Woodford effect lingers at Malin despite shares sell-off

For long-suffering investors in Irish life-sciences investment company Malin, having once-revered UK stock picker Neil Woodford in their corner helped to keep the faith. Until he became the problem.

The unlikely fund manager – more comfortable in sweatshirts and jeans than Savile Row suits, who landed in the business in the late 1980s via an agriculture economics degree after a failed aptitude test put paid to his dream of flying fighter jets – was instrumental in Malin getting its €330 million initial public offering (IPO) away early 2015.

A move by Woodford's Oxford-based Woodford Investment Management (WIM) to take a 28 per cent stake as part of the flotation encouraged others, including the State's Ireland Strategic Investment Fund, which stumped up €50 million for a 14 per cent interest.

Woodford wasn’t the only star who wooed investors. Malin, after all, was set up by Elan’s former chief executive Kelly Martin and its one-time general counsel John Given, who were basking in the glory of executing the Irish pharma group’s sale to US peer Perrigo for $8.6 billion (€7.9 billion) in late 2013.

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But backing from the 'Oracle from Oxford', as Woodford was known, in a nod was key. And little wonder.

The fund manager, whom the BBC described in an online piece in 2015 as “the man who can’t stop making money”, had launched WIM in 2014, having built up a £25 billion (€28 billion) portfolio working for Invesco Perpetual over the previous 26 years on the back of his reputation as a contrarian investor with a long-term view that steered clear of tech stocks before the 2000 dotcom crash and banking stocks before the financial crisis.

At Malin, all was going well for the first 15 months after the IPO, as shareholders enjoyed a 50 per cent jump in the share price. But then the wheels began to come off, as the company lost its initial focus to invest in a ragbag of start-ups in various fields of the life sciences, its head office costs soared and Given, who was said to be concerned about the company’s deviation from strategy, quit suddenly as chairman at the end of 2016.

Strategic review

But smaller investors took comfort as Woodford began to flex his muscles behind the scenes. This led to a boardroom shake-up in the middle of last year. A strategic review completed last September has seen Malin refocus of its disparate portfolio around four priority assets. They include stakes in Poseida Therapeutics, which is developing a treatment for bone marrow cancer; Immunocore, whose key pipeline product is an eye cancer treatment; Kymab, which is working on a treatment of eczema; and Viamet, which focuses on antifungal products.

Woodford showed his displeasure publicly, too. He used WIM’s 23 per cent stake to vote last year against Malin’s high 2017 executive pay levels and hyper-generous severance arrangements that allowed departing executive directors to claim two years’ salary and twice their prior-year bonuses. Martin had left the company the previous October, though a negotiated settlement saw him receive a €3.2 million exit payment, compared with the €6.5 million to which he was entitled.

The nine months following the review were the most stable in Malin’s time on the market, as the stock hovered close to the €5 level.

Then, in early June, WIM moved to block investors from taking money out of its flagship equity income fund as a steady outflow of funds over the previous 23 months, amid poor investment performance, threatened to turn into a stampede.

The fund, which had pushed increasingly into small-cap healthcare investments such as Malin and hefty positions in illiquid, unquoted companies, has since been selling down investments at pace in an effort to have its suspension lifted in December.

Shares in Malin lost as much as 60 per cent of their value in less than three months as investors fretted about the future of Woodford’s stake.

Stock surge

News this week that Woodford has sold most of his stake in Malin has prompted the stock to surge as much as 44 per cent to €4.18 – showing just how much the stock overhang had weighed on sentiment. The investment banking arms of UBS and Citigroup emerged as the main buyers.

But Woodford continues to linger. WIM continues to hold a 3.5 per cent stake in Malin and it remains co-invested in Viamet, Immunocore and Kymab.

The consensus share price target for Malin among analysts points to some 70 per cent upside from here, as the company eyes important milestones in the next year for some of the main companies in which it is invested.

Some are getting pretty excited about Poseida as clinical trial data on its key pipeline therapy is set to be released in the middle of next year, which may pave the way for a sale or flotation.

Weary investors, however, would probably prefer to be shown the money first.