Monthly Commentary
May 2018

‚ÄčMomentum for healthcare continued into May, following on from a reasonably constructive April.  The Company’s NAV was up 7.7% in May and outperformed the benchmark (Morgan Stanley Global Healthcare Index), which was up 4.0% for the month – the weakness in sterling helped the absolute performance. The relative outperformance was driven by strength in positions in the life sciences tools, healthcare services and biotechnology sub-sectors.

US drug pricing has been a concern for some time and is one of the factors behind our material under-weight positioning in pharmaceuticals.  Early in the month, there was an update on potential changes from the US Administration.  Having postponed his speech in April, President Trump released the White House’s drug pricing plan alongside a blueprint document called “American Patients First”.

While the plan contained a large number of potential initiatives, there was little detail on how and when these various proposals might be implemented. Top priorities for the Administration appear to be increased competition, improved negotiating power and a variety of incentives to reduce out-of-pocket expenses for patients. Importantly, there is a focus on transparency on various players in the value-chain and especially the role of Pharmacy Benefit Managers (PBMs). Noticeable in their absence from the plan, were measures to allow drug imports from Canada or any proposals to allow direct price negotiation by the Government for prescription drugs for the over 65’s, the so-called Medicare Part D plans.

We now expect President Trump to release more specific and detailed proposals during June.  It seems as though some of the more draconian measures have been avoided and we would not be surprised to see the Administration focus on the “problem of the middle-men” in the system, which could continue to dampen enthusiasm for various parts of the healthcare eco-system, especially the PBMs.  Importantly, this could help to lift the political overhang on the healthcare sector – we think the market would respond well to some clarity on the direction of potential legislative changes.

In terms of clinical newsflow, the month was dominated by the major cancer conference that is run by the American Society of Clinical Oncology (ASCO).  There was a flurry of new clinical results, which mainly affected some smaller biotechnology companies – both positively and negatively.  In our view, the most important conclusion from the conference is that Merck & Co is cementing its leadership in the immune-oncology space with its drug Keytruda.

ASCO abstracts aside, there were important clinical updates from AstraZeneca, Novo Nordisk and Roche. Starting with AstraZeneca, the company released more positive headline data for its lead immuno-oncology asset, Imfinzi. Having already reported positive Progression Free Survival data in early-stage lung cancer (PFS is the length of time during and after treatment that a patient lives with a disease without it deteriorating), AstraZeneca announced Imfinzi also significantly improves overall survival (OS) in these lung cancer patients. Whilst broadly expected, the update under-pins the commercial potential of the asset and raises the bar for competitors.

Novo Nordisk also released some positive headline data, although the reception from the market was somewhat mixed. Novo is developing an oral version of a commercialised, injectable drug called semaglutide, and it was data from this asset that was released. The update, which compared oral semaglutide to another oral drug already on the market (Eli Lilly’s Jardiance), indicated Novo’s product to be superior at controlling both blood sugar levels and weight loss. The controversy centred on two things; (a) the magnitude and timing of the weight loss, and (b) the tolerability profile of oral semaglutide. We remain positively disposed to the asset but do acknowledge that further details and data read-outs may be required to move the debate forward.

Last, but not least, Roche published the full dataset for its novel haemophilia asset, Hemlibra, at a conference. The data confirmed the drug’s potential to disrupt the market place, once again raising question marks over the long-term sustainability of more traditional haemophilia therapies.

Significant contributors in the month were Bio-Rad Laboratories (Bio-Rad), Loxo Oncology and Quotient. US life sciences company Bio-Rad produced another strong set of quarterly results, with both the top-line and operating leverage out-stripping market views. Despite relatively high expectations, Loxo presented compelling data at ASCO for its targeted cancer asset, a drug known as LOXO-292. Quotient shares reacted positively to news that the company has commenced European field trials for its novel blood-screening technology, MosaiQ.

