Rtw Biotech Regulatory News (RTW)

LEI: 549300Q7EXQQH6KF7Z84

31 March 2023

RTW Venture Fund Limited

Annual Report and Audited Financial Statements for the Year Ended 31 December 2022

Benchmark outperformance, realising significant value through successful portfolio company IPOs and disposals

RTW Venture Fund Limited (the "Group" or the "Company"), a London Stock Exchange-listed investment company focused on identifying transformative assets with high growth potential across the life sciences sector, is pleased to announce its Annual Results for the year ended 31 December 2022.

Financial Highlights -

(i) Total shareholder return is an alternative performance measure.

(ii) Source: Capital IQ.

Portfolio Highlights

· As of 31 December 2022, the Group held 39 core portfolio companies (2021: 42)

o  14 of which are publicly-listed (2021: 17)

o  25 of which are privately-held (2021: 25)

· 68% (2021: 67%) of the core portfolio companies' pipeline products are in clinical stage programs

· As of 31 December 2022, 70.9% of NAV was invested in core portfolio companies (2021: 66.4%)

· During the year to 31 December 2022, 2 portfolio companies (Cincor and Third Harmonic Bio), completed an initial public offering (IPO)

· The Group added 3 new companies to its portfolio in 2022 (Lenz Therapeutics, Mineralys and Apogee Therapeutics), while disposing of 6 core public portfolio companies (Athira, Biomea, iTeos, Pyxis, Pulmonx, and Landos), and 1 core private position, RTW Royalty Holdings 1 (Mavacamtem)

Roderick Wong, MD, Managing Partner and Chief Investment Officer of RTW Investments, LP (the "Investment Manager") commented:

"We are pleased to report another robust set of results for the RTW Venture Fund in 2022. We find ourselves in unprecedented market conditions, having witnessed the second consecutive year of a bear market in the biotech sector.

"Given these challenging times, we are happy to report that the Group has once again significantly outperformed the Russell 200 Biotech Index (the most appropriate performance comparator), with a -10.2% NAV return for the period, against a -31.3% return for the Index.

"The Group's successful strategy of selecting high-quality transformative assets with significant growth potential could be seen in our core portfolio, which held up well, contributing +0.2% to NAV during 2022. Whilst only a modest return, it compares favourably to the weak performance of the Group's sector indices.

"Due to the adverse market conditions, 2022 saw just two of our portfolio companies IPO. RTW added three new companies to the portfolio and disposed of seven. Disposals crystalised a +1.6% contribution to NAV for the year with the proceeds being redeployed into other public opportunities.

"Most importantly, we continue to see public market valuations at significant discounts to historic levels, providing extremely compelling investment opportunities, with many of potential best-in-class therapeutics trading at notable lows compared to their long-term benchmarks. Our resources and expertise place us in an excellent position to capitalise on these trends and achieve significant value for shareholders over the medium- to long-term."

For Further Information

About RTW Venture Fund Limited:

RTW Venture Fund Limited (LSE: RTW & RTWG) is an investment fund focused on identifying transformative assets with high growth potential across the biopharmaceutical and medical technology sectors. Driven by a long-term approach to support innovative businesses, RTW Venture Fund invests in companies developing next-generation therapies and technologies that can significantly improve patients' lives.

RTW Venture Fund Limited is managed by RTW Investments, LP, a leading healthcare-focused entrepreneurial investment firm with deep scientific expertise and a strong track record of supporting companies developing life-changing therapies.

Visit the RTW website at www.rtwfunds.com for more information.

Chairman's Statement

Building disruptive companies through innovative investing

RTW Venture Fund Limited (the "Company"), passed its third anniversary since admission to the London Stock Exchange ("LSE") on 30 October 2022. Since admission, the Company's NAV per ordinary share has grown by +48% and it has outperformed its relevant benchmarks through good times for the sector and, recently, through bad. Despite a -10% decline in NAV this year, I am pleased to say that the Group (including the Company's new wholly-owned subsidiary) outperformed the smaller capitalisation Russell 2000 Biotech Index by approximately 20% as we begin to witness the early stages of a recovery for the sector, which I am confident that we are very well positioned to capture. 

2022 Overview

After the flood comes the drought. 2021 was a record-breaking year for private and public biotech financing activity. Then 2022 saw IPOs fall to the lowest levels in ten years and follow-on financings return to 2016 levels, which is when the sector experienced a significant drug pricing panic. This year saw actual drug pricing reform as part of the Inflation Reduction Act, which was signed into US federal law in August. At a sector level there is no impact on revenue growth potential through 2026, which limits its impact on equities today, and in fact resolves significant policy uncertainty. However, there are likely to be some unintended consequences that will need careful navigation.

As a result, of the decline in IPOs, the Group's cadence of new investments and IPOs also slowed, albeit not as dramatically as the sector as a whole. During 2022, the Group added three portfolio companies, Lenz Therapeutics, Mineralys and Apogee Therapeutics, and exited six core public portfolio companies, Athira, Biomea, iTeos, Pyxis, Pulmonx, and Landos and one core private position, RTW Royalty Holdings 1 (Mavacamtem). In total, the exits crystalised a c.+1.8% contribution to NAV. Two private portfolio companies, Cincor and Third Harmonic Bio successfully went public and one, Orchestra BioMed, announced its intention to combine with RTW's Health Sciences Acquisitions Corporation 2, a deal which subsequently completed in January 2023.

At the end of the period, the Group had thirty-eight core portfolio companies, of which twenty-five were privately held and thirteen were publicly listed. All core portfolio companies were initiated as private investments by the Investment Manager including three company creations. The core portfolio represented c. 71% of NAV at the end of the reporting period, up from 66% at the end of 2021. For the balance of the portfolio, to mitigate any drag on performance due to excess cash awaiting deployment into new private assets, the Group invests in a portfolio of listed companies selected by the Investment Manager to be representative of positions that are also held in its other investment funds. At the end of the reporting period, this represented c. 29% of NAV, down from 37% at the end of 2021.

In the year ended 31 December 2022, the NAV declined by -10.2% % from US$363.0 million or US$1.71 per Ordinary Share to US$326.1 million or US$1.54 per Ordinary Share. 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 in a year that saw the Russell 2000 Biotechnology Index decline by 32.0%. Since admission, the Company's NAV per Ordinary Share has appreciated by 47.6% against a -5.3% decline for the Russell 2000 Biotechnology Index. By any standard, this is a commendable and consistent degree of outperformance and testament to the Investment Manager's robust business model and expertise.

The Company's share price fell to a discount to NAV this year as did those of many of our investment company peers, especially those that provide growth financing to private companies. This was, perhaps, exacerbated by a change in U.S. tax regulation affecting publicly traded partnerships (PTPs), which the Company was formerly classified as for U.S. tax purposes. A number of custodians effecting transactions in the Company's Ordinary Shares informed the Company's shareholders that, as a result of the imposition of a new U.S. withholding tax obligation, they would no longer hold or deal with the Ordinary Shares if the Company continued to be classified as a PTP. This likely led to some selling pressure on the shares as the 1 January 2023 deadline approached until the Company changed its tax status on 1 December, which was subsequently ratified by an EGM held on 19 December 2022. We thank our shareholders for their support through this and are pleased that the share price has recovered significantly since. We are optimistic that it will continue to do so with further NAV accretion in an improving market environment.

Outlook

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.

2023 AGM

The Company will hold its Annual General Meeting on 21 June 2023 to review the annual results and provide portfolio updates.

We would like to dedicate a part of the meeting to address questions from our shareholders. At the present time, we anticipate holding it at Royal Chambers, St Julian's Avenue, St Peter Port, Guernsey. We encourage our shareholders to share their questions here and we will endeavour to answer as many as we can: RTWVentureFund@rtwfunds.com.

On behalf of the Board, I would like to express my gratitude for your continued support and wish you all the best for 2023.

William Simpson

Chairman of the Board of Directors

RTW Venture Fund Limited

30 March 2023

Report of the Investment Manager

Together we are harnessing the potential to accelerate the revolution in medicine

Executive summary

Since its listing on the London Stock Exchange in October 2019, the Group has grown the NAV attributable to Ordinary Shareholders from US$168.0 million to US$326.1 million by a combination of investment returns and the issue of additional Ordinary Shares. The NAV per Ordinary Share has grown 47.6% from $1.04 to $1.54 as of 31 December 2022. Since admission to the year-end, the share price has lagged NAV growth, returning +16.4%, as the shares fell, albeit by much less than the wider market as represented by the Russell 2000 Biotechnology Index this year.

Table 1. Financial Highlights

(i) Total shareholder return is an alternative performance measure.

(ii) Source: Capital IQ.

RTW Investments, LP (the "Investment Manager", "us", "we"), a leading global healthcare-focused investment firm with a strong track record of supporting companies developing life-changing therapies, created the Company as an investment fund focused on identifying transformative assets with high growth potential across the biopharmaceutical and medical technology sectors. Driven by our deep scientific expertise and a long-term approach to building and supporting innovative businesses, we invest in companies developing transformative next-generation therapies and technologies that can significantly improve patients' lives.

