Top City investor Neil Woodford, who manages £25bn of investors’ money through his Edinburgh Investment Trust, and Invesco Perpetual Income and High funds, has emerged as the surprising hero of British biotech.
Big pharma
Woodford is best known for his megacap pharmaceuticals bets. In fact, FTSE 100 giants GlaxoSmithKline (LSE: GSK) (NYSE: GSK.US) and AstraZeneca (LSE: AZN) (NYSE: AZN.US) are the top two holdings in his funds.
Both companies are transitioning through a period of patent expiries, but analysts expect them to crank back up their cash generation in due course. Glaxo is forecast to return to its past peak of cash flow as soon as next year.
However, not everyone shares Woodford’s faith. As such, Glaxo and Astra currently offer dividend yields well above the 3.3% market average. Glaxo offers a prospective income of 5%, and Astra 5.7%.
Little pharma
Woodford’s big pharma bets on big yields make sense for the equity income mandate of his funds. Yet on top of the £4.4bn he has invested in Astra and Glaxo, he has £5.6bn invested across another two dozen British healthcare companies.
Some of these companies are a decent size, but many are small biotech firms that aren’t even making a profit, let alone paying a dividend. I’m talking about companies such as Oxford Pharmascience, which had a turnover of less than £0.5m last year, Tissue Regenix, which made a £4m pre-tax loss, and e-Therapeutics, which is forecast to make a loss of over £8m this year.
In a sector that has seen a drastic reduction in funding since the financial crisis, Woodford has become a veritable patron saint. He is the largest shareholder in most of these small firms, giving him no easy exit other than through a takeover by a bigger company.
Imperial Innovations
Woodford has seen some spectacular successes and the odd spectacular flop from his biotech bets, suggesting that trying to cherry-pick two or three such companies could be a dangerous game for small investors.
However, one of Woodford’s holdings, Imperial Innovations (LSE: IVO), represents a one-stop shop for exposure to a broad spread of exciting biotech firms. Valued at £420m, Imperial Innovations invests in early-stage healthcare and technology businesses that are commercialising intellectual property coming out of the UK’s four leading universities.
If, like Woodford, you’re interested in backing British biotech, Imperial Innovations is a company you may want to take a closer look at.