Syncona Limited (SYNC) Earnings Call Transcript

Good day, ladies and gentlemen, and welcome to the Syncona Interim Results 2025. [Operator Instructions] I would like to remind all participants that this call is being recorded. I will now hand over to Chris Hollowood, Chief Executive Officer, to start the presentation.

Hello. I'm Chris Hollowood, CEO of Syncona. Welcome to our interim results. I'm going to talk you through the highlights alongside my colleagues, Roel and Kate. NAV was down marginally for the first half, largely driven by a decline in a legacy fund not managed by SIML, which is the Cancer Pioneer Fund. The remaining Life Science portfolio was marginally up. We continue to drive the maturity of the portfolio, of our 14 companies, 8 are commercial stage or clinical stage, representing more than 3/4 of the Life Science net asset value. And two more of our companies are progressing into the clinic in the next 12 months. This has been achieved by our relentless focus on active portfolio management. There have been strategic decisions at Anaveon, a transformational deal taken by Mosaic, an important and validating deal between Genentech and OMass in key hires such as our CEO hire at Yellowstone. More broadly, four capital access milestones have been delivered, and we continue to drive the key value inflection points that underpin value with five expected in 2026. In parallel with all of this, we've undertaken a strategic review and recently published our proposals. We would like to thank all our shareholders for their input, and they were essential in getting to the right balance. I will talk through this in more detail later in the presentation. And I'd like to hand you over to Roel to talk you through the markets and an update on the portfolio.