As of 31 December 2022, approximately 71% of the portfolio was invested in the core portfolio (private and public), a 5% increase versus 31 December 2021. Within that, the mix changed slightly. Core private exposure stands at 25% of NAV, a 3% reduction on last year, while core public exposure increased by 10% to 46%. We define core public companies as companies that were initially added to our portfolio as private investments, reflecting the key focus of the Company's strategy. Our investment approach is defined as full life cycle and, therefore, involves retaining our private investments well beyond their IPO, hence our core portfolio consists of both privately-held and publicly-listed companies.

Approximately 29% of the Company's NAV is currently invested in other publicly listed companies in lieu of holding cash for future private investments. This portfolio of assets has been carefully selected by us, matching, on a pro-rated basis, the long investments held in our other funds. The investments represented in this portfolio are similarly categorised as innovative biotechnology and medical technology companies developing and commercialising potentially disruptive and transformational products.

The -10.2% reduction in NAV during 2022 was largely driven by the "other public" portfolio's (-9.3% contribution), which declined roughly in line with the Russell 2000 Biotech Index. The core portfolio made a small positive contribution to NAV with the core public portfolio contributing +0.2% and the core private portfolio detracting -0.1%. Within our core private portfolio we crystallised gains of +4.9% of NAV when RTW Royalty Holdings sold Mavacamten to Bristol Myers Squibb. These gains were offset by write-downs across the majority of our private portfolio based on declining public market comparables. The positive return of the core portfolio, in a year when small cap biotech companies, particularly newly public ones, performed very poorly, highlights the selectivity of our process, quality of our investments and value of our full life cycle approach. Income and Expense (offset by both the mark to market on the Performance Allocation Share for the period from 1 January 2022 through 30 November 2022 and Non-Controlling Interest for the period from 1 December 2022 through 31 December 2022) make up the balance of returns (-0.7% contribution).

Figure 1. Performance drivers as of 31 December 2022

Our 2022 new investments include:

1 On 31 December 2022

As of 31 December 2022, the portfolio was diversified across treatment modalities, therapeutic focus, and the clinical stage of programs (Figure 2A-C). While the portfolio remains dominated by US-based companies (Figure 2D), we are committed to adding UK and EU-based scientists and companies in an effort to support the best assets across the globe and foster local biotech ecosystems. By constructing the portfolio in such a way, investors can gain exposure to the most innovative parts of a highly specialised sector with the explosive potential of companies such as Prometheus Biosciences (which we expand on below).

Figure 2. Core portfolio breakdown, by (A) modality, (B) therapeutic focus, (C) clinical stage and (D) geography as of 31 December 2022

(A) [chart] (B) [chart]

(C) [chart] (D) [chart]

Key updates for Core Portfolio Companies during 2022:

Clinical milestones

§ In January 2022, Immunocore received an FDA approval for Kimmtrak (tebentafusp), its first-in-class T-cell therapy for the treatment of uveal melanoma.

§ In April, C4 Therapeutics shared Phase 1 first-in-human clinical data for its targeted protein degradation program in multiple myeloma that unfortunately had limited efficacy and needed to refine its treatment regimen.

§ In May, Rocket Pharmaceuticals shared positive top line data for its registrational gene therapy program for Leukocyte Adhesion Deficiency-I (LAD-I), a rare genetic disorder of immunodeficiency in young children.

§ In May, Tarsus Pharmaceuticals shared positive data in the second Phase 3 trial for their blepharitis demodex treatment. The company filed a New Drug Application ("NDA") with the FDA in September.

§ In June, Beta Bionics shared results of the multi-center randomised Insulin-Only Bionic Pancreas Pivotal Trial for Type 1 diabetes patients at the American Diabetes Association ("ADA") conference. The trial met key endpoints and showed consistent mean HbA1c reductions across various patient subgroups.

§ In August, Cincor Pharma shared positive Phase 2 data for its hypertension program.

§ In August, Ventyx Biosciences shared positive Phase 1 data for its TYK2 program for autoimmune and inflammatory conditions.

§ In October, Avidity Biosciences announced an FDA partial clinical hold on new participant enrolment in its lead program for myotonic dystrophy. 

§ In September, Immunocore shared first in human data on its PRAME program.

§ In November, Rocket Pharmaceuticals presented a positive data update on its LADI clinical trial. Then, in December, it provided an update on its Danon program, stating that the company anticipates starting a pivotal clinical trial in H1'23.

§ In November, Mineralys Therapeutics shared positive Phase 2 data for its hypertension program.

§ In December, Prometheus Biosciences reported positive Phase 2 data for its antibody therapy for inflammatory diseases, suggesting a best-in-class profile.

§ In December, Avidity Biosciences announced a positive clinical update on its proof-of-concept Phase 1 trial for is antibody-siRNA therapy.

§ In December, Third Harmonic Bio announced the discontinuation of its Phase 1b study for the treatment of chronic inducible urticaria.

§ In December, Cincor Pharma announced the failure of its Phase 2 trial of baxdrostat for uncontrolled hypertension by missing a statistically significant difference between its treatment and placebo arms.

Financing and commercial developments

§ In January 2022, Cincor Pharma announced pricing of its IPO at US$16.00 per share, raising US$193.6 million and beginning to trade on Nasdaq Global Market under ticker "CINC".

§ In January 2022, Magnolia Medical Technologies raised US$46 million in a follow-on cross-over round where RTW served as a co-lead investor. Ovid Amadi, PhD, Senior Analyst at RTW joins Magnolia's Board of Directors.

§ In February 2022, the Company and other affiliated funds of the Investment Manager participated in a follow-on Series C financing round in Beta Bionics.

§ In April, Ji Xing announced an exclusive licensing agreement with Lenz Therapeutics to develop and commercialise LNZ100 and LNZ101 for the treatment of presbyopia in Greater China. As a part of the transaction, Lenz Therapeutics has also become the latest addition to the Company's portfolio.

§ In April, Mavacamten, the underlying asset of RTW Royalty Holdings 1 received FDA approval. Soon after, the Company sold its stake in the royalty to Bristol Myers Squibb for a significant gain.

§ In June, the Company and other affiliated funds of the Investment Manager participated in a Series B financing round in Mineralys Therapeutics, a clinical-stage biopharma working on hypertension.

§ In September, Third Harmonic Bio announced the pricing of its IPO at US$17.00 per share, raising US$185.3 million and beginning to trade on Nasdaq Global Market under ticker "THRD".

§ In July, Orchestra BioMed announced a strategic collaboration with Medtronic, the closing of US$110 million private equity financing round, and plans to list on Nasdaq through a merger with RTW sponsored Health Sciences Acquisitions Corporation 2.

§ In July, Immunocore announced a PIPE financing round that RTW participated in and then announced continued success in the commercial launch of Kimmtrak for uveal melanoma.

§ In December, the Group announced a US$2 million investment in Apogee Therapeutics, which is working on developing best-in-class medicines for immunological and inflammatory diseases. RTW co-lead the Series B round.

§ In December, Takeda announced the acquisition of Nimbus' TYK2-targeting drug, providing a positive read-through for RTW Venture Fund Ltd.'s holding in Ventyx Biosciences, which is also advancing a TYK2-targeting therapy.

Portfolio performance and updates

The Company's NAV has significantly outperformed biotech benchmarks since admission on 30 October 2019, returning +47.6% versus -5.3% and +24.7% for the Russell 2000 Biotechnology Index and the Nasdaq Biotechnology Index, respectively. This marks the third consecutive full year of outperformance against the more comparable Russell 2000 Biotechnology Index. However, the Company's share price has lagged NAV, returning +16.4% since admission after a -32.0% return in 2022 compared with a -31.1% return for the Russell 2000 Biotechnology Index in 2022 and -10.9% for the Nasdaq Biotechnology Index in 2022. Having traded at a premium for most of the time from admission to 31 December 2021, the shares fell to a discount in 2022 alongside most investment companies that have exposure to growth stage private companies.

Figure 3. RTW NAV per Ordinary Share vs. RTW.L Share Price and Benchmarks as of 31 December 2022

Table 2. Performance of all private and core public portfolio investments since inception as of 31 December 2022

1 Alternative Performance Measure

2 Exited the position

Table 3. Performance of Rocket Pharmaceuticals from admission to 31 December 2022

Table 4. NAV capital breakdown as of 31 December 2022

As of 31 December 2022, our top five holdings in the "other public" portfolio were: 

- 4.2% of NAV in Argenx (ticker: "ARGX"), a commercial stage multi-pipeline immunology company;

- 1.8% of NAV in Axsome Therapeutics (ticker: "AXSM") a commercial staged biotech focused on CNS treatments;

- 1.7% of NAV in Masimo Corporation (ticker: "MASI") a global medtech company focused on patient monitoring;

- 1.5% of NAV in PTC Therapeutics ("PTCT"), a biotech company developing therapies for rare genetic diseases;

- 1.4% of NAV in Ultragenyx Pharmaceuticals (ticker: "RARE") a biopharma company addressing rare diseases.

