Downing Healthcare EIS Knowledge Intensive Fund

Offer closed (1 April 2021)

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This is the latest EIS fund from Downing LLP.

Downing has been investing in healthcare and life sciences companies since 2014, with the majority of its investments split across its four VCTs and its Ventures EIS fund. It has now launched its first specialist EIS fund to accommodate the increasing number of opportunities arising within the UK’s healthcare and life science sectors.

The fund will be overseen by Downing’s dedicated healthcare team – who is responsible for the existing healthcare portfolio. The investment strategy is expected to remain the same and will revolve around companies addressing four key themes; prevention, point of care, personalisation and “future pharma”.

To date, Downing has invested £25 million into a portfolio of 17 healthcare and life sciences companies, of these, 14 were made under the current team.

The ‘KI approved fund’ structure may offer tax-planning advantages: investors may be able to obtain income tax relief earlier and also have the option to carry back to the 2019/20 tax year (more details below).

Important: The information on this website is for experienced investors. It is not advice nor a research or personal recommendation to invest. If you’re unsure, please seek advice. Investments are for the long term. They are high risk and illiquid and can fall as well as rise in value, so you could get back less than you invest.


Highlights

  • Knowledge Intensive Approved EIS Fund
  • Minimum portfolio of at least five companies expected
  • Focus on core themes within the healthcare and life sciences sector
  • Target return of 3x over a holding period of 4–8 years, not guaranteed
  • Fund closes: 1 April 2021
  • Minimum investment £5,000

The manager

The EIS is managed by Downing LLP, whose origins date back to 1986. Downing is an experienced investment house, with around £1.4 billion in funds under management. It has four VCTs and two current EIS funds, with cumulative assets of £297 million (as at March 2021).

Downing Ventures is a division of Downing LLP that invests in early and growth-stage businesses. The team is broadly split into two groups, technology and healthcare. The latter will be responsible for sourcing and selecting investments for this fund and for managing the wider healthcare portfolio.

The healthcare team is led by Dr William Brooks who has over 30 years’ experience, including 18 years working in Venture Capital across Europe and the US. Prior to joining Downing, Dr Brooks spent 10 years at Quest for Growth, a pan-European fund investing across public and private equities. He is supported by Dr Koujiro Tambara and Matt Pierce. Dr Tambara holds a PhD in Organic Chemistry from the University of Cambridge and Mr Pierce is a chartered accountant with prior sector experience at Deloitte and Berenberg. The team will also have access to the wider resources of Downing Ventures, the Ventures Investment Committee, and Downing’s network of Venture Partners.

All three members of the healthcare team joined Downing Ventures in 2018 and have been responsible for the mandate since. In total, they manage a portfolio of 17 companies, of which 14 were made by the current team. 

Investment strategy

The Downing Healthcare EIS KI Fund targets companies it believes could address global issues, particularly those accelerated by the Covid-19 pandemic.

Given the broad nature of the healthcare and life science sectors, the investment team has highlighted four key themes likely to drive its investment decisions in the coming years: 

Prevention

The advancement of digitalisation is expected to support data-led decision-making. This could potentially allow practitioners to make more informed choices, reducing the need for intervention and improving patient outcomes and the allocation of primary care resources.

Point of Care

Current healthcare infrastructure relies on specialised machinery and personnel for diagnostics and treatments. However, advancements in medical equipment and software appear to be leading to a shift towards more localised diagnostics and treatment, potentially allowing more immediate point of care access for patients.

Personalisation

As technologies continue to develop, healthcare is likely to become more personalised with therapeutics and treatments tailored to an individual. This could range from improved disease risk assessments to adjustment in doses and treatment mechanisms to maximise efficacy and safety.

Future Pharma

To keep pace with novel drug therapies the healthcare industry must be able to facilitate new treatments. For this reason, the fund will consider investments which support the surrounding healthcare infrastructure and logistics, as well as more traditional therapeutic companies.

