Rtw Biotech Regulatory News (RTW)

LEI: 549300Q7EXQQH6KF7Z84

13 September 2023

RTW Biotech Opportunities Ltd

Interim Report for the period ended 30 June 2023

Strong NAV performance, significantly outperforming benchmark indices

RTW Biotech Opportunities Ltd (the "Group"), the London Stock Exchange-Premium listed investment company focused on identifying transformative assets with high growth potential across the biopharmaceutical and medical technology sectors, is pleased to announce its Interim Report for the six months ended 30 June 2023.

Financial Highlights:

The Group continued to outperform the benchmark indices in the period since Admission, demonstrating the strength of the Investment Manager, investment strategy and the portfolio:

(i) Total shareholder return is an alternative performance measure

(ii) Source: Capital IQ

Portfolio Highlights

· As at 30 June 2023, the Group had decreased the number of core portfolio companies to 37 (H1 2022: 41).

o  10 publicly-listed (H1 2022: 15)

o  27 privately-held (H1 2022: 26)

· A stand-out event for the period was the sale of Prometheus Biosciences, which at the time was the Group's largest holding (14.8% of NAV). Prometheus was acquired by Merck at a 75% premium to the prior closing price. Total proceeds from the sale of Prometheus shares amounted to US$99.1 million on total invested capital of US$8.4 million, representing an 11.8x multiple. The multiple on capital invested in the private rounds was 22x.

· CinCor Pharma announced an agreement to be acquired by AstraZeneca for US$1.3 billion. The total consideration amounted to a 207% premium to the prior closing price. At the time of the announcement, the position represented 0.6% of NAV.

· 5 new core portfolio companies were added during the period (H1 2022: 2).

o  Co-led Cargo Therapeutics Series A financing round in March 2023 (0.4% NAV)

o  Co-led Oricell Therapeutics Series B financing round in February 2023 (0.6% NAV)

o  Participated in Abdera Therapeutics Series B financing round in April 2023 (0.3% NAV)

o  Participated in a bridge financing in Allurion Technologies in February 2023 (0.01% NAV)

o  Participated in Tourmaline Bio's Series A financing round in May 2023 (0.2% NAV)

· 24/37 core portfolio companies had pipeline products in clinical stage programmes (H1 2022: 28/41) on 30 June 2023.

· As at 30 June 2023, 51% of NAV was invested in core portfolio companies (H1 2022: 62%), whilst 31% was invested in other public portfolio companies (H1 2022: 33.5%) and 18% was held in cash plus assets and current liabilities (H1 2022: 5%).

· 3 private portfolio companies - Mineralys, Acelyrin and Orchestra BioMed - successfully listed on the Nasdaq during the period, and Tourmaline Bio entered into a merger agreement with Nasdaq-listed Talaris Therapeutics, which is expected to close in the fourth quarter.

o  Mineralys successfully launched an upsized initial public offering (IPO) in February 2023, raising US$192 million.

§ On the first day of trading, Mineralys' share price rose by 15.25%, to close at US$18.44 per share.

o  Acelyrin successfully launched an upsized IPO in May 2023, raising US$540 million.

§ On the first day of trading, Acelyrin's share price traded up by 30.55% to close at US$23.50 per share.

o  Orchestra BioMed announced the closing of its merger with RTW's Health Sciences Acquisitions Corporation 2 and started trading on the Nasdaq.

· The Group participated in a US$125 million strategic financing deal with Milestone Pharmaceuticals. The strategic financing included US$50 million in convertible notes from RTW-managed funds, including the Group, as well as a commitment by the Investment Manager of US$75 million in royalty funding.

Post Period-End Highlights

· Apogee Therapeutics successfully listed on the Nasdaq via an upsized IPO in July 2023, raising US$300 million.

o  On the first day of trading, Apogee's share price traded up by 24.9% to close at $21.23 per share. At 30 June 2023, Apogee represented 0.6% of the Group's NAV.

· Following a February 2023 announcement that Allurion Technologies would go public via a business combination transaction that would include a PIPE led by RTW-managed funds, including the Group, and a synthetic royalty financing, the transaction was completed on 1 August 2023, and Allurion began trading on the NYSE on 2 August, raising US$100 million.

· The Company announced a share buyback programme, given the Board's belief that the share price materially undervalues the Company.

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

"We are pleased to report the Group achieved strong performance, particularly in comparison with our benchmarks, which we have outperformed not only during the period but also on a one and three-year basis. During the six months to 30 June 2023, RTW's NAV increased by +9.3% compared with +5.3% for the Russell 2000 Biotech index.

"Performance since inception remained significantly ahead of both the Nasdaq Biotech and Russell 2000 Biotech indices with RTW achieving a +61.5% NAV performance since inception compared with +20.7% for the Nasdaq Biotech index and -0.3% for the Russell 2000 Biotech index, over the same periods.

