September, 2023
This quarter, three themes dominated healthcare.
• The “higher for longer interest rates” theme pressured the biotech sector. The NASDAQ Biotechnology Index was down just under 3% over the September quarter and up nearly 5% for the year to end September. While the S&P Biotechnology Select Industry index was down nearly 12% for the quarter and down nearly 8% for the year.1
• Trends in obesity therapeutics forced a rethink on the valuations of medical device companies.
• Life science tool companies remain in a holding pattern given continued inventory adjustments at customers, and lower demand in China. The cell and gene therapy sector remains challenged.
EU pharma was mostly a bright spot but overall generalist investors continue to stay well clear of Healthcare unless it is the obesity champions Eli Lilly or Novo Nordisk which significantly contributed to the performance of the index (both up 15-20% in local currency for the quarter and between 30% and 50% year to date). No doubt the injectable glucagon-like peptide (GLPs2) agonists are firmly on the obesity therapeutic map, however these therapies are not able to cure every ailment and oral obesity therapies are also putting runs on the board. Structure Therapeutics – a holding in the Fund – exemplified this trend, reporting good Phase 1 data this quarter.
During the quarter we exited and trimmed a number of investments mostly due to slower or disappointing progress (e.g. Gilead, Alector, Bayer). We continued to trim positions that have done well (e.g. Telix and Quanterix) while adding to investments or initiating new positions that have made progress (e.g. Galapagos, and Bicycle Therapeutics).
We have increased our exposure to large companies including Johnson and Johnson and GSK who are rolling out new products. GSK has recently received approval for momelotinib, a drug that originated here in Australia. Momelotinib can be used in the treatment of intermediate or high-risk myelofibrosis (a rare bone marrow blood cancer).
Our investment in Exscientia has been a clear drag on performance. The company continues to make good pipeline progress but had been caught up in the “AI hype” last quarter which turned into neglect this quarter. On many measures Exscientia is undervalued compared to its peers in the biotech sector.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/PIHFqtr_0923.pdfJune, 2023
The Fund (C Class) returned 8.1% for the quarter.1
The macro overhang remains a distraction from an otherwise very interesting healthcare and biotech environment. Similarly, the pursuit of anything AI-related is also unhelpful, with stock moves not related to any real company progress.
Consolidations continue in the biotech space, while life science tool companies continue to move through the “COVID and biotech normalisation” phase. Many customers are working through their inventories and delaying purchases, while smaller biotech customers are tightening their purse strings significantly. The need for new manufacturing capacity is limited at this stage, given the investments that have happened in previous years, particularly in cell and gene therapy.
Medtech is all about improving utilisation, which is gradually happening, however, given concerns about a recession, uncertainty continues to be an overhang.
Prometheus Biosciences (+81% to exit point during the quarter), a company we have mentioned in our quarterly reports on a number of occasions, was a standout performer over the quarter. The stock rallied early in the quarter on news that Merck was the successful bidder for the company, paying US$11 billion, with the acquisition completed in June. Merck paid US$200 per share for the company, which represented a 75% premium to the previous day's closing price. We have held Prometheus in the Fund since its initial public off ering (IPO) in March 2021, and it has been a very strong contributor to the Fund’s performance over the last two years.2
Another key contributor to the Fund’s performance included Telix Pharmaceuticals (+63%), which had a great quarter with its prostate cancer imaging agent, Illuccix, posting solid sales, followed by an analyst’s day that highlighted the company’s solid commercial infrastructure in the US.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/PIHFqtr_0623.pdfMarch, 2023
The Fund (C Class) returned -2.6% for the quarter.1 The global healthcare sector had the worst start to the year in 30 years relative to the S&P 500 index (see Fig. 1).
The Platinum International Health Care Fund primarily invests in companies that develop new therapies, devices or diagnostic approaches. The Fund also focuses on companies that enable such innovations to take place, such as next-generation tools used by scientists. For the past 18 months or so, these subsectors of healthcare have been abandoned by generalist investors due to the changing interest rate environment. Many companies in this subsector are unprofitable and depend on external capital, which is now more diff icult to come by. In the past six months, we have witnessed a glimpse of a recovery, but the collapse of Silicon Valley Bank, which has been a crucial provider of funding to many start-ups in this space, has again put a dampener on the recovery. In all honesty, the biotech sector is currently priced as if it is going out of business.
A recent chart from Goldman Sachs highlights the fact that valuations of biotech companies are currently at rockbottom levels (see Fig. 2 on the following page). These levels have historically coincided with recessions and, most importantly, have marked key inflection points for the sector.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/pihfqtr_0323.pdfDecember, 2022
The Fund (C Class) returned 3.6% for the quarter.