We expect to deploy the capital invested in "other public" assets into private companies as the opportunities arise.

Table 5. Overview of core portfolio companies' valuations and Company shareholding on 31 December 2022

1 Valuations for private portfolio companies on a fair value basis as of 31 December 2022.

2 The valuations of public positions have been calculated using their market capitalisation as at 31 December 2022.

3 In accordance with its valuation policy, the Group applies a discount to its investments in private portfolio companies which become public portfolio companies that are subject to customary post-IPO lock-up provisions. The valuation policy also includes Level 1 securities purchased at or after portfolio company IPO.

4 Excludes convertible note.

5 Includes pre-funded warrants.

Table 6. RTW representation on portfolio companies' boards

1 In aggregate these represented 23% of the NAV of the Group at 31 December 2022

Summary of top fifteen core portfolio companies as of 31 December 2022:

As of 31 December 2022, the Group's core portfolio included thirty-eight companies comprised of pre-clinical to commercial stage biotechnology companies, companies developing traditional small molecule pharmaceuticals, and med-tech companies developing or commercializing transformative devices. We selected the Group's portfolio companies based upon our rigorous assessment of scientific and commercial potential, opportunities to positively impact value, and with regard to the valuation of the assets at the time of investment. The table below includes the top fifteen portfolio companies at the end of the reporting period.

Table 7. RTW Venture Fund core portfolio - Top fifteen positions as of 31 December 2022

Sector review and outlook

We already knew that 2021 was an historic year for small cap biotech. The Russell 2000 Biotech Index finished -27%, behind only 2008's -31% and 2002's -54%. Then 2022 tied 2008 for second from the bottom, with a drop of -31%, a rare two down years in a row. As a result, the absolute number and percentage of companies trading at less than 1x market capitalisation to cash remains near historic highs (37%). This is despite some meaningful advances in biotech innovation, most importantly Biogen/Eisai's lecanemab for Alzheimer's.

Funding for smaller public companies is scarce. The IPO market is at its lowest level in a decade and follow-on offerings declined for the second year in a row, back to the lowest level since 2016's drug pricing panic. In sharp contrast, big was beautiful this year. The NYSE Arca Pharmaceutical Index (DRG) finished +5% on the year. In fact, the 36% performance gap between large and small cap therapeutics adds to last year's 50% gap, totaling the largest outperformance for pharma since 1997-98. Investors are setting aside long-term risks (most notably Medicare price negotiation and patent cliffs beginning in 2026) and are placing high value on recession-resistant near-term growth, which pharma is delivering with its own innovation breakthrough, the Glp1s. The Glp1s are the first class of medicines to deliver meaningful weight loss with an attractive safety profile, and early sales momentum suggests the potential to create one of, if not the largest drug class in history. Eli Lilly and Novo Nordisk have surpassed Pfizer and Merck as the second and third largest biopharma companies, thanks to the success of Mounjaro and Rybelsus. 

The large-cap-weighted Nasdaq Biotech Index lost -11% in 2022. Companies with consistent growth, or those who can plug pharma patent holes with de-risked blockbuster potential have been first to recover. Overall, we believe this is consistent with a biotech recovery that is in its earliest innings.

A year ago, our optimism for 2022 stemmed from expectations for a return to normalcy at the FDA, clarity on drug pricing, increased M&A, and the historically large performance gap between biotech and the broader markets. The 2022 volume (of deals worth over US$500 million) totaled US$58 billion, a nice pick-up from 2021's US$52 billion, the lowest in the past eight years. Pharma (DRG +5%) and large cap biotech (NBI -11%) significantly outperformed the broader market and (S&P500 -19%), narrowing the performance gap. In sum, we have seen significant progress against each of these items. Unfortunately, small caps have so far been left behind (Russell 2000 Biotechnology Index -31% and XBI -26%), and our concentration here has correspondingly affected 2022 NAV performance. 

Volume of deals worth over US$500 million totaled

$58b

2021: $52 billion

After the last two years, we think investors have priced in failure for much of the wave of companies that experienced setbacks after going public too early. Of the IPO classes of 2020-2021, the average performance is -37% and -50%, with 74% trading below cash. Notable breakthroughs in the past year have only minimally improved sentiment. This includes several potential first-in-class therapies for blockbuster markets. In addition to Biogen and Eisai's Alzheimer's breakthrough, Axsome is launching the first new class of oral antidepressants in over half a century, Karuna reported positive Phase 3 schizophrenia data for a first-in-class muscarinic receptor directed therapy, and Madrigal reported the first successful Phase 3 study ever conducted for fatty liver disease. 

FDA approved novel new drugs

37

2021: 50

Drugs from new modalities

13

2021: 9

In total, the FDA approved 37 novel new drugs (two of which came from RTW portfolio companies: Kimmtrak from Immunocore and Camzyos (mavacamten) from RTW Royalty Holdings 1). This is down from last year's 50 and likely reflects an FDA that has struggled post-COVID. Importantly, however, drugs from new modalities continue to increase: 13 vs 9 last year. It includes an impressive four gene therapies (vs zero last year), two bispecifics, an RNAi, mRNA, cell therapy, ADC, radiotherapy, and the first ever TCR and microbiome therapies. With innovation from new modalities continuing to mature and accelerate, we think the swing of the sentiment pendulum from optimism to pessimism for small companies creates asymmetric opportunity in front of future potential breakthroughs. Importantly, several of our core early-stage therapeutic companies that have suffered either alongside other small caps or due to their own setbacks remain key positions in the portfolio. Those that have cleared our re-underwriting efforts have made operational progress this past year and many are nearing their next value inflection points. We like the asymmetric risk reward in front of these more mature data readouts in 2023.

Recent cases suggest that the market environment may be increasingly more likely to reward strong data. In December, positive data translated to significant moves for Madrigal Pharmaceuticals (+320%), and our own Prometheus Biosciences (+167%) and Avidity (+91%).

We continue to expect M&A to accelerate given patent expiries and headwinds from the Inflation Reduction Act of 2022 in the second half of the decade, growing pharma cash balances, small company cost of capital, and lower valuations. This should help drive better performance for the sector, which has never been down three years in a row.

Executing on our strategy

We are scientists and entrepreneurs who aspire to change the lives of patients through innovation, and our mission is at the heart of everything we do. We power breakthrough therapies that transform the lives of millions. True value realisation from transformative products takes time, and in order to capture that value, it is critical to be involved in and invested in such companies throughout the various stages of their development. As a full life cycle investor, we recognise the importance of providing growth capital along with the support of an experienced team, if and when it is needed, at any critical inflection point in an asset's life cycle. Scientific development rarely follows a linear path, which is why we are always thinking about the optimal way to support a company. This can be achieved through providing growth capital, creative financing solutions, capital markets expertise, or guidance through investing our time and sharing our collective experience as directors and stewards of tomorrow's most exciting and disruptive companies.

Our full life cycle approach and broad offering of financial solutions for investee companies allows us to capture a diverse opportunity set. In the first half, this was most clearly demonstrated when we sold our royalty stake in Mavacamten, the underlying asset of RTW Royalty Holdings 1, to Bristol Myers Squibb soon after the drug had achieved the primary endpoint of its Phase 3 trials, achieving a greater than 3x return on our initial investment in November 2020. We originally acquired the royalty asset as part of a multi-solution transaction with Cytokinetics, a promising mid-stage cardiovascular company, which also included an equity investment, a regional partnering deal with Ji Xing, and future clinical trial funding. It was a ground-breaking transaction because, as a single counterparty, we were able to move quickly to simplify and de-risk the execution of a process that would otherwise have taken much longer with the involvement of multiple partners. We believe that we are the only investment manager who could have accomplished what we did.

In the second half of the year, our second SPAC, Health Sciences Acquisitions Corporation 2, announced a proposed combination with Orchestra BioMed, one of the Group's core private holdings. The combination subsequently closed after year-end and, on 27 January 2023, Orchestra started trading on Nasdaq Global Market under the ticker "OBIO". Simultaneously, the company cemented a strategic collaboration with Medtronic, a global leader in medical technology, services and solutions, to develop its "BackBeat Cardiac Neuromodulation Therapy" as a potential integrated treatment for cardiac pacemaker patients. We always believed that Orchestra had promising data and a leadership team with an exceptional track record of bringing novel medical technologies to market; now they have that, a new partnership with a global leader and the financial resources to help accelerate their clinical development and position them for commercial success. In our opinion, this deal validates our view on and approach to SPACs, which is that they can be an especially useful tool to bring public-ready companies to the next stage of their life cycle when the capital markets are temporarily closed for business.