"It has been a very active six months for the Group, with three portfolio companies listing on the Nasdaq and one announcing a merger with a listed entity. We have also seen two take-outs in the portfolio at very healthy premiums, one of which was RTW's largest position at the time, Prometheus Biosciences. Additionally, there have been five new core portfolio companies added to the portfolio, while five core public portfolio companies were exited.

"With the second longest and deepest bear market for the biotech sector now behind us, this is an exciting time to invest in highly attractive opportunities across our private, core public and other public portfolios. We look ahead to the remainder of 2023 with confidence as we look to add both public and private companies to our portfolio of transformative assets with high growth potential across the biopharma and med-tech sectors. We look forward to updating shareholders with our continued progress throughout the remainder of the year."

For Further Information

About RTW Biotech Opportunities Ltd: RTW Biotech Opportunities Ltd (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 Biotech Opportunities Ltd invests in companies developing next-generation therapies and technologies that can significantly improve patients' lives. RTW Biotech Opportunities Ltd 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 website at www.rtwfunds.com/rtw-biotech-opportunities-ltd  for more information.

Highlights

30 June 2023 Financial Highlights

1 The share price has since recovered to US$1.26 at 11 September 2023.

Portfolio Highlights in the period

1 Core portfolio consists of companies that were initially added to the portfolio as private investments, reflecting the key focus of the Group's strategy. As initially private investments continue to be held beyond IPO, the core portfolio consists of both privately-held and publicly-listed companies.

Our Purpose

Transforming the lives of millions

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

Identify

Identify transformational innovations

RTW has developed expertise through a comprehensive study of industry and academic efforts in targeted areas of significant innovation. Thanks to the decoding of the human 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

RTW has developed repeatable internal processes combining technology and manpower to comprehensively cover critical drivers of innovation across the globe. We seek to identify, through rigorous scientific analysis, biopharmaceutical and medical technology assets that have a high probability of becoming commercially viable products, dramatically changing the course of treatment and in some cases bringing effective and/or fully curative outcomes to patients.

Build

Build new companies around promising academic licences

RTW has the capabilities to partner with universities and in-license academic programs, by providing capital and infrastructure to entrepreneurs to advance scientific programs. Particularly in rare disease there is often little existing research and are few treatment options, so forming a rare disease-focused company is a way of shining a light on this space and creating a roadmap to eventually developing curative treatments.

Support

Support full life cycle investment

A key part of RTW's competitive advantage is the ability to determine at which point of 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 contributing 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 truly 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.

Chair's Statement

I am pleased to report that the Investment Manager ("RTW") has achieved a solid performance for the Group. The Group's NAV returned +9.3% over the six-month period, materially outperforming both the Russell 2000 Biotech and the Nasdaq Biotech Index ("NBI") which returned +5.3% and -3.2% respectively. The Group's NAV has also strongly outperformed its biotech benchmarks over one year and three years.

Since admission in October 2019, the Group's NAV has significantly outperformed its biotech benchmarks returning +61.5% versus -0.3% and +20.7% for the Russell 2000 Biotechnology Index and the NBI, respectively. However, the Company's share price has lagged NAV growth with a +19.7% return as the shares fell to a discount to NAV in 2022, alongside many of our peers, after having traded at a small premium for most of the prior years since admission. The discount widened in the early part of the year as the shares traded sideways despite a pickup in the Group's NAV but started to narrow again towards the end of the reporting period.

H1 2023 Overview and Outlook

There has been no shortage of positive activity in the portfolio in the first half of 2023 with two take-outs, two IPOs, a SPAC merger, a reverse merger, two announced strategic financings, five new private investments and five exits (not including the take-outs). At the end of the period, the Group had thirty-seven core portfolio holdings, a decrease from forty-one last year. The core portfolio represents 51.2% of NAV, down from 61.8% at the same time last year. The "other public" portfolio (a replica of the long names held in RTW's private funds, devised to mitigate the cash drag of setting aside cash for future deployment into core positions) remains at about one third of NAV. The reduced allocation to the core portfolio and the currently elevated Available Cash position (18%) is a result of the Group recently receiving substantial proceeds from the sale of Prometheus Biosciences to Merck

The Prometheus sale was the stand-out event in the first half of the year. At 14.8% of NAV, Prometheus was the Group's largest holding when it was acquired by Merck at a 75% premium to the prior closing price. Total proceeds from the sale of Prometheus shares amounted to US$99.1 million on total invested capital of US$8.4 million, representing an 11.8x multiple. The multiple on capital invested in the private rounds was 22x. This transformational transaction is a perfect example of the Group's successful investment strategy at work. The ability to invest across a company's life cycle provides significant advantages. Surveying early-stage private assets provides access to experimental data that typically isn't shared in the public markets and investing early allows time to build relationships with entrepreneurs and management teams. Without the pressure to exit at an IPO, the Investment Manager typically aims to increase the size of the most promising investments as they enter the public markets. It was the duration and flexibility offered by our listed investment company structure that allowed the Investment Manager to increase conviction and grow the position through the IPO and multiple inflection points right up to the end.