The sentiment towards biotechs has changed ever so slightly in recent months: successful progress is rewarded, while failure results in sell-offs. Previously, positive news saw very muted and even declines in share prices. Many investors continue to hide out in managed care and pharmaceutical stocks, with Eli Lilly being the consensus favourite stock, despite its high valuation and increasing competition in the obesity treatment space. Within healthcare, biotech and emerging life science tool companies remain the most interesting sector, given the outstanding innovation potential and valuations.
Contrary to public opinion, the funding environment for these companies is healthy, and equity financings are being completed quickly, particularly when clinical data is successful. Prometheus Biosciences (+86% over the quarter), a holding in the Fund since its initial public off ering (IPO) in March 2021, was able to raise US$500 million following solid phase 2 data for its anti-TL1A antibody for inflammatory bowel diseases (IBD). Licensing deals continue unabated, with several of our holdings receiving non-dilutive cash from partners along with a share price uplift. Jazz Pharmaceuticals took out its option to develop Zymeworks’ zanidatamab (Her2 antibody for the treatment of metastatic breast cancer), paying US$325 million to Zymeworks (a holding in the Fund, +28%). GSK entered a significant collaboration with Fund holding Wave Life Sciences (+94%) to develop oligonucleotides to treat rare diseases. Wave will receive US$170 million (US$120 million in cash and US$50 million in equity). Sanofi expanded its partnership with French natural killer (NK) cell biotech Innate Pharma, giving them €25 million. Both companies are held in the Fund and rose 15% and 56%, respectively, over the quarter.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/pihfqtr_1222.pdfSeptember, 2022
The Fund (C Class) returned 5.5% for the quarter.
It was an eventful quarter, particularly for the biotech sector. Early on, we saw a gradual recovery in biotech stocks, but sentiment then changed as infl ation and rising interest rates once again became the dominant market narrative. Positive data for an antibody for Alzheimer’s disease (AD) shifted the focus late in the quarter, putting some spark back into the biotech sector. The share market only tells half of the story of what transpired in the biotech sector during the quarter. It was a very busy period, with acquisitions, reverse mergers, equity raises, monetisation of research and development (R&D) or manufacturing sites, a successful biotech initial public offering (IPO), and to top it off, positive phase 3 data for the BioArctic/Eisai/Biogen’s lecanemab, an anti-beta-amyloid antibody for AD (as mentioned above). Many expected the drug to fail, but as is often the case in drug development, surprises do occur, which can have wide-ranging long-term effects. As we have highlighted previously, neurology, particularly neurodegenerative diseases, will see increased drug development activity in the coming decade. No doubt there will be challenges along the way.
The lecanemab antibody is by no means a cure for AD, far from it, but it will foster future investments. It is similar to what ipilimumab and nivolumab did for immuno-oncology (IO). These antibodies have put IO firmly on the map, and today, it is a major area of oncology drug discovery and development globally.
The Fund has invested in various neurology-focused biotech companies, which generally performed well over the quarter. Highlights include Swedish biopharma company BioArctic (+251% over the quarter), the company that discovered lecanemab, and US biotech Prothena, which rallied +123%.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/pihfqtr_0922.pdfJune, 2022
The Fund (C Class) returned -5.4% for the quarter and -33.7% for the year.¹
The sell-off in biotech stocks continued during the quarter, impacting the Fund's performance. During the quarter, the sell-off broadened to include medical device companies and large well-known tool companies.
Rising inflation, higher interest rates and recession concerns dominated the market narrative. This prolonged sell-off has been unprecedented.
In the second half of the quarter, however, we saw signs of stabilisation with short-sellers stepping back in to cover their positions, investors starting to return from the sidelines to take advantage of cheap valuations, and evidence of refinancing occurring. This helped the Fund to fi nish the quarter on a strong note, returning +6.6% in June.
Apart from macroeconomic and geopolitical issues pressuring biotech share prices and pharmaceutical (pharma) companies being seen as a safe haven, there were also stock-specifi c factors. European biotech UCB (-26%) had disappointing news that the approval of Bimekizumab (a treatment for psoriasis and related infl ammatory diseases) has been delayed in the US.
Emerging tool companies such as NanoString Technologies (-63%) and Quanterix (-45%) had dismal performance this quarter, refl ecting concerns around competition and sustainable biotech funding.
Chinese biotech companies Hutchmed (-36%) and Zai Lab (-21%) showed weak share price performance. Hutchmed’s Surufatinib (a treatment for advanced pancreatic and extrapancreatic neuroendocrine tumours) saw its US approval delayed, while investors shunned Zai Lab due to the ongoing debate around Nasdaq listing requirements.
On the bright side, many of our investment companies made positive progress over the quarter. Epizyme (+28%) was the standout performer, as its approved drug Tazverik showed it has great potential as a combination drug for B-cell lymphoma. In addition, the company was acquired by French biotech Ipsen in late June.
