RTW Biotech Opportunities Ltd (RTW) Earnings Call Transcript

Good morning, and thank you for joining this presentation of the interim results to the 30th of June 2026 for RTW Bio opportunities. I'm Oli Kenyon, Director of Business Development at RTW, and I'm joined by our Founder and CIO, Rod Wong. We have changed the format of this year's presentation. Shortly, Rod and I will present an overview of performance over the first half the portfolio and the outlook. At 2:00 p.m. U.K. time, next Tuesday, the 22nd of September, Rod and I will host a separate live Q&A session. These e-mail biotech opportunities at rtwfunds.com to sign up and send any questions for that session. We'll repeat those deals at the end of the water. And as ever, we welcome your feedback on the presentation of these results. Before I turn to the results, a quick recap of who we are and what we do. RTW is a leading life sciences investment platform, managing just under $10 billion as of 30th of June across 4 funds. RTW Bio, 2 hedge funds and a dedicated royalty fund. We've grown to a team of 92 people across New York, London and Asia. Recently, we've added Abu Dhabi as lineup, it's like colleague Woody, who many of you know is relocated there from London. You will notice our headcount has grown across every function over the last 6 months as we continue to build out new capabilities. Rod will discuss our technology and data efforts in more depth later on in the presentation. Our approach remains unchanged and at its alts deep research-led investing. We focus on identifying and supporting world-class companies developing truly transformative therapies, assets that have the potential to significantly improve patients' lives. We're 4 life cycle investors. That means we can build and invest in companies along the spectrum of early development through to commercialization, providing capital, expertise and long-term support. This strategy has delivered strong and consistent results while flagship funds have generated a 23% annualized net return since 2009. Through the first half of 2026, RTW returned 16.5% in NAV terms, performance that was between the benchmarks and comfortably ahead of the AIC peer group. Rod will go into the drivers of this performance shortly. RTW Bio continues to outperform over the medium to long term and has delivered markedly greater value to investors than other similar exposures over that time. Since IPO, RTW Bio's NAV has annualized almost 16% a year, about half more than the relevant biotech indices and 4x that of our AIC peer group. What's particularly encouraging is that this alpha generation was delivered through a 4-year bear market in biotech from 2021 to late 2025. You'll be aware that Biotech exited its bar market phase towards the end of last year, outperforming the S&P 500. And that's a trend that's continued and strengthened during the first half of this year, as Rod will set out. And with that, I get to hand over to Rod to discuss performance over the year so far, what's next for biotech and your company. Over to you, Rod.

Thanks, Oli. Hi, everybody. And as Oli mentioned, I'll start with performance. So in the first half, the NAV per share grew by 16.5%. This was led by our public portfolio. and there was a contribution from our privates as well. RTW Bio performance was ahead of the NASDAQ Biotech Index is behind the Russell 2000 Biotech and ahead of our AIC peer group. For the sector overall, the first 5 months, the sector traded down on a number of uncertainties, but then recovered with a really strong June. June was actually the largest game for the since December of '23. For RTW Bio, it was a plus 9.7% month. So far, you'll notice from these numbers that the first half was in line or behind some of our benchmarks. There are 2 main reasons for this. They're both positioning of the portfolio related. So the first bucket or major reason was that our position in commercial versus clinical names in biotech. So we came into the year 60-40 commercial versus clinical names. That does differ from our peers. Several of our launch names traded off or, I think, 3 high-level reasons. First was just seasonal. There's seasonal prescription softness. This is temporary and not surprising. Next coming into the year in January, the biggest conference that kicks things off the JPMorgan conference M&A rumors really focused on clinical companies, namely ResMed and Abivax and this caused the reduction in the M&A premium on some of the commercial names in the space. And then finally, the Iran War, Generalis Capital that we think entered into this space last year to a number of commercial names were the first to rotate out. The second major reason is that we do run a med tech book in addition to biotech and most of our peers and benchmarks do not have that. And many names got caught in the AI or SaaS apocalypse sell off. Now some of these names have started recovering in the second half. None of this has any impact on our long-term views on the opportunity set in commercial-stage companies. Some context, commercial launches were our #2 source of alpha generation last year. So we remain, of course, committed