Detractors in the period were Becton Dickinson, Anthem and Viveve Medical. It is our belief that Becton Dickinson struggled ahead of the Q1’18 earnings release in early June due to market concerns about the integration of the recent CR Bard acquisition. In terms of Anthem, May’s weakness may well be related to two things; 1) a greater focus by the US Administration on PBMs, savings from which are a potential upside for Anthem, and 2) concerns around competitive pricing in certain markets that Anthem operates in. Finally, Viveve Medical reported an under-whelming set of Q1’18 financial results, with revenues missing consensus expectations.

We made a few changes to the portfolio in May, reducing the number of positions in the life sciences and Tools and Biotechnology sub-sectors and re-investing the proceeds into the medical devices space. We remain constructive on the life sciences and tools sub-sector, and continue to be optimistic about the end-markets, but felt a reduced weighting prudent and therefore exited our position in Agilent Technologies ahead of the company’s Q2’18 financial results. The decision to exit Exelixis was based on a view that the competitive landscape for it lead asset, Cabometyx for advanced kidney cancer, is intensifying. On the investment side, we continue to believe that Medical Devices is an area with positive momentum and added fast-growing US devices company, Boston Scientific Corp, to the portfolio.  We also added Nevro Corp to the innovation portfolio.

In terms of the near-term outlook for healthcare, we think the political overhang may dissipate but acknowledge that healthcare may still be an issue as we run into the US mid-term elections. Looking further out, however, we believe the strong, underlying fundamentals for healthcare should be rewarded, especially given the relatively attractive valuations. Healthcare continues to feel un-loved and under-owned, but we think the growth opportunities in the sector present an interesting and contrarian investment opportunity.

Dan Mahony & Gareth Powell

Disclaimer

Important Information: This document is provided for the sole use of the intended recipient and is not a financial promotion. It shall not and does not constitute an offer or solicitation of an offer to make an investment into any Fund or Company managed by Polar Capital. It may not be reproduced in any form without the express permission of Polar Capital and is not intended for private investors. This document is only made available to professional clients and eligible counterparties. The law restricts distribution of this document in certain jurisdictions; therefore, it is the responsibility of the reader to inform themselves about and observe any such restrictions. It is the responsibility of any person/s in possession of this document to inform themselves of, and to observe, all applicable laws and regulations of any relevant jurisdiction. Polar Capital Technology Trust plc is an investment company with investment trust status and as such its ordinary shares are excluded from the FCA’s (Financial Conduct Authority’s) restrictions which apply to non-mainstream investment products. The Company conducts its affairs and intends to continue to do so for the foreseeable future so that the exclusion continues to apply. It is not designed to contain information material to an investor’s decision to invest in Polar Capital Technology Trust plc, an Alternative Investment Fund under the Alternative Investment Fund Managers Directive 2011/61/EU (“AIFMD”) managed by Polar Capital LLP the appointed Alternative Investment Manager. In relation to each member state of the EEA (each a “Member State”) which has implemented the AIFMD, this document may only be distributed and shares may only be offered or placed in a Member State to the extent that (1) the Fund is permitted to be marketed to professional investors in the relevant Member State in accordance with AIFMD; or (2) this document may otherwise be lawfully distributed and the shares may otherwise be lawfully offered or placed in that Member State (including at the initiative of the investor). As at the date of this document, the Fund has not been approved, notified or registered in accordance with the AIFMD for marketing to professional investors in any member state of the EEA. However, such approval may be sought or such notification or registration may be made in the future. Therefore this document is only transmitted to an investor in an EEA Member State at such investor’s own initiative. SUCH INFORMATION, INCLUDING RELEVANT RISK FACTORS, IS CONTAINED IN THE COMPANY’S OFFER DOCUMENT WHICH MUST BE READ BY ANY PROSPECTIVE INVESTOR.

Statements/Opinions/Views: All opinions and estimates constitute the best judgment of Polar Capital as of the date hereof, but are subject to change without notice, and do not necessarily represent the views of Polar Capital. This material does not constitute legal or accounting advice; readers should contact their legal and accounting professionals for such information. All sources are Polar Capital unless otherwise stated.

