RTW Venture hunts for ‘new Rockets’ after 2020 gains

RTW Venture plans to raise more cash after a strong 2020, driven by top holding Rocket and a buoyant biotech flotation market.

RTW Venture (RTW ) is hunting for ‘new Rockets’, after the gene therapy platform company which it helped set up drove strong returns last year for the public and private life sciences portfolio.

The £288m Guernsey-based investment company, run by US-based RTW Investments, delivered a 54% net asset value (NAV) total return over 2020.

Since its London listing in October 2019 to end of March, RTW Venture generated a 78.6% return on the underlying portfolio, according to the latest factsheet. The shares have risen 86% since launch to $1.86, although they have pulled back from a mid-February peak of $2.44.

At the same time more established £1.4bn rival Syncona (SYNC ), which has a similar model of building and funding life sciences companies itself based on innovative science, has seen its shares go sideways as they have failed to generate much momentum since a strong 2018.

After making more investments than expected last year, the RTW fund is also likely to raise more money this year, as well as launching a sterling share class as it seeks a premium listing on the London Stock Exchange – a step that should also increase availability on UK retail investment platforms.

US-listed Rocket Pharmaceuticals has been, by far, the most significant driver of those gains.

The company has been a large position since launch but share price rises following positive data in several drug trials, most significantly for treatments for Danon disease in December, swelled the position to 41% of RTW Venture’s NAV at the end of 2020.

Stephanie Sirota, chief business officer at RTW, pointed out that after a pull-back in the share price – a sector-wide trend since February – that had come back to about a third of the portfolio today. They still have no intention to sell, but she said they ‘wouldn’t be running a fund with one stock in’.

Sirota said that Rocket, whose chairman Roderick Wong is also managing partner and chief investment officer at RTW, was more diversified than appreciated. It is an umbrella gene therapy vehicle with academic research which could have been the foundation for four or five companies rather than a single business.

Rocket is also working on two different types of viral vector delivery, a tool for delivering genetic material into cells, while the nature of its platform could see success beget success – in contrast to the binary outcomes associated with some biotech firms.

‘The beautiful thing about gene therapy as a technology is that it’s modular and can be refined and then delivered to treat a whole swathe of diseases,’ said Sirota.

‘The goal is that Rocket will continue to expand its pipeline and we think they’re just getting started,’ she added.

‘New rockets’, bumper IPOs 

The aim now is to build potential ‘new Rockets’.

Chief among those is China’s Ji Xing, set up by RTW in early 2020, which had been a target since launch. The Shanghai-based ‘platform company’ is designed to leverage relationships in the US and Europe, developing and distributing innovative drugs in the Chinese market.

The company is just 1.3% of NAV at present, but entered into an agreement last year to commercialise a novel cardiac myosin inhibitor in China. It is expected to raise more money in the middle of this year.

RTW Venture launched with six portfolio companies in 2019, added 15 in 2020, before augmenting that with another seven names in 2021, according to an RTW presentation. As of the end of March, about a third of the portfolio was still in ‘non-core’ holdings, where the fund invested only after an initial public offering (IPO).

After Rocket, the next biggest driver of performance last year was the IPOs of the six holdings that went public, including second position holding Avidity, an RNA medicines company.

With RTW Venture being ‘nearly out of cash’, as Sirota put it, and sourcing new investments more quickly than expected they are considering another share issue this year. That will also dilute the exposure to Rocket.

Sirota acknowledged that after a very strong 2020 for the biotech sector, there was some risk of a slowdown in the IPO market. But ultimately, they believe a climate of exciting medical developments is justifying valuations.

‘It might not be as attractive as it was last year but there are still a ton of companies that need capital and they will go public in one way or another,’ she said.

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