RTW Biotech Opportunities (RTW ), formerly known as RTW Venture, has launched its first share buyback programme as it looks to redeploy the $99m (£78m) cash pile left by Merck’s $10.8bn acquisition of Prometheus Biosciences in April.

Shares in the £285m US-focused portfolio rose 2.6% to $1.30 this morning as it pledged to plough $10m into buying its shares which have recently fallen to trade 27% below their net asset value (NAV).

RTW’s board said the wide discount ‘materially undervalues’ the investment company, particularly in light of Merck’s purchase of its top holding at a 75% premium.

Peel Hunt analyst Tom Pocock said the buybacks, which will see it purchase around 7.9m shares at their current price, could lead to ‘immediate discount narrowing’ as has been the case in the past for other funds.

RTW shares have lagged the portfolio

Source: Morningstar. NAV = net asset value.

Rod Wong, founder and chief investment officer of New York-based fund manager RTW Investments, said it was an ‘opportune time’ to have received a $92.4m gain from its two-and-a-half year investment in Prometheus, which along with other disposals had left it with cash of nearly $100m.

With the biotech sector emerging from its second worst bear market in history, valuations were attractive with which to reinvest the money, Wong said.

Financing conditions for biotech companies remained tight, added Wong (below), explaining that the Guernsey investment company would look to invest up to 15% of the portfolio in RTW Investments’ 4010 Royalty fund.

Chairman William Simpson said there would be no double-charging as fees will be taken at the investment company level only.

By providing financing for medium-sized drug development and medical technology companies, the closed-end fund could take out royalties on pharmaceutical sales and provide an ‘attractive uncorrelated, income-generating investment that would complement the core portfolio.’

RTW Biotech Opportunities has a ‘core’ portfolio of 38 mostly unquoted companies, although it also holds shares in firms that have floated and also in non-core, listed healthcare businesses as an alternative to cash.

In terms of treatments, the portfolio is 33% weighted to antibodies, 24% to small molecule pharmaceutical drugs and has 24% allocated to genetic medicine.

After a bright start following its October 2019 flotation, RTW shares peaked at $2.44 in February 2021 before sliding to a low of 98 cents last summer.