Platinum: There's a revolution in biotech and you need to be part of it

James Marlay

Livewire Markets

Investing in biotech is often seen as binary: you either win big or lose everything. The success of CSL has been well chronicled, however, is it possible to consistently pick long-term winners within an industry rampant with regulation and experimental uncertainty?

Having cut her teeth as a research scientist, Dr Bianca Ogden of Platinum Asset Management is not your average fundie. Dr Ogden fell into funds management after being intrigued by a simple question: How on earth can senior executives make decisions of what drug to develop when they are not in the lab? This grew into a passion for understanding the keys to success within the healthcare industry, and after 17 years of working for Platinum, she has not looked back.

In the 17 years I've worked in funds management, I have never experienced the speed and excitement of new technologies that we are seeing today.

In this edition of Funds of the Future, Dr Ogden sat down with me to discuss emerging trends in the biotech sector and how the Platinum International Health Care Fund  is looking to play these.

Has there been one investment that you've made that captured your imagination and still stands out?

I'm a fan of tools, the actual utensils and systems that people use in the lab. I tend to find that everyone looking at biotech is focused on finding a new revolutionary drug and whether it falls over or not. I think there is much more upside potential in the tools that people use in the lab, for example, how to apply sequencing.

One of the investments that I will never forget is a company called Foundation Medicine (NASDAQ: FMI). They are essentially focused on cancer sequencing. They focus on finding issues that occur within genomes or in cancer and then add these to an extensive database, linking them to the treatment patients receive and building the database over time. When we first looked at the company, everyone was worried about the tests that they were producing, how they were going to price it and whether reimbursement was coming. To me, this was all irrelevant because what they were actually doing was creating a central database that could be used to make better products and aid broader drug discovery.

Accordingly, we invested in the company when it had a US$500 million market cap. A couple of years later, it was sold for US$5.3 billion to Roche. Stories like this stick with me: The times where everyone tells me that they're worried about certain elements and that they don't like it. That can be a trigger for me to continue delving.

Moderna is one of those stories as well. When we looked at it, some people said that we would be crazy to invest in them given they are so secretive and no one fully knows what they are doing. I thought to myself, I have found the company to be quite approachable and open to answering my questions. I think having a background in the field really helps when reaching out to senior management – being able to speak their language allows me to quickly delve into the technical aspects and have a constructive dialogue. Deep down, you always question whether you might be wrong or if you have missed something completely. It is those moments where you stand your ground that stay in my mind.

Another standout is Genmab (CPH: GMAB), a Danish company we held in the Platinum International Fund. Again, we bought it when it had a market cap of around US$500 million, and in the end, we sold it when its market cap was US$10 billion. It specialises in making antibodies and also struck a deal with Johnson & Johnson. As they were based in Europe, the stock wasn't covered very much by the US analysts, so every time I asked them what they thought about Genmab, they never seemed to know anything about it. I knew that Genmab had developed a new antibody to treat myeloma and that their data looked really good.

These moments give me renewed confidence that the best thing to do is to explore areas that people are not looking at, or where people are only seeing all the warts. It is those things that I like doing.

Putting COVID to one side, what are the most significant long-term trends in healthcare today?

One of the biggest trends is in tools. In a disease, the culprit is the cell - specifically when something goes wrong in it. The problem is that the cell looks quite simple from the outside. It has a shell over it and a nucleus inside, which contains your genome or code. But what happens within its busy network is what scientists need to understand. Over the last couple of years, numerous tools have been developed to assist with deciphering this internal network, enabling scientists to pinpoint exactly what's going on and drill into different layers. There are lots of innovative companies that provide these tools, which is very exciting.

On top of that, we are seeing a convergence with tech via computers. Computer capacity is much greater, which means we can analyse these complex cell networks to a significantly greater degree. We can use artificial intelligence to really understand them. It is those themes and trying to understand who's who in that area that is a major trend. For example, everyone quotes Illumina as the main sequencing company but there are others that are gaining momentum. We have owned Illumina but the more interesting companies are the emerging innovators. We owned Solexa, the company that Illumina acquired its sequencing technology from.

There are a number of different trends emerging, but regardless, it tends to go back to the tools that are available, because of the potential longevity in their use. If you look at how diseases are tested today, such as SARS and SARS-CoV-2, the technology used is the Polymerase Chain Reaction (PCR). The inventors of PCR received the Nobel Prize in Chemistry in 1993, and it remains the golden standard for detecting pathogens like viruses and is still used directly in the lab.

Biotech is at a point where it's about to explode, it's a revolution, and it's happening much faster than we could have ever foreseen.

When you look at the Nobel Prize winners in Chemistry, which are often the origin of such tools, these new technologies are being adopted into mainstream use faster and faster. CRISPR, a system that allows genome editing, received the Nobel Prize this year. This is already in clinical application with testing on humans starting last year. That's remarkable.

Many biotech companies have enjoyed immense share price appreciation in 2020. Are you still finding plenty of opportunities with compelling valuations?

You have to be a bit more selective. There is a dichotomy in the market. Everyone is chasing companies that they know and have read about, but a lot of them are not cheap. Then, there are those stocks that are cheap because they're not focused on COVID, or are not a hot new immune oncology target. It's the latter companies that we look for. Every week I look at companies that are trading below their cash levels, the type of technology they are developing and how it is set to change. There are a lot of interesting and compelling opportunities, but they often aren’t what a conventional broker sends you. You have to keep an open mind, you're a bit like a detective who is constantly looking for something out there.

