RTW Biotech: Weight-loss drugs will make our next five years even better

RTW Biotech Opportunities (RTW) believes it can improve its performance over the next five years as it emerges from the sector’s second-worst bear market and makes its first major foray into revolutionary weight-loss drugs.

Speaking to Citywire on the £521m trust’s fifth anniversary, RTW managing director Woody Stileman said falling interest rates and a pick-up in initial public offers (IPOs) in September were improving sentiment, which was reflected by slowing sector outflows.  

‘The signs are there that the biotech sector is improving,’ Stileman (pictured below) said. ‘IPOs are a good indicator of that – all four companies that floated in September are performing well, which augurs well for more to come and more participation from generalist investors who can see that sentiment is improving.’

He added that falling sector outflows indicated the early phases of a recovery.

Last month, RTW co-led a $400m (£311m) series-A funding round to create obesity company Kailera Therapeutics, which it hopes will take on Eli Lilly and Novo Nordisk, whose weight-loss drugs have driven huge returns.

Ron Renaud, who oversaw the sales of Cerevel to AbbVie and of Translate Bio to Sanofi, was appointed CEO, and John Milligan, who grew Gilead Sciences to a global company with 27 commercialised therapies, was appointed chair.

BioAge, a smaller holding that recently went public, provided some exposure to obesity drugs in the portfolio, but RTW said Kailera marked the first major investment.

‘Kailera represents a significant step forward in addressing the huge market for chronic weight management and metabolic diseases,’ Wong said in a stock exchange notice. ‘With its clinically validated pipeline and experienced management team, we are confident Kailera is well positioned to develop breakthrough therapies that will profoundly improve the lives of patients worldwide.’

From RTW’s launch in October 2019 to 30 September this year, it delivered underlying returns of 88% versus 18% for the Russell 2000 Biotech index and the Nasdaq Biotech index’s 41%. Meanwhile, the shares rose 46%, according to the latest factsheet.

This translates to a compound annual growth rate of 13.3% for the portfolio of mostly US public and private companies, supplemented with several royalty positions.

Recent efforts to narrow the 22% share price discount include dropping ‘venture’ from the trust’s name, a monthly factsheet, share buybacks and the acquisition of Arix Biosciences, which swelled net assets and improved liquidity.

Now $1.53, the shares have risen from $1.39 in January, when we tipped them after MIGO Opportunities (MIGO ) took a stake. 

In September, RTW stopped its dollar shares from being quoted in sterling on platforms as the exchange rate widened spreads, which Stileman told Citywire had been a barrier for investors. He added that the recent cost disclosure rule changes were helpful, with RTW’s key information document now showing zero costs.

‘For the first two-and-a-half years, we traded at a premium. We think we can get back to that,’ he said.

The trust has picked up the pace of capital deployment this year, with 13 investments into private companies marking a return to normal, having dropped to three in 2022 and seven in 2023.

Stileman said two-thirds of the private portfolio were late stage, meaning they should go public in the next year and hopefully achieve similar returns to Prometheus, the biggest holding, which was acquired by US drugs giant Merck for $10.8bn last year.

While the majority of biotech companies are listed in the US, which is where Wong and the majority of RTW’s team are based, Stileman said the UK’s ‘golden triangle’ of London, Oxford and Cambridge remained a global innovation hub. However, listing companies domestically remains a challenge. 

‘Biotech companies require access to the deepest and broadest capital in the world, which is the US public equity market. The reason for that is they need depth as it costs a lot to develop a drug and you need breadth because it’s risky. Most roads lead to a US biotech listing.’

The trust has 16% of net assets in the UK, including the fourth-largest position, Artios, a private cancer treatment company that makes up 5.2% of the portfolio, and listed T-cell receptor therapy company Immunocore, the tenth-largest position at 2.2%.

‘Five years in, we’re pretty pleased we’ve generated market-beating and peer-leading performance. We remain very committed to the UK market,’ Stileman said.