Our global reach continues to expand with new offices opened in London and Shanghai. In China, our NewCo Ji Xing, continues to build out its clinical pipelines with the addition of an exclusive licensing agreement with Lenz Therapeutics for their LNZ100 and LNZ101 treatments for presbyopia. As part of the transaction, Lenz Therapeutics also became the latest addition to the Group's portfolio, underlining the value of our multi-asset approach. In London, we have continued to support the development of Immunocore with our participation in a US$140 million PIPE (Private Investment in Public Equity) alongside a small handful of other investors in July. As a firm, we have been supporting Immunocore since their Series A in 2015 and we are proud to be part of a significant UK success story as the company received FDA approval in January for Kimmtrak (tebentafusp), its first-in-class T-cell therapy for the treatment of uveal melanoma, which subsequently surpassed most people's expectations on its commercial launch. We expect to receive clinical updates from their highly promising PRAME (Preferentially Expressed Antigen of Melanoma) program, which could be a blockbuster drug, in 2023.

From a science perspective, our primary areas of focus remain in genetic medicines, rare diseases, small molecules, targeted oncology, medical technologies, antibodies, and next generation antibody therapies. Our science-led, full life cycle approach was clearly demonstrated this year by Prometheus Biosciences' transformational data from their Phase 2 studies in ulcerative colitis and Crohn's disease. The company's Anti-TL1A antibody is a new mechanism of action in inflammatory bowel disease ("IBD") which also leverages companion diagnostics that may enable a more personalised and effective treatment for patients suffering from the condition. With best-in-disease efficacy against existing, commercially validated, mechanisms of action, we believe Prometheus is set up to capture a significant portion of the multibillion-dollar IBD market. On the heels of the Phase 2 data, Prometheus successfully raised US$500 million in a follow-on financing to advance into Phase 3 development. We have been following the company for several years, starting in February 2020 when we observed proof-of-concept data from Pfizer, which alerted us to the possibilities of the TL1A mechanism of action. After further scrutinizing the science and gaining a better understanding of its companion diagnostic platform (something which Pfizer was not considering at the time), we co-led the crossover financing in November 2020 when they raised US$130 million ahead of anchoring their IPO and US$220 million raise in March 2021 at a US$660 million valuation. Prometheus' market cap now stands at US$5.5 billion.

None of this is possible without a sound foundation. Our foundation, or core, is built on our rigorous assessment of the best private market investment opportunities, which then go on to realise their ultimate value in the public markets. We have always been highly selective in this area, focusing only on companies with well-founded science and attractive commercial opportunities. We are now benefiting from this discipline in a challenging capital markets environment as our private portfolio is a reasonable size and is well funded. Figure 4 shows a breakdown of the approximate cash runway of our core private companies that have negative cash flow. Of the twenty-four companies that do so, the average cash runway (at current burn rates) is around three years, which gives them the time to focus on their clinical development until the funding markets normalise. Of the six companies with less than one year of runway, two are RTW NewCos, so that is by design. Of the remaining four, only two are in a challenging financial position.

Figure 4. Core private portfolio - approximate cash runway as of 31 December 2022

Reflecting their challenged positions, these two companies, Alcyone and Visus, were written down by RTW's Valuation Committee to the tune of -75% and -99%, respectively, through 2022. Figure 5 shows the 2022 valuation changes for all the core private holdings in the portfolio on 31 December 2022. It is important to note that this does not include the value realisations from RTW Royalty Holdings 1 or the changes arising from Cincor's or Third Harmonic's IPOs. Last year, we marked down seventeen of the privates we now hold by an average of 23% and marked up seven by an average of 12%. Apogee Therapeutics' valuation remained unchanged as we only invested in December 2022. 70% of the markdowns were primarily driven by changes to relative comparables or market-based inputs. On the other hand, 71% of the markups were primarily driven by idiosyncratic company performance or a financing or transaction. Our Valuation Committee, which includes an expert internal team, takes a fair value approach to marking our private portfolio, doing so on a monthly basis, with the involvement of multiple third-party valuation companies, with the goal of ensuring there are no surprises for our investors. The Board reviews and challenges these valuations in two semi-annual meetings.

Figure 5. Core private portfolio on 31 December 2022 - year to date valuation changes

In summary, the private portfolio is in good shape and we have been active and fair in our valuation of the individual holdings. This foundation provides us with the capacity and the confidence to continue to back our existing holdings should they need it and make new investments as the opportunities arise

We believe there is a significant demand for reliable capital providers such as ourselves, to continue to support scientific innovation and the development of transformative therapies for patients. We expect the portfolio's sector split to remain close to 80% biopharmaceutical assets and 20% medical technology assets. In line with prior prospectus guidance, we anticipate two-thirds of the new investments will be made in mid- to later-stage venture companies and one-third focused on active company building around the discovery and development or licensing and distribution of promising assets.

Key portfolio company events post period end

§ In January 2023, Cincor Pharma entered into an agreement to be acquired by AstraZeneca for a total deal value of US$1.8 billion, a 206% premium to the prior closing market value.

§ In January 2023, Orchestra BioMed combined with RTW's HSAC 2 and started trading on Nasdaq Global Markets under the ticker symbol "OBIO".

§ On 9 February 2023, Mineralys Therapeutics announced pricing of its IPO by offering 12 million shares at US$16.00 per share. The shares began trading on Nasdaq Global Market on 10 February 2023 under ticker "MLYS". Since IPO, Mineralys Therapeutics shares have traded down 7.2% as of 29 March 2023.

§ On 28 March 2023, Milestone Therapeutics announced a $125m strategic financing from the Investment Manager to support Milestone's operations into mid-2025, including etripamil NDA submission and launch in PSVT.

§ Privately-held portfolio companies

§ 25

§ 2021: 25

RTW Investments, LP

30 March 2023

Our Long-Term Strategy

Transforming the lives of millions

Our long-term strategy is anchored in identifying sources of transformational innovations by engaging in deep scientific research and a rigorous idea generation process, which is complemented with years of investment, company building, transactional, and legal expertise.

Identify

Identify transformational innovations

We have developed expertise through our comprehensive study of industry and academic efforts in targeted areas of significant innovation. Thanks to the genome, there is more clarity around the causes of disease. Coupled with exciting new modalities that can address genetic diseases in a targeted way, drug innovation is accelerating.

Engage

Engage in deep research to unlock value

We developed repeatable internal processes combining technology and manpower to comprehensively cover critical drivers of innovation globally. We seek to identify biopharmaceutical and medical technology assets, ascertained through rigorous scientific analysis that have a high probability of becoming commercially viable products and can dramatically change the course of treatment and in some cases bring effective and/or full curative outcomes to patients.

Build

Build new companies around promising academic licences

We have the capabilities to partner with universities and in-license academic programs, by providing capital and infrastructure to entrepreneurs to advance scientific programs. Particularly working in rare diseases, often areas with little existing research and treatment options, means that forming a rare disease-focused company is a way of shining a light on this space and creating a roadmap to eventually developing a curative treatment.

Support

Support full life cycle investment

A key part of our competitive advantage is the ability to determine at what point in a company's life cycle we should support the target asset or pipeline. As a full life cycle investor, we can provide growth capital, creative financing solutions, capital markets expertise, or guidance through investing our time and sharing our collective experience as directors and stewards of tomorrow's most exciting and innovative companies. Taking a long-term full life cycle approach and having a true evergreen structure enables us to avoid the pitfalls and structural constraints of venture-only or public-only vehicles. Our focus is on becoming the best investors and company builders we can be, delivering exceptional results to shareholders and making a positive impact on patients' lives.

Our Strategy in Action

Identify transformational innovations

Avidity Biosciences

RTW focuses on identifying transformational innovations across the life sciences space, specifically backing scientific programs that have the potential to disrupt the prevailing standard of care in their respective disease areas.

Learn more about Avidity Biosciences,

www.aviditybiosciences.com

NAV

4.2%

2021: 4.3%

Portfolio company ownership

2021:

The need

It is estimated that about 40,000 Americans suffer from myotonic dystrophy, a rare genetic muscular dystrophy with no approved treatment options for patients and their families.

Mission

Avidity is developing antibody oligonucleotide conjugate (AOC™) therapeutics, which combines the tissue selectivity of monoclonal antibodies and the precision of oligonucleotide-based therapeutics to overcome barriers to the delivery of oligonucleotides and target genetic drivers of disease.

Status

In December, Avidity Biosciences announced a positive clinical update on its proof-of-concept Phase 1 trial for AOC 1001, its antibody-siRNA therapy, for myotonic dystrophy. The company is also expanding its pipeline in other rare muscle disorders such as Facioscapulohumeral Muscular Dystrophy, Duchenne Muscular Dystrophy and others.

Next milestone

Avidity is expected to share AOC 1001 Phase 1 clinical progress in H1 2023.

Engage in deep research to unlock value

Prometheus

Our team is comprised of individuals with medical and advanced scientific training and legal and banking experience, enabling a deeply differentiated approach to research, idea generation and strategic investment.

Learn more about Prometheus Biosciences

www.prometheusbiosciences.com

NAV

15.2%

2021: 5.6%

Portfolio company ownership

2021:

The need

Inflammatory Bowel Disease (IBD) is a chronic inflammatory condition of the GI tract. The pathology of the disease is mixed and without a definitive cause, therefore it represents an area of a high unmet need for a large proportion of patients. Prometheus Biosciences is developing an antibody targeting TL1A, a novel target in IBD. RTW has been an investor in Prometheus since the firm co-led the company's crossover financing US$130 million raise in 2020.