Cogent Biosciences (+20% over the quarter) presented good data for Bezuclastinib in advanced systemic mastocytosis (a rare disorder that results in the build-up of mast cells in organs throughout the body). The drug will now progress to the next phase. Following the data announcement, Cogent successfully raised additional money, helping its share price to bounce 70% off its lows during the quarter.
We have been gradually trimming several holdings and adding to investments that we fi rmly believe are undervalued, have access to cash, and will, in our opinion, come out stronger on the other side.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/pihfqtr_0622.pdfMarch, 2022
The Fund (C Class) returned -21.7% for the quarter and -23.5% for the year. The indiscriminate sell-off in biotech stocks accelerated in the March quarter, which had a signifi cant effect on the Fund's performance. In contrast, pharma companies held up well, providing a positive contribution to the Fund’s performance. The SPDR S&P Biotech ETF (XBI) fell -20% over the quarter. The spread between biotechs and the S&P 500 Index now resembles that of the post-genomics bubble in 2001, with the biotech sector lagging the performance of the broader market by around 60% over the past 12 months (see Fig. 1).
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/pihfqtr_0322.pdfJune, 2021
The Fund (C Class) returned 9.1% over the quarter and 31.9% over the year.
It was an eventful three months for the biotech sector, one that will be etched in history we expect. In a stunning move, the aducanumab antibody (sold under the brand name Aduhelm and developed by Biogen and Eisai) gained accelerated approval for Alzheimer’s disease. This accelerated approval has wide-ranging ramifications for neurodegenerative diseases, given it was based on a measurable surrogate marker versus the more traditional cognitive benefits measure (discussed in more detail below in the Commentary).
Gene editing took centre stage. Intellia Therapeutics (+102% over the quarter) presented positive results for NTLA-2001, a therapy based on the Noble-prize winning CRISPR/Cas9 technology.2 The technology essentially edits the mutated gene that causes hereditary Transthyretin Amyloidosis (ATTR), a rare disease where the liver produces misfolded proteins that deposit on organs, causing damage. Intellia has shown that by using lipid nanoparticles (LNPs), a “guide RNA” and “mRNA” encoding, the Cas9 enzyme (which acts like a pair of molecular scissors, capable of cutting strands of DNA) can be delivered systemically to the liver
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/pihfqtr_0621.pdfDecember, 2020
The Fund (C Class) returned 13.9% for the quarter and 30.8% for the year.
In years to come, documentaries will remind us of the 2020 pandemic. It will be remembered as a year when economies came to a halt, working from home became normal and acronyms like PCR and mRNA made it into the popular press. In less than a year, BioNTech/Pfizer and Moderna have accomplished what most thought was impossible - developing a vaccine from scratch. As the CEO of Novartis, Vas Narasimhan said, “we are witnessing an RNA revolution”. We believe vaccines are just the start of this revolution, with more to come. This achievement has unsurprisingly sparked broad interest in genomics biotech companies, while interest in the slower growing pharmaceutical and mature biotech companies has waned.
Today, the valuation gap between the S&P 500 Index and these ‘old guard’ drug developers is at historical levels. This is not due to these companies sitting idle. To the contrary, many are retooling. Bayer, for instance, acquired gene therapy biotech Asklepios BioPharmaceutical (AskBio) during the quarter and is building out its cell and gene therapy division, while at the same time increasing its exposure to the synthetic biology field (via Leaps by Bayer2).
Many holdings contributed to the Fund’s performance this quarter. While the COVID-19 vaccine makers CureVac (+74% over the quarter), Moderna (+48%) and BioNTech (+18%) performed well, many other investments also made great progress, which is particularly exciting. Since the launch of the Fund in 2003, we have been stern believers in personalised medicine and the impact that genomic advances will have on drug development, diagnostics and healthcare. We have witnessed a rapidly expanding playbook in molecular biology deciphering the inner workings of cells.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/pihfqtr_1220.pdfasset_class: Foreign Equity
asset_category: Long Short
peer_benchmark: Foreign Equity - Long Short Index
broad_market_index: Developed -World Index
manager_contact_details: Array
ticker: PLA0005AU
release_schedule: Quarterly
commentary_block: Array
factsheet_url:
https://www.platinum.com.au/Our-Products/All-Products/Platinum-International-Health-Care-Fund
Updates & Reports
Quarterly Investment Manager’s Report
fund_features:
Platinum International Healthcare aims to provide capital growth over the long term by investing in health care companies from around the world, ranging from those companies engaged in early exploratory research through to those providing health care services directly to consumers (such as hospitals or health insurance).
- The Fund primarily invests in health care companies listed on securities markets around the world.
- It invests in companies engaged in many aspects of providing products and services to the health care industry such as biotechnology, pharmaceuticals, diagnostics, laboratory technologies, distribution, hospitals and nursing care, health insurance and the provision of information technology to such companies.
structure: Managed Fund