Manager Comment - BlueBox Precision Medicine Fund, May 24

April (-8%) and to a lesser extent May (-0.8%) were both negative. YTD the fund is now in line with the S&P Select Biotechnology Index and 4.6% behind the S&P BMI Healthcare index however, it remains 7.5% and 2.5% ahead of each index respectively since inception.

Only 12 out of our 32 stocks ended May higher and many of the detractors were small and mid-cap companies, especially ones that had done well previously. While changing interest rate expectations also add volatility, we continue to believe that if rates remain in a reasonable corridor our stocks can perform, over the long-term, based on specific fundamentals.

The most notable detractors were:

Illumina (-15%) which we believe is a combination of positioning ahead of the GRAIL spin-off in June, mixed 1Q earnings and some uncertainty as to whether results will inflect in the short or medium term. We continue to believe that Illumina’s products will be used more and that volume growth will eventually translate to attractive revenue and profit growth.

Stevanato Group (-28%) – We reduced the position ahead of 1Q24 earnings but exited completely afterwards. 1Q results resulted in a downgrade to 2024 guidance, due to surprise de-stocking at customers and mix headwinds. The company also had sold equity to investors two months prior to these poor results which leads to questions about management credibility.

Positive stock specific news included:

Moderna ’s (+29%) approval of its second respiratory vaccine, against RSV, marks the company’s entry into a market worth >$6bn p.a. in revenues with just three approved players, increasing the probability of achieving sustainable profitability. The stock also popped on reports of avian flu (H5N1) entering humans and Moderna’s ability to produce a vaccine should it be required. At the moment, we do not expect any material impact to Moderna from H5N1.

Dyne Therapeutics (+26%) released a second tranche of phase 1 data for its muscle directed genetic therapies in myotonic dystrophy type 1 and Duchenne’s muscular dystrophy. The release came earlier than expected and showed good data accompanied by encouraging dialogue with regulators that may allow a path to potential accelerated approval. We now judge Dyne to be post-proof of concept and the target weight can increase when we see fit.

1Q24 results for Blueprint Medicines (+16%) were ahead of expectations and Natera (+15%) also reported a revenue and margin beat (again) and achieved free cash flow breakeven earlier than expected.

We added a small position in Wave Life Sciences , an RNA therapy company with multiple modalities and programs in early development. We also added to our position in Bicycle Therapeutics following a meeting with management.

Finally in May the BIOSECURE Act started to make its way through committee in the US House of Representatives. This law seeks to eliminate certain Chinese companies from the production of biologic drugs as well as from genomic sequencing markets. Should the law pass, it is likely to be a long-term positive for the group of bioprocessing companies and Illumina, in total 15-20% of the portfolio.

Our conviction that we are at the beginning of a multi-decade growth trend of more targeted Precision Medicines is unchanged. The fund aims to capture this growth through both drug developers and enablers of Precision Medicine.

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