RTW Biotech Opportunities (RTW ) has sold off the listed companies inherited from its acquisition of Arix Biosciences and deployed the cash into its own portfolio of drugs developers at an ‘ideal time’ after markets reopened to company flotations.

In a March monthly update, fund manager Rod Wong said the flotation of seven US biotech companies in the first quarter, all of which had a strong proof-of-concept and have traded well since, was a ‘healthy sign’ given there were only 12 initial public offers (IPOs) last year.

Absorbing Arix lifted RTW’s portfolio to $510m (£410m) and provided Wong with $128m in cash he deployed in ‘crossover investments’, or later stage companies that are likely to go public.

This included three private companies: Obsidian Therapeutics, a clinical-stage biotech company pioneering engineered cell and gene therapies; BioAge Labs, a clinical-stage biotech company developing novel therapies for obesity and metabolic diseases; and Mirador Therapeutics, a next-generation precision medicine company focused on immunology and inflammation led by several former executives of Prometheus Biosciences, a former RTW holding.

‘The additional cash from the Arix acquisition comes at an ideal time. We are seeing significant opportunity in late-stage private companies, and the first quarter suggests a potential return to normal IPO activity. If 2024 turns out to be a normal year for the sector, we would expect to do over a dozen crossover investments,’ Wong (pictured) said.

This has been a successful driver of returns, he added, pointing out that since the dollar-denominated fund’s launch in 2019 to the end of 2023, RTW made 53 private investments, of which 28 went public or were acquired, doubling returns over an 11-month time frame on average.  

Wong also bought quoted companies, including Akero, a cardio-metabolic biotechnology company developing treatments for non-alcoholic steatohepatitis; 89Bio, a clinical-stage company that delivers therapies to treat liver and cardiometabolic diseases; Urogen, which develops solutions to treat urothelial and specialty cancers; and Merus, a Dutch cancer treatment company.

Over the quarter, RTW’s net asset value rose 2.7% to 195 cents, while the Russell 2000 Biotech index and the Nasdaq Biotech index gained 9% and 1.4% respectively, continuing the sector recovery that started last November.

The NAV increase also includes the revaluation of Arix’s private assets, with rises across Artios, Ensoma and Evommune offsetting falls from Depixus, Sorriso and Amplyx.

Artios, a UK-based company that develops breakthrough cancer treatments, was already in the RTW portfolio and following the Arix acquisition now makes up 4.6% of assets. RTW’s senior research analyst Chris Liu recently joined the board.

RTW Venture has a ‘core’ portfolio of 49 private and public companies as it retains its shares once they have floated, with unlisted assets making up 20% of assets and quoteds constituting 51%.

The ‘other public’ exposure is deployed into a portfolio of liquid public equity investments that mirror holdings in the investment manager’s private funds instead of holding cash for future deployment into the core portfolio, totalling 22% of assets, while royalties make up 6%.

Since launch, the shares have gained 27% to 131 cents in line with the Nasdaq Biotech index, putting them at a 33% discount. 

In recent annual results, chair William Simpson said the share buyback programme would be extended to $30m following the completion of the Arix acquisition, including the $20m already spent.

Ewan Lovett-Turner, head of research at the fund’s broker Deutsche Numis was positive on the sector, noting that despite a challenging period in recent years, the fundamentals remained compelling.

‘The sector offers numerous tailwinds that we believe the biotech sector looks set to benefit from, including innovation, favourable demographics and attractive valuations which, along with approaching patent expiries and big-pharma cash piles, should continue to support M&A and RTW is well placed to capture this.’