Monthly Commentary
September 2018

Following a sluggish start to the month, healthcare finished September in positive territory modestly outperforming the broader market, with large caps leading the way. The Company’s NAV was up 0.5% in September and underperformed the benchmark (Morgan Stanley Global Healthcare Index) which was up 1.5% for the month.  The relative underperformance was primarily positions in the biotechnology sector, plus some weakness seen in the innovation piece of the portfolio.

In terms of newsflow, the most significant event was the World Conference on Lung Cancer (WCLC) held towards the backend of September. At that meeting, data presented underpinned our view that Merck & Co is likely, in very near term at least, to continue to be the dominant player in the first-line lung cancer market with its immuno-oncology agent, Keytruda. The conference also highlighted the strong position that AstraZeneca is building in earlier stage lung cancer, so-called Stage III lung cancer. At the WCLC AstraZeneca presented overall survival data for its cancer agent, Imfinzi, from the PACIFIC study that is clinically meaningful and sets a new standard of care. September also witnessed positive clinical and business development newsflow for Hansa Medical AB and Oxford Immunotec Global, respectively.

Looking forward, we would expect the market to focus more and more on the US mid-term elections with healthcare likely to be high on the agenda for both parties. The latest polls, coupled with history as a guide, point towards the Democrats winning control of the House and the Republicans keeping control of the Senate. In such a scenario, legislative gridlock could occur making material changes to law unlikely through 2020. The status quo, or the absence of material negatives, would be a positive for the healthcare sector. One should not discount, however, a Republican sweep which would have implications for Medicaid-focused managed care names and providers.

In the growth portfolio, positive contributors in the month were US biotechnology company Alexion Pharmaceuticals (Alexion) and Japanese MedTech Terumo Corp (Terumo). Alexion’s performance reflects two things. Firstly, the company’s lead drug, Soliris, produced positive data for a disorder known as neuromyelitis optica spectrum disorder, or NMOSD. NMOSD is a rare disorder that can lead to severe disabilities including blindness and paralysis. Alexion also announced the acquisition of private company, Syntimmune, for $400m upfront and potential milestones up to $800m. Syntimmune’s lead asset is a monoclonal antibody that has the potential to improve treatment in a number of immunoglobulin-mediated diseases. Both updates have improved the market’s perception of Alexion’s terminal value. Terumo had a strong month, with its shares recovering losses inflicted by the recent, temporary manufacturing issues and shipping delays.

Detractors in the period were Alnylam Pharmaceutical (Alnylam) and Incyte Corp (Incyte). Following a strong performance in August, driven by enhanced enthusiasm for lead asset Onpattro, Alnylam reversed those gains in September. This is because the market is starting to question its management’s ability to fast-track the company’s most advanced clinical asset, Givosiran. Having produced positive top-line results, we view a potential six-month difference in filing timelines as immaterial to the company’s net present value. Incyte’s weakness in the period has little to do with fundamentals, simply reflecting a stock that lacks material, near-term catalysts.

On the innovation side, September proved to be a volatile month. On the positive side, Hansa Medical AB announced the successful completion of phase II studies for imlifidase for kidney transplantation in highly sensitised patients with regulatory filings to follow shortly. On the business development side, Oxford Immunotec Global sold its US laboratory services business to Quest Diagnostics for $170m.

Detractors during the period were Diurnal Group (Diurnal) and Nevro Corp (Nevro). Diurnal’s weakness reflects caution ahead of a key data read-out in 4Q18 for lead asset, Chronocort for congenital adrenal hyperplasia, a rare disorder that effects the adrenal glands. Nevro had a disappointing month, with competitive concerns the primary headwind.

In terms of positioning, we continue to adopt a relatively defensive stance and made few changes during the month. We did, however, take profits in lifescience and tools company, Thermo Fisher Scientific (Thermo Fisher), and reintegrated the proceeds into another stock in the same sub-sector, Agilent Technologies (Agilent). Held back by its high level of exposure to China, we believe Agilent’s growth profile and valuation make it a better use of capital than Thermo Fisher.

Following a period of sustained outperformance since the beginning of 2017, we are starting to see the large-cap healthcare universe outperform the small-cap universe. That observation lends itself well to the growth part of the portfolio, the majority of the Company’s assets, where we continue to see innovation driving top-line growth, a positive earnings outlook and reasonable valuations.

Dan Mahony & Gareth Powell

Disclaimer

‚Äč

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 Global Healthcare Trust plc and its subsidiary, PCGH ZDP plc are investment companies with investment trust status and as such their shares are excluded from the FCA’s (Financial Conduct Authority’s) restrictions which apply to non-mainstream investment products. The Companies conduct their affairs and intend 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 Global Healthcare Trust plc or PCGH ZDP plc, Alternative Investment Funds 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 Companies have been approved, notified or registered in accordance with the AIFMD for marketing to professional investors in Ireland only. The Companies have not been approved notified or registered in accordance with the AIFMD for marketing to professional investors in any other member state of the EEA. However, additional such approval may be sought or additional 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 COMPANIES OFFERING DOCUMENTS 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 Companies. 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 Companies’ 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 Companies.

