A third vaccine booster shot offers substantial benefits

The fund fell 3.6% percent in the month of July in a month relatively light in news flow. We remain optimistic about the portfolio despite the near-term headwinds being created by the Delta variant.

Top Holdings (alphabetically)

Howard Hughes

United States

Real Estate

Photocure

Norway

Health Care

Rakuten Inc

Japan

Consumer Discretionary

Renesas Electronics Corp

Japan

Information Technology

Telix Pharmaceuticals Ltd

Australia

Health Care

The fund fell 3.6% percent in the month of July in a month relatively light in news flow. We remain optimistic about the portfolio despite the near-term headwinds being created by the Delta variant.

On the positive side Australian medical scanning software company 4D Medical rose 25% after holding an analyst update which highlighted numerous clinical trials which are underway for its product in both Australia and the USA. The company’s technology which produces high-quality 3D images of air movements in the lungs has the potential to replace many X-rays and CT scans in the future.  Although their product has already been approved by the FDA in the USA further clinical studies are required to show the benefits of the product in various lung illnesses.  The software is priced on a per scan basis of approximately USD170 per scan in the US market but likely lower in other regions.  There are 377million global respiratory scans done per annum with estimated global market size of USD31bn.  The initial target market is the USA where the market size is approximately $14bn.   Another product looking at blood flow around the lungs and heart is also in the pipeline.  The company has a market value of $435mln with $80mln of cash which should see it through to breakeven. Revenue in FY22 will be modest ($5-$10mln) but should grow strong in later years. We are encouraged to see the high multiples being ascribed to other healthcare software companies such as Pro Medicus which is trading on 150x PE and 70x revenue.

Long-term holding Merck KGA rose 9% on positive sentiment around its biological drug equipment and consumables business which is supplying Covid vaccines producers as well as many other biological drugs programs including Biogen’s new Alzheimer’s treatment.

US test and measurement company Keysight rose 9% and Israeli discount retailer Max Group rose 11% on little news.

Australian Covid test producer Genetic Signatures which is lead the leading producer of Covid tests in the country rose 14% as covid testing volumes soar following outbreaks around the nation.

On the negative side, Covid Vaccine producer Novavax fell 14% in July on little news although in the first two weeks of August it has more than recovered, rising 25%.

The company recently reported data from a study showing a third booster shot of its Covid vaccine increased antibody levels fourfold over the second shot. In addition, a third shot greatly enhanced the vaccine’s ability to defeat all covid variants of concern in serum studies. Moderna and Pfizer have also shown similar data which is likely to mean that new variant vaccines are not required at this point which will save time and resources in running further studies. The US is currently planning to offer a third booster dose eight months after the second dose with many other countries likely to follow. There is still debate over whether waning antibody levels will lead to a complete loss of protection as T-cells which are much more difficult to measure are also likely to offer a degree of protection. We are hopeful that booster doses will allow many covid restrictions to be eased in time although it is now very unlikely we will ever eradicate the disease.

Novavax has recently filed for approval in India, Indonesia, and the Philippines with the UK, Canada, and Australia expected in September and finally the US in October which should lead to positive news flow over the coming months.

US-French fry producer Lamb Weston fell 15% after reporting results that were impacted by covid related costs. We like the company as the French Fry market is highly consolidated with the largest three companies having 90% market share in the US.  Lamb Weston is the largest with 41% market share and has strong pricing power which will enable it to pass through any costs increases and allow it to participate in the reopening of many restaurants and events around the world.

US utility-scale solar battery and related software provider STEM and Australian radiotherapy producer Telix fell on little news although it has risen strongly in August. More on that next month.