Crashes at Circassia, Northwest Bio drive double-digit drop at Woodford’s fund

("50 pound note" (CC BY 2.0) by Images_of_Money)

The net asset value of Neil Woodford’s Patient Capital Trust fell 10.8% over the first 6 months of the year as Circassia’s (LON:CIR) late-phase flop and the ongoing decline of Northwest Biotherapeutics ($NWBO) hit home. But Woodford is holding his nerve, trimming his position in relative safe havens such as AstraZeneca ($AZN) and GlaxoSmithKline ($GSK) to pump more money into early-stage firms.

Woodford’s fund made a huge splash last year when it raised £800 million ($1.1 billion) in an IPO. In those heady early days, the fund traded at a 15% premium to the value of its assets. Since then, that figure, along with several others, has headed downward. The stock now trades at a 4% discount to the value of its assets, suggesting investors are no longer quite so confident in Woodford’s ability to guide them through the tricky task of picking winners in biotech and other high-risk tech sectors.

The premium enjoyed by the fund has slid as the bad news emanating out of some of Woodford’s big bets has mounted up. With Circassia’s cat allergy vaccine failing to best the placebo in Phase III, that stock has fallen almost 70% this year. And Alkermes ($ALKS), one of a small number of investments Woodford has made in the U.S., is down close to 40% over the same period as a result of its own late-phase failure.

Other companies have fallen hard even in the absence of negative trial data. Prothena ($PRTA), an Elan spinout that makes up 10% of the fund’s assets, is down 14% today, and was even deeper in the red at the end of the first half of the year. More dramatically, Northwest Bio, perhaps Woodford’s most widely questioned investment, is down 85% this year. Having seen his request for the company to accept a probe by an ex-FBI agent rebuffed, Woodford sounds somewhat impatient with the firm.

“We … continue to wait for [Northwest Bio] to inform its shareholders of its actions and developments,” he wrote in a report into the fund’s performance in the first half of the year.

The effect of the travails of these businesses on the value of the fund will be a test of how much faith Woodford’s backers have in his vision of a long-term investment vehicle. From day one, Woodford has asked for the fund to be judged on its performance over years, not months.

Woodford’s actions suggest he won’t let short-term turbulence knock him off course. Faced with choppy conditions, Woodford reduced his positions in AstraZeneca and GSK to get deeper into early-stage firms. In the mid-term, it is these bets on unquoted companies that could drive a major uptick, or downturn, in the fund’s fortunes.

If, for example, privately held immuno-oncology biotech Immunocore and sequencing upstart Oxford Nanopore live up to the hype, Woodford’s fund could profit handsomely from an IPO or trade sale. Equally, if Immunocore flops in the clinic and Oxford Nanopore becomes the latest company to take on Illumina ($ILMN) and lose, Woodford could end up in an even deeper hole. Immunocore and Oxford Nanopore make up 10% of Woodford’s fund.

- read the report (PDF)
- and the FT’s take (sub. req.)

Related Articles:
Woodford upped his stake in Circassia days before trial flop
Circassia sinks as key allergy drug fails PhIII, pipeline under pressure
Woodford backs away from plan to raise additional capital
Snubbing Woodford, Northwest Bio calls in lawyers to run 'independent' probe