Interview – Syncona’s uncompromising message to the European markets

When Syncona, the UK Wellcome Trust’s evergreen fund, wanted to float its gene therapy company Nightstar Therapeutics a protracted period of soul-searching ensued; should the biotech startup be listed in Europe or the US?

Ultimately the winner of the $75m IPO was Nasdaq. “You need to convince investors that you’re building global leading companies, not European leading companies,” Chris Hollowood, chief investment officer for Syncona’s life science portfolio, tells EP Vantage. And he does not mince his words when it comes to the failures of his company’s home market.

“If you want your company to win you have to make sure its cost of capital is comparative to the cost of capital of its competitors,” he states. “Unfortunately a stock exchange in Europe that allows that in my view doesn’t exist. Nasdaq is the natural place to go. Nasdaq is open to global companies.”

This will sound familiar to many in Europe who have seen local markets beset with poor liquidity, low appetite for biotech risks, and ultimately an inability to raise sufficient cash for drug development. It also raises the question as to why some US groups – Puretech Health and Maxcyte are two recent examples – choose London for their floats.

Still, Mr Hollowood is keen to stress that Nightstar basically remains a UK company, with a UK tax base and with most of its staff based in the UK. It could hardly be otherwise: Syncona is funded by Wellcome to the tune of £250m ($330m), which is essentially UK cash invested by a UK charity.

All the way

When Syncona was put together five years ago its mission was to fund products all the way to approval. The reason? Another local failing, according to Mr Hollowood.

“Wellcome recognised that basic science and clinical translation in the UK and more broadly in Europe was as good as anywhere else in the world, but that there had almost been a dereliction of duty to take that forward into real products that are FDA and EMA approved”.

This led to the current situation where Syncona’s life science portfolio comprises seven investments: three AAV-delivered gene therapy plays, the CAR-T specialist Autolus, a genome sequencer, the tumour neoantigen company Achilles Therapeutics, and the PET imaging group Blue Earth.

Syncona's life sciences assets
Company Focus Syncona stake Value (£m) Valuation basis
Nightstar Therapeutics Retinal dystrophy gene therapy 44% 175.1 Market cap
Blue Earth Diagnostics Prostate cancer PET imaging 90% 115.5 DCF
Autolus Autologous CAR-T therapy 38% 88.6 PRI
Freeline Therapeutics Systemic monogenic disease gene therapy 74% 31.0 Cost
Achilles Therapeutics Solid tumour neoantigens 66% 2.8 Cost
Gyroscope Therapeutics Retinal inflammatory disease gene therapy 72% 5.0 Cost
CEGX Genome sequencing tools 12% 5.2 PRI
Source: company website; DCF=discounted cash flow; PRI=price of recent investment.

This portfolio will grow to 15-20 companies, with Syncona still able to invest new capital while remaining “a substantial shareholder at the point of product approval”, says Mr Hollowood, referring to one of Syncona’s golden rules; thus even after IPO Nightstar is still 44% owned by the fund.

Another rule is to be very focused on valuation – an unusual criterion for a very early-stage investor. “Every company is typically set up around one cornerstone asset, and we will do an NPV around that cornerstone asset, and make sure it in and of itself delivers a financial return,” says Mr Hollowood; beyond that any pipeline represents the icing on the cake.

An example is Blue Earth, a company that managed to get its key asset to market on an investment of £30m. The exception is Autolus, which has a pipeline of three assets at a roughly similar development stage (Interview – Next from Autolus, cracking tolerance and solid tumours, September 27, 2017).

Bacit hedge

The success story also relied on another piece of the puzzle: Syncona’s merger into Bacit, a listed investment entity with £500m of assets under management.

The 8-10% return these assets yield serves as a hedge, and means that investors are comfortable with cash being put into a naturally longer success horizon of life sciences. “A traditional VC, [with] a six to eight-year investment horizon, is not a vehicle that allows you properly to develop these therapies,” Mr Hollowood reckons.

But what about ballooning US biotech valuations – do these make it hard to invest because of the perceived subsequent huge step-up required to generate a return? “We’ve found it to be fine,” he insists. “We’re accessing global markets, so the investors coming into Nightstar and Autolus are US investors.”

“I think the IPO markets are relatively hot right now. I’ve heard some investment banks on Wall Street talk about companies IPO’ing before clinical data, and I think that’s the first time we’ve seen that since 2015/16. That’s not something we’d ever do, but it’s testament to how hot the markets are.”

This story was updated to reflect current portfolio company valuations.

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