In light of this significant success in demonstrating the value of a full life cycle investment strategy, the Group announced a capital allocation plan after the end of the reporting period. This included a share buyback, given the Board's belief that the share price materially undervalues the Group and its portfolio. The Board believes that this further demonstrates: 1) its confidence in the outlook for the biotech sector and the Group's portfolio; 2) capital allocation discipline; and 3) the proven value of the Group's model. The Board is pleased with the reaction from our shareholders and the market.

With the biotech sector only just recovering from the second deepest and second longest bear market in its history, now is a particularly opportune time to take receipt of the Prometheus proceeds. Valuations are attractive, fundamentals have turned around and M&A has become a significant tailwind. As a result, the Group will retain an appropriate level of the proceeds to invest in highly attractive equity opportunities across the private, core public and other public portfolios over the medium term, as per the Group's core objective.

Financing conditions in the sector remain tight, however, and this environment enables RTW to flex the transactional capabilities it has built over the years to help support exciting companies by offering strategic financing solutions including royalty financing. The Company's shareholders will access royalty opportunities through an investment in RTW's "4010 Royalty Fund." There will be no double-charging, as fees will be taken at the Company level only. The Board considers that this presents an attractive, uncorrelated, cash-yielding investment that complements the Group's portfolio. The Group intends to limit royalty investment exposure to approximately 15% of NAV including the current royalty holding in the portfolio, which was 4.0% of NAV as at 30 June. 

In a time when private market valuations are so heavily scrutinised, it is important to have a robust valuation process. We strongly believe this to be the case with RTW's Valuation Committee's fair value approach to marking the private portfolio on a monthly basis, in conjunction with two independent third-party valuation firms, Alvarez & Marsal and Houlihan Lokey. The proof comes when private investments become public companies. With two IPOs in the first half and another just after the end of the reporting period, we have a reasonable sample to assess the private portfolio's fair value. With all of these events seeing a step-up from their prior private holding value by an average of 58%, we emphasise our confidence in the Group's portfolio and outlook for the sector. 

AGM Results and Name Change

The Group held its Annual General Meeting on 21 June 2023 to consider the audited consolidated financial statements and other matters, including a change of name from RTW Venture Fund Limited to RTW Biotech Opportunities Ltd. We are grateful to shareholders who cast their votes. The results have been announced to the market and published on the Investment Manager's website https://www.rtwfunds.com/rtw-biotech-opportunities-ltd/.

The Board believes that this name better places it amongst its listed healthcare and biotech investment company peers and more accurately reflects the Group's full life cycle approach to biotech investing as a partner that can invest in both the private and public domains and across the capital structure with the flexibility to focus on where the most attractive opportunities exist.

New Corporate Broker and Distribution Partner

In April, the Board appointed Numis as a corporate broker alongside BofA Securities, which remains as Joint Corporate Broker. Soon after, the Group started working with Cadarn Capital, a specialist investment company distribution and investor relations partner to accelerate the Group's brand recognition, particularly in the UK, after more than three years of peer-leading performance since admission.

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

William Simpson

Chair of the Board of Directors

RTW Biotech Opportunities Ltd

12 September 2023

Report of the Investment Manager

Executive Summary

Since 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$356.5 million as of 30 June 2023. The NAV per Ordinary Share has increased 61.5% from US$1.04 to US$1.68 in the same period. Disappointingly, the share price has not kept pace with NAV, returning +19.7%, as the shares fell to a discount in early 2022 and have remained there despite a substantial pick-up in the Group's NAV from the low in May 2022. From that point in time until the end of the current reporting period, the NAV has increased by 37.7% from US$1.22, while the share price has increased by only 8.7%. With continued NAV outperformance versus the market and peers, and with the sector's recovery gaining momentum, it is our expectation that the share price should follow.

Financial Highlights, Performance Drivers and Significant Events

Table 1. Financial Highlights

(i) Total shareholder return is an alternative performance measure

(ii) Source: Capital IQ

RTW Investments, LP, the "Investment Manager", a leading global healthcare-focused investment firm with a strong track record of supporting companies developing life-changing therapies, created the Group as an investment fund focused on identifying transformative assets with high growth potential across the biopharmaceutical and medical technology sectors. Driven by 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 while creating significant value for our shareholders.

