Healthcare trust RTW Biotech Opportunities (LON:RTW) has expanded its capital allocation framework with a further $42.8 million for share buybacks. The fund has already returned $42.3 million of the $45 million buyback target announced three years ago. In addition, it has repurchased 7.2 million shares in the year to 5 November.
Further $42.8 million for buybacks
As a result, RTW Bio now intends to allocate up to 20% of realised gains from M&A (mergers and acquisitions) into a liquidity pool for further buybacks. This increased allocation represents 4.9% of NAV (net asset value).
With the remaining $2.7 million from its original commitment, this takes the liquidity pool to $45.5 million or 5.3% of the trust’s NAV.
Biotech shopping spree continues
Biotech’s M&A bonanza continues to boost the specialist funds invested in this exciting growth industry, among them RTW Bio, Biotech Growth (LON:BIOG) and the International Biotechnology Trust (LON:IBT).
The expansion of RTW’s capital allocation framework follows a period of elevated portfolio M&A activity for the trust. This includes the acquisitions of Avidity, Penumbra, RAPT Therapeutics, Centessa, Apellis, Apogee and private holding Alesta, with announced premiums ranging from 19% to 140% for the listed holdings.
Generational moment
William Simpson, chair, said: ‘Today, a further $42.8 million is being committed to this liquidity pool, earmarked for NAV-accretive share buybacks.
| AIC Sector – Healthcare & Biotechnology | Discount/premium to NAV | 1-yr share price total return |
| International Biotechnology | -2% | +31.7% |
| RTW Biotech Opps | -13.3% | +31.5% |
| Biotech Growth | -8.4% | +22.6% |
| Polar Capital Global Healthcare | +1% | +19.2% |
| Syncona | -26.9% | +18.5% |
Source: The AIC/Morningstar
‘The board maintains a disciplined approach to capital allocation, balancing growth and reinvestment into the portfolio at a generational moment for biotech with direct returns from successful exits.’
We think Rod Wong-managed RTW Bio is a savvy way to tap into the biotechnology boom. RTW Bio is differentiated from most biotech or healthcare funds due to its dedicated focus on finding ‘transformative’ technologies. Furthermore, Wong and his team have a track record of backing proven operators in the biotech patch.
RTW Bio trades at a stubborn discount to NAV. In light of this persistent discount, committing a further $42.8 million to buybacks looks sensible to us.
The biotech sector shopping spree is providing opportunities to realise investments at attractive premiums, and the board’s commitment to allocate up to 20% of realised gains to capital returns gives shareholders a direct way to benefit from these takeovers.
And yet, QuotedData’s senior analyst Matthew Read warned the board needs to exercise some caution. ‘Biotech investing is inherently long term and capital intensive, and RTW needs sufficient firepower to back its existing portfolio and exploit new opportunities,’ said Read.
‘The recent flurry of takeovers and public listings suggests the environment for realisations is improving, but it also illustrates the potential value of remaining invested.’
