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October Investor Forum: Shareholder value in ESG investing

Arix Bioscience (Arix) is a listed global venture capital (VC) company that presents an opportunity for institutional and retail investors to participate in the high risk-return profile of early-stage biotech investing. Arix minimises risk through its expert investment team and with portfolio diversification, sourced via its extensive network and partners. An experienced board protects the interests of Arix’s shareholders. Arix’s latest published Net Asset Value (NAV) of £232m (1H’19) includes 17 portfolio companies (PCs) into which Arix has invested ca.£135m since launch in 2016. The net cash position at 31 December 2019 is forecast at ca.£48m.

  • Business model: Arix provides capital, operational expertise and network access to entrepreneurs and companies from the seed stage through to undervalued public companies. As a listed company itself, and unlike traditional VC models, Arix is not constrained by exit timelines, and its investors can trade shares at will.
  • Strategy: Sourcing benefits from an established network and a strong scientific reputation. The portfolio is diversified by therapeutic area, treatment modality, stage of discovery/development and geography to balance the risk-reward inherent to biotech investments. Value is realised when Arix exits its investments.
  • Performance: Arix is relatively young, and its performance cannot yet be assessed through its exit returns. However, other value-accretive events validate the strategy, including the IPOs of four PCs. Since its float in 2017, Arix’s reported NAV/share has increased from 150p to 170p (at 1H’19).
  • Risks: Value inflection points include PC progression through clinical, regulatory, partnering and financial milestones. Given that 29% of the portfolio value is pre-clinical, much of the risk lies in the investment team’s skill in identifying innovation with clear commercial potential – allowing it successful exits.
  • Investment summary: Arix stock is currently suffering from a market overhang and some negative sentiment towards biotech that is affecting its share price, and the share prices of some of its PCs have fallen following IPO. Although the portfolio’s fundamentals are unchanged, investors should ensure that they understand the basis of the NAV and its discount before seizing the opportunity to participate in the basket of well-chosen biotech.
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