NAV performance in the first half of 2023 has overwhelmingly been driven by the core public portfolio (+12.6% contribution) with two of those positions being acquired by large cap pharma companies at significant premiums. In particular, our largest holding Prometheus Biosciences, which contributed +12.6% to NAV, announced in April that it was to be acquired by Merck for US$200.00 per share in cash, a 75% premium to the prior closing price. In January, CinCor Pharma (+0.9% contribution) announced an agreement to be acquired by AstraZeneca for US$1.3 billion upfront. CinCor shareholders also received a non-tradable contingent value right, payable upon receipt of FDA approval. Combined, these payments represent a 206% premium. There were no other contributors of note. Core public holding, Avidity Biosciences, was the only noticeable detractor (-2.4%) after it announced clinical data in May that did not meet expectations.

The core private portfolio made a small negative contribution (-0.6%) to NAV. Within that, RTW Royalty 2 (Urogen) contributed +0.5%, incorporating distributions received this year and a 7% increase in the valuation as sales revenue forecasts provided by independent analysts were added to our valuation models. This was offset by write-downs in Alcyone (-0.4%) which is in a challenged financing position, and Neurogastrx (-0.5%) which suffered a clinical setback and is being wound down. The "other public" portfolio contributed -1.2% to NAV.

Orchestra BioMed was not a significant contributor or detractor in the reporting period (-0.2% when combined with the contribution from HSAC2 founder shares); however, it is worth commenting on as its merger in January with our SPAC ("HSAC2") was a notable event. A strong start saw the shares trade above US$20 (versus US$10 at the de-merger), then trade down to US$7 at the end of the reporting period. With the majority of its market cap in cash, an EV of less than US$100 million, and backed by global medical devices leader, Medtronic, we remain excited for the future of the company and continue to believe that SPACs are a useful financing vehicle, especially in bear markets, in spite of the challenges they have had in recent times in the general market. 

Figure 1. Performance Drivers as of 30 June 2023

* Exited positions

Key updates for Core Portfolio Companies during H1 2023:

Clinical & Commercial

§ In January, Rocket announced the addition of a new cardiac gene therapy program, RP-A601, for arrhythmogenic cardiomyopathy due to plakophilin 2 pathogenic variants (PKP2-ACM).

§ In March, Avidity Biosciences announced that discussions were ongoing with the US FDA regarding the partial clinical hold on new participant enrolment in its Phase 1/2 clinical trial for AOC 1001 (treats Mytonic Dystrophy). 

§ In March, Immunocore positively surprised the market with US$42 million of net sales of Kimmtrak in Q4 2022. 

§ In May, Rocket posted several positive data updates from their PKD, Fanconi Anaemia, LAD-I and Danon Disease programs at the American Society of Cell and Gene Therapy ("ASGCT") conference.

§ In May, Avidity's partial clinical hold was eased. However, the data from the higher dose of AOC 1001 in the muscular dystrophy trial didn't appear to further reduce expression of toxic DMPK, the hallmark of the disease.

§ In May, Rocket received FDA clearance for the company's RP-A601 programme to enter the clinic.

§ In April, Neurogastrx announced the latest data from its NG010 trial that indicated the top-line primary end point did not meet statistical significance and its resultant potential liquidation.

Financing

§ In January, CinCor Pharma announced an agreement to be acquired by AstraZeneca for $1.3 billion upfront. CinCor shareholders will also receive a non-tradable contingent value right, payable upon receipt of FDA approval. Combined, these payments represent a 206% premium. 

§ In January, Orchestra BioMed announced the closing of its merger with RTW's Health Sciences Acquisitions Corporation 2 and started trading on the Nasdaq under the ticker "OBIO". Medtronic joined as Orchestra's commercial partner, anchoring the combination alongside RTW. 

§ In February, Mineralys Therapeutics went public through an upsized initial public offering, which raised US$192 million, under the ticker "MLYS".

§ In February, the Group participated in a bridge financing round in Allurion Technologies, a company with a swallowable, procedure-less gastric pill balloon for weight loss. Earlier that month the company announced its intention to go public via a business combination that would include a fully committed PIPE led by RTW Investments and a non-dilutive, synthetic royalty financing to close concurrently with the business combination.

§ In March, the Group and other funds managed by RTW co-led a US$45 million Series B-1 financing round of OriCell Therapeutics, a China-based cell therapy company.

§ In March, the Group and other funds managed by RTW co-led a US$200 million Series A financing round in Cargo Therapeutics, a clinical stage CAR T-cell therapy company.

§ In March, the Group announced its participation in a US$125 million strategic financing deal with Milestone Pharmaceuticals. The strategic financing included US$50 million in convertible notes from RTW-managed funds, including the Group, as well as a commitment by RTW of US$75 million in royalty funding.

§ In April, Prometheus Biosciences announced that it agreed to be acquired by Merck for US$200.00 per share in cash, a 75% premium to the prior closing price, for a total consideration of US$10.8 billion.

§ In April, the Group participated in a Series B financing of Abdera Therapeutics; a pre-clinical stage biopharmaceutical company focused on small cell lung cancer and other solid tumours. The company raised US$142 million in a combined series A and B.