Mission

Prometheus is a biotechnology company developing novel therapeutic and companion diagnostic product candidates for the treatment of immune-mediated diseases, starting with IBD. Its transformational approach brings the power of big data to immune biology, changing lives through patient-centric drug design.

Status

In December 2022, Prometheus shared positive Phase 2 clinical data for ulcerative colitis and Crohn's disease clinical trials with a successful use of companion diagnostic in IBD. The data suggests a best-in-class profile for an IBD therapy.

Next milestone

Prometheus is expected to present further clinical data updates from its Phase 2 trials in IBD in H1 2023.

Building new companies

We engage in new company formation around promising academic licences and beyond. We have the capabilities to partner with universities and in-license academic programs, by providing capital and infrastructure to entrepreneurs to advance scientific programs. We are well-placed to offer support to early-stage life sciences companies and NewCos.

Company creation

Rocket

Danon Disease (AAV) - Halfway between Phase 1 and 2

Fanconi Anaemia (LVV) - Phase 2

Leukocyte Adhesion Deficiency (LVV) - End of Phase 1

Pyruvate Kinase Deficiency (LVV) - Phase 1

BAG3-Associated Dilated Cardiomyopathy - Lighter tint - End of Preclinical

PKP2-Associated Dilated Cardiomyopathy - Lighter tint - Mid of Preclinical

JiXing

OMECAMTIV MECABRIL: HfrEF - End of Phase 3

AFICAMTEN: oHCM - Phase 3

AFICAMTEN: nHCM - Phase 2

AFICAMTEN: HfpEF - Phase 2

ETRIPAMIL: PSVT - Phase 3

ETRIPAMIL: Atrial fibrillation (Afib) - Phase 3

OC-01: Dry eye disease - Phase 3

OC-02: Dry eye disease - Phase 3

LNZ100/101: Presbyopia - Phase 3

JX08: Demodex blepharitis - Lighter tint - Halfway between Preclinical and Phase 1

Yarrow

ASO TECHNOLOGY - Preclinical

Support full life cycle investment

Orchestra (OBIO)

Drug development is not a linear process. There are advancements and setbacks and we are structured to maximise value creation at any point beginning with company creation to late-stage venture and into publicly traded markets. We let the fundamentals and not market movements dictate our investment.

Learn more about Orchestra Biomed

www.orchestrabiomed.com

NAV

1.3%

2021: 0.6%

Portfolio company ownership

2021:

The need

Orchestra BioMed is a biomedical innovation company accelerating high-impact technologies to patients. Its flagship product candidates include BackBeat Cardiac Neuromodulation Therapy™ (CNT™) for the treatment of hypertension, a significant risk factor for death worldwide, and Virtue® Sirolimus AngioInfusion™ Balloon (SAB) for the treatment of atherosclerotic artery disease, the leading cause of mortality worldwide. The Company has been invested in Orchestra Biomed since the time of its listing on LSE in 2019.

Mission

Orchestra Biomed's partnership-enabled business model focuses on forging strategic collaborations with and licensing patented technologies to leading medical device companies to drive successful global commercialisation of product candidates we develop. The company focuses on advancing promising therapeutic solutions, such as BackBeat CNT and Virtue SAB, through late-stage clinical research and regulatory approvals, while our partners focus on leveraging their commercial expertise and existing infrastructure to bring our product candidates to global markets quickly and efficiently.

Status

In July 2022, Orchestra Biomed announced its plans to list on Nasdaq through a merger with Health Sciences Acquisitions Corporation 2 (HSAQ), an RTW-sponsored SPAC. The RTW team has been delighted to support Orchestra in a turbulent public markets environment and provide an alternative path to becoming a public company.

Next milestone

The business merger occurred in January 2023 with Orchestra Biomed trading on Nasdaq under ticker "OBIO". The transaction had negligible P&L impact as we had anticipated a successful completion in our 31 December 2022 NAV.

Our Business Model

Shaping tomorrow's most disruptive companies

We are full life cycle investors creating value and offering support at any stage, from academic programs all the way to mature publicly traded companies.

What we need to create value

EXPERIENCED TEAM

A collaborative team of doctors, academics, and drug developers coupled with seasoned venture capitalists, investment bankers, lawyers and company operators with a strong culture of compliance.

SCIENTIFIC RIGOUR

Our research process combines wide data-gathering with deep analysis to identify the most compelling assets, technologies, and modalities with the best chance of reaching patients.

FULL LIFE CYCLE INVESTING

Taking a long-term, full life cycle approach and having a true evergreen structure helps us avoid the structural constraints of venture-only or public-only vehicles.

GLOBAL REACH

Great science takes place everywhere in the world. Our priority is to unlock value by advancing early-stage scientific development and delivering innovative therapies to patients in need.

How we create value

We power breakthrough therapies that transform the lives of millions.

Identify transformative assets with high growth potential across the biopharmaceutical and medical technology sectors. Driven by our deep scientific understanding and long-term approach to supporting innovative businesses, we invest in companies developing next-generation therapies and technologies that can significantly improve patients' lives.

IDENTIFY TRANSFORMATIONAL INNOVATIONS AND UNMET NEEDS

We focus on identifying transformational innovations and unmet needs across the life sciences space, specifically backing scientific programs that have the potential to disrupt the prevailing standard of care in their respective disease areas.

INVEST IN DEEP RESEARCH AND LONG-TERM RELATIONSHIPS

We believe in developing long-term relationships with great entrepreneurs and scientists who are as passionate about medicine as we are and working closely with our peers to support companies at any stage of their life cycle.

SUPPORT THROUGH FULL LIFE CYCLE INVESTMENT

A key part of our competitive advantage is the ability to determine at what point in a company's life cycle we should support the target asset or pipeline. As a full life cycle investor, we can provide growth capital, creative financing solution, capital markets expertise, or guidance through investing our time and sharing our collective experience as leaders of tomorrow's most exciting and disruptive companies.

Value created

PATIENT BENEFITS

Innovation is the best medicine. We believe solving unmet patients' needs is the best way to create value.

Number of drugs commercialised by our 10 most successful investments since inception

11 (2021: 10)

Core portfolio companies with clinical stage programs

25 / 39 (2021: 28 / 42)

SHAREHOLDERS

Privileged access to private markets and bespoke negotiated opportunities

Total shareholder return since admission

+16.3% (2021: 71%)

NAV per ordinary share growth since inception

+47.6% (2021: 38.1%)

PORTFOLIO COMPANIES

We support teams through the inevitable setbacks that occur when introducing a first-in-class or disruptive therapy.

NAV deployed into core portfolio companies

70.9% (2021: 66%)

RTW CHARITABLE FOUNDATION

Founded as the Charitable Foundation arm of RTW, RTWCF partners with organisations conducting disease research and championing humanitarian causes.

Number of humanitarian grants

10 (2021: 9)

- 8 COVID Recovery grants in NYC, 1 STEM education grant in NYC (BioEYES), and 1 emergency response grant for Ukraine (Razom). 

Operational and Financial Review for the Year

Leading with innovative asset creation

MARKET CAPITALISATION

The Company's market capitalisation declined from US$378 million at 31 December 2021 to US$257 million at 31 December 2022. The Company issued no shares during the year and did not repurchase any shares so the decline in the market capitalisation of its shares is solely attributable to the decline in the Company's share price.

ORDINARY NAV

The Ordinary NAV of the Company declined from US$363 million to US$326 million during the year. The main driver of the decline was the share price performance of publicly-listed portfolio companies within the Group's portfolio as realised gains from the sale of private investments were offset by fair value write downs of the remaining private investments. The majority of the private portfolio's fair value (excluding royalty investments) is made up of convertible preferred stock and convertible notes, which offers a degree of downside protection given their senior positioning in the capital structure. Additionally, in the last three months before year end, the majority of the private investment valuations were updated by independent third-party valuers.

An approximate attribution of the Group's performance is provided below

1 Other Offsets are both the mark to market on the Performance Allocation Share for the period from 1 January 2022 through 30 November 2022 and Non-Controlling Interest for the period from 1 December 2022 through 31 December 2022.

NAV PER ORDINARY SHARE

The -10.2% decline in NAV per Ordinary Share was driven by the decline in the Company's ordinary NAV as the number of shares in issue did not change during the year.

PREMIUM / DISCOUNT

The Company's shares traded on average at a c. 12% discount due to reduced market demand for growth and venture capital assets during the reporting period. At the year-end, the Company's Ordinary Shares were trading at a 21.2% discount to NAV (2021: 4.1% premium to NAV; 2020: 4.1% discount to NAV).

TOTAL RETURN TO SHAREHOLDERS BASED ON ORDINARY NAV

As the Company has not paid dividends, the negative total return for the year of -10.2% (2021: -12.8%) equates to the decline in NAV per Ordinary Share. There was no performance allocation triggered during the reporting period as the total shareholder return based on ordinary NAV movements was negative.