The beauty for us is, as a global fund manager, we are granted access to a Chinese market where the biotech sector is really in its infancy. We have done a lot of groundwork to get to know the companies and understand what is going on. When these companies come to market, we already have a relationship with them, so we can move quickly if we want to invest in them. You have to be very open to meeting companies and you need to continually talk with their management teams to keep on top of their progress, understand their thinking and ultimately, generate new investment ideas. 

Have you made any investments in Chinese biotech companies?

We have several. We invested in Zai Lab (NASDAQ: ZLAB) when it first listed. This company is run by Samantha Du, who has previously worked for Sequoia as well as Pfizer. She has an outstanding network of contacts in the industry and has put that to great use in licensing drugs for Zai Lab. I think people are beginning to understand this, but China is a more old-style pharma market where they use older drugs, which would we see as generics. However, they don't have the newer drugs that we take for granted. They want these new drugs now and they're ready to take them. A lot of clever Chinese biotechs have built companies around licensing, securing Chinese rights for drugs approved in the US or Europe.

Samantha Du did that very successfully. They then use that money from the licensing rights to build their own drug discovery pipeline. There are a couple of drugs that we know very well as they are already available in the US. Now, we're building out our portfolio with Chinese companies that are doing their own research and are in no way inferior.

One of your top holdings is an Australian unlisted company. Could you describe what the company does and what interested you in it?

SpeeDx is another a tool company that specialises in PCR. They have modified the existing technology slightly, which allows it to quickly pinpoint particulates and determine the bacterial resistance of users. It goes beyond just a yes or no answer: It will also inform what your resistance is, allowing practitioners to identify the antibiotic that will be the most effective for your respective resistance level. Such technology is very important and can be scaled up very quickly. SpeeDx recently did a collaboration with a big pharmaceuticals company, helping them to develop their antibiotics for a particular level of resistance. When the pharmaceuticals company approached them and expressed initial interest, it took less than three months to develop the test. The test was so robust that it could be used almost instantly. SpeeDx also developed a test to detect different respiratory diseases, which they are supplying to the US through one of their partners.

I am most impressed by the flexibility of their technology as well as the people behind it who work tirelessly to continue developing the subsequent iterations. When SpeeDx came to us, they had really struggled to get funding within the Australian market. Venture Capital firms tended to string them along and wanted to know overly-specific and unnecessary information. To us, it was very obvious: SpeeDx needed money, they needed to develop their tests further. Deals and partnerships would then flow naturally once that was consolidated.

How would you best describe the investment opportunity that your health care fund is pursuing?

I consistently tell everyone how exciting the space is - I cannot understand why everyone talks about tech and yet stays away from biotech. However, we are seeing US investors beginning to open their minds to this sector. One of the key tech investor firms there, Andreessen Horowitz, is starting to invest a lot more money into the industry as part of a recently established biotech fund. In my eyes, there is so much going on that I think you will regret it if you don't participate. In the 17 years that I've worked in funds management, I have never experienced the speed and excitement of new technologies that we are seeing today.

The opportunity set is huge and you will inevitably miss some, but provided you stay focused, remain close to the industry and understand where the trends are going, it should pay off in the long term.

What excites you most about your role?

I am most drawn to the adaptability of firms and innovative trends emerging within the space. One characteristic that still stuns me is how biotechs never really go bankrupt. They are like the Energiser Bunny that “keeps going and going and going...”, always finding something else to pivot into - they are very adaptable. We have seen this happen with AstraZeneca. Observing this company was one of my biggest learning curves. It came up constantly on my research screens and I saw that they kept failing, but I did not understand what drove those patterns. Eventually, I decided to look at it and was surprised: They had very good products in early stages of development, but somehow were so scared of failure that they couldn’t move forward. They always wanted more proof of effectiveness before making commitments to spending a lot of money.

I strongly believed something had to change for them to experience any sort of resurgence. Eventually they brought in Pascal Soriot as CEO, who was previously at Roche. He instilled a new culture and brought the best out in the company. I learned so much by observing him systematically adjust the company and completely alter its trajectory. Soriot looked at previously dismissed products and observed that they were in fact working across certain populations. In this scenario, they worked with Foundation Medicine and determined which population the drug worked in. Lo and behold, they accelerated the approval of this drug that would have been long buried and it is now a big drug for them called Lynparza.

Those stories excite me because there is always something new happening, there are so many different tools that people can use and it’s fascinating to see them come to life.

I am also excited about investing in local companies that need funding to progress to clinical trials – being part of their journey and seeing the positive impact on patients is very rewarding.

Maybe it's attention deficit disorder, but trying to find something new all the time and keeping your eyes open for any new opportunity that may arise is what gets me up every day.

Learn more about the leaders of tomorrow

Click here to visit the Platinum International Health Care Fund  Profile to learn more about the Fund, fees and performance.

Click here to visit the Dr Bianca Ogden Contributor Profile, to discover her investment philosophy and content.

DISCLAIMER: This article has been prepared by Platinum Investment Management Limited ABN 25 063 565 006, AFSL 221935, trading as Platinum Asset Management (“Platinum”). This information is general in nature and does not take into account your specific needs or circumstances. You should consider your own financial position, objectives and requirements and seek professional financial advice before making any financial decisions. You should also read the relevant product disclosure statement before making any decision to acquire units in any of our funds, copies are available at (VIEW LINK). The commentary reflects Platinum’s views and beliefs at the time of preparation, which are subject to change without notice. No representations or warranties are made by Platinum as to their accuracy or reliability. To the extent permitted by law, no liability is accepted by Platinum for any loss or damage as a result of any reliance on this information.

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James Marlay
Co Founder
Livewire Markets

Livewire is Australia’s #1 website for expert investment analysis. We work with leading investment professionals to deliver curated content that helps investors make confident and informed decisions. Safe investing and thanks for reading Livewire.

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