Thank you, Chris. We see some early credible signs of market recovery and renewed value in the Life Science sector, a sector that has endured one of the longest and deepest bear markets in its history. And during that time, biotech companies underwent significant restructuring, consolidation and rationalization. As we've explained before, we've used this period to proactively manage and substantially rebalance the portfolio towards later-stage assets. We focus relentlessly on operational excellence and clinical execution and have secured access to high-quality third-party capital for our portfolio. That combination of clinical maturity and well-financed businesses gave us a competitive edge in attracting top management teams while many other investors acted opportunistically. As a result, we run a diversified portfolio across modalities and disease areas with strong fundamentals. The majority of our capital and team resources are now directed towards clinical stage assets. We see good signs of change in the market. The XBI is trading at levels that we haven't seen since 2021 and the cost of capital is declining. We see companies actually getting rewarded for positive clinical data, and we see the risk appetite expanding across the market. Money is flowing back into biotech and capital markets activity is materially picking up. We see the pace of M&A accelerating and the fundamentals support sustained higher valuations. This market sentiment is clearly risk on, reflecting broader macro changes. There's a lot of money that was previously parked in cash that is now moving into risk assets and large investors are realizing that they're underweight in biotech. Unlike the S&P 500, biotech is still well below all-time highs. So there is room for upside. And we see the macro fundamentals improving with, as I said, interest rates are moderating. We see the M&A bid for biotech strengthening, and that's driven by looming patent expiry. And we see -- and we will talk about that in a minute, a number of deals that substantiate that. Financing markets are surging. The 2025 equity and debt issuance is on track to match 2022, which was a good market. We see significant follow-on equity volume in the market. We see venture financings at the highest level since May '22. And the IPO market is still quiet, slowly picking up. We'll give you a bit of insight on the M&A market. At the current pace, this year, 2025 could become the third strongest year for biopharma M&A ever. And that is despite no deals exceeding $15 billion. Market activity is driven by dozens of small to midsized takeouts, not the mega mergers, and the focus remains on later-stage assets. As you know, M&A is our most relevant source of realizable returns, and this happens in the part of the market that is relevant for our portfolio. Pharma is buying as they see significant revenue loss ahead due to upcoming patent expiries. They continue to have low R&D productivity and cannot fill the innovation gap internally. So we see BD and M&A teams prioritizing assets that sustain growth, and we see that they have limited capacity to take clinical risk. So just a couple of examples of recent significant deals. Metsera got acquired by Pfizer after a bidding war with Novo. Tourmaline Bio was acquired by Novartis in about $1.5 billion deal for a Phase III-ready asset. And we saw Boston Pharmaceuticals getting acquired by GSK in a $2 billion deal, again, for a late clinical stage asset. The biggest uncertainty in the market for M&A is still policy changes. Once policy stabilizes, we do expect a healthier biotech market, and we do see a translation of pharma's need for innovation into longer sustained M&A activity. Let me talk you through the progress in the Life Science portfolio. We're very excited about the strong progress across the portfolio. Over the past 2 years, we've pushed the portfolio towards later-stage assets, and we've increased its diversification. Nearly 80% of the portfolio is now in the clinic, and we will cover some of the late clinical stage companies in the next slide. For the rest of the portfolio, just some highlights across this period. We see Autolus tracking well commercially and from a regulatory perspective. The company has continued to produce data confirming the clinical differentiation of [indiscernible]. With resolution, we initiated a Phase I/II clinical trial for RTX001 in end-stage liver disease. And Mosaic, as discussed before, has in-licensed two clinical stage assets, significantly accelerating their clinical pathway. Quell received $20 million worth of milestones from AstraZeneca for their Type I diabetes program and their IBD program. Importantly, AZ reaffirmed its commitment to cell therapy with a major acquisition during the period. In OMass, we entered an exclusive collaboration and license agreement with Genentech to develop and commercialize therapies for inflammatory bowel disease. And in Yellowstone Therapeutics, we appointed Jim MacDonald as its Chief Executive Officer. We're positioning this portfolio for future success. We're highly committed to financing and advancing the portfolio and the work done this year positions us well to achieve the broad set of caveats that we've outlined. With relentless focus on clinical execution and delivery, we believe this portfolio is in the best position to deliver shareholder value. To give you a couple of highlights on the late-stage clinical companies in the portfolio. To start on the left with iOnctura, this is our mid-stage clinical precision oncology play, which is targeting the PI3K delta signaling pathway, one of the most commonly dysregulated pathways in cancer. The lead program, roginolisib, is a first-in-class, highly selective allosteric modulator of PI3K delta. Rogi has a unique chemical structure and binding mode. And with that and together with our team, we've actively engaged in exploring the broader applications of rogi across the oncology spectrum. Focus of the lead program is in uveal melanoma, which is one of the most common eye tumors with 7,000 new cases annually worldwide. Beyond uveal melanoma, we've made significant clinical progress in studies across solid tumors and in the hemo-oncology space. Our key milestone for next year is a Phase II uveal melanoma data readout that we expect mid-2026. For Spur, middle of the slide, a company that is advancing potential first-in-class gene therapy for Gaucher disease. The lead program, FLT201 has reported positive Phase I/II data and continues to report safety, tolerability and robust enzyme activity. This is an important program in a disease that I expect that affects a large number of patients where no substantial advances in the treatment for those patients have been made in the last 2 decades. We presented positive data in October and are confident in running that study towards results for a caveat that we expect in 2028. So Beacon on the right side of the slide, a company that develops a gene therapy program for the treatment of X-linked retinitis pigmentosa, a blinding disease. Their lead program has already reported positive Phase II data from the SKYLINE trial that has shown durable efficacy and safety sustained for 36 months. The pivotal VISTA trial was initiated in first half of 2024 and the data readout of that is expected in calendar year '26. Our team, Syncona brings deep expertise in retinal gene therapy from Nightstar Therapeutics experience, which has allowed us to build this company and accelerate it towards a significant clinical data readout next year. Thank you for that. From there, I'll hand over to our CFO, Kate.

Thank you, Roel. I'm now going to cover how we use our balance sheet strategically to ensure we deliver our key value inflection points to maximize value for shareholders. We have continued to apply a rigorous approach to capital allocation with 56% of the GBP 17.2 million deployed during the year being deployed into late-stage and clinical stage assets, therefore, focusing deployment on driving our companies to capital access milestones and key value inflection points. We also continue to invest in new companies, ensuring we remain active market participants and to support future long-term growth. The capital pool at the 30th of September was GBP 270.7 million. This provides us with the balance sheet strength to fund our announced key value inflection points. 42% of the capital pool was held in cash and money market funds with the majority of the remainder held in multi-asset and credit funds. I'll now hand over to Chris to conclude the presentation.

