Downing Healthcare EIS Knowledge Intensive Fund

Offer closed

As at 5 April 2022, the Downing Healthcare EIS Knowledge Intensive Fund closed for applications. 

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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. In 2021,  it launched its first specialist Healthcare EIS Knowledge Intensive fund to accommodate the increasing number of opportunities arising within the UK healthcare and life science sectors.

The fund is overseen by Downing’s dedicated healthcare team, responsible for the existing healthcare portfolio. The investment strategy is focused on companies addressing four key themes: prevention, point of care, personalisation and “future pharma”.

Since launch, the Downing Healthcare EIS Knowledge Intensive Fund has invested £2.1 million into seven companies, most of which Downing also supports through its £17.5 million Healthcare share class within Downing FOUR VCT.

The ‘Knowledge Intensive (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 previous tax year. 

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
  • Minimum investment £15,000 – you can apply online

The manager

The fund is managed by Downing Ventures, a division of Downing LLP that invests in early and growth-stage businesses.

Downing LLP, whose origins date back to 1986, is an experienced investment house, with around £1.5 billion in funds under management and £150 million of EIS assets (November 2021). 

The Downing Ventures 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 are responsible for the healthcare and life sciences investments within the Downing VCT and EIS portfolios. 

Investment strategy

The Downing Healthcare EIS Knowledge Intensive Fund targets companies it believes could address global issues. In particular, it will seek to invest in companies that contribute to UN Sustainable Development Goal 3 on Good Health and Wellbeing. That means companies that look to “Ensure healthy lives and promote wellbeing for all at all ages”. 

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

Increased digitalisation is expected to support data-led decision-making. This could allow practitioners to make more informed choices, improving patient outcomes and the allocation of primary care resources.

Point of care

Healthcare services currently rely on specialised machinery and personnel for diagnostics and treatments. However, advances in medical equipment and software appear to be leading to a shift towards more localised diagnostics and treatment, allowing more immediate point of care access for patients.

Personalisation

New technologies mean healthcare is likely to become more personalised, with treatments tailored to an individual. This could range from improved disease risk assessments to adjustment in doses and treatments to maximise efficacy and safety.

Future pharma

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

Downing will source deals using its global network of venture partners and sector experts. Within the UK it will focus particularly on 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.

A KI fund must invest 80% of its portfolio in “knowledge-intensive” companies. These are businesses that are carrying out research, development, or innovation at the time of investment.

Provided certain 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, whereas a conventional EIS fund will allow investors to claim tax relief based on the tax year in which each individual investment is made or carry back to the previous tax year.

Investors in KI funds can expect 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 four to eight years – not guaranteed.

Exit strategy

The fund will look for exit opportunities approximately 4-8 years from the first investment. Downing expects the majority of investments to have a lifetime closer to eight years.

There are several 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 £32 million into its healthcare portfolio of 18 companies (as at January 2022). Investors in the Downing Healthcare EIS Knowledge Intensive Fund could expect exposure to at least five companies, not guaranteed.

Below are examples from previous iterations of the fund. They are outlined to give examples of the types of companies an investor might expect but may not form part of a new investor’s portfolio. 

Arecor – Downing FOUR VCTArecor Therapeutics

Spun out of Unilever in 2007, Arecor Therapeutics is a global biopharmaceutical company. It targets improvements in patient care by enhancing existing therapeutic products. Through its proprietary technology platform, Arestat, it develops its own products, as well as partnering with other pharmaceutical and biotechnology companies to enhance reformulations of existing products.

The company is currently focused on two areas: diabetes and specialist hospital use. The diabetes division is developing an ultra-rapid acting insulin formulation that clinical studies show to be superior to existing products for patients with Type 1 and Type 2 diabetes who self-administer insulin. The business aims to enter into licensing agreements with pharmaceutical and biotechnology companies, potentially generating significant milestone payments and royalties, not guaranteed. The specialist hospital use division looks to partner with leading pharmaceutical companies to enhance existing product lines. An example is Arecor’s partnership with Hikma, the £4.4 billion London listed pharmaceuticals business. 

Downing first invested £1.1 million in the company via the Healthcare share class of the Downing FOUR VCT in September 2018, while the Downing Healthcare EIS Knowledge Intensive Fund invested in June 2021 as part of the company’s IPO on AIM.

Close Loop Medicine – Downing Healthcare EIS KI-min.jpgClosed Loop Medicine

Closed Loop Medicine was founded in 2017 and aims to combine traditional medicines with digital treatments in a single prescription product, improving outcomes for patients with chronic diseases such as insomnia and hypertension. 

The company’s technology captures real-time data, helping healthcare providers optimise therapies for each patient. The combination of drugs with therapeutic interventions empowers patients to manage more of their disease themselves – avoiding repeat hospital visits and face-to-face medical time.

Closed Loop Medicines achieved some significant milestones in 2021, publishing positive clinical trial data for its insomnia product and receiving regulatory approval for the software which supports treatments. 

Downing invested in the business in October 2021 as part of a £13 million funding round. 

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. Equally, an early exit could affect EIS tax relief.

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 3%
Wealth Club initial saving
Net initial charge through Wealth Club 3%
Annual management charge 2.5%
Administration charge
Performance fee 20%
Investee company charges
Initial charge 3%
Annual charge
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

This offer is now closed.

Our view

Although a relatively new fund, the Downing Healthcare EIS Knowledge Intensive Fund should benefit from Downing’s wider 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 several years. The Downing Healthcare EIS Knowledge Intensive 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 co-invest across its funds could provide extra ‘firepower’ to the investment team, allowing it to secure larger stakes or provide additional funding for investee companies – not guaranteed. 

The fund could be an attractive option for experienced 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.

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
Fund
Sector
Healthcare
Target return
-
Funds raised / sought
-
Minimum investment
-
Deadline
CLOSED
Last updated: 16 March 2022

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