Increased market focus on vaccine producers

Top Holdings (alphabetically)

Bavarian Nordic Denmark Health Care

Lumentum United States Information Technology

Photocure Norway Health Care

Rakuten Inc Japan Consumer Discretionary

Uber Technologies Inc United States Industrials

One of the largest holdings in the Fund is Danish vaccine producer Bavarian Nordic, which has pleasingly risen about 40% over the last 6 weeks.

The recent coverage of Coronavirus has really focused the market’s attention on vaccine producers around the world.

Whilst Bavarian Nordic doesn’t produce a Coronavirus vaccine, it is actually developing a vaccine for a disease far deadlier, and more infectious, than Coronavirus. R.S.V. or Rhino syncytial virus infects about 33 million people around the world every year, leading to 2.3 million hospitalization, and 240,000 deaths. Bavarian Nordic has successfully shown very positive data in a phase 2 study for this disease and will start a large phase 3 clinical study next year which will take 1 – 2 years to enrol. If this is successful, it will absolutely transform the fortunes of the company.

We were originally attracted to this business about 18 months ago, due to the company’s cash rich balance sheet. At the time, it had a market value of about $700 million, and $300 million of cash in the bank. It had 1 approved product for Smallpox (of all things!).

Smallpox was eradicated from the world in 1980 after a global immunization program. Unfortunately, about 2 years ago, the University of Alabama rather foolishly published a research paper showing how to simply recreate the smallpox virus. The US government is now trying to build up a stockpile of Smallpox vaccine which will create a stream of revenue for Bavarian Nordic for many years to come.

In addition to the Smallpox virus vaccine, Bavarian Nordic has a collaboration with Johnson & Johnson to develop several different vaccines which will potentially see Johnson & Johnson pay Bavarian Nordic about a billion dollars to do this.

So far, they’ve developed an Ebola vaccine which has been deployed in Africa already, and they’re working on an HIV vaccine, and one for Hepatitis B (which is still incurable unlike Hepatitis C).

Bavarian Nordic also has a portfolio of vaccines to treat cancer, which is a new and promising area of immunotherapy, and we expect quite a lot of clinical data from that study over the coming 12 months.

The final reason that Bavarian Nordic has been performing very nicely is that in December last year it acquired 2 vaccines from GlaxoSmithKline for about $300 million. Specifically, a vaccine for rabies (which is still a very large problem in some parts of Europe), and a vaccine for tick-borne encephalitis.

We think the 3 main vaccines that are approved and selling (rabies, tick-borne encephalitis and smallpox), can generate $300-$400 million dollars of revenue each year, which is still substantial compared to the company’s $1.1 billion market value. Over the coming 12 months we think there’ll be a lot of news flow and a great deal of opportunity to increase the value of the company.