§ In May, Acelyrin went public through an upsized US$540 million initial public offering under the ticker "SLRN".

§ In June, Prometheus Biosciences announced that its acquisition by Merck had been completed. 

§ In June, Tourmaline Bio announced a merger with Talaris Therapeutics alongside a US$75 million private placement that will provide the company with a cash runway through 2026. The merger is expected to close in the fourth quarter of 2023.

Portfolio Breakdown, New Investments & Capital Allocation Plan

We define the core public portfolio as companies that were initially added to our portfolio as private investments, reflecting the key focus of the Group's strategy. Our investment approach is defined as full life cycle and therefore involves retaining private investments beyond their IPOs; hence the core portfolio consists of both privately-held and publicly-listed companies.

As of 30 June 2023, the Group's core portfolio accounted for 51.2% of NAV (H1 2022: 61.8%) and included 37 companies (H1 2022: 41), ranging from biotechnology companies developing preclinical to clinical-stage therapeutic programs, companies developing traditional small molecule pharmaceuticals, and med-tech companies developing or commercialising transformative devices. We selected these companies based upon our rigorous assessment of scientific and commercial potential and with regard to the valuation of the assets at the time of investment. Table 4 shows the top fifteen portfolio companies at the end of the reporting period.

Private companies accounted for 21.7% of NAV on 30 June 2023 and core public companies accounted for 29.5%. The small decrease in exposure to private investments primarily reflects the migration of three positions into the core public portfolio as a result of IPOs (Mineralys and Acelyrin) and a SPAC merger (Orchestra BioMed). These events outweighed the addition of the new private positions shown in Table 3. The lower exposure to the core public portfolio reflects the aforementioned sale of Prometheus to Merck and the exiting of our holdings in Monte Rosa, Ventyx, Tenaya, Third Harmonic and C4.

Approximately one third of the Group's NAV is invested in other publicly listed companies, which is similar to the same period last year. The "other public" portfolio is designed to mitigate the drag of setting aside cash for future deployment into core positions. This portfolio of assets has been carefully selected, matching, on a pro-rated basis, the long investments held in our private 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.

As of 30 June, the Group had an Available Cash position of 18% of NAV. This primarily reflects proceeds received from the sale of Prometheus stock. We will retain an appropriate level of these proceeds to invest in highly attractive opportunities across the private, core public and other public portfolios. We also plan to leverage the sector's current tight financing conditions by offering strategic financing solutions including royalty financing deployed through "4010 Royalty Fund", another fund managed by RTW Investments. The Board also plans to distribute a portion of the Prometheus proceeds through a share buyback, which has now commenced. We share the Board's view that the current discount to NAV undervalues the Group and its portfolio, and we feel that this action represents an attractive, NAV-accretive investment.

As of 30 June 2023, the portfolio was diversified across treatment modalities, therapeutic focus, and clinical stage. While the portfolio is still majority invested in US-based companies, we are committed to adding UK and EU companies in an effort to support the best assets across the globe and help foster local biotech ecosystems. By constructing the portfolio in such a way, investors get exposure to the most innovative parts of a highly specialised sector with the explosive potential of companies like Prometheus Biosciences.

Looking forward, we expect the total portfolio sector allocation to remain close to 80% biopharmaceutical assets and 20% medical technology assets. In line with prior prospectus guidance, we anticipate two-thirds of 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. As per our recently announced capital allocation plan, royalty investments (across biopharma and medtech) will be limited to approximately 15% of NAV.  

Table 2. NAV capital breakdown as of 30 June 2023 compared to 30 June 2022

Table 3. New investments added in the first half of 2023

Figure 2. Core Portfolio breakdown as a percentage of NAV, adjusted to be out of 100%, by (A) Therapeutic Focus, (B) Modality, (C) Clinical Stage and (D) Geography as of 30 June 2023

Table 4. Top fifteen core positions as of 30 June 2023

Table 5. Core portfolio positions as of 30 June 2023 compared to 30 June 2022

1 Valuations for private portfolio companies on a fair value basis.

2 The valuations of public positions were calculated using their market capitalisation as of 30 June 2023

3 Position was private at the last interim reporting period end and has since gone public. In accordance with the Group's valuation policy in practice prior to 2023, as at 30 June 2022, the Group applied a discount to its investments in private companies that became public companies subject to customary post-IPO lock-up provisions. As of 1 January 2023, the Group has elected to early adopt FASB's ASU 2022-03, ASC Topic 820, "Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions" which eliminated this practice. Refer to Note 1 to these unaudited interim consolidated financial statements.

4 Includes shares held in the initial SPAC vehicle (HSAC2) that merged with Orchestra in January 2023

5 Includes pre-funded warrants

Table 6. RTW representation on portfolio company boards as of 30 June 2023

1 In aggregate these represent 22% of the NAV of the Group at 30 June 2023

Table 7. Top 5 "Other Public" portfolio holdings as of 30 June 2023

Private Portfolio Valuations and Cash Runway Analysis

The core private and public portfolios are the foundation of the Group's strategy. They are built on our rigorous assessment of the best private market investment opportunities. We have always been highly selective in this area, focusing only on companies with both 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 good size and well-funded.