Downing will source deals using its global network of venture partners and sector experts. Within the UK, it will focus particularly on two important centres of research and innovation: the ‘Golden Triangle’ of Oxford, Cambridge, and London, and the ‘Silicon Gorge’ of Bristol and Bath.

Downing believes its network can also add value. Its Venture Partners are located in global hubs such as Israel and the US, potentially providing portfolio companies with opportunities to capitalise on new markets, secure additional fundraising, and identify potential exit options. Portfolio companies may also benefit from Downing’s ability to coinvest across its other VCT and EIS funds. It is expected Downing will coinvest to some extent in every deal.

Knowledge-intensive approved EIS funds: how do they work?

Knowledge-intensive (or KI) approved EIS funds received the final go-ahead from the Chancellor in March 2020. Now, funds focusing on investing in knowledge-intensive companies can apply for approval from HMRC. 

Provided some conditions are met, a KI approved EIS fund allows investors to set their income tax relief against liabilities in the same tax year the fund closes or to carry back to the previous year. 

Investors are expected to receive a single EIS5 certificate (as opposed to individual EIS3 certificates for each investee company, as is the case with non-approved funds). Certificates can be issued once the fund has invested 90% of its capital, which it is required to do within 24 months of the close. 

Please note: tax rules can change and benefits depend on circumstances. To maintain KI approved status, the fund needs to comply with requirements set out by HMRC. Should the fund fail to do so, it will impact investor tax relief. 

Target return

The fund aims to return 3x the invested amount over an investment period of four to eight years – not guaranteed.

Exit strategy

The fund will look for exit opportunities to exit approximately 4-8 years from the date the underlying investments are made. However, Downing expects the majority of investments to have a lifetime closer to eight years.

There are a number of ways the fund’s holdings could potentially be realised. These include sales to third parties, management buy-outs, or flotation on the AIM or Aquis (NEX) Exchanges. Please note, exit options and timeframes are not guaranteed.

Portfolio

Since 2014, Downing has deployed £25 million into its healthcare portfolio of 17 companies (as at 31 December 2020). Investors in the Downing Healthcare KI EIS Fund could expect exposure to at least five companies, not guaranteed.

Below are portfolio company examples from Downing’s existing healthcare portfolio. The Healthcare EIS KI Fund is expected to follow a similar investment mandate. Note, these are previous investee companies and may not form part of a new investor’s portfolio. They are outlined to give examples of the types of companies an investor might expect.

Congenica__Downing Healthcare EIS KI FundCongenica

Congenica was founded in 2014 by two researchers from the Wellcome Sanger Institute, a department of the University of Cambridge, and one of the foremost centres of genomics research and innovation in the world.

Congenica has developed a clinical genomics analytical platform, which enables the accurate, rapid and scalable clinical interpretation of complex genomic data. The platform can help clinicians and researchers diagnose rare diseases and develop prognoses and treatment options much faster. 

In 2018, Congenica was selected by Genomics England as the exclusive Clinical Decision Support Platform for research use for the UK NHS Genomic Medicine Service, the first national healthcare system in the world to offer whole genome sequencing as part of routine care. This contract could allow Genomics England to diagnose ‘rare diseases’ in days rather than the average seven years it currently takes in the west.

Downing Ventures initially invested £2.1 million in 2019. It then participated in a $50m series C investment round in November 2020, alongside investors Parkwalk, Legal & General and Tencent, the Chinese tech giant, to fund the further development of the company’s clinical genomic analysis software and data platform.

Touchlight Downing Healthcare EIS KI FundTouchlight

Touchlight is a DNA therapeutics company that has developed its own form of synthetic DNA vector, nicknamed “doggybone” DNA or dbDNA, for use in DNA manufacturing.

DNA supply is increasingly becoming a problem within the genetic medicine industry as more and more pharmaceutical companies rely on DNA and RNA to deliver novel therapeutics and vaccines. As an example, if a new mRNA product went to market today, it could use up to 50% of the world’s current DNA supply. The problem is only set to grow, with some vaccine manufacturers anticipating needing hundreds of kilograms of DNA in the future.

