Its NAV had risen to £251.0mln by the end of June 2020 from £202.1mln at the end of 2019, while NAV per share jumped 24% to 185p from 149p, the company revealed in its interim results.
The group's gross portfolio value climbed to £203.4mln from £149.2mln at the end of 2019, driven by good clinical and financial progress by its portfolio companies.
Successful financing rounds that resulted in valuation increases were completed by Imara (+46%), VelosBio (+95%) and Quench Bio (+40%). In addition, the share prices of portfolio companies listed on the Nasdaq generally performed well during the period, the company noted.
Profit before tax – generally regarded as less important for an investment company than NAV – turned positive at £48.96mln, compared to a half-year loss in 2019 of £44.81mln, thanks to changes in the fair value of Arix’s investments.
The venture capital company said it had significantly reduced net operating costs by more than 35% during the first half of the year, with the annual run rate of operating costs set to reduce to about £5mln by the end of 2021, compared to a run rate of £8.0mln in 2019.
To put that into perspective, the company noted that the projected run rate is less than 2% of NAV, whereas in 2019 the figure was as high as 4.0%.
Several important clinical studies awaited
The company said the remainder of the year should see data from several important clinical studies involving its portfolio companies, notably Phase 1/2 data from Autolus, Harpoon and VelosBio, and Phase 2 data from Imara.
Additionally, Arix expects Atox Bio to submit a new drug application to the US Food and Drug Administration for Reltecimod in the treatment of the so-called flesh-eating disease, Necrotizing Soft Tissue Infection.
Arix also expects some of its portfolio companies to initiate further clinical studies by the end of the year, including Autolus, Aura, and Harpoon.
Potential for M&A, strategic partnerships
In addition to clinical milestones, there is alsothe potential for mergers & acquisitions, strategic partnerships and other financing events across the portfolio that could significantly increase the value of Arix’s companies, said Naseem Amin, the company’s executive chairman.
"We have refocused and streamlined the business, significantly reducing costs in order to maximise returns for our shareholders. Over the period our portfolio has continued to make strong progress, with a number of companies reaching important clinical milestones and completing additional financing rounds at higher valuations.
“The COVID-19 pandemic has presented an unprecedented challenge to the healthcare sector and economies worldwide. During this time, we have been working closely with our portfolio companies to help support them through this disruption and minimise any impact to ongoing clinical trials and scientific research. We have been fortunate in seeing minimal delays to clinical trials across the portfolio, in part due to the acute setting that many of these companies operate in. We syndicate all our deals with top tier biotech venture capital firms, and as such our portfolio companies are well-financed and well-positioned to navigate through any potential delays as a result of the pandemic,” Amin said in the statement.
“Whilst the development of important new medicines always carries risk, over the next three years we expect to see at least two additional IPOs across the portfolio and at least two exits. We are targeting an annual IRR [internal rate of return] of 15% to 25%, generating a NAV of up to £500mln by 2023. Through strong execution of our strategy we expect to generate significant returns for our investors over the medium to long term, through capital growth and the potential for distributions where returns exceed the capital needed for reinvestment,” he added.
Arix's shares were 17% higher to 92.50p in morning trading on Tuesday.
In a note to clients commenting on the results, analysts at US investment bank Jefferies International repeated their 'buy' rating and 155p price target on Arix shares.
They said: "Expectations of at least two IPOs plus exits and a target FY23E NAV of £500m demonstrate Arix's determination and confidence - all read well and should highlight the attractive Buy opportunity amid a 51% discount."
-- Adds broker comment, updates share price --