As of 30 June 2023, the average cash runway of the twenty-four companies in our private portfolio that burn cash was twenty-six months, which gives them a good amount of time to focus on their clinical development plans until funding markets improve. There are eleven companies with less than twelve months of runway, two of which are RTW company creations, which is by design. Of the remainder, most have reasonable and well-formed capital raising plans in place. Two are in more challenging financial positions and one of those is being wound down with residual cash being returned to shareholders.

Which brings us to our private valuations. We hold our private company investments at 'fair value' i.e., the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. This is assessed in accordance with US GAAP, utilizing valuation techniques consistent with the International Private Equity and Venture Capital Guidelines including, but not limited to, the income approach and the market approach. Valuations are adjusted both during regular valuation cycles and on an ad hoc basis in response to 'trigger events' which may include changes in fundamentals, an intention to carry out an IPO, or changes to the valuations of comparable public companies. Our valuation process ensures that private companies are valued in both a fair and timely manner.

The process is overseen by the RTW Valuation Committee. The Committee is supported by RTW's valuation team that is independent from the investment team and receives advice from two independent third-party valuation firms, Alvarez & Marsal and Houlihan Lokey. The Committee approves valuations of private company investments on a monthly basis and utilises the analysis of an independent third-party valuation firm no less frequently than twice in a year in determining the fair value of each material private investment. The valuations are also reviewed twice per year by the Board and are subject to the scrutiny of KPMG in the annual audit process.

In the first half of this year, the private portfolio saw a total of thirty-six valuation adjustments. Twelve positions were marked up by an average of 16.8%; twelve were marked lower by any average of -26.6%. The balance remained at cost given the recent date of the investment. At 30 June, the average time since the last third-party valuation was 4.7 weeks and with an average of 1.2 years having elapsed since the last financing round. 

The value of the private portfolio is best demonstrated by the three portfolio IPOs that have completed so far this year (including Apogee Therapeutics which occurred after the reporting period). In all cases, we saw a step-up in valuation from prior private holding value by c. 58% on average and a 1.82x multiple on invested capital. It is worth noting that this is happening in an environment where there have only been a few meaningful biopharma IPOs, highlighting the quality of the portfolio. Figure three shows the pickup in IPO and new investment activity in our core portfolio versus last year.

Figure 3. New private investments and IPOs by year since admission

Figure 4. Core Portfolio Cash Runway Analysis 

Figure 5. Private portfolio year to date valuation changes

*Position that went public during the period

Table 8. RTW's Private Valuation Statistics for H1 2023

Table 9. Performance of core portfolio investments since inception as of 30 June 2023

1 Alternative Performance Measure

2 Exited position

3 The valuation date for all investments still held at the period end was 30 June 2023. Dates other than 30 June 2023 are the dates that a position was exited.

Table 10. Performance of Rocket Pharmaceuticals from admission to 30 June 2023

Sector review and outlook

Pharma went shopping in the first half of the year. Total deal value of US$93 billion puts sector M&A activity on track to be at the highest level since 2019. 2019's US$328 billion total was driven by two large deals, Bristol-Meyers' US$74 billion for Celgene Corporation and AbbVie's US$63 billion for Allergan plc, both focused on diversification and cost savings. In contrast, recent deals have been about innovative assets that can deliver growth. Deal highlights include Pfizer's US$43 billion for Seagen Inc., Merck's US$11 billion for Prometheus, Novartis' US$3.2 billion for Chinook Therapeutics, Sanofi's acquisition of Provention Bio for US$2.9 billion and Lilly's US$2.4 billion for Dice Therapeutics. Premiums ranged from 30% for Seagen up to 270% for Provention Bio and proxies tell the story of competitive processes. Of the three large cap pharma companies we have highlighted as most in need of patent cliff revenue replenishment (Bristol, Pfizer, and Merck), only Pfizer has addressed a significant part of its exclusivity losses this decade, not to mention the potential impact of the Inflation Reduction Act (IRA) on small molecule portfolios. With attractive valuations for midcap biotech companies and record (and growing) cash piles on large cap pharma balance sheets, we think these deals will continue.