Traditional DNA manufacturing methods are inherently slow, expensive, and prone to batch failure or contamination. Conversely, Touchlight’s dbDNA is completely synthetic, allowing it to produce pure DNA on a global scale.

The company recently announced a funding round of £42 million led by Bridford Investments Limited. The investment will be used to triple its manufacturing facilities with the aim of increasing its DNA production to up to 1kg of DNA per month by the first quarter of 2022. In total, Downing has invested approximately £1.3 million into the company, with its first investment made in 2014.

Performance

Please note, as this is a new offering, the fund does not yet have a track record.

Risks

This, like all investments available through Wealth Club, is only for experienced investors happy to make their own investment decisions without advice.

EIS and SEIS investments are high-risk so should only form part of a balanced portfolio and you should not invest money you cannot afford to lose. They also tend to be illiquid and hard to sell and value. Before you invest, please carefully read the Risks and Commitments and the offer documents to ensure you fully understand the risks. 

Tax rules can change and benefits depend on circumstances.

This EIS fund invests in early-stage businesses which are more likely to fail than larger ones. So you should expect a number of failures in the portfolio, or even be prepared for all companies to fail.

Exits could take considerably longer than three years. 

Charges

A summary of the main charges and savings is shown below. Some of these will be payable by the investor, others by the investee companies. The investment may have additional charges and expenses: please see the provider documents, including the Key Information Document, for more details.

Investor charges
Full initial charge
Wealth Club initial saving
Net initial charge through Wealth Club
Annual management charge
Administration charge
Performance fee 20-30%
Investee company charges
Initial charge 6%
Annual charge 2.5%
All fees and charges are stated exclusive of VAT, which may be applicable in some cases. Any fees and charges payable by the investee companies or the underlying businesses do not directly come out of your investment. However, they will effectively reduce the returns generated by investee companies and therefore impact your investment.

More detail on the charges

Timing of the offer

The fund will close on 1 April 2021 (5pm - cleared funds). Since this is an approved KI EIS Fund, investor subscriptions should qualify for income tax relief within the 2020/21 tax year (not guaranteed). Capital gains tax deferral relief and inheritance tax relief are linked to the dates on which the fund invests in the underlying companies and not to the closing date. 

EIS5 certificates are expected to be issued once at least 90% of the capital has been deployed. Downing aims to deploy funds raised within 6 to 12 months from the closing date of the fund – not guaranteed.

Our view

This is the first dedicated healthcare EIS fund from Downing and while new, it should benefit from Downing’s experience in the sector.

The investment team has relevant industry expertise and has been managing a healthcare portfolio on behalf of Downing’s VCT and EIS mandates for a number of years. The Healthcare KI EIS fund appears a natural extension of the team’s existing responsibilities.

While the healthcare team is small, at just three members, it will have access to the wider resources of Downing Ventures and Downing’s network of Venture Partners. Furthermore, the ability of Downing to coinvest across its fund could provide extra ‘firepower’ to the investment team, allowing it to secure larger stakes or provide additional funding for investee companies. The fund could be an attractive option for investors seeking to invest in an EIS fund dedicated to investing in the healthcare and life science sectors, with the added tax-planning benefit of the KI approved structure and a low investment minimum. 

Wealth Club aims to make it easier for experienced investors to find information on – and apply for – tax-efficient investments. You should base your investment decision on the provider's documents and ensure you have read and fully understand them before investing. This review is a marketing communication. It is not advice or a personal or research recommendation to buy the investment mentioned. It does not satisfy legal requirements promoting investment research independence and is thus not subject to prohibitions on dealing ahead of its dissemination.

The details

Type
KI approved fund
Sector
Healthcare
Target return
-
Funds raised / sought
-
Minimum investment
-
Deadline
CLOSED
Last updated: 18 March 2021

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