Third-party Data: Some information contained herein has been obtained from third party sources and has not been independently verified by Polar Capital. Neither Polar Capital nor any other party involved in or related to compiling, computing or creating the data makes any express or implied warranties or representations with respect to such data (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any data contained herein. 

Holdings:  Portfolio data is “as at” the date indicated and should not be relied upon as a complete or current listing of the holdings (or top holdings) of the Company. The holdings may represent only a small percentage of the aggregate portfolio holdings, are subject to change without notice, and may not represent current or future portfolio composition. Information on particular holdings may be withheld if it is in the Company’s best interest to do so. It should not be assumed that recommendations made in future will be profitable or will equal performance of the securities in this document.  A list of all recommendations made within the immediately preceding 12 months is available upon request.  This document is not a recommendation to purchase or sell any particular security.  It is designed to provide updated information to professional investors to enable them to monitor the Company.

Benchmarks: The following benchmark index is used: Dow Jones World Technology Index (Total Return). This benchmark is generally considered to be representative of the Technology Equity universe. This benchmark is a broad-based index which is used for comparative/illustrative purposes only and has been selected as it is well known and is easily recognizable by investors. Please refer to www.djindexes.com for further information on this index. Comparisons to benchmarks have limitations as benchmarks volatility and other material characteristics that may differ from the Company. Security holdings, industry weightings and asset allocation made for the Company may differ significantly from the benchmark. Accordingly, investment results and volatility of the Company may differ from those of the benchmark. The indices noted in this document are unmanaged, are unavailable for direct investment, and are not subject to management fees, transaction costs or other types of expenses that the Company may incur. The performance of the indices reflects reinvestment of dividends and, where applicable, capital gain distributions. Therefore, investors should carefully consider these limitations and differences when evaluating the comparative benchmark data performance. Information regarding indices is included merely to show general trends in the periods indicated, it is not intended to imply that the Company was similar to the indices in composition or risk.

Regulatory Status: Polar Capital LLP is a limited liability partnership number OC314700. It is authorised and regulated by the UK Financial Conduct Authority (“FCA”) and is registered as an investment adviser with the US Securities & Exchange Commission (“SEC”). A list of members is open to inspection at the registered office, 16 Palace Street, London, SW1E 5JD. FCA authorised and regulated Investment Managers are expected to write to investors in funds they manage with details of any side letters they have entered into. The FCA considers a side letter to be an arrangement known to the Investment Manager which can reasonably be expected to provide one investor with more materially favourable rights, than those afforded to other investors. These rights may, for example, include enhanced redemption rights, capacity commitments or the provision of portfolio transparency information which are not generally available. The Company and the Investment Manager are not aware of, or party to, any such arrangement whereby an investor has any preferential redemption rights. However, in exceptional circumstances, such as where an investor seeds a new fund or expresses a wish to invest in the Company over time, certain investors have been or may be provided with portfolio transparency information and/or capacity commitments which are not generally available. Investors who have any questions concerning side letters or related arrangements should contact the Polar Capital Desk at the Registrar on 0800 876 6889. The Company is prepared to instruct the custodian of the Company, upon request, to make available to investors portfolio custody position balance reports monthly in arrears.

Information Subject to Change: The information contained herein is subject to change, without notice, at the discretion of Polar Capital and Polar Capital does not undertake to revise or update this information in any way.

Forecasts: References to future returns are not promises or estimates of actual returns Polar Capital may achieve. Forecasts contained herein are for illustrative purposes only and does not constitute advice or a recommendation. Forecasts are based upon subjective estimates and assumptions about circumstances and events that have not and may not take place. 

Performance/Investment Process/Risk: Performance is shown net of fees and expenses and includes the reinvestment of dividends and capital gain distributions. Factors affecting the Company’s performance may include changes in market conditions (including currency risk) and interest rates and in response to other economic, political, or financial developments. The Company’s investment policy allows for it to enter into derivatives contracts. Leverage may be generated through the use of such financial instruments and investors must be aware that the use of derivatives may expose the Company to greater risks, including, but not limited to, unanticipated market developments and risks of illiquidity, and is not suitable for all investors. Those in possession of this document must read the Company’s Investment Policy and Annual Report for further information on the use of derivatives.  Past performance is not a guide to or indicative of future results. Future returns are not guaranteed and a loss of principal may occur. Investments are not insured by the FDIC (or any other state or federal agency), or guaranteed by any bank, and may lose value. No investment process or strategy is free of risk and there is no guarantee that the investment process or strategy described herein will be profitable.