TOTAL RETURN TO SHAREHOLDERS BASED ON SHARE PRICE

The negative share price return of -32.0% in the year compared to the NAV movement of -10.2% was the result of a decline in demand for growth companies that are not currently profitable as interest rates increased in the US and UK. Investors also assumed that private companies within venture capital portfolios would be subject to substantial market-based valuation adjustments leading to a cyclical widening of share price discounts. Companies with the highest proportion of private growth assets experienced the most significant widening.

ONGOING CHARGES

The Group's ongoing charges ratio is 1.92%, calculated in accordance with the AIC recommended methodology, which excludes non-recurring costs and interest payable and uses the average NAV in its calculation.

Highlights

Market Capitalisation as of 31 Dec 2022

2022: US$257m

2021: US$378m

2020: US$360m

Ordinary NAV as of 31 Dec 2022

2022: US$326m

2021: US$363m

2020: US$375m

Premium to NAV discount as of 31 Dec 2022

2022: -21.2%

2021: +4.1%

2020: -4.1%

Ongoing charges as of 31 Dec 2022

2022: 1.92%

2021: 1.73%

2020: 1.96%

Our Key Performance Indicators

Measuring our performance

The Board has identified the following indicators for assessing the Group's annual performance in meeting its objectives:

Financial KPIs

NAV Growth

PERFORMANCE

Performance of the portfolio companies and cash management strategy net of all fees and costs

KEY FACTORS

· Portfolio performance and progression through clinical trials

· Cash management

· Capital pool and deployment

· Scientific and financial risks

PROGRESS

Ordinary NAV

2022: -10.2%

2021: -12.8%

During the reporting period this was largely driven by public companies' share price performance.

FUTURE INTENT

Achieve superior long-term capital appreciation; target an annualised total return of 20% over the medium term

LINK TO STRATEGY

Identify

Engage

Build

Support

LINK TO PRINCIPAL RISKS

Failure to achieve investment objective

Exposure to global political and economic risks

Clinical Development & Regulatory Risks

Total shareholder return

PERFORMANCE

Delivering value to the shareholders

KEY FACTORS

· Portfolio performance

· Liquidity of RTW.L shares

· General market sentiment

PROGRESS

Return

2022: -32.0%

2021: -5.3%

FUTURE INTENT

Achieve superior long-term capital appreciation; target an annualised total return of 20% over the medium term

LINK TO STRATEGY

Identify

Engage

Build

Support

LINK TO PRINCIPAL RISKS

Failure to achieve investment objective

Exposure to global political and economic risks

Clinical Development & Regulatory Risks

Premium/discount to NAV

PERFORMANCE

The level of supply and demand for the Company's shares

KEY FACTORS (in order of impact at year end)

· The percentage of private growth assets within the Group's portfolio

· Portfolio performance

· Liquidity of the Company's shares

· Governance

PROGRESS

Premium/discount to NAV (average during the year)

2022: -12%

2021: 10%

FUTURE INTENT

Return to par or a premium to NAV such that total shareholder returns more closely match NAV performance

LINK TO STRATEGY

Identify

Engage

Build

Support

LINK TO PRINCIPAL RISKS

Failure to achieve investment objective

Exposure to global political and economic risks

Percent of NAV invested in core portfolio companies

PERFORMANCE

Level of capital deployment into core portfolio companies

KEY FACTORS

· Level of capital deployment and investment pace, as well as availability of funds to be deployed into new portfolio companies or for follow-on investments into existing portfolio companies

PROGRESS

NAV invested in core portfolio

2022: 71%

2021: 66%

Deployed into core portfolio companies

FUTURE INTENT

Identify transformative assets with high growth potential across the biopharmaceutical and medical technology sectors

LINK TO STRATEGY

Identify

Engage

Build

Support

LINK TO PRINCIPAL RISKS

Clinical Development & Regulatory Risks

The Investment Manager relies on key personnel

Exposure to global political and economic risks

Non-financial KPIs

Geographic & therapeutically diversified portfolio

PERFORMANCE

Measures the Group's commitment to invest in best-in-class science and innovative assets worldwide

KEY FACTORS

· Continue to diversify within life sciences sector, looking for opportunities globally and also support local biotech ecosystems

PROGRESS

Therapeutic areas addressed

2022: 10

2021: 10

Core portfolio companies' focus spans multiple therapeutic areas, treatment modalities and geographies.

FUTURE INTENT

Continue investing in and supporting companies developing next generation therapies and technologies that can significantly improve patients' lives

LINK TO STRATEGY

Identify

Engage

Build

Support

LINK TO PRINCIPAL RISKS

Clinical Development & Regulatory Risks

Exposure to global political and economic risks

Active and robust pipeline

PERFORMANCE

Delivers transformational new treatments and medical devices to patients in need.

KEY FACTORS

· Balance and breadth of the pipeline across all clinical stages

· Data readouts and progress through multiple clinical stages

· Commercial opportunity and competitive landscape

PROGRESS

Portfolio companies have leading programs in a clinical stage

2022: 68%

2021: 67%

Capturing a spectrum of early-stage Phase 1 to late stage Pivotal

FUTURE INTENT

Progress towards delivering transformational treatments to patients in areas of high unmet need.

LINK TO STRATEGY

Identify

Engage

Build

Support

LINK TO PRINCIPAL RISKS

Clinical Development & Regulatory Risks

Exposure to global political and economic risks

Imposition of pricing controls

Risk Management

Applying deep scientific expertise with a long-term investment horizon

Our long-term strategy is anchored in identifying transformative assets with high growth potential across the biopharmaceutical and medical technology sectors. Driven by our deep scientific understanding and a long-term approach to supporting innovative businesses, we invest in companies developing next-generation therapies and technologies that can significantly improve patients' lives. With this significant opportunity also comes risk.

Our risk framework is overseen by the Audit Committee under delegation from the Board. Multiple parties contribute to managing risk, including the Board, the RTW team, and the Group's other advisers.

Risk framework

Our risk framework begins with the Investment Policy, and the Board, which oversees the Company's operation in accordance with the Investment Policy and the process to ensure a robust assessment of principal and emerging risks and potential future risks, and receives an update at each Board meeting. A risk register is maintained that sets out our principal and emerging risks and how we mitigate them. The RTW team is responsible for day-to-day operation and oversight of the risk framework. The RTW team has a culture of transparency, ensuring that any developments are shared and addressed effectively with the benefit of input from the whole team, and reported to the Board where appropriate. We rely on having highly experienced personnel to support and manage issues as they arise.

The Audit Committee oversees and monitors the risk framework, including reviewing the risk register to ensure it properly captures the principal and emerging risks, overseeing the framework for identifying risks (including potential future risks), reviewing the ongoing operation and effectiveness of our control environment to manage the principal and emerging risks we face, and ensuring that any actions identified are taken forward by the RTW and Elysium teams as appropriate. This review process provides a focus to drive continuous improvement in our risk processes.

Identifying principal and emerging risks

We evaluate our principal and emerging risks on an ongoing basis using both top-down and bottom-up inputs. We also continuously assess future risks that could have a potential impact. During the year the Board and the Investment Manager had ongoing discussions to consider current and potential risks of the Group. The discussions also generated insights into a range of potential emerging risks and have helped to focus attention on additional areas for monitoring by the Board and the Investment Manager.

The RTW team carries out a bottom-up review, considering each of our life science companies and our internal operations, both as a specific exercise and on an ongoing basis through regular monitoring of our portfolio companies. In doing this we draw on the underlying assessments by the management teams of each of our life science companies. These inputs are brought together in our risk register, which is reviewed by the Audit Committee in detail each year. The principal and emerging risks identified by the Board are set out on below. These have not substantially changed in the last year, although COVID-19 is no longer considered to be a principal risk of the Group. The Board also monitors future risks that may arise, including the longer-term risks of changes to US pharmaceutical drug pricing and US FDA productivity.

Risk management structure

Board of Directors

Risk management leadership

Audit Committee

Reviews and monitors the risk framework

RTW Team

Risk management is integral to the investment process and financial management Implementing and monitoring risk controls; risk reporting

Other advisers

Risk identification; risk reporting

Portfolio companies' management teams

 Risk identification and mitigation

Risk appetite

The Board is willing to accept a level of risk in managing our business to achieve our strategic goals. As part of the risk framework, the Board sets the risk appetite in relation to each of the principal and emerging risks and monitors the actual risk against that. Where a risk is approaching or moves to the higher end of what the Board deems to be acceptable, the Board will consider the actions being taken to manage it. This year the Audit Committee carried out a detailed review of the defined risk types, to ensure they continue to reflect the understanding of the Board and accurately reflect the risks we take. Following that review the Audit Committee recommended to the Board that the risk appetite remained appropriate, and the Board has accepted that recommendation.

Principal and Emerging Risks and Uncertainties

Principal risks and how we mitigate them

Under the FCA's Disclosure Guidance and Transparency Rules the Directors are required to identify the material risks to which the Group is exposed, and the steps taken to mitigate those risks.

