Third quarter results from Syncona (SYNC ) show the benefit of its cash-laden balance sheet after the UK’s largest life sciences fund invested £92.7m into new and existing investments in the three months to 31 December.

Other private equity and venture capital funds have to conserve their resources to back their unquoted companies through the downturn with stock markets closed to flotation. However, Syncona is in a stronger position holding a mighty £654m in cash and investments funds – capital that equates to more than half its market value – mostly made from three profitable disposals in recent years.

Over half of the money, £48.1m, deployed by Syncona went to new companies. The bulk went to the £19.5m acquisition of Applied Genetic Technologies Corporation (AGTC), a Nasdaq-listed rare disease specialist in Florida that was looking for a strong financial backer. 

After the purchase in October, Syncona invested a further £21.3m to support AGTC through a phase two trial of its key eye disease treatment, for which there is no current cure.

Syncona, whose fund manager span off from the Wellcome Trust over a decade ago, topped up its war chest with the £261.2m sale of Neogene Therapeutics to AstraZeneca with a further £98m to come if the cancer specialist hits milestones. 

This could represent net new cash of just £21.9m but follows £1.2bn of gains from earlier disposals of companies it helped create, including Gyroscope Therapeutics which was sold to Novartis for $1.5bn in December 2021. 

Chris Hollowood, chief executive of Syncona Investment Management, which manages Syncona’s 13-strong collection of bioscience startups and drug developers, most of them not publicly listed, said: ‘The difficult financing conditions and uncertainties facing the biotech market continue to be very challenging. Syncona’s hands-on and strategic balance sheet means that we are well positioned to navigate this cycle.’

Headwinds

Syncona was not immune to ‘challenging’ markets, however. Net asset value fell 5.1% in the three-month period with the cash buffer helping to make up for an 8.8% slide in the life sciences portfolio. 

This was largely due to big share price falls in the three companies it has brought to Nasdaq, Autolos, Achilles and Freeline Therapeutics which accounted for 6% of the portfolio in September.

Despite success in its leukaemia clinical trial, Autolus shares fell 46% following a $164m fundraising, in which Syncona contributed £23m.

Achilles slid a similar amount, despite publicising progress in its lung cancer programmes in December.

New management was injected into Freeline when its shares fell 28% over delays to its development programmes including treatments for Fabry and Gaucher diseases.

All three are working towards key milestones this year that if achieved could make them more marketable.

As things stand, with an NAV of £1.3bn Syncona has a long way to go to hit its target of a £5bn platform in the next decade. This requires the portfolio expanding to 20-25 companies and lifting the rate of launching new companies to three a year, up from one or two at present. It maintains its investment target for this year of £150m-£250m.  

Despite the underlying progress, recent years for Syncona have been difficult after a good start following its emergence from the Battle Against Cancer (BACIT) investment trust in late 2016. Over five years the shares have fallen 14% and at yesterday’s close of 168p stood at a discount of 13% below NAV per share of 192.6p at 31 December. 

Christopher Brown, an analyst at JP Morgan Cazenove, remained ‘underweight’, saying with half Syncona’s investments in cash and non-life science investments, the gap to NAV did not look wide compared with mainstream private equity funds trailing on an average 26% discount, excluding 3i Group.

‘With the prevailing investor uncertainty and scepticism over growth capital asset valuations, we do not view this discount as attractive versus the wider private equity sector,’ he said.