said the firm was halfway to its target of building a diversified portfolio of between 15 and 20 companies.

Over the next 10 years, it was expecting to deliver three to five companies from that portfolio which would reach the point of product approval, and where Syncona remained a "significant" shareholder - an approach which the board said would maximise risk-adjusted returns for shareholders.

"We have made good progress across the portfolio and demonstrated a strong track record of success in the first half of 2019," said Syncona Investment Management chief executive officer Martin Murphy.

"The sales of Blue Earth and Nightstar, two companies we founded, generated strong risk-adjusted returns, strengthened our capital base and enabled us to invest significantly into our exciting portfolio of companies as they scale.

"We continue to see a strong pipeline of opportunities across a broad range of therapeutic areas to found new companies and take products to market, as we seek to build a sustainable, diversified portfolio of 15-20 companies in innovative areas of healthcare."

Chris Hollowood, chief investment officer of Syncona Investment Management, added that following the addition of new Syncona company Azeria, the firm had a high-quality portfolio of nine companies.

"Three are at clinical stage, where the data generated will be a core driver of value.

"Whilst clinical and regulatory processes involve significant risk, we have a high level of conviction in our companies, and there is strong momentum in the portfolio.

"We have a highly expert team, strategic capital base and differentiated model to found, build and fund businesses through the translation of globally leading life science research as we seek to deliver transformational treatments to patients and strong risk-adjusted returns for shareholders."

At 0858 GMT, shares in Syncona were down 2.67% at 218.5p.