Allocations: The strategy allocation percentages set forth in this document are estimates and actual percentages may vary from time-to-time. The types of investments presented herein will not always have the same comparable risks and returns. Please see the private placement memorandum or prospectus for a description of the investment allocations as well as the risks associated therewith. Please note that the Company may elect to invest assets in different investment sectors from those depicted herein, which may entail additional and/or different risks. Performance of the Company is dependent on the Investment Manager’s ability to identify and access appropriate investments, and balance assets to maximize return to the Company while minimizing its risk. The actual investments in the Company may or may not be the same or in the same proportion as those shown herein. 

Country Specific disclaimers: The Company has not been and will not be registered under the U.S. Investment Company Act of 1940, as amended (the "Investment Company Act") and the holders of its shares will not be entitled to the benefits of the Investment Company Act. In addition, the offer and sale of the Securities have not been, and will not be, registered under the U.S. Securities Act of 1933, as amended (the "Securities Act"). No Securities may be offered or sold or otherwise transacted within the United States or to, or for the account or benefit of U.S. Persons (as defined in Regulation S of the Securities Act). In connection with the transaction referred to in this document the shares of the Company will be offered and sold only outside the United States to, and for the account or benefit of non U.S. Persons in "offshore- transactions" within the meaning of, and in reliance on the exemption from registration provided by Regulation S under the Securities Act. No money, securities or other consideration is being solicited and, if sent in response to the information contained herein, will not be accepted. Any failure to comply with the above restrictions may constitute a violation of such securities laws.

FACT SHEET

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Launched in 2010, Polar Capital Global Healthcare Trust plc (“PCGH”) has grown to become a leading European investor with a multi-cycle track record. Managed by a team of dedicated healthcare specialists, the PCGH aims to maximise long-term capital growth by investing in a diversified portfolio of healthcare companies from around the world. The managers’ core belief in rigorous fundamental analysis, and being unconstrained by not following a benchmark, enables PCGH to deliver global equity market outperformance through exposure to a universe of over 3,000 companies.

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Neither the securities of Polar Capital Global Healthcare Trust nor the securities of PCGH ZDP PLC referred to on this website (the "Securities") have not been and will not be registered under the US Securities Act of 1933, as amended (the "Securities Act") and may not be offered or sold in or into the United States or to, or for the account or benefit of, US persons (as defined in Regulation S under the Securities Act) absent registration under the Securities Act or pursuant to an applicable exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and in compliance with any applicable securities laws of any state or other jurisdiction of the United States. Neither Polar Capital Global Healthcare Trust nor PCGH ZDP PLC will be registered under the U.S. Investment Company Act of 1940, as amended, and investors in the Securities will not be entitled to the protections of that Act.

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Please remember that past performance of an investment is not necessarily a guide to future performance. The value of an investment and the income from it can fall as well as rise as a result of market and currency fluctuations and you may not get back the amount originally invested. The market value of the shares of PCGH and the shares of PCGH ZDP PLC may not reflect the underlying net asset value of the investments held by Polar Capital Global Healthcare Trust.

Polar Capital Global Healthcare Trust is able to borrow to raise further funds for investment purposes if the fund manager and the board of directors consider that it may be commercially advantageous to do so. This is generally described as “gearing”. An investment trust which has made investments as a result of gearing may have a more volatile share price as a result; gearing can increase shareholder returns in rising markets but conversely can increase the extent to which the value of the funds attributable to shareholders decreases in falling markets.

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The shares of investment trusts may trade at a discount or a premium to Net Asset Value for a variety of reasons including market sentiment and market conditions.  On a sale you could realise less than the Net Asset Value and less than you initially invested.

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