to it as we have been in the last 20 years almost. That said, we did make some incremental tactical adjustments as we go into the second half. We reduced our med tech exposure. We've decided to focus on companies with the biggest moats as you worry about AI disruption. And then we incrementally increased our exposure to clinical stage companies to about 50-50 again. All right. To the next slide, here you see our top contributors in the tractors over the first half. Big picture. What you see here is that our winners were primarily clinical stage and the losers were commercial. On the winning side, you see 3 names. Kailera is a newco, as most of you know, started by us and Bain. The company IPO-ed this spring. The deal priced at the high end is upsized. It was actually the largest biotech IPO in history in terms of capital raised until another company, Paravalos, a few weeks later, broke that record. Kailera closed up 63% on the first day of trading. Next one, Arruca, it reported positive Phase II psoriasis data. That looks as good as the market leader, SKYRIZI, which is 1 of the biggest products in pharma today with the advantage of less frequent dosing. And then finally, Tango, they should proof-of-concept clinical data, combination of their drug with RevMeds pancreatic cancer drug, tripled response rates to north of 90% in the first dozen pancreatic cancer patients. This is early but very exciting data for pancreatic cancer patients. On the losing side on the right, in Soma, we marked down in the private portfolio. They're doing a strategic pivot and a reduction in force. Insmed. This is one of those commercial names that I mentioned is sold off on Q1 earnings. Their numbers actually beat consensus. But on the call, they brought up risk factors that made investors worry about whether not to launch would maintain its current trajectory. For context, since the first half, it looks like that launch has not slowed materially. Finally, Verastem. That has been drifting down ahead of clinical data for one of their pipeline programs, a RAS program that we expected in the second half of the year. All right. On to the next slide. This is actually a table of all the financial events. So for example, deals and IPOs of all sizes across the RTW Bio portfolio. What you see here is multiple acquisitions at significant premiums for some of our smaller positions. You also see that the IPO window is normalizing and that those deals this year are performing well. The average IPO is up over 40% on the first day of trading. I would just highlight 3 names on the bottom right here, Sarafa Euro and Avair, our company creations, 2 of which are led by us, the first to that are going public nearly simultaneous to the creation of the company itself with a transformative asset acquisition. This is something that you'll hear me talk more about next line. All right. So private part of the book performance over the first half. We have 38 private investments today. The performance in the first half was led by Kailera. As you see here, the average valuation change across the private book was a modest markdown of 2.1%, 24 marked up, 11% mark down. This doesn't reflect the 3 companies that I just mentioned, euro, which closed in July, a month after this. These numbers were locked or Sarafa. I would highlight that the company creation team beyond these deals I just mentioned, it's very, very busy right now. It's really fire on all cylinders. The overall, since inception, RTW has launched 10 companies. But now we think we can do 4 to 5, maybe even more company creations per year. All right. So I'll shift gears a little bit and just talk about the sector high level. As Oli mentioned, after 4 years of underperformance, biotech is on track for a second year of outperformance so far ahead of the S&P. That said, the sector is still under own for folks who are worried whether or not you're too late. Net fund flows last year for the year as a whole were actually negative because so much of the year had overhangs. And then through the first half of this year, it's actually only flat, a lot of that because the Iran war drove capital out for most of the months so far in the year. And this only began to turn positive in June. So overall, our conclusion is that the recovery is actually early, not late. The biggest driver so far, I think, has been M&A. But also increasing recognition that this is an innovative sector that is also maturing at the same time and producing more commercially successful companies that are doing well. If you look at valuations, the NBI price to sales is now back to roughly the long-term average, but to contextualize this the fundamentals, we think, are better than we have seen in the industry's history. I would also note that 30% of U.S. biotechs under $10 billion in market cap still trade below the cash on their balance sheet. So there are still many, many asymmetric opportunities out there. What I think this means overall is that hopefully, we're in a stock pickers market, that also has a tailwind from an innovation and M&A boom. Next slide. All right. So one of the big overhangs that plagued the sector