Thank you, Kate. I'm now going to talk you through our strategy update before we conclude. Our strategy update was announced in October. We would first like to thank all our shareholders for their feedback and guidance in preparing these proposals. We'll initially be very focused on driving the mature portfolio and returning GBP 250 million in realizations. There will be no fire sale. Companies will be managed in the usual proactive way and only sold once full value is available. Once capital is returned, we will continue to build the portfolio out of the 20 to 25 companies that we believe offers the optimal size for our shareholders. We're seeking shareholder support for the proposals. The new capital allocation policy will ensure funding of all KVIPs and protect wider value in third-party financings. We will continue to make a small number of new investments in order to ensure we can seamlessly return to growth post the capital return. We've had initial positive feedback on raising a private fund and believe it is in the best interest of Syncona shareholders that we explore this. The private fund will access different funding sources and align with the Syncona strategy, thereby offering depth and diversity of capital to the portfolio, driving up its access to capital and driving down its cost, overall giving stronger risk-adjusted returns for our shareholders. In the event the private fund is raised, SIML may be separated. And the Board is reviewing the size and experiences to provide the optimal governance for the path forward. Key value inflection points are the milestones that underpin growth in Life Sciences. There are points where if positive value is created and you can access further capital to drive the company forward to create even more value. There are also the events that trigger strategic processes like license deals and M&A that can lead to multiples of NAV being delivered and liquidity. We've worked very hard over the last few years to push the portfolio to maturity and therefore, into the KVIP zone. We now have a rich set of KVIPs across the portfolio, giving many shots on goal and removing disproportionate risk around any one of them. We currently have eight with five landing in calendar year 2026. Once to really watch a Beacon Phase III readout in the second half of the year and iOnctura study in uveal melanoma that Roel mentioned. We'll also get the first site of Quell's products performance in liver transplant and how Resolution's engineered macrophages perform in liver disease. We will continue to monitor the sales trajectory in Autolus, and we've been encouraged in that trajectory in 2025 and look forward to seeing that increase more in 2026. So with the strategic review complete and offering our shareholders an appropriate balance of value maximization and liquidity, we're looking forward to redoubling our efforts on portfolio delivery. Our dynamic and active portfolio management has driven clinical strategic operational and financing progress across the portfolio. Over 3/4 of the Life Science NAV in the portfolio is clinical stage, the majority of it is now in the KVIP zone. 5 of those KVIPs come in 2026. And the clinical stage NAV will increase further as we execute across the portfolio, driving two more companies into the clinic in the next 12 months. All of this is against the backdrop of cautiously improving sentiment. Cost of capital is edging down and the sector consolidation that we always highlighted as a key requirement for any recovery has largely worked through. Thank you to our shareholders for your support. We look forward to driving further progress and translating that to NAV progression, liquidity and capital returns. We'll now move to a live Q&A session.

[Operator Instructions] Our first question comes from Miles Dixon at Peel Hunt.

Can I start by saying just how pleased I am to see that any proposed wind-down is now behind us. But can I ask for some clarification on the 5% of NAV in terms of deployment for new opportunities? How much of that is exclusively for new opportunities versus supporting the existing portfolio? And if it's totally for new opportunities, might there be lots of shots on goal with very small opportunities out of Slingshot, for instance? Or might it be a more select group of opportunities that you pursue?

Thank you, Miles. So first and foremost, the capital allocation priority is to the late-stage portfolio. So capital will be deployed as needed to that portfolio to really drive NAV and really drive them to the point of liquidity post COVID. We will do a small number of select investments. The GBP 50 million is a cap, not a target. The point of it is we do expect the late-stage portfolio to be successful in aggregate, and we do expect to return the capital. And at that point, if we haven't got anything in the ground, we've got no basis on which to continue to grow. So that's the reason for it. And to your question, yes, you should expect them to be a small set of investments as opposed to one large one.

Great. If I could just follow up on another couple of points before getting back in the queue. Can you -- the CRT Pioneer Funds, excuse me, can you give me a bit more color as to what else is in that portfolio? And what's it particularly exposed to in terms of [indiscernible] and additionally, Autolus, last time we spoke, there was a gradual sell-down of a portion of the holding. You still got 10% left with the changing dynamic, whether it be M&A or the -- well, the improving sentiment towards biotech. Are you still thinking about that in the same way?