The Group has five categories of risks in its risk register namely:

· Investment Risks

· Operational Risks

· Governance/Reputational Risks

· External Risks

· Emerging Risks

Investment Risks

1. FAILURE TO ACHIEVE INVESTMENT OBJECTIVE

RISK DESCRIPTION

The Group's target return on net assets is not guaranteed and may not be achieved.

RISK CONTROL MEASURES

The Board will monitor and supervise the Group's performance, compared to the target return, similar investment funds and broader market conditions. Where performance is unsatisfactory, the Board will discuss the appropriate response with the Investment Manager.

DECREASING

STRATEGIC LINK

Build

Support

Operational Risks

2. COUNTERPARTY RISK

RISK DESCRIPTION

The Group has the potential to be exposed to the creditworthiness of trading counterparties in OTC derivatives contracts, its prime broker in the event of re-hypothecation of its investments and any counterparty where collateral or cash margin is provided or where cash is deposited in the normal course of business.

RISK CONTROL MEASURES

The Group uses Goldman Sachs, Morgan Stanley and Bank of America Merrill Lynch, JP Morgan and Jefferies as prime brokers and Cowen, UBS, Bank of America Merrill Lynch, Goldman Sachs, Jefferies, and Morgan Stanley as ISDA counterparties. To monitor counter party risk, the Investment Manager monitors fluctuations in share prices, percentage changes in daily, monthly, and annual 5-year CDS spreads and S&P credit ratings. If a counterparty group share price moves up or down in excess of 20%, the trader at the Investment Manager is alerted immediately. In case of an alert, the trader notifies RTW's Chief Compliance Officer. There has been no disruption in operations with the Group's counterparties to date. The Group's bankers are an offshore branch of Barclays Bank PLC and are also included in the Investment Manager's CDS monitoring program.

STABLE

STRATEGIC LINK

Identify

Engage

Build

Support

Governance/Reputational Risks

3. THE INVESTMENT MANAGER RELIES ON KEY PERSONNEL

RISK DESCRIPTION

The Investment Manager relies on the founder of RTW, Roderick Wong M.D. Roderick Wong is a key figure at the Investment Manager and is extensively involved in investment decisions.

RISK CONTROL MEASURES

In the event that Roderick Wong was to no longer work for the Investment Manager or was incapacitated, the Board is able to terminate the Investment Management Agreement within 180 days if a suitable replacement has not been found and would consider whether it was appropriate to wind up the Group and return capital to shareholders, or to appoint a new Investment Manager.

STABLE

STRATEGIC LINK

Identify

Engage

Build

Support

4. PORTFOLIO COMPANIES MAY BE SUBJECT TO LITIGATION

RISK DESCRIPTION

Portfolio Companies may be subject to product liability claims. Such liability claims would have a direct financial impact and may impact market acceptance even if ultimately rebutted.

RISK CONTROL MEASURES

The Investment Manager's due diligence process includes considering the risk that innovative therapies may have unforeseen side effects, based on the Investment Manager's extensive sector knowledge and experience, published research, and publicly available information.

STABLE

STRATEGIC LINK

Identify

Engage

Build

Support

External Risks

5. EXPOSURE TO GLOBAL POLITICAL AND ECONOMIC RISKS

RISK DESCRIPTION

It is anticipated that approximately 75% of investments will be in US companies or licensing agreements with US institutions and 25% of investments will be made outside of the US. The Group's investments will be exposed to foreign exchange, and global political, economic, and regulatory risks.

RISK CONTROL MEASURES

The Investment Manager has extensive experience transacting across the global healthcare marketplace and will be responsible for identifying relevant events and updating the investment plans appropriately.

STABLE

STRATEGIC LINK

Engage

Build

Support

6. CLINICAL DEVELOPMENT & REGULATORY RISKS

RISK DESCRIPTION

New drugs, medical devices and procedures are subject to extensive regulatory scrutiny before approval, and approvals can be revoked.

RISK CONTROL MEASURES

The Investment Manager's due diligence process includes a rigorous process of assessing preclinical and clinical assets and their probabilities of success to become an approved product utilizing scientific, clinical, commercial and regulatory benchmarks. Additionally, the Investment Manager's process of evaluation includes assessing the likely attitude of regulators towards a potential new therapy. The due diligence will also consider the unmet need of the disease and whether the therapy offers advantages over the current standard of care.

STABLE

STRATEGIC LINK

Identify

Engage

Build

Support

7. IMPOSITION OF PRICING CONTROLS FOR CLINICAL PRODUCTS AND SERVICES

RISK DESCRIPTION

Portfolio Company products may be subject to price controls, price gouging claims and other pricing regulation in the US and other major markets; or government healthcare systems may be the major purchasers of the products.

RISK CONTROL MEASURES

While future political developments cannot be reliably forecast, the Investment Manager's due diligence process includes an assessment of political risk, and the likely acceptability of the investee's pricing intentions.

STABLE

STRATEGIC LINK

Build

Support

8. INFLATION

RISK DESCRIPTION

The unprecedented level of fiscal and monetary stimulus that has been applied to the global economy has caused US inflation to surge to a 40-year high and resulted in sharp falls in the share prices of technology firms without current earnings.

RISK CONTROL MEASURES

The creation of value through innovation in the biotechnology sector outweighs the singular and/or short-term adjustment to valuation levels arising from changes in discount rates as a result of rising inflation. The Investment Manager holds investments that have current earnings and cash-flows and has significant exposure to Phase 3 products which have a high probability of achieving cash-flows in the near-term. Whilst the pace of interest rate rises has moderated in reaction to reductions in US inflation it is not possible to say that this risk is reducing yet as inflationary pressures remain.

STABLE

STRATEGIC LINK

Identify

Engage

Build

Support

9. UKRAINE WAR

RISK DESCRIPTION

The ongoing war in Ukraine has led to the imposition of harsh sanctions on Russia and substantial restrictions on the ability to transact in Russian securities and trade with Russian companies. These sanctions and the corresponding impact on commodity and transport costs have weighed on the global economy.

RISK CONTROL MEASURES

The Investment Manager has confirmed that the Group has no direct or indirect exposure to Russian securities or assets.

STABLE

STRATEGIC LINK

Identify

Engage

Build

Support

Emerging Risks

10. AVAILABILITY OF CAPITAL

RISK DESCRIPTION

Funding for early stage venture companies through smaller public companies is much reduced in comparison to recent years. The IPO market is at its lowest level in a decade and follow-on offerings declined for the second year in a row, back to the lowest level since 2016's drug pricing panic. The Russell 2000 Biotech Index of listed LifeSci companies has declined for a second year in a row to give a cumulative drawdown of 49.8%, with the 69.9 % fall from 8 February 2021 to 11 May 2022 approaching the worst in recent decades, being the 84.7% decline from 6 March 2000 to 11 March 2003. With a record number of companies trading at less than 1x their cash balances, the market appears to believe that not all companies will survive. With reduced availability of capital allocation to the sector, in particular through the absence of generalist investors, there may be the risk that not all sponsors have enough capital to support the continued financing of all investees.

RISK CONTROL MEASURES

The Investment Manager is a long-standing full life-cycle investor in the sector, in many instances supplying commercial expertise and advice to investees in addition to supporting successive financing rounds. The Investment Manager is experienced in identifying potential in companies that have strong fundamentals at attractive valuations that create an asymmetric and attractive risk/reward profile. The Board formally reviews the financing status of the Group's private portfolio with the Investment Manager at least twice each year at Board meetings. 25% of the Group's NAV is exposed to private companies of which only one quarter will need refinancing within the next 12 months and most of these companies have re-financing plans in place. Out of these six private companies (amounting to 6.25% of NAV) two are RTW NewCos, so that is by design. Approximately 29% of the Group's NAV is currently invested in other publicly listed companies in lieu of holding cash for future private investments with a further 46% of NAV invested in core publicly listed holdings that could also be sold. The Group has no net borrowings. The Group therefore retains significant access to sources of liquid capital to enable it to support investees for the foreseeable future.

INCREASING

11. LIQUIDITY RISK

RISK DESCRIPTION

Many investees are not yet at a stage of their life cycle where they are inherently cash-generative and enjoy stable, predictable free cash-flow. They have typically raised significant amounts of cash which are then held in bank deposits and liquid securities to meet operational requirements until their next planned capital raising round or IPO. In recent weeks there have been several high-profile bank failures, some of which, but not all, are to some extent attributable directly or indirectly to rising policy interest rates and rising long-term yields in response to sustained inflationary pressures. To the extent that investees keep their cash on deposit at such banks, there is a risk that they may suffer a partial or total loss of their capital and suffer a consequent liquidity crisis threatening their ability to continue their planned development.