Benchmarks: The following benchmark index is used: MSCI All Country World Index/Healthcare. This benchmark is generally considered to be representative of the Healthcare 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.mscibarra.com for further information on this index. Comparisons to benchmarks have limitations as benchmarks volatility and other material characteristics that may differ from the Companies. Security holdings, industry weightings and asset allocation made for the Companies may differ significantly from the benchmark.  Accordingly, investment results and volatility of the Companies may differ from those of the benchmark. The indices noted in this document are unmanaged, unavailable for direct investment, and are not subject to management fees, transaction costs or other types of expenses that the Companies 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 and is not intended to imply that the Companies 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 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 Companies 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 Companies 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 Companies are prepared to instruct the custodian of the Companies, 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 Companies’ performance may include changes in market conditions (including currency risk) and interest rates and in response to other economic, political, or financial developments. The Companies’ 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 Companies 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 Companies 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 Companies may elect to invest assets in different investment sectors from those depicted herein, which may entail additional and/or different risks. Performance of the Companies is dependent on the Investment Manager’s ability to identify and access appropriate investments, and balance assets to maximize return to the Companies while minimizing its risk. The actual investments in the Companies may or may not be the same or in the same proportion as those shown herein. 

Country Specific disclaimers: The Companies have 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 Companies 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

Click the link below to download this month's fact sheet:

DOWNLOAD

Important Legal Information

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.

By clicking on the buttons below, you are confirming that you are viewing this website from the UK and agree to the terms and conditions detailed below.

Private Investor Professional Investor

The information contained within this website is issued by Polar Capital Global Healthcare Trust plc (“Polar Capital Global Healthcare Trust”) and its wholly owned subsidiary PCGH ZDP PLC and is provided for reference purposes only. Nothing herein is intended to be construed as an offer, invitation or inducement to engage in investment activity, or investment advice or recommendation, in relation to the shares of Polar Capital Global Healthcare Trust or its subsidiary and should not be relied upon as such by any person. Prospective investors should take advice from their financial or other professional advisers before making any investment decision.

The information contained within this website is intended to be used for reference purposes only by persons in the UK. Nothing on this website is directed at any person outside the UK where the publication or availability of such information is prohibited or restricted. In particular, the information contained within this website is not intended for, and must not be accessed by or distributed or disseminated to, directly or indirectly, in whole or in part, persons resident or physically present in the United States of America, including its territories and possessions, any state of the United States and the District of Columbia (together, the "United States"), Canada, Australia or Japan, and does not constitute an offer to sell or the solicitation of an offer to buy or acquire, any securities Polar Capital Global Healthcare Trust in the United States, Canada, Australia or Japan.  Polar Capital Global Healthcare Trust is an Alternative Investment Fund (“AIF”) under the Alternative Investment Fund Managers Directive 2011/61/EU (“AIFMD”) managed by Polar Capital LLP the appointed Alternative Investment Fund Manager (“AIFM”). Polar Capital LLP is also the AIFM for PCGH ZDP PLC which is an AIF in its own right.  In relation to each member state of the EEA (each a “Member State”) which has implemented the AIFMD, shares may only be offered or placed in a Member State to the extent that a fund is permitted to be marketed to professional investors in the relevant Member State in accordance with AIFMD or as 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, neither Polar Capital Global Healthcare Trust nor PCGH ZDP PLC have been approved, notified or registered in accordance with the AIFMD for marketing to professional investors in any member state of the EEA.

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.

Polar Capital Global Healthcare Trust and PCGH ZDP PLC are managed by Polar Capital LLP; Polar Capital LLP is not responsible for the content or accuracy of any information contained within this website.

If you are unsure about the meaning of any information provided on this website, please consult your financial or other professional adviser. Neither Polar Capital Global Healthcare Trust nor PCGH ZDP PLC can offer investment advice.

General Risk Warning

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.

Tax assumptions may change if the law changes, and the value of tax relief (if any) will depend upon your individual circumstances. Investors should consult their own tax advisers in order to understand any applicable tax consequences.

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.

Disclaimer

Polar Capital Global Healthcare Trust and PCGH ZDP PLC believe that the information displayed on this website is accurate as at the date of publication, but do not guarantee the accuracy or correctness or timeliness of any information and disclaim all representations and warranties, whether express or implied, to the extent permitted by applicable law and regulation. Further, the information displayed may be amended at any time and without notice. By continuing to use this website, you agree to this exclusion to the extent permitted by applicable law and regulation, of any and all liability for any direct, indirect, punitive, consequential, incidental, special or other damages, including, without limitation, loss of profits, revenue or data arising out of or relating to your use of and our provision of this website and its content. If you are dissatisfied with any aspect of this website, or of its contents, your sole and exclusive remedy is to discontinue use of this website.

PRIVACY POLICY

Polar Capital Global Healthcare Trust and PCGH ZDP PLC are committed to preserving the privacy of all visitors to its website (“Website”).

By Accessing the Polar Capital Global Healthcare Trust and PCGH ZDP PLC website, personal data relating to you may be collected, processed and recorded by us in accordance with the GDPR and in accordance with any relevant legislative changes, these Terms of Use and our Privacy Policy.

Please access the Privacy Notice on the website to understand how we use and protect the information that you provide to us.

By accessing this website, you consent to the collection, use and transfer of your information under the terms of this Privacy Policy and the Terms of Use of this Website.