International Biotechnology Trust (IBT) 22 sept 2003 Page 9
2003 has been characterised by a much better mix of news from the sector. However, as
should be expected, given the risks of drug development, there have been some
disappointments and setbacks. Examples from within the portfolio include Essential
Therapeutics. Essential failed to achieve common shareholder consent to the conversion of
$60m convertible preferred stock into common and the company was delisted from NASDAQ
in May 2003. The company filed for Chapter 11 and the final initial hearing on its plan of
reorganisation is planned for October 2003. If this plan is approved, it is likely that the
company will be relaunched as a private company using the remaining cash left from the
$60m preferred investment. If the plan is not approved, then it is likely that the company will
be wound up with cash distributed back to its preferred shareholders, which include IBT.
Weston Medical announced manufacturing problems with its needle-free drug delivery device
and the assets of the company were sold to Aradigm for approximately $2m. Crucell had a
difficult year and refocused on vaccine development and although Aradigm announced the
start of its first inhaled insulin Phase III trial with Novo Nordisk, it subsequently announced a
one-year delay to the program due to manufacturing issues. Epimmune cancelled a merger
agreement with Anosys and announced cost cutting measures and is considering alternative
strategies going forward.
It is difficult to predict the direction the market will take from here, in the short term at least.
There remain a number of potential FDA approvals on the horizon, including compounds
from three of IBT's portfolio companies - Inspire's diquafasol for dry eye; XOMA's Raptiva for
psoriasis; and Indevus' Trospium for overactive bladder.
More late-stage clinical trial data is expected to be released over the next year. Examples
from the IBT portfolio include data from OSI Pharmaceuticals, which has an EGFR inhibitor
in Phase III trials for lung cancer and Adolor which will report the results of two further Phase
III trials of its potential treatment for post-surgical constipation resulting from the use of
opioids for pain relief.
The fundamentals of the industry remain strong and IBT's portfolio companies continue to
make good overall progress and are generally well funded. The broad rally across all tiers
means that stock picking will be key and deep due diligence will continue to be fundamental
in the selection of new investments.
The next year will be an exciting time for IBT, although there are likely be some delays and
surprises at portfolio companies, as should be expected from the nature of the industry. An
opening of the IPO window could allow some of the unquoted portfolio companies to gain a
listing and Aderis, CancerVax and EyeTech are well positioned to try and take advantage of
such an opportunity. However an IPO window requires the backdrop of a good overall
market environment, which in turn relies on positive economic and political conditions.
PORTFOLIO SUMMARY AT 31 AUGUST 2003
IBT has investments in 36 companies - 25 quoted companies (representing 51% of NAV)
and 11 unquoted companies (comprising 42% of NAV). The remaining 7% is made up of
cash, money market instruments and other net current assets. Given the level of unquoted
investments, no new unquoted investments are planned in the short term.
Members of SVLS sat on the Board of 9 of the 36 portfolio companies at the end of the year
under review Aderis Pharmaceuticals, Affibody, CancerVax, Epimmune, Eyetech
Pharmaceuticals, Galen Group, Genosis, KuDOS Pharmaceuticals and Micromet. Since 31
August 2003, the SVLS representative on the board of Epimmune has resigned.
In terms of the geographical split of the portfolio, 63% of NAV is invested in the US, 4% in
Canada, 8% in the UK/Ireland and 18% in Continental Europe. By sub-sector, 80% of NAV is