last year, especially was the FDA -- there's been progress on this front. I would note, despite the leadership issues at FDA over the past year, 23 novel drugs were approved in the first half of this year. And that's actually the highest first half total since 2023. So innovation is doing well. Now interim leadership under Kyle Diamantis has been reversing some of the negative decisions under the prior leadership of the past year, namely Vinay Prasad and Martin McCarrey, A couple of the notable examples are recent reversals in June for uniQure and REGENXBIO and then EPU which really struggled with under the prior regime was approved. So I think we're seeing very clear signals that the FDA is reverting to a pro nation, pro flexibility stance towards innovation. Now we are waiting for a permanent leadership. Heidi Overton, who has been working in HHS was recently nominated as FDA Commissioner. We're waiting for her to go through confirmation. With her specifically, it's more a question mark is how she'll regulate drugs other than a red flag. Her background is working at HHS, not specifically drug development. She has been a critical player in the White House or working with the White House to translate White House priorities into policy. She's done a good job of that. We think if she focuses on that, the FDA direction will likely depend much more on the division heads that are named, specifically who names -- who leads the Cedar and SBIR divisions. The interims so far are excellent, as you can tell from these reversals, but we'll wait to see on who will get the permanent roles. We are optimistic that like the interim leaders that there will be pro innovation. Next slide. All right. So it's probably pretty clear that the IPO market has returned or turned around substantially. In the first half, there are 13 IPOs versus 8 in all of last year. And if you include through the end of August, were now up to 20. For context, I consider a healthy market, somewhere north of 30 up to 50. So on this pace, we're probably on track to hit the low end of that healthy range. Next slide. M&A was strong in the first half. We expect that to continue 2026. There already been $105 billion in deals. Compare that to last year's full year total of $126 billion. You see cancer here has led by the number of deals. One of the things I'd point out is that we are seeing some non-pharma buyers start to do more M&A. That includes large-cap biotech. This is a good development for smaller biotechs that are developing products that are less than blockbusters. So drugs with multi-hundred million dollar potential but not $1 billion or multibillion-dollar potential. And those companies have struggled certainly through the bear market, and it's great that they're getting more interest. Examples of that Neurocrine's acquisition of Sileno and Vertex's recent acquisition of Prenetics Premiums are healthy with an average of 46%. Next slide. And as I think most all of you know, what we've been saying is that there are now 2 engines that drive M&A, not just 1 Patent Cliff, of course, we are in a patent expiry cycle. But now you also have the cash flows from the historic growth of obesity products, most importantly, Eli Lilly. Lilly alone did 9 deals for a total of just under $25 billion, nearly 1/4 of the entire deal value in the first half. They're leading everybody else as you would expect, we think the next trend that you'll see from Lilly is they'll be doing larger and larger deals, not just be the highest by volume. Next slide. Here is where we are in the patent expiry cycle. Things grow from here to '28. You see then there's a dip for a couple of years and then they're at high levels again beginning '31, '32. Okay. Now I'm going to shift to what the portfolio composition looks like. So today, public positions make up 86%. A lot of this is because our private portfolio is now going public and also because our public names have performed well or gone up in value. So privates make up 18%. I would note, we expect high company creation activity, as I already hinted to, earlier, and we also expect a pickup in crossovers now that the IPO market has normalized. So expect us to be doing more here, whether the overall percent of the portfolio goes up or not depends on how rapidly those companies transition from private to public. Royalties makes up 2% of the portfolio currently. -- thematically, we like to divide things by our 6 sub teams. By the way, we also added a new AI dedicated sub team, which is a partnership between 2 of our other sub teams, a couple of the trends that I would mention. We increased our exposure to cancer this year. There's a lot of innovation. We talked about going into ASCO, how transformative it would be for pancreatic cancer. We actually think major cancer conferences in the fall of this year, starting with ESMO, will also be pretty significant events. Immunology is still a major focus for us is the second highest allocation in the portfolio. As many of you know, the innovation story for immunology has shifted a little bit in the last couple of years. It's been more of an iterative innovation story as opposed