RTW Biotech Opportunities (RTW) $1.11

Loss to date: 16.5%

We highlighted RTW Biotech Opportunities
(RTW) at $1.33 in July for its superior track
record which was not reflected in the shares trading at an unwarranted 23% discount to NAV (net asset value).

WHAT HAS HAPPENED SINCE WE SAID TO BUY?

Sentiment in the biotechnology sector remains depressed with the Nasdaq Biotechnology index dropping around 6% since July while RTW’s discount to NAV has widened to 30%.

However, in a potentially game changing development RTW (1 November) has agreed an all-share merger with Arix Bioscience (ARIX) at an implied price of 143p per share.

It equates to a 21% premium on the prior closing price but a 20.5% discount to Arix’s September NAV of 180p per share.

Separately, RTW will acquire Acacia Research Corporation’s rough 25.5% stake in Arix at 143p per share in cash. Acacia is Arix’s largest shareholder. While it is unusual to see one shareholder given potentially preferential treatment, the merger has the backing of independent and executive directors.

RTW estimates the transaction will deliver a low single-digit NAV accretion to shareholders. The merger, which still requires shareholder approval, offers several other benefits.

Following completion of the transaction RTW will have access to an additional circa $60 million of cash which it can deploy quickly into
its public share portfolio, share buybacks or royalty opportunities.

The merger will significantly increase the size of RTW’s assets to around $550 million which is expected to improve the secondary market liquidity of the shares while marginally reducing annual ongoing charges.

Numis said the acquisition is ‘materially’ positive for RTW with the combined shareholders set to benefit from RTW’s ‘in-depth resources’.

The deal is expected to complete in the first quarter of 2024.

WHAT SHOULD INVESTORS DO NOW?

The acquisition looks like a smart move to unlock value and increase the scale of the business which should attract greater institutional interest. The shares remain a buy. [MG]

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