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Questor: the biotech investor that aims to nurture a string of British success stories
The death of the company behind Dolly the Sheep was a sad story. The woolly clone’s global renown was not enough to save PPL Therapeutics, the commercial partner of the University of Edinburgh’s Roslin Institute.
PPL switched from cloning to surgical sealants in an attempt to make money, but in the end it was wound up. Despite bags of early potential, the technology that created Dolly – who had been put down months earlier – fetched just £760,000.
In biotech it is a familiar tale. Laboratory boffins make amazing scientific breakthroughs and then must race to commercialise them before shareholders run out of patience and the intellectual property is scooped up on the cheap by someone else. This is why there is so much talk now about capturing the downstream benefit of Britain’s science base, through the Government’s industrial strategy and new pots of “patient capital”.
Syncona has already got there. Set up in 2012 by the Wellcome Trust, the medical charity, to address the long-term biotech funding gap, the investment trust has seven holdings in cutting-edge areas such as gene therapy and has made big, bold investments in each.
In late 2016 it reversed into a £550m investment trust founded to donate to cancer charities, which now provides extra cash to back the group’s crop of start-ups from seed stage to maturity. Cancer Research UK is also on board as a shareholder, giving Syncona the rights to some of its own breakthroughs.
The trust has been getting a lot of positive press and the shares have more than doubled from the 131p price at which new stock was issued in the merger. But the potential for the £1.7bn company – which is still 37pc owned by Wellcome – is under-appreciated and scarcely covered by City analysts. That may change next month, when Syncona switches to a quarterly reporting cycle from monthly net asset value updates.
The chief executive, Martin Murphy, who is a biochemist with a venture capital background, aims to build a portfolio of 15 to 20 investments over time with the potential for several to reach multi-billion-dollar status.
The biggest hit so far has been Blue Earth Diagnostics, an imaging tool for prostate cancer spun out of General Electric. It is the first of Syncona’s ventures to turn profitable and the trust still owns 89pc of it. Another, Nightstar, emerged from Oxford University and treats rare inherited eye diseases. It came to market in autumn 2017 and its shares have risen by more than 40pc. Early-stage investors often get diluted but Syncona retains 42pc.
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The most recent buzz emanates from Autolus, whose “CAR‑T” therapies reprogramme a patient’s immune system to fight cancer. The technology originates from University College London. Syncona led a £30m funding in early 2015, which at the time was the largest biotech funding round in Europe. The scale of its commitment meant there could be heavy upfront investment and the best executives recruited.
It put another $24m (£18.2m) into Autolus, now at the clinical stage of development, when the firm listed on Nasdaq last month and maintains a 34pc stake.
Immunotherapy is a hot area. Autolus shares rose by 50pc in a matter of weeks, valuing it at $1bn, although they have since retreated somewhat. One of its rivals, Juno Therapeutics, was acquired for $9bn. Next in Syncona’s pecking order is Freeline, which treats blood disorders. Murphy recently poured in another £85m.
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Syncona shares are trading at a whacking 64pc premium to net asset value of 164p as at the end of May. However, the numbers have been changing fast. The trust delivered a 57pc return from its life sciences portfolio last year and analysts at Numis, the company’s closest followers, estimated a 176.7p net asset value after the Autolus flotation. That figure lags the 253p midpoint of the research team’s sum-of-the-parts valuation.
As good as Murphy’s system may be, the law of averages suggests that not every venture will be a hit. But Syncona has the potential to become a player of scale over the long term in an area where rewards can be large. What is good for British science might also be good for Britain’s shareholders.
Questor says: buy
Ticker: SYNC
Share price at close: 264p