to novel target story. There are multiple, for example, half-life extension products like Apigee, which was 1 of our portfolio companies, which has been acquired and also now the emergence of oral peptides like protagonist which are going after no targets, but making them oral. That said, we are seeing a pickup in innovation in novel ID again. So you may see more of that in the portfolio in the future. In CNS, I'd say the thing to highlight is that psychedelic companies really are maturing now. Compass will be the first company to approach commercial launch, which will likely occur by early next year. And then in clinical stage companies, we're a big fan of GH Research because they could potentially have best-in-class efficacy and the most convenient administration profile. You may notice that our rare disease exposure is a bit lower for us at the moment, but there are some important events within the exposure that we do have coming up. Cardiovascular and metabolic is also smaller. This is mainly driven by the takeouts in our portfolio from last year in fatty liver or MASH. Now we think it will likely increase from here as we have new names entering the portfolio in obesity, next-generation obesity as well as some in heart failure. As I mentioned, we've reduced our med tech exposure, and we're focusing on our best ideas. Next slide. So here you see the detailed top 10 portfolio positions as of June 30, very briefly on the top 5 positions. Number 1 is CG Oncology. We're waiting for a Phase III pivotal trial readout, which could come very shortly, probably that was pulled forward from next year to this year, that explains part of the strong performance for the company in the first half of this year. And we'll be reporting on that result pretty soon. UroGen, they are launching the story very well in bladder here, we have exposure both through the equity as well as the royalty. Kailera and Arouca I've already mentioned our top contributors so far year-to-date. And then Argenx, this is 1 of the few large caps that we have in the portfolio. Our involvement actually started quite a number of years ago. The stock has increased in market cap by over 100x since when we started to be involved, it remains a compelling investment today with lots of growth left as VivGart continues to expand into new disease areas in immunology. All right, next slide. here is kind of a fund analysis where we break down the performance of our private investments by annual cohorts. So I'll just touch on a couple of the changes that you see on this slide. In the 2024 cohort, we've had 2 IPOs, [indiscernible] and Kailera. And we also had 2 go public reverse mergers Upside and Alesta in the 2025 group, we had euro, which is going public through a reverse merger. And this year, you'll see we've made 3 new private investments already 2 of these have announced reverse mergers. So a very brief period of time in the private portfolio. There's -- this is obviously part of this broader theme that more of our new cos have a rapid path to Overall, from inception of RTW Bio, we have made 76 private investments. They're held at an average of 1.6x MOIC, translates to a 16% IRR. Those investments that we have that haven't had liquidity event are held at a conservative average of 1.0x MOIC, which is, of course, much less than what we've ultimately achieved with those that have had liquidity events, 1.6x or full exit 2.3x. So I'd note that when you look backwards, the holding period to liquidity is about 19 months on average because our focus primarily is on crossovers. Now for context, we think that's actually on the long side because the bulk of this historical analysis period was this prolonged bear market. Most of our investments, we don't expect to participate in multiple private rounds and we expect to go public in specialist, we're entering a more normal healthy market. This number could go down. Next slide. Just a quick update on our royalty fund. As biotech is maturing and is producing more commercial stage companies, this is good for royalties. Royalties are a great additional capital source companies, especially those with their first new product launch, it's better than debt for any sizable amount of capital. Here we show as steel from our portfolio is Avadel's Lumeris. Just very briefly, we funded this after FDA approval, so there's no clinical risk, the product launch very well. Avadel ended up getting acquired just this February. We exercised the right that we had in the contract for the acquirer Alkermes to put the full royalty cap to them. So we realized the 2.6x gross MOIC that translates to a 52% gross IRR on the investment. We're now in the midst of raising Fund II that will be named RTW Royalty Fund II, and that fundraising is going well so far. All right. The last section, and I'll hand it back over to Oli. Just to look ahead a little bit, as I mentioned, is biotech is turning increasingly commercial strength of ours is that predicting commercial launches has always been 1 of our core capabilities that we've developed since our inception. Today, over half of all novel drug approved are coming -- approvals are not