June 2025 Investment Update

Dear investors and well-wishers,

Our fund returned 18% in May after a strong rebound in US growth, tempered somewhat by continued weakness in Aussie biotech.

During the sell-off we moved to over 50% cash, when put us in a strong position to re-enter a number of growth stocks as the market recovered.

Some of our top performers that drove us to an 82% return last financial year - only to sell off sharply in the second half of 2024 - staged a recovery, notably ELF, Celsius and Transmedics.

Transmedics returned to growth with revenue +48% year-on-year at a GAAP net income margin of 18%. A small cottage industry has developed tracking their planes in real-time and forecasting revenues. So far this suggests the company is on track.

ELF was hit by both tariffs and a slowdown in discretionary cosmetic spend, but the company continues to take market share and moved into the #3 spot in their target demographic behind Maybelline and L’Oréal.

Celsius has also belatedly returned to growth:

All three of these companies posted substantial drawdowns after we sold, and allowed us to re-enter at lower prices.

HIMS posted a rapid recovery, but last night investors were blindsided by the news that Novo was cancelling their partnership and, in a blunt, strong-worded announcement appears to be laying the ground for litigation. For many, this will be a thesis break and we closed the position to realize a 68% profit.

Novo isn’t a small startup trying to crash their way into a new market - it’s likely that their accusations are on firm legal footing and every word was carefully reviewed by lawyers. Regardless, we’re happy to take the win and wait for the dust to settle and the next entry point.

There is a lot in play in GLP-1s, with a number of new drugs including a powerful new oral formulation from Lilly soon to hit the market. Sometimes it’s best just to watch.

Pancreatic Cancer update from Amplia

Some time ago we made an investment in Amplia Therapeutics, who is investigating an add-on drug to standard-of-care in pancreatic cancer.

In a patient population of 55, the company announced 15 confirmed partial responses and a disease control rate well in excess of historic data.

Comparing trial results with historic data is always treacherous. But to our surprise the company announced a complete response, which is rare in pancreatic cancer. The stock had a minor reaction, but to be honest we (and the market) didn’t make much of it, as outlier events of some sort or other are common.

However, last week the company announced a second complete response. Now that is interesting. Lightning strikes all the time, but usually only hits in the same spot if there’s a reason. This time, the stock reacted:

In a seminal study of 431 patients establishing the current standard-of-care, there was only one complete response. In combination with their drug, Amplia has now seen 2 complete responses in a much smaller patient group (55). The study is ongoing, so there might even be more positive news.

It seems a number of local funds have chosen to pull back activities in Aussie biotech, and given our own divergence between US growth profits and local biotech ‘volatility’ this year, I don’t blame them.

Sometimes the market is willing to pay for opportunities many years in advance (think of the ten year SPAC forecast models of 2021), and other times anything happening a year or more ahead is discounted to zero. We’re clearly in the latter regime.

Amplia has a long way to go, but there is now an increasingly strong body of evidence that their drug is offering something to patients with a very poor prognosis.

Syntara

Syntara gave an update showing continued improvement in myelofibrosis patients treated with their antifibrotic, building on their update last year. The company has now shown their drugs can inhibit fibrosis in multiple trials across multiple organ types.

8 out of 13 patients saw a total symptom score reduction of 50% or more, and this was accompanied by reductions in spleen volume, though Syntara’s drug works downstream of the spleen so there’s nuance in comparing its performance with FAK inhibitors, which directly target the spleen.

The question now turns to financing, and I suspect a resolution here - announcement of a deal or partnership - is what it will take to move the stock.

The trial will complete later in the year and the company expects to have their Phase III trial design approved by the FDA in coming months. This would be a natural point to find a partner, sell the program, or raise funds to do the Phase III in house. The later option, particular with major local funders pulling back from the market, is an overhang on the stock.

Outlook

In the second half of the year we have a number of catalysts across Clarity, Syntara and now Amplia to watch for. Each of these companies has significantly outperformed our expectations in the clinic, so the science is on track, even as the sector is under pressure.

You could rationalize this in terms of flow/market participants: a number of funds have exited and biotech is now a dirty word for both institutions and wealth managers, and there have been few recent wins to excite retail punters. Or you could view the state of the market through a more academic lens: risk premia have risen and cash flows in 2027 and beyond are now heavily discounted.

We saw this in the United States in 2022 to a more extreme extent. How did that play out? Companies that delivered in the clinic have performed exceptionally well subsequently.

The upside for companies that delivered on their programs wasn’t the usual 2-3x, but 10-20x or more. Companies that didn’t deliver never recovered, so ‘buying the dip’ didn’t necessarily work, you had to get the science right. I expect the same to happen now in the Australian market, and companies that deliver over the next 2-3 years and complete their Phase III trials will deliver exceptional returns from here.

Neuren is a good example of the kinds of returns possible when a biotech has a drug approved and flips into revenue and profit generation - and Neuren had to trade away a significant part of their economics.

On the growth side of our strategy, we executed our risk management approach and moved to cash in March/April, with the drawdown being mostly due to Aussie biotech.

That could have turned into an extended tariff-driven sell-off, which is certainly what the commentariat seemed to expect.

Instead, markets rebounded, and we were able to re-enter positions in some cases at substantially lower prices. We still copped the first part of the drawdown, that’s unavoidable with these kinds of companies, but we missed the worst of it and were able to position correctly for the rebound.

One area which may have finally turned a corner is semiconductors. Nvidia rebounded strongly, and now the rest of the space is showing life. It was quite a serious ~12 month sell-off with the index dropping 45% from July last year to the low a couple of months ago. All in the context of an AI-driven boom in compute…

New AI applications seem to be breaking into the mainstream every day - something which never really happened over the multiple hype cycles in crypto, with perhaps the exception of Polymarket, which is now part of global political discussions. Semis are definitely worth watching closely now.

Michael