A collection of unquoted biotech investments held in the former Woodford Equity Income fund is close to be snapped up by a research company at a heavily discounted price after several previous attempts to offload the stocks to investor consortiums, including one led by Neil Woodford himself, have fallen through.
Acacia, which is backed by a $6.2bn activist hedge fund, has reportedly offered to pay $300m (£239.7m) for the portfolio of unlisted biotech stocks which includes Theravance Biopharma, Oxford Nanopore and Rutherford Cancer. That is less than half of what Woodford was willing to pay for it in March, several weeks into the coronavirus sell-off.
The Acacia deal, first reported by Sky News, has yet to be finalised with insiders saying it could still fall apart.
Acacia, which has a market cap of $120m, will need to rely on funding from other backers, including prominent hedge fund Starboard Ventures which owns a sizeable stake in the California-based research firm.
Woodford and his business partner Craig Newman had sought to pay £500m, double Acacia’s bid, to buy back his biotech holdings in early March. At the time Woodford was slammed for attempting to scoop up the stakes at a significant discount with critics seeing this as “a slap in the face” to investors still trapped in Woodford Equity Income.
The duo, who were attempting to rally support from other investors to complete the deal, came after WG Partners failed to secure enough support to buy the bundle at a price of £550m. Even that price was calculated to be 55% of the companies’ value at their peak worth.
Investors willing to stomach further writedowns to ‘end this sorry saga’
But Willis Owen head of personal investing Adrian Lowcock said, despite the substantial writedown, at this point investors will most likely be “relieved they might see an end to this sorry saga”.
“In these market conditions, the combination of illquid assets and being a forced seller means that the price they going to receive is likely to be a lot lower than even three months ago,” Lowcock said.
“A disposal at the suggested price might be tough to take, but if it is the only offer on the table then it might be better than nothing.”
AJ Bell head of active portfolios Ryan Hughes agrees that one year on from the suspension of the Woodford Equity Income fund “many investors would simply like to draw a line under this and move on”.
Hughes said it is “almost inconceivable that PJT are in a position to drive the price higher” given the uncertain economic environment amid the coronavirus pandemic and due to the forced nature of the sale.
Biotech writedowns could spell trouble for former Woodford trust
The biotech writedowns could be unwelcome news for Woodford’s former Patient Capital trust, now managed by Schroders, which contains many of the same holdings.
Schroder UK Public Private managers Ben Wicks and Tim Creed had already predicted the effects of the coronavirus could wipe up to 8% off the fund’s net asset value.
But the pair had struck a more confident tone about the valuations of the unlisted biotech stocks inherited from Woodford. Immunocore, Oxford Nanopore and Benevolent AI were spotlighted as companies that had indirectly or directly benefitted from the coronavirus and had attracted new backing from investors in the last five to six months.
Sky News said it was unclear whether the portfolio that Acacia is looking to snap up included a stake in Benevolent AI but said Woodford’s Immunocore and Oxford Nanopore stakes were among the holdings looking to be sold.
Lowcock said that although some of these companies may be revalued upward following Covid, “time is critical and that growth and opportunity may have come too late for trapped Woodford Investors”.
Around £558.4m worth of assets, most of them illiquid holdings, remained to be sold in Woodford Equity Income as at 20 May 2020, according to Morningstar. The fund has lost 24.5% since the Covid sell-off began on 20 February compared with the IA UK All Companies which has fallen 16.1%.