RISK CONTROL MEASURES

The Investment Manager closely monitors counterparty exposures in its portfolio companies. Exposures to recent bank failures have been minimal in that four portfolio companies totalling 1.68% of Group NAV had some exposure to Silicon Valley Bank. Portfolio companies will typically manage their treasury functions on a prudent basis, spreading exposure over several counterparties thereby avoiding catastrophic losses from any single failure. Where the Investment Manager becomes aware of significant risk concentration it will engage with investees to encourage more prudent diversification. The Board also notes that, to date, regulators have ensured that no depositors have lost funds in such banking failures although it recognises that this may not necessarily be achieved in the future.

STABLE

Longer Term Viability Statement

Realising a robust and resilient company

ASSESSING THE PROSPECTS OF THE GROUP

The corporate planning process is underpinned by scenarios that encompass a wide spectrum of potential outcomes. These scenarios are designed to explore the resilience of the Group to the potential impact of significant risks set out below.

The scenarios are designed to be severe but plausible and take full account of the availability and likely effectiveness of the mitigating actions that could be taken to avoid or reduce the impact or occurrence of the underlying risks and which would realistically be open to management in the circumstances. In considering the likely effectiveness of such actions, the conclusions of the Board's regular monitoring and review of risk and the Investment Manager's internal control systems is taken into account.

The Board reviewed the impact of stress testing the quantifiable risks to the Group's cash flows as detailed in risk factors 1-5 and concluded that the Group, would have sufficient working capital to fund its operations in the following extreme scenario:

(1) The Group incurred NAV losses of 39% of NAV over a three-year period ending 28 February 2026.

(2) No new capital was raised.

(3) US$45 million of private investments were funded from cash and by selling public portfolio investments.

To provide some context for this scenario, the NASDAQ Biotech Index was in a 26% drawdown at the end of February and the additional 39% drawdown that we have modelled simulates a total drawdown of approximately 55% which has only been exceeded on a rolling 3-year basis once in the life of the index in Q1 2003 at the end of the technology bubble.

The Board considers that this stress testing-based assessment of the Group's prospects is reasonable in the circumstances of the inherent uncertainty involved.

THE PERIOD OVER WHICH WE CONFIRM LONGER TERM VIABILITY

Within the context of the corporate planning framework discussed above, the Board has assessed the prospects of the Group over a three-year period ending 28 February 2026. Whilst the Board has no reason to believe the Group will not be viable over a longer period, given the inherent uncertainty involved, the period over which the Board considers it possible to form a reasonable expectation as to the Group's longer-term viability, based on the stress testing scenario planning discussed above, is the three-year period to February 2026. This period is used for the Investment Manager's business plans and has been selected because it presents the Board and therefore readers of the Annual Report with a reasonable degree of confidence whilst still providing an appropriate longer-term outlook.

CONFIRMATION OF LONGER-TERM VIABILITY

The Board confirms that it has carried out a robust assessment of the emerging and principal risks facing the Group, including those that would threaten its business model, future performance, solvency or liquidity. Based upon the robust assessment of the principal and emerging risks facing the Group and its stress testing-based assessment of the Group's prospects, the Board confirms that it has a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the period to February 2026.

On behalf of the Board

William Simpson

Chairman

30 March 2023

Section 172

Close collaborators and committed partners

Section 172 of the Companies Act 2006 applies directly to UK domiciled companies. Nonetheless the AIC Code requires that the matters set out in section 172 are reported on by all companies, irrespective of domicile, provided this does not conflict with local company law.

Section 172 recognises that directors are responsible for acting in a way that they consider, in good faith, is the most likely to promote the success of the Group for the benefit of its shareholders as a whole. In doing so, they are also required to consider the broader implications of their decisions and operations on other key stakeholders and their impact on the wider community and the environment. Key decisions are those that are either material to the Group or are significant to any of the Group's key stakeholders. The Group's engagement with key stakeholders and the key decisions that were made or approved by the Directors during the year are described below.

ESG: Environmental, Social and Governance Topics

Responsible investing

The Board has directed the Group to initiate an ESG assessment in 2023, to plan for forecasted regulatory measures, including the United Kingdom's proposed Sustainability Disclosure Requirements, and pave the way for reporting of the Group's ESG considerations to shareholders. The Group does not have direct employees or physical office space, and most of its activities are performed by other organisations. Therefore, the Group's carbon footprint should be relatively small because it does not directly contribute to fuel combustion or any other greenhouse gas emissions. Three of the four Directors, as well as the Administrator, Company Secretary are all based in Guernsey where Board meetings are held, thus reducing the environmental impact of long commutes and flights. The Group's ESG assessment will also address indirect impacts on ESG factors.

The Investment Manager's operations are highly concentrated in its primary office space located in a building that is LEED Gold Certified based on, among other things, the sustainability of its location, water efficiency, energy and atmosphere characteristics, use of materials and resources, indoor environmental quality, and innovation. The Investment Manager espouses a strong culture of compliance, risk management and ethical behaviour. It aims to always act in the best interests of shareholders, employees and stakeholders. Its corporate code of ethics addresses the largest areas of risk pertaining to the alternative asset management industry, including but not limited to conflicts of interest, anti-bribery, employee investing, insider trading and political contributions. Furthermore, it seeks to ensure that investments do not lead to negative impacts on public health or well-being or contribute to human or labour rights violations, corruption, serious environmental harm or other actions which may be perceived to be unethical. It seeks long-term investment partners that evidence equivalent professional and ethical rigour.  The Investment Manager is wholly-owned by minority and/or female shareholders.

RESPONSIBLE INVESTING

The Board believes that acting and investing responsibly is a necessary foundation for the long-term sustainability of investment success. The Investment Manager's stated mission, to power breakthrough therapies that transform the lives of millions, is an approach to investing that is inherently socially conscious. Its team of scientists and researchers work tirelessly to find treatments and potentially cures for diseases and conditions in order to improve quality of life across the globe. As a guiding principle, it prioritises overall positive impact on patients and long-term meaningful outcomes to society and believes this is the foundation of the Group's success.

RTW CHARITABLE FOUNDATION

The Investment Manager created the RTW Charitable Foundation ("RTWCF") with its vision to work towards a world free of ultra-rare disease. It was founded at the intersection of scientific progress and humanitarian effort. While working to improve human health on a global scale is an inspiring undertaking, the RTWCF brings hope to those with conditions so rare that they do not attract significant outside investment due to the limited potential for commercial opportunity. RTWCF's mission is to power rare disease research, medical innovation and humanitarian collaborations to improve the health of underserved communities. 

It is able to provide capital, manpower, and logistical support to help scientists push projects forward. In addition, it aims to contribute to advocacy, disease awareness and direct support of organisations and communities in New York City.

RTWCF provides research grant recipients financial support as well as guidance gleaned from the Investment Manager's experience in drug development and company building.

CASE STUDY

Improving vaccine access

In August 2021, some NYC neighbourhoods had less than 35% of residents fully vaccinated, when the city average was roughly 55%. The New York City Department of Health and Mental Hygiene found that distrust in government and drug companies created hesitancy in vaccine uptake. We say this often - RTWCF was one of the first to support our recovery efforts and helped pave the way to our impact and reimagined programs. We're excited to reach new heights together. New Immigrant Community Empowerment (NICE) supports immigrant workers and their families by advocating for workplace safety and rights, providing skills training, and connecting families with resources. During the pandemic, NICE expanded their services to include food access, vaccine support, and financial assistance. RTWCF partnered with NICE to distribute 10,000 meal and grocery packages, conduct comprehensive community outreach around COVID-19 vaccination safety, and throw a Vaccine Access Block Party. In 2021, NICE helped over 5,000 people access COVID vaccines by translating appointment registration documents, educating people on the vaccine, and accompanying people to appointments.

CASE STUDY

Building education access

Areté Education designs interactive afterschool and summer programs to teach students in the South Bronx about leadership skills, wellness, diverse career paths, and arts & culture. During the pandemic, children living in temporary housing had limited access to education when schools moved to remote learning. With RTWCF's support, Areté Education created the Areté Hope Network Program to provide direct assistance to families struggling during the pandemic. Eighteen students and families with unstable housing received stipends, groceries, hotspots, laptops, and mentoring to improve children's attendance rates and academic performance. Students' engagement and attendance improved dramatically: all students in warning groups labeled "chronically absent" or "severely chronically absent" moved out of those warning groups during the intervention. Ninety-three percent of participants had attendance rates of 80% or higher including 50% with perfect attendance through the course of the program.

Each of our days of action have been really inspirational and powerful, it is a way to feel connected. We are really hands on, doing the work physically not just mentally or through spirit. We combine all of these elements on our journey at work to make a difference.

Consolidated Statement of Assets and Liabilities

as at 31 December 2022 and 31 December 2021

(Expressed in United States Dollars)

The audited consolidated financial statements of the Group were approved and authorised for issue by the Board of Directors on 30 March 2023 and signed on its behalf by:

William Simpson Paul Le Page

Chairman Director

See accompanying notes to the consolidated financial statements.

Consolidated Condensed Schedule of Investments

as at 31 December 2022

(Expressed in United States Dollars)

See accompanying notes to the consolidated financial statements.

Consolidated Condensed Schedule of Investments (continued)

as at 31 December 2022

(Expressed in United States Dollars)