Neil Woodford has given himself the option to issue up to £80 million ($125 million) in new shares of Patient Capital Trust. The fund, which has £958 million after completing a monster listing earlier this year, is considering issuing up to 10% of its current share capital to meet investor demand.
Woodford outlined his plans to issue new shares as part of the first interim update on the progress of the fund. With Woodford espousing a long-term ethos for the fund and its investors--an approach that has led him to go big on biotech--the health of the investments at this early stage is unlikely to have much bearing on whether it is ultimately considered a success. What the update does provide is a glimpse at how Woodford is doling out his huge pot of cash. Woodford has now invested more than 75% of the IPO haul, after which Irish-American biotech Prothena is the largest holding.
Such development-stage biotechs have served the fund well to date. "Although it is very early days, we are pleased that the company's net asset value has moved forward modestly. Much of the positive performance to date has been delivered by holdings we would classify as early-stage. Indeed, our blue-chip holdings have typically detracted from performance thus far, with GlaxoSmithKline ($GSK) and AstraZeneca ($AZN) in particular showing short-term share price weakness," Woodford said.
If the biotech boom were to go belly up, the likes of GSK, AstraZeneca and the non-pharma blue-chip stocks in the fund such as Legal & General and Rolls-Royce could soften the near-term blow for the trust. Woodford has questioned the valuations of biotechs in the U.S., but thinks there are still gems available. Whether the trust itself is a long-term gem or has a frothy valuation is a source of debate among investors and analysts. Prior to the £80 million fundraising news--which sent shares down 3%--the trust was trading to a 15% premium to the value of its assets.
Analysts at Numis Securities think this could sting investors who buy in at an elevated price. "We have been wary of the excessive premium, and believe there is potential for this to reduce over time, especially given the implementation of a tap issuance programme," they wrote in a note seen by the Financial Times.
- read the FT's take