Investors are having to be very patient with star fund manager Neil Woodford’s Woodford Patient Capital (WPCT) investment trust. A patchy track record since its launch in April 2015 sees the trust languishing at a 7.5% discount to net asset value (NAV).

The particularly poor performance over the last year, which we will explore in-depth later, means Woodford will not receive any fees as the NAV has failed to beat its 10% per year compound growth target.

Woodford Patient Capital was pitched at inception as offering investors exposure to a mixture of exciting, disruptive early-stage companies via stakes in businesses with attractive intellectual property.

Woodford looks to deliver returns by identifying and funding untapped growth opportunities.

At its shares’ all-time high of 119p in August 2015, the trust was trading at a 13.1% premium to NAV.

CLINICAL TRIAL SETBACK

Over the last year, Woodford Patient Capital has been trading at an average 6.8% discount to NAV following a series of disappointing setbacks, the most high profile of which related to its third biggest holding Prothena.

Global biotech company Prothena focuses on developing drugs for progressive diseases such as Parkinson’s, which can be caused when nerve cells break down.

Prothena’s key trial to test whether investigational antibody NEOD001 could help treat amyloid light-chain (AL) amyloidosis failed recently (23 April), wiping off 69% of its market value.

AL amyloidosis is caused by a build-up of abnormal protein called amyloid in organs and tissues in the body, which can lead to organ failure according to the NHS.

Following the trial failure, the company discontinued the development of NEOD001 and terminated its ongoing Vital study.

As Woodford Patient Trust has a 9.1% holding in Prothena, it took an estimated hit to its NAV of 6% according to capital markets firm Winterflood.

SHORT-SELLING PRESSURE AND RISING LOSSES

Woodford says it was ‘an extremely disappointing outcome’ that surprised Prothena after a more significant placebo effect was observed compared to previous trials.

Not everyone was surprised by the outcome. In November 2017, US hedge fund Kerrisdale Capital was critical of Prothena’s NEOD001 and predicted it would fail, prompting weakness in the shares and criticism from Woodford himself.

This is not the first time Kerrisdale and Woodford have been at odds. Back in 2015, Kerrisdale slated intellectual property commercialisation firm and Woodford holding Allied Minds (ALM), labelling some of its investments as ‘duds.’

In April 2017, Allied Minds stopped funding seven subsidiaries on the belief there were no commercial returns from these companies despite then demonstrating progress against milestones. This occurred shortly after the surprise departure of founder Chris Silva.

Shares in Allied Minds have plummeted 83.8% to 116.8p from a record high of 725p in April 2015.

These troubles were felt by Woodford’s fund. It has also been hit by troubles at Circassia (CIR). The speciality pharma business decided to focus on its respiratory business and asthma management franchise after ditching its allergy programmes on the back of two major trial failures.

Three quarters of its value have been wiped off since hitting an all-time high of 352.7p in September 2015.

POSITIVE PORTFOLIO NEWS

Is it fair to judge this trust on three years of performance? Its name reflects a long-term approach with an investment time-frame upwards of five years and it explicitly warns off investors who are not prepared to accept short-term volatility.

And despite the huge blow from Prothena’s trial failure, Woodford continues to work with the company thanks to its attractive technology platform and the potential to treat different neurological disorders.

The fund manager says its platform has been validated by two collaborations with major players Roche and Celgene.

Prothena also benefits from unpartnered assets set to enter the clinic and is well-funded with $500m on its balance sheet.

Since the beginning of the year, Woodford has at least been able to feel a bit more upbeat about his top holding Oxford Nanopore.

Currently valued at £1.5bn, the company is focused on commercialising its products. These include pocket-sized DNA sequencer MinION and its RNA and DNA sequencing technology PromethION.

The UK’s first high energy proton beam therapy, Proton Partners, is tipped for success after commencing treatment on its first patient in April.

This treatment is different from traditional cancer treatments as protons are used to target and kill cancer cells with minimal damage to the surrounding tissue.

Proton Partners is among Woodford’s top holdings at 5.5% and is on track to open its unique cancer centres within an hour and a half’s reach of 75% of the UK population by 2023.

Further upside for the fund could be achieved through its 91% stake in Benevolent AI. This company uses its artificial intelligence to find and analyse large chunks of data about specific diseases and recently raised $115m to expand its focus on new diseases.

Winterflood analyst Kieran Drake flags that over half of the fund is exposed to healthcare companies, but believes this is less of an issue due to a range of business models in the portfolio.

Among the non-healthcare holdings is online estate agent Purplebricks (PURP:AIM). This is a significant contributor to the portfolio’s performance as its shares have more than tripled in value since floating in 2015.

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