Market news and an update from healthcare company Syncona.
Market News
The yen and yuan rose about 1%, driving the dollar broadly lower. The Japanese currency gained and JGBs slumped on comments from Kazuo Ueda on the possibility of the BOJ ending its negative rate policy. The central bank turned to its loans-for-bonds programme to curb rising yields. Meanwhile, Chinese authorities issued harsh verbal warnings, vowing to take resolute actions against speculation on the yuan.
Asian equities were mixed this morning: Nikkei 225 (-0.4%); Hang Seng (-1.2%); Shanghai Composite (+0.9%). The S&P futures currently predict a 0.4% rise at the open this afternoon, while the FTSE 100 is trading 0.6% higher at 7,519. Arm may raise the price range of its IPO after meeting investors for what would be the world’s largest listing this year, people familiar said. Its share sale was said to be about six times subscribed. Arm had filed at a $47-$51 range and the final pricing is due Wednesday.
Janet Yellen is increasingly confident that the US can achieve a soft landing. “I am feeling very good about that prediction,” the Treasury secretary said when asked whether a downturn can be avoided. But even as recession bets plunge, Wall Street remains vulnerable to any signs the US economy is running too hot. Fears of a potential dive in stocks have made hedging against a rout more expensive, and bond traders have ratcheted up bets the Fed isn’t done hiking just yet. The 10-year Treasury currently yields 4.28%, while gold steadied at $1,929 an ounce.
Residential rents will rise 25% over the next four years as landlords pass on extra costs, according to Hamptons International. Rishi Sunak signaled he may allow a real-terms reduction in welfare payments to create room for tax cuts — a move that risks causing a backlash from within his own party. Sterling trades at $1.2516 and €1.1661.
Italy is evaluating changes to the controversial tax on banks’ windfall profits it unveiled last month and may modify the 40% levy, Corriere della Sera reported. It may announce the adjustments over the next two weeks.
Source: Bloomberg
Company News
Syncona has this morning released a negative update on Gyroscope, one of its portfolio companies. In response, the group has written off the value of associated milestone payments, worth around 8p a share (c. 5% of NAV), and as a result the shares have been marked down by 2%.
Syncona is a healthcare company focused on founding, building, and funding global leaders in life science. The current portfolio is made up of 13 innovative companies and several life science investments, each addressing areas of significant unmet need for patients. The focus is mainly on the so-called ‘Third Wave’ technologies, such as gene and cell therapy, which are used in place of surgery or drugs, and which the company believes is currently in a ‘transformational’ period. Syncona also has a strong manufacturing platform capability which allows new products to be rolled out more quickly and efficiently, while creating barriers to entry. In its first 10 years to the end of 2022, the group delivered a portfolio IRR of 26% and progressed 15 clinical programmes.
In February 2022, Novartis acquired Gyroscope from Syncona in a transaction in which Syncona received upfront cash proceeds of $442m (£326m) for its holding in Gyroscope. Following the acquisition, Novartis has been responsible for the development of GT005 in Geographic Atrophy (GA) secondary to dry age-related macular degeneration (AMD).
In today’s update Syncona highlights that it has been informed by Novartis that the development of GT005 is to be discontinued. Their decision was based on a recommendation from the Independent Data Monitoring Committee following an overall benefit risk assessment of available data from the programme studies, which concluded that overall data from the lead Phase II HORIZON study did not support continuation of the development programme.
As part of the terms of the transaction, Syncona was also eligible for a series of further milestone payments in the event of successful clinical development and commercialisation. As at 30 June 2023, Syncona valued these potential milestone payments at £54.5m. The decision taken by Novartis to stop development of GT005 will result in the Gyroscope milestone payments being written-off resulting in a negative £54.5m valuation impact.
Overall, although high risk, we believe Syncona provides exposure to a unique investment vehicle, exposed to cutting edge healthcare technology, that provides good portfolio diversification. The group’s investment track record to date is impressive – the disposal of portfolio companies has consistently generated an attractive return on invested capital. As always, data generated from the clinical pipeline will be a critical driver of value, and while not without risk, the group has several portfolio companies approaching key milestones over the next few months that could provide a catalyst for the share price.
That said, we note that one of these is from Beacon Therapeutics, another retinal gene therapy company that Syncona owns a majority position in. The company is likely to take a much closer look at data before committing to costly larger studies.
The shares, which are listed on the FTSE250 index, have moved lower over the last couple of years, due in part to the impact of rising bond yields on the valuation of, and appetite for, unprofitable ‘blue-sky’ companies. They currently trade on a 28% discount to our estimated live NAV of 179p.
Source: Bloomberg