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Not many investment trusts tipped by this column describe their purpose as to “extend and enhance human life”. But that is the ambition of Syncona, the life sciences investor Questor tipped nearly two years ago, and it is not the only way it differs from most other trusts.
Questor recommended Syncona as an alternative to the disastrous Woodford Patient Capital trust, and those who followed our advice in October 2019 have at least avoided further losses.
Back then Questor feared that shares in Patient Capital had further to fall, even after having more than halved from this column’s tip at 93p. So it has proved: shares in the trust, now under new management and renamed Schroder UK Public Private, trade at 31p, down from 43p when we advised readers to sell.
But Syncona’s shares have done little in the meantime. They now trade at 221p, just a smidgen above the 215p at which we tipped them.
Normally such lacklustre performance would not be rewarded with the healthy premium Syncona’s shares enjoy, of 14pc above its last reported NAV of 194p per share.
The yet larger premium of 26pc calculated by analysts at Numis, the broker, is even more striking. That figure is the result of the analysts’ 175p NAV estimate, dragged down from March’s official figure by heavy share price falls since then for two of Syncona’s major holdings, Freeline and Achilles, offset by a smaller gain from a third, Autolus.
The three companies are Syncona’s only substantial investments whose shares trade on the stock market; they floated on America’s Nasdaq exchange over the past three years.
All three have lost more than half their value since listing and it is this poor performance, paradoxically coupled with a large premium, that has prompted Questor to review its recommendation.
It’s worth examining what investors in the trust are getting for their seemingly expensive shares.
Syncona’s largest investments are those at a more mature stage in their development: the three listed stocks plus Gyroscope, which abandoned a planned flotation earlier this year, and Anaveon. Between them, the five companies are trialling treatments for cancer, blindness and haemophilia and they accounted for a combined 42pc of the trust’s assets at the end of March.
Six companies that are developing drugs but not yet trialling them make up a further 9pc, although Syncona expects two to have started trials by the end of next year. All are private companies and valued at what the trust paid for the shares.
A further 5pc is held in other life sciences investments, leaving a huge 44pc, or £578m, in cash earmarked for future funding of its companies and new investments.
But auditing the trust’s assets to find a justification for the premium misses the point, according to James Hart, who holds Syncona in his £1.9bn Witan investment trust. He argued that Syncona should not be valued purely on the basis of how much its investments were worth today, but on the potentially “game-changing” impact of the drugs its companies are developing.
“There’s the potential for one or more of Syncona’s companies to come up with a groundbreaking treatment,” he said. “We don’t think about it in the same way we think about other investment companies. You wouldn’t value a biotechnology company on the value of its assets, but on the potential to create a blockbuster cure.”
Laurie Don of Liontrust, whose £1bn Sustainable Future UK Growth fund is another long-term backer, agrees on Syncona. A portfolio of companies most of which investors would be otherwise unable to access, coupled with conservative valuations, meant the premium was deserved, he said.
Syncona aims for three to five of its companies to gain product approval every 10 years and the evidence so far is that when this happens the returns can be spectacular. The trust netted £351m, 10 times what it had invested, from the sale of Blue Earth, a prostate cancer imaging business, in 2019.
Without one of these blockbuster sales on the horizon, however, Syncona’s shares can drift, as readers will now be all too aware. Hart said shareholders should treat Syncona as a “tin box” investment. “Lock it away and have a look in a few years’ time,” he said.
Questor says: hold
Share price at close: 221p
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