The investor forum of Woodford Patient Capital is not a happy place. More than two years on from the launch of the investment fund, unhappy clients have been going online to show their displeasure with its performance.
And who can blame them? The share price of the fund has tested the patience of early followers, who have lost about a tenth of their money with little sign of imminent improvement. Of course, Neil Woodford, the fund’s founder and manager, was always clear that this was a long-term investment for those with a tolerance for risk.
Much of the more-than-£800 million fund is invested in unquoted companies, with a heavy bias to the biotechnology sector. The largest investment, a little over 16 per cent of the trust, is in Prothena. So you can imagine that backers might be nervous reading the fund’s latest update last week that “Prothena’s earlier-stage pipeline suffered a disappointing development, when PRX003, its potential treatment for psoriasis, failed to demonstrate a meaningful clinical benefit in a phase lb trial”. Mr Woodford calls that a “slight setback”, but lately several of its investments have faced problems.
Purplebricks, one of Woodford Patient Capital’s few publicly listed holdings, has been in the spotlight as the online estate agent faced questions during the summer amid reports of customer complaints and exaggerated performance figures. Adding to its woes, the Advertising Standards Authority this month upheld a complaint against Purplebricks over its explanation of its charging model. This is no killer blow, but it is another unfortunate instance where the fund appears to be backing an up-and-coming company with a questionable business model.
It is too early to be calling the death of the trust, but when will things start to turn around? Not only that, with its persistent underperformance, the returns required to justify continuing holding the fund rise. It promised to deliver an annual return of more than 10 per cent at an indeterminate point in the “longer term”.
There are those who would argue that at a discount to net asset value the fund is cheap and that now is the time to buy. On the other hand, the discount stems from questions about whether Mr Woodford’s foray into technology investment, specifically early stage pharmacology, has taken him beyond the scope of his expertise.
Woodford Investment Management is the biggest backer of Allied Minds, a technology incubator, with a near-28 per cent stake, so the Oxford-based fund manager has a double bet on it as a direct investor in the company and in several of its underlying investments.
You can credit Mr Woodford with patience in Allied Minds, which has lost more than half of its value in the past year on the back of warnings about several of its key portfolio businesses. Invesco, Mr Woodford’s former employer, is the second largest stockholder in the Boston-based investor, so there is plenty of Mr Woodford’s money and credibility tied up in this company.
Of course, if even one of the Woodford Patient Capital/Allied Minds investments made the big time, all of the doubts about the rest of the portfolio could be forgiven and forgotten; but as yet, the Woodford proposition is all jam tomorrow.
For the time being, long-time Woodford backers probably will keep on keeping the faith, but the next 12 to 18 months are likely to be pivotal to the fund and Mr Woodford’s wider asset management business. If some of its promising holdings start to pay off and reward investors, then the share price should begin to move close to NAV. However, the concern must be that Woodford has backed too many duds to reward even the most patient of backers.
My advice Sell
Why It may be cheap, but that is for a reason. Wait for signs of performance before buying
Glaxosmithkline
When Emma Walmsley unveiled her strategy for Glaxosmithkline in July, much of the attention was focused on her drive to shake up the company’s research. Another priority laid out that day, though less conspicuously, was successfully launching a collection of late-stage new drugs developed under Sir Andrew Witty, her predecessor.
Among the three most important opportunities is Shingrix, a potential blockbuster vaccine for shingles. Attempts to bring this treatment to the market took a big step forward late on Friday when the US Food and Drug Administration granted approval. The market is eyeing annual sales of about £1 billion by 2023 and expects Shingrix to overtake Zostavax, an existing product from Merck, a rival, as the market leader.
Yet there’s more. Analysts expect a separate FDA advisory committee tomorrow to recommend vaccination of the over-60s, in line with Zostavax. With Shingrix also approved by the FDA as a treatment for adults aged over 50, any endorsement for younger patients by the committee could provide an additional boost to sales forecasts.
The company is also awaiting regulatory rulings in Europe, Australia and Japan, having secured approval in Canada this month, and the US announcement comes after recent regulatory support in Europe for a three-in-one inhaler for chronic obstructive pulmonary diseases. The product, marketed as Trelegy Ellipta, is another of those three significant near-term opportunities targeted by Ms Walmsley and is part of a group of respiratory drugs that Glaxo hopes will counteract declining sales of Advair, its inhaler.
In its attempts to replenish sales, Glaxo had been targeting £6 billion of revenues per year by 2020 from a series of new pharmaceutical and vaccine products, including Shingrix but excluding Trelegy. That target was brought forward by two years to 2018 in July, another sign of progress. It compares with group revenues of £27.89 billion last year across its pharmaceuticals, vaccines and consumer healthcare divisions.
The successful launch of new products is made more important by a revival in Glaxo’s trading last year after several years of malaise and with the next wave of big launches not expected until the early part of 2020. With third-quarter results due from Glaxosmithkline tomorrow, investors will be able to take stock on progress.
My advice Hold
Why Glaxosmithkline is making progress on crucial new products
