Commentary

The fund rose 6.3% in the month of December.

The pleasing performance was reported by one of the fund’s major holdings, Norwegian bladder cancer diagnostic producer Photocure which rose 34% after a broker initiated coverage on the stock. We expect the company to have an excellent year after buying back the distribution rights for its European business and also due to the tailwind from Covid vaccines which should make patients feel safer undergoing cancer procedures.

We added a small Australian cancer immunotherapy producer Immutep which rose 54% after reporting strong data from a trial studying its lead antibody Eftilagimod in head and neck cancer. The antibody is also being studied in other cancers in including the largest indication, lung cancer giving it a market potential of many billions of dollars relative to the current AUD290mln market cap (AUD180mln when we invested). It is well funded with AUD62mln of cash. Immutep is collaborating with the largest pharmaceutical companies in the world including Merck and is highly likely to be taken over should it continue to report strong clinical data over the next one to two years.

US heart monitoring company Biotelemetery rose 27% after a takeover bid was announced by Dutch healthcare giant Philips.

Australian cancer radiotherapy company Telix rose 6% after reporting a busy month of news flow, the most important of which was the US FDA announcing the formal acceptance of its submission for its most advanced product for prostate cancer imaging/diagnosis which has been given a potential approval date of the 30th of May. This will immediately give the company substantial revenue as the product is already being distributed and sold at many hospitals in the USA but at a low price of about USD300 per dose which should rise to about USD4000 per dose on approval. The company also reported early-stage positive data from its ongoing Phase I/II brain cancer trial from 8 patients. There are few treatment options for brain cancer so positive data in this area will likely rapid regulatory approval.

US optical equipment company Ciena rose 13% after reporting results which we were ahead of low expectations. We continue to be excited about this company in 2021 as it stands to gain substantial market share as Huawei is removed from telecom networks around the world but particularly in Europe and India.

Australian molecular diagnostic company Genetic Signatures rose 13% after winning its first contract in the US for its Covid test as well as being supported by the Australian Covid outbreak in December. The company has a unique technology platform that allows many different pathogens to be screened in one test whether it be combined tests for respiratory, gastric, or sexually transmitted diseases. There are many companies that can produce stand-alone Covid test but far fewer who can combine Covid, influenza, and colds (rhinoviruses) into one respiratory test. We believe these tests will be in great demand going forward as healthcare officials need to understand what illness symptomatic people have despite. Vaccines will greatly reduce the incidence of Covid but colds and flu are here to stay.

On the negative side of the ledger, Japan’s leading online retailer Rakuten fell 18% after leading Japanese mobile operator NTT Docomo slashed the price of its cheapest mobile phone plan. Rakuten is building Japan’s 4th mobile network to create an ecosystem for online payments leveraging its strong user loyalty scheme. The mobile network itself is unlikely to be a great profit contributor but could be value accretive to the company overall. The market is obsessed with the outlook for the mobile business and is greatly undervaluing its online retail business which is currently trading on about 0.3x the annual value of merchandise traded on its network compared to 2-3x for most other global online retailers.

US health insurer Cigna fell on little news as did US discount retailer Dollar Tree.