Despite the strong pick-up in M&A, the biotech sector's burgeoning recovery from the second worst bear market in its history flattered to deceive in the first half of the year. From the low in mid-May last year to the end of January this year, the Russell 2000 Biotech Index rallied over 40%, but then finished the first quarter -7.3%. It rallied back slightly in the second quarter to finish the first half +5.3%, but it was the only sector index to finish the half in meaningfully positive territory. The pharma heavy Arca index was +0.7%, the large cap heavy NBI was -3.2%, and the most commonly traded small cap index, the XBI, was +0.2%. At US$85.00, the XBI is trading at approximately the same level as it was in 2015 and only marginally above last year's lows when adjusting for subsequent take-outs and transformational clinical data. As a result, sector valuations remain attractive. The NBI is trading at 5.8x price to sales, which is still only 29% above Global Financial Crisis lows. At the smaller end of the spectrum, 180 of the 578 companies with less than US$10 billion of market capitalisation are trading at less than the cash on their balance sheets. 

We suspect that some negative sector headlines might have impacted sentiment in the short term (without impacting fundamentals too much). The FTC Chair Lina Khan's push to expand the definition of anti-competitiveness beyond portfolio overlap likely dampened excitement about M&A. In the FTC's lawsuit to block Amgen's acquisition of Horizon Therapeutics, Khan introduced theoretical product bundling of non-overlapping products as an argument to block the deal. While we think the odds are low, should courts decide in favour of the FTC, agreements not to bundle across products seem a straightforward remedy in the same way that there were no pharma deals in the last decade that were blocked due to portfolio overlap - any issues were solvable with the divestiture of overlapping products.

The banking crisis in the first quarter also likely weighed on sentiment, especially with "biotech bank", Silicon Valley Bank ("SVB"), featuring so heavily. This was made moot by the deposit backstop, and SVB's orderly wind-down should have no material impact on biotech funding. However, it did conceal two significant M&A deals that happened on the same weekend: Pfizer-Seagen was the biggest deal since 2019 and Sanofi-Provention was the biggest premium paid so far this year.

Another reason the sector's recovery has decelerated is likely the strong performance in the technology sector, driven by interest in AI. The year-to-date performance divergence between tech and biotech is as wide as it has ever been. For biotech, the near-term opportunity to apply AI is in the laborious idea generation and screening phases of target discovery and molecular design, making these processes more efficient. This is clearly more incremental rather than transformational, as the market thinks AI will be for some large cap tech names, which have driven the sector's returns, pulling growth capital flows away from other sectors.

The good news is that capital markets activity is showing some improvement on top of the M&A already mentioned. Follow-on activity has been solid, rewarding those drug developers that can deliver successful data or news, with many of these offerings being oversubscribed and upsized. IPO activity is still slow with only three significant biotech debuts this year. Two more IPOs took place after the end of the reporting period, and they performed well on debut. We think that our portfolio company Apogee Therapeutics' upsized IPO in July may augur well for a better IPO environment ahead given its strong performance despite its being a pre-clinical company.

Finally, we believe that there is room for upside surprises with the Inflation Reduction Act ("IRA"), as we approach implementation later this year. The market appears to have assumed that Medicare price negotiations are effectively early genericisation with dramatic and immediate price drops. Amid this sentiment, we think there could be some upside optionality. For example, the negotiation framework leaves the door open for more modest price reductions, especially for drugs that address high unmet needs with limited alternatives. What's more, pharma companies are now challenging the IRA in courts. In our view, if there is anything that ameliorates the worst-case scenarios, then this will likely be interpreted as positive for the sector.

Key portfolio company events post period end

On 17 July 2023, Apogee Therapeutics, a pre-clinical company focused on inflammation, went public through an upsized IPO, raising US$300 million. The company started trading on the Nasdaq under the ticker symbol "APGE".

Outlook for the remainder of 2023: A plan for future sustainability reporting and policy

Following the Board's directive in the second quarter to develop an approach to ESG for RTW Biotech Opportunities Ltd, the Group engaged sustainability advisory firm, Terra Instinct, to be its partner in developing a new policy and investor reporting. As an independent third party, Terra Instinct will take stock of the Investment Manager's investment process, governance infrastructure, and other relevant controls and procedures to help craft an ESG policy and framework for future reporting, including the presentation of estimates and carbon emissions metrics, all with a view to being in line with relevant standards. The first reporting is expected in the 2023 Annual Report.

RTW Investments, LP

12 September 2023

Statement of Principal Risks and Uncertainties for the Remaining Six Months of the year to 31 December 2023

As described in the Group's annual consolidated financial statements for the year ended 31 December 2022, the Group's principal and emerging risks and uncertainties include the following:

- Failure to achieve investment objective;

- Counterparty risk;

- The Investment Manager relies on key personnel;

- Portfolio companies may be subject to litigation;

- Exposure to global political and economic risks;

- Clinical development and regulatory risks;

- Imposition of pricing controls for clinical products and services;

- Inflation;

- Ukraine war;

- Availability of capital;

- Liquidity risk.

The Board believes that these risks are unchanged in respect of the remaining six months of the year to 31 December 2023.

Further information in relation to these principal risks and uncertainties may be found on pages 34 to 36 of the Group's annual report and audited consolidated financial statements for the year ended 31 December 2022.

