Holdings that are poised for growth

Dear Investors

Given recent events I would like to update you on the performance and positioning of the fund. In February the fund was down 3.1% while in March the fund is down approximately 23% month to date. As an investor in the fund I share your concern.

22% of the fund is held in Australian dollar cash. We would note that the Australian dollar at 57 cents is at the low end of its 30-year trading range of 48cents in 2000 to $1.07 in 2011. As opportunities arise, we will deploy that capital.

46% of the fund is invested in healthcare stocks which have fallen along with the broader market. Smaller companies, where the company has significant exposure have suffered more than larger companies. It is clear that most companies will suffer some impact from Covid-19 related disruptions. The healthcare sector is not immune although it will be more resilient than others. Many of these companies are now trading at exceptionally low valuations.

Below I have provided a detailed look into some of the holdings in the portfolio and why we believe there is great potential for future upside from these holdings. [CLICK HERE]

Top Holdings (alphabetically)

Axogen Inc United States Health Care

Bavarian Nordic Denmark Health Care

Lumentum United States Information Technology

Photocure Norway Health Care

Telix Pharmaceuticals Ltd Australia Health Care

The largest investment in the fund is Norwegian bladder cancer diagnostic producer Photocure. The Norwegian Krone has weakened even further than the Australian dollar over the last month due to the falling oil price. In US dollar terms the share price declined from $12.5 to $4.7 over one month. In a market release issued last week the company highlighted that their operations have not so far been greatly impacted despite the pressure on the US hospital system. Critical bladder cancer surgical procedures are going ahead.

Australian prostate cancer diagnostic producer Telix has fallen from $1.65 in mid-February to approximately 80cents. The company is well funded with approximately $40mln of cash which is sufficient to see it through to the end of 2021 by which time the company expects to have FDA approval for its main product Illumet which is currently being sold on a humanitarian basis in 100 centres around the world. Illumet sells for USD300 per dose but, on approval, this should rise to USD4000. We believe the company can achieve revenue of more than AUD100mln within 18months of launch which is attractive relative to the AUD200mln market value of the company.

Danish Vaccine producer Bavarian Nordic has fallen from DKK207 in Feb to DKK110 currently as it is conducting a fully underwritten rights offering to acquire two vaccines for rabies and tick-born encephalitis from GSK. The company has a very large order backlog of USD500mln from the US government for its smallpox vaccine which will generate substantial profits over the coming year. Further orders for its Ebola vaccine are also expected in 2020 as partner JNJ is likely to win approval for the product soon in Europe. In addition, the company has an interesting pipeline of other vaccines. In discussions with management last week the company highlighted a high level of interest from governments in partnering in vaccine programmes with the company. It expects to finish building a new facility by the end of this year that will be capable of producing 40million doses of vaccines annually which will be used either for its own products or on a contract manufacturing basis.

Another interesting holding is Sangamo Therapeutics down from $8.50 to $6.00. This company has a platform technology for editing genes. It has now signed three partnerships with global pharmaceutical companies to develop the technology for illnesses including Haemophilia A, now in Phase 3 with partner Pfizer; in cancer with partner Gilead; and as of last month, Alzheimer’s and Parkinson’s with partner Biogen. The company has a market valuation of USD$700mln. Following Biogen’s investment this month the company will have $600mln of cash in the bank and is likely to earn another $300mln over the next two to three years as milestone payments on Pfizer’s Haemophilia trial. This will fund the company’s research activities for the next four or five years by which time one of its many drugs will hopefully be selling on the market. In addition, the company also has the ability to earn billions of dollars on milestone payments from Gilead and Biogen even before any of their products are brought to market. We believe the company offers excellent long-term potential.

Market volatility is likely to remain elevated, especially as the number of new cases of Covid-19 continues to rise. Quarantine measures which were effective in China should soon start to show positive results in some European countries such as Italy. The US is several weeks behind in introducing such measures so the news flow there will no doubt remain poor for some time. Monetary and fiscal stimulus packages are being constantly revised up around the world which should help stabilise markets. Several drugs are being studied in large trials around the world with results expected in April which could also be beneficial for markets. A large number of companies are working on vaccines but it seems unlikely they will be ready for commercial deployment within 12 months.