Market Update - 19 May 2020

Moderna is a US biotech company that some 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 this year (at US$19). Last night, the company announced positive data on its phase one trials for its vaccine (MRNA-1273) for the novel coronavirus (SARS-CoV-2) and the shares surged to US$80.  The enthusiastic broader market response suggests this is seen as a significant step forward in the world’s fight against 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 breakthrough data suggests it is well on its way to achieving that.  Indeed at our 2019 roadshow, whilst espousing the value in many cyclical sectors it came up in questions that we owned a stock with no revenues, let alone profits and a market capitalisation of several billion at the time.  We again referred to the company during our recent roadshows in the early stages of the coronavirus outbreak.

Last night’s announcement suggests this potential disruption of the vaccine industry is happening even faster than we had anticipated.

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

Priority is for the vulnerable – particularly front line medical staff.  Further distribution is not without politics.  The allocation question may be influenced by incentives, and governments and corporations will be debating this.  Some governments are raising funds specifically for vaccines.

For the roadmap back to economic and social normality, a vaccine will be very helpful.  This has little impact on the near term – it is not a cure - but starts to make 2021 look like a more promising environment.

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

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

At the close of business on Monday 18 May, the Platinum International Fund had increased its overall net exposure to 76% (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 was profiled in an article published in The Australian in March.

^[1] Platinum International Health Care Fund, Platinum International Fund, Platinum Unhedged Fund, Platinum Global Fund, Platinum Capital Limited, MLC Platinum Global Fund

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