These inherent risks associated with investments in the biotech and pharmaceutical sector could result in a material adverse effect on the Group's performance and value of the Ordinary Shares.

Risks are mitigated and managed by the Board through continual review, policy setting and regular reviews of the Group's risk matrix by the Audit Committee to ensure that procedures are in place with the intention of minimising the impact of the above-mentioned risks. The Board carried out a formal review of the risk matrix at the Audit Committee meeting held on 27 July 2023. The Board relies on periodic reports provided by the Investment Manager and Administrator regarding risks that the Group faces. When required, experts will be employed to gather information, including tax advisers and legal advisers.

Statement of Directors' Responsibilities

The Directors confirm to the best of their knowledge that:

- the unaudited interim consolidated financial statements have been prepared in conformity with US generally accepted accounting principles; and

- the interim management report (which includes the Chair's Statement, Report of the Investment Manager and Statement of Principal Risks and Uncertainties) together with the unaudited interim consolidated financial statements include a fair review of the information required by:

a. DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the unaudited interim consolidated financial statements; and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

b. DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being related party transactions that have taken place during the first six months of the financial year and that have materially affected the financial position or performance of the Group during that period; and any changes in the related party transactions described in the last annual report that could do so.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Group's website (https://www.rtwfunds.com/rtw-biotech-opportunities-ltd). Legislation in Guernsey governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

By order of the Board

INDEPENDENT REVIEW REPORT TO RTW BIOTECH OPPORTUNITIES LTD (formerly RTW Venture Fund Limited)

Conclusion

We have been engaged by RTW Biotech Opportunities Ltd (formerly RTW Venture Fund Limited)(the "Company") to review the consolidated financial statements in the half-yearly financial report for the six months ended 30 June 2023 of the Company and its subsidiary (together, the "Group"), which comprises the unaudited interim consolidated statement of assets and liabilities including the unaudited interim consolidated condensed schedule of investments, the unaudited interim consolidated statements of operations, changes in net assets and cash flows and the related explanatory notes.

Based on our review, nothing has come to our attention that causes us to believe that the consolidated financial statements in the half-yearly financial report for the period ended 30 June 2023 do not give a true and fair view of the financial position of the Company as at 30 June 2023 and of its financial performance and its cash flows for the six month period then ended, in conformity with U.S. generally accepted accounting principles and the Disclosure Guidance and Transparency Rules ("the DTR") of the UK's Financial Conduct Authority ("the UK FCA").

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity ("ISRE (UK) 2410") issued by the Financial Reporting Council for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. We read the other information contained in the half-yearly financial report and consider whether it contains any apparent misstatements or material inconsistencies with the information in the consolidated financial statements. 

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusions relating to going concern

Based on our review procedures, which are less extensive than those performed in an audit as described in the Scope of review section of this report, nothing has come to our attention to suggest that the directors have inappropriately adopted the going concern basis of accounting or that the directors have identified material uncertainties relating to going concern that are not appropriately disclosed.

This conclusion is based on the review procedures performed in accordance with ISRE (UK) 2410. However future events or conditions may cause the Group or the Company to cease to continue as a going concern, and the above conclusions are not a guarantee that the Group and the Company will continue in operation.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the interim financial report in accordance with the DTR of the UK FCA.

The consolidated financial statements included in this interim report have been prepared in accordance with U.S. generally accepted accounting principles.

In preparing the half-yearly financial report, the directors are responsible for assessing the Group and the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless liquidation is imminent.

Our responsibility

Our responsibility is to express to the Company a conclusion on the consolidated financial statements in the half-yearly financial report based on our review. Our conclusion, including our conclusions relating to going concern, are based on procedures that are less extensive than audit procedures, as described in the scope of review paragraph of this report.

The purpose of our review work and to whom we owe our responsibilities

This report is made solely to the Company in accordance with the terms of our engagement letter to assist the Company in meeting the requirements of the DTR of the UK FCA. Our review has been undertaken so that we might state to the Company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company for our review work, for this report, or for the conclusions we have reached. 

Dermot Dempsey

For and on behalf of KPMG Channel Islands Limited

Chartered Accountants

Guernsey

12 September 2023

Unaudited Interim Consolidated Statement of Assets and Liabilities

as at 30 June 2023 and 31 December 2022

(Expressed in United States Dollars)

The unaudited interim consolidated financial statements of the Group were approved and authorised for issue by the Board of Directors on 12 September 2023 and signed on its behalf by:

William Simpson Paul Le Page

Chair Director

See accompanying notes to the unaudited interim consolidated financial statements.

Unaudited Interim Consolidated Condensed Schedule of Investments

as at 30 June 2023

(Expressed in United States Dollars)

See accompanying notes to the unaudited interim consolidated financial statements.

Unaudited Interim Consolidated Condensed Schedule of Investments (continued)

as at 30 June 2023

(Expressed in United States Dollars)