The Welsh Government is facing the prospect of having to write-off a £10m equity investment it made into a cancer treating healthcare group which is seeking to put itself into liquidation.
Rutherford Health (formerly known as Proton Partners International) said it will make an application later this week to appoint an official receiver - an officer of the Insolvency Service - as liquidator.
Its first private centre, and the first in the UK to use proton beam technology to treat cancer, opened in Newport in South Wales in 2016. Having invested more than £240m it also has cancer and diagnostic centres in Somerset, Northumberland, the Thames Valley and Liverpool.
Rutherford Group, which was seeking to raise new finance to secure its long-term future, said the pandemic had significantly reduced patient numbers. In a move to boost patient flow it had offering the NHS a not-for-profit UK-wide contract, in addition to existing local contracts. However, despite a good working relationship with the NHS in Wales, this was not taken up.
A process of informing patients is under way and the small number of locally commissioned NHS patients are being returned to their local NHS Trust to finish their treatment.
Rutherford has a workforce of around 280, with around 45 at its Newport centre.
The Welsh Government had invested £10m - as part of a £100m fundraising round - in the business back in 2015 in what was the biggest single investment from its now fully invested £50m Wales Life Sciences Investment Fund (WLSIF).
Overseen by its wholly-owned investment bank the Development Bank of Wales (then known as Finance Wales), the discretionary management of the WLSIF was outsourced to fund manager Arthurian Life Sciences, chaired by Port Talbot-born life sciences entrepreneur and investor Sir Chris Evans. Management of the fund was subsequently acquired by Arix Bioscience - with no role for Sir Chris.
Confirming that the WLSIF had invested £10m into Rutherford a spokesman for the Development Bank of Wales, said: “The Wales Life Sciences Fund is managed by Arix Capital Management - formerly Arthurian Life Sciences – via a discretionary fund management contract.
"The Development Bank of Wales acts as the holding fund for the investment into WLSIF on behalf of the Welsh Government. The performance of individual assets in the WLSIF is a matter for Arix as the fund manager. The fund will be reflected at fair value in the Development Bank of Wales accounts for 2021/22 which will be published later this year, once audited.”
In a statement Arix said: "Arix Bioscience notes the statement from Rutherford regarding its application to be placed into liquidation. The Wales Life Sciences Investment Fund made an investment into Rutherford, formerly Proton Partners, before management of WLSIF was transferred to Arix. No further funds were invested in Rutherford during Arix’s management of WLSIF.
"Since the investment from WLSIF was made, Rutherford has faced numerous challenges, including an ultimately unsustainable funding need. Arix Capital Management, as the manager of WLSIF, is actively engaging with Rutherford’s management at this time."
The fund manager said it is engaging with the company to establish what return may come to the WLSIF.
The WLSIF’s equity stake in Rutherford is just over 5%. The development bank wouldn’t comment on what amount, if anything, it could get back of its £10m investment through the liquidation process. However, the biggest equity holder , Schroder UK Public Private Trust plc, is writing-off its £22.8m valued stake in the business due to the uncertainty of any returns from a liquidation.
Schroder UK Public Private Trust took over investments formerly held by disgraced investor Neil Woodford. While recognising a number of factors contributing to its trading difficulties, it said Rutherford's over ambitious initial development plans was at the root of its demise.
In a statement portfolio fund managers at Schroder UK Public Private Trust, Tim Creed and Roger Doig, said: “The Schroders team has spent a significant amount of time working with Rutherford to improve its financial situation and operational performance, but regrettably this sad announcement could not be avoided.
“While there were a number of factors contributing to Rutherford’s failure, the flawed expansion strategy pursued by the company in the initial development phase from 2015 to 2019 laid the ground for an ultimately unsustainable funding need. Over £240m was spent in developing four oncology therapy centres with a significant amount of the capital expenditure spent on the site requirements and the equipment required to offer proton beam therapy.
" While there is rising evidence that proton therapy is a better clinical option for many patients, it remains a service which still has very limited reimbursement in the UK. Building and operating four centres led to a high and unsustainable cash burn which ultimately resulted in this announcement as Rutherford has been unable to attract sufficient new funding to continue trading."
Sean Sullivan, chief restructuring officer and interim chief executive of Rutherford said: “Rutherford Health has been committed to providing high quality care, and the past couple of years has proven to be an extremely challenging time for the business.
“Covid has been particularly damaging for us as fewer patients were presenting with side effects during the lockdowns, and as a result cancer diagnosis has been delayed and sadly, in many cases, missed. This has meant fewer cancer patients have been presenting to our centres.
“Added to that, the business had grown rapidly over recent years. It was a very expensive business to set up, with over £240m of capital expenditure to build and develop the cancer centres across the country, however, unfortunately patient numbers have not matched that.
“We made several offers to the NHS, and whilst we secured some contracts they were insufficient and we have not been able to secure mechanisms to expedite process. This added to severe financial pressures on the business and we had no option other than to place the group into liquidation. We are very proud to have been able to serve the community and cancer patients across the country.”
The WLSIF did make a three times return on its investment in Merthyr drug trial venture, Simbec-Orion, following its private equity financed management buyout in 2019. While the exact amount was not disclosed, it had previously invested several million pounds into the firm, before the profitable exit.