coming from pharma, but are coming from small and mid-cap biotech companies. In fact, of our benchmarks, 40% of the now are commercial stage companies, it's actually increasing pretty quickly. Recent launches are actually outperforming 1 of the health care-focused banks, Cowen, did an analysis of 80-plus drug approvals from 2020 to '25. And the post-approval returns are quite good for the group as a whole, 34% at 1 year, 44% at 2 years. That's a huge improvement from the 5 years from 2014 to 2018, then it was plus 6% at 1 year and actually negative 9% at 2 years. That was the area of short the launch. So there's high dispersion, underlying these averages. That is exactly what our commercial forecasting capability is built to discern. So we're excited about this growing opportunity set. Next slide. All right. I mentioned multiple times now that company creation is very exciting real. Our capability really has matured. It is firing on all cylinders. Our team is really 1 of 2 leading venture firms globally in terms of our ability to source from China. We've done the second most deals for acquiring assets there -- that said, we can source from anywhere, including from pharma, from academic even from de novo ideas. Just this year, Yara and Sarafa will join Kailera as extremely well-received value-creating deals that rapidly press from creation to the public market. We believe this capability can now support, as I mentioned, at least possibly new company launches per year. All right. Next slide. Finally, this is my last slide to touch on AI. We are attacking AI from multiple angles from an investable opportunity perspective. We have dedicated resource to cover this space. As I mentioned, we stood up a dedicated we think near term, there is opportunity in health care services in med tech, right? Here, AI adoption is already tangible. It's already translating into products and services that are accelerating revenue growth for publicly traded companies. And so you'll see this among some of our more near-term opportunities, especially in our med tech part of the portfolio. That said, we are also covering AI-led drug companies that are emerging, and we see opportunities there over time. And then separate to investable opportunity at our firm, we're very, very aggressive, probably among a very short list of the most aggressive dedicated health care firms in terms of investing in technology for the future. So in total, internal and external resources, we have nearly probably north now actually of 20 full-time equivalents, people working across data sciences, and internal software development for the firm. This is also our fastest-growing team. So expect to hear more from us on AI. All right. I'll hand it back over to Oli.

Great. Thanks, Rod. And now to sum up why we are excited about this phase for RTW Bio. The first is that we're at a point where the drugs are reaching patients for diseases that were simply untreated for a decade ago. We're in the older age of innovation and AI is starting to compress time lines meaningfully from target identification through to the clinic. There really never has been a better time to be in biotech. Alongside that, the market is rewarding the best science. Conditions for exits are as good as they've been in years. M&A is running at multiyear highs. The IPO window is open, as you've heard, and the FDA is approving drugs at a really healthy clip. Good science is getting rewarded. But the valuations still add fundamentals. More than 80% of XPI constituents are forecast to turn commercial within the next 18 months, yet the set still trades well below historical highs. The market hasn't priced in that commercial inflection yet, and we think that's an opportunity. Against all this, we've compounded RTW buyers NAV at roughly 16% a year since IPO. That puts us ahead of the relevant biotech indices over that time and our AIC peer group. That reflects the quality of what's in the portfolio and how we construct it. That said, the discount to NAV was almost halved over the past 12 months. We think the 15% level at period end is still an attractive entry point for a vehicle with this track record. And finally, our full life cycle advantage is something that really differentiates us. We're building companies from scratch before public markets recognize the value. The newco pipeline that Rod just talked through is a big part of why we think the next wave of value creation has already come. That brings us to the end of the formal presentation. On behalf of RTW, I'd like to thank you for your continued support. I encourage you to sign up for a live Q&A session next Tuesday, 22nd of September at 2:00 p.m. U.K. time, by e-mail and biotech opportunities at rtwfilance.com. Some important disclaimers. And finally, please stay in touch with us. And you can find the RTW podcast on YouTube, Spotify, Apple, Amazon Music, recent pas include our oncology deep dive and a great miniseries on psychedelics. We're also Action LinkedIn, Instagram and Rod on X with his handle, [indiscernible]. Thank you again, and we look forward to speaking with you on the 22nd of September. Have a great afternoon.