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Market Update – 19May 2020 BY ANDREW CLIFFORDModerna is a US...

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    Market Update – 19May 2020 BY ANDREW CLIFFORD

    Moderna is a US biotech company thatsome Platinum funds[1] have owned since its IPO in late 2018(bought at US$23), and have added since, most notably in a placement early thisyear (at US$19). Last night, the company announced positive data on its phaseone trials for its vaccine (MRNA-1273) for the novel coronavirus (SARS-CoV-2)and the shares surged to US$80. The enthusiastic broader market responsesuggests this is seen as a significant step forward in the world’s fightagainst the virus and we do not disagree.

    We invested in Moderna last year,believing it would be a disruptor in the vaccine segment and this breakthroughdata suggests it is well on its way to achieving that. Indeed at our 2019roadshow, whilst espousing the value in many cyclical sectors it came up inquestions that we owned a stock with no revenues, let alone profits and amarket capitalisation of several billion at the time. We again referredto the company during our recent roadshows in the early stages of thecoronavirus outbreak.

    Last night’s announcement suggeststhis potential disruption of the vaccine industry is happening even faster thanwe had anticipated.

    At this stage, we are seeing the bestwe could have possibly hoped for in the search for a vaccine forSARS-CoV-2. The steps forward will be about focusing on ensuring itssafety, and then decisions revolve around production and distribution of thisvaccine and potentially other vaccines under development. Additionally,work will be done to try to the lower the dose in order that more of thepopulation can be covered for the same amount of production.

    Priority is for the vulnerable –particularly front line medical staff. Further distribution is notwithout politics. The allocation question may be influenced byincentives, and governments and corporations will be debating this. Somegovernments are raising funds specifically for vaccines.

    For the roadmap back to economic andsocial normality, a vaccine will be very helpful. This has little impacton the near term – it is not a cure - but starts to make 2021 look like a morepromising environment.

    The stock market’s initial responsefavoured areas such as travel, where we have been accumulating positions, andcontinue to do so, and stocks that are more economically sensitive. Inmany respects the initial market response was to sell what might be describedas ‘COVID winners’ and to buy ‘COVID losers’.

    We must remember though that we arestill dealing with a massive economic dislocation. Our view is that thiswill lead to greater risk appetite in the near term. We have continued toadd to travel and have reduced our short positions. However, we are stillcognisant that large parts of the market are fully valued and this is simply abringing forward by a few months of the ability to blunt the impact ofCOVID-19. It will not stop a second wave as we go back to work nor doesit address mutations. And it certainly does not address how fragilebalance sheets will cross the chasm.

    At the close of business on Monday 18May, the Platinum International Fund had increased its overall net exposure to76% (comprising 92% long and 16% short). The fund currently has 10%exposure to the Australian dollar.

    For further background, Bianca Ogden,the portfolio manager of the Platinum International Health Care Fund wasprofiled in an article published in The Australian in March.

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