Are things about to get better for Woodford Patient Capital?

It has been a difficult period for investors in the Woodford Patient Capital Trust (LON:WPCT), but a recent successful IPO by one of its unlisted holdings could be the first step towards a much needed recovery.

WPCT invests in disruptive early stage and early growth companies, as well as some of manager Neil Woodford’s high conviction mid and large cap ideas. The aim is to identify the best untapped growth opportunities and to deliver exceptional long-term returns, but things haven’t gone to plan with the investment company’s NAV around 8% lower than when it launched in April 2015.

High conviction portfolio

Woodford has put together a high conviction portfolio with the ten largest holdings at the end of May accounting for 55% of the assets. These include a number of exciting, cutting edge businesses that have the potential to generate high returns, as evidenced by the recent IPO of Autolus Therapeutics (NAS:AUTL).

Autolus is developing immuno-oncology cancer treatments where white blood cells are extracted from a patient and then genetically engineered to recognise and kill specific cancer cells before being infused back. This is a lot less invasive than existing cancer treatments.

The company raised gross proceeds of $150 million at its IPO on the NASDAQ on June 22, which represented a 51% premium to the carrying value on WPCT’s balance sheet and added 3.8% to its NAV. Woodford Patient Capital Trust has retained a 15.9% stake and has benefited from the subsequent 50% increase in the share price.

The potential to generate huge gains

Other significant holdings also have the potential to generate huge gains, with one example being Benevolent AI. The company uses artificial intelligence to mine and analyse large quantities of data about particular diseases. This helps to dramatically speed up the research process and has already led to potential breakthroughs in conditions such as motor neurone disease and cystic fibrosis. At the end of May it was the fund’s largest holding at 10% of the assets and much more is expected, especially as the technology can be applied to other industries.

Oxford Nanoporeis developing a next-generation nanopore platform technology that will enable the analysis of biological molecules such as DNA. The company’s pocket-sized DNA sequencer and other products can be used to diagnose and deliver precision medicine, as well as in more traditional areas such as agriculture and scientific research. It has a growing customer base and fast growing revenue stream, although it is still at the loss making stage of its journey. The company represents 8.8% of the fund’s portfolio.

Another interesting example is Proton Partners International, which is the UK’s first high energy proton beam therapy provider. This uses protons to target and kill cancer cells with little or no damage to the surrounding tissue. The company has recently started to treat patients at its centre in Newport, Wales and has four other centres currently under development. Woodford Investment Management owns 42% of the shares with WPCT’s stake accounting for 7.2% of its portfolio. 

The long-term performance of the fund will depend on how many of its holdings successfully float on the stock exchange and how many have to be written-off. It will not be a smooth ride so investors will need to be patient. WPCT shares trade on a 10% discount to NAV.