July 2021 Investment Update

July 2021 Investment Update

Dear investors and well-wishers,

The fund returned +14.3% net in June, bringing our calendar year-to-date performance to 16% and our FY2021 return to 93% net, and over 31% net annualised since inception.

FY21 Review

There were three key moments of FY21.

The first was right at the beginning, on 1 July. The market had rallied hard off the March 2020 coronvirus lows which to many looked like a soon-to-be-reversed anomaly. We were, after all, in the middle of a pandemic, with major cities from London to New York still locked down.

As it turned out, this was the beginning, not the end. Staying invested and not trading out of long-term positions for a short term win was drove our returns twelve months later.

The second key moment was in February earlier this year when growth stocks went vertical. We made a few mistakes here. We correctly sold down a few companies, like Plug Power which at one point was up twenty times, and others that were up more than ten times.

However, we ended up investing the proceeds of these sales into companies which, if anything, were lower quality than those we had sold, giving a net effect of reducing the quality of the portfolio.

This became apparent in the third key moment of the year three months later in May, when growth stocks plunged on inflation fears and a reversal of the ebullience of months prior.

We stayed long, steadily increasing our net exposure by 10%, exited the few companies that reported poor fundamentals, and managed to get some buying done at the lows. On average, our portfolio company fundamentals actually accelerated through this period, which set us up for a sharp recovery.

We wrote at the time that we saw these lows as a buying opportunity, as indeed, are most sell-offs (the two macro concerns we would take seriously are austerity and revolution).

So we got two of three key moments of FY21 correct, and can add the mistakes of February to the long list of bloody noses and scars accumulated over fifteen years that serve as a reminder never to go down the quality curve.

Of course, we should have known that well enough.

Life sciences

We spent a lot of time researching different platforms and going deep into mRNA, various methods of gene editing, and particular areas of interest like Alzheimer’s.

Ironically, the FDA’s startling decision to approve Biogen’s treatment for Alzheimer’s, which we, along with many, thought was absurd, lit a fire under the entire sector and our own Alzheimer’s investments rallied hard.

The vast bulk of our investments are in revenue generating platforms with the proven ability to launch treatment after treatment. Moderna has now advanced well over 10x from purchase, and it’s increasingly clear that booster shots are going to be required well into the future. The firm could easily generate $35-40 billion of high margin revenue over the next two years. In light of that, the $100 billion price tag doesn’t seem so crazy.

Digital health had some curious moves. Teladoc seemed about to launch to the moon along with the rest of the growth space in February, only to more than halve. The stock is up on our initial and average purchase prices, but is actually down over the last 12 months, quite an achievement in an epidemic.

This is at least partly due to indigestion caused by the buy-out of our preferred play, Livongo. This serves as a good demonstration of why we focus so much on organic growth.

Companies with a penchant for acquisition and share counts that rise too rapidly often end up with charts like this one:


Rather than guess whether the coronavirus boom would be lasting or temporary, we are taking our usual data-driven approach. As of mid-July, these companies are still firing, as is the entire consumer sector.

This was beneficial for our investment in Carvana, which is just shy of 10x from when we invested and wrote about it at the time.

Part of this was luck: used car prices have increased by an unprecedented 87% over the last year and are now accounting for about a third of the recent bout of inflation. As supply shortages ease we expect this to reverse, but the habit of buying a car online, with all the advantages that entails, is here to stay.

Sea, the e-commerce leader of South East Asia, entered South America, a region we assumed would be won by MercadoLibre. Now, we are not so sure. There is plenty of room for multiple e-commerce companies, but the dynamics of online retail generally favours one winner, and Sea has immense cash-flows from gaming to fund growth.

Sea’s Shopee app is now the most downloaded in Brazil:

Sea downloads and monthly active users in Brazil

MercadoLibre seems relatively unconcerned – publicly anyway – and happy to leave higher volume and lower margin markets to Sea, who is investing heavily in gaining market share (in this context, investing means running at a loss to gain market share).

Complacency rarely pays in tech, and Sea’s management team knows what they are doing. Accordingly, we have adjusted our relative exposure to own more of the faster growing new entrant.

We remain highly optimistic on MercadoLibre’s prospects in payments in a continent where 85% of transactions are still settled in cash, and the tailwind for e-commerce in both South America and South East Asia are immense.

A recent local win was in Cettire in Australia, which we bought in IPO and added along the way. There was a lot of fuss in the press quoting fund managers who thought the company overvalued, which we largely ignored. The business is real. Of course, we will hold the firm to the highest levels of fundamental performance, but will use data rather than opinion to make that assessment.

We continue to be amazed at the amount of opportunities available for entrepreneurs in Australia. Cettire didn’t exist a few years ago and is now a >$800m company.


Payments are still agonisingly baroque. It continues to frustrate us as to why there is no metadata around purchases. It should be straightforward to make a payment and have a corresponding receipt sent to a bank account or platform like Xero.

This is largely due to legacy systems: payments were one of the first major digital applications and extraordinarily advanced at the time, but that once-innovative legacy is now an ancient handbrake.

Some 43% of banking systems still run on COBOL, a 60 year old language that took CBA five years and a billion dollars to replace when they tried in 2012. COBOL still handles 95% of ATM swipes and 80% of in-person card transactions.

Square has continued to smash estimates. The lines in the chart below show average analyst forecasts for particular years, and, as we see in most of our high performing stocks, there is a clear and consistent trend from bottom left to top right – which is what we always want to see!

Square: average analyst projections for revenue in particular years. Note revenue includes low margin cryptocurrency revenue. 

The chart for Moderna is even more spectacular:

We added to Afterpay for the first time in over a year after the price halved from $160 to the $80s. BNPL is clearly maturing in Australia, their active customer base plateauing around 3.5mn users as at 1HFY21.

Fortunately this is only part of the story as users continue to utilize the platform more every year, with the >4 year cohorts transacting over 29x a year.

One of the more insightful ways to value Afterpay is to value each customer – and increasing frequency is a key driver of that value.

There is also scope to increase margin. Afterpay is launching a transaction account and will be able to capture significantly higher margins from customers who buy things with Afterpay, using cash in their app. Transaction costs and the like still chew up over 1% of GMV margin.


It seems the US market has finally reached some level of saturation when it comes to streaming. Netflix, Disney, Amazon, Apple – everyone is going for the same wallet and the same number of hours in the day. For the first time, the net number of streaming subscribers started to contract.

A mistake we made a few years ago was to invest in iQiyi, the Chinese Netflix (to a first approximation). As it turned out, the Chinese were far more interested in short form video, like Bilibili and Tik Tok. Revenue and market value followed where the kids were spending their time.

Now the West is experiencing something similar, as tech saturation means social media, mobile apps, gaming, long form video and short form video all compete for attention – a competition that Tik Tok is increasingly winning. Facebook has largely trashed their product by stuffing it with ads and favouring addictive, radicalising algorithms, but for better or worse, this has been great for profits and their stock price. (As a reminder we don’t invest in Apple/Amazon/Facebook/Google/Microsoft etc).


Chinese regulatory risk was in the headlines as Didi was pulled from app stores merely days after IPO – a startling move.

Since the highs in February, almost US$1 trillion, or -33% of market value, has been lost in China tech which is the largest sell-off in dollar value in history, even surpassing the move in 2018 triggered by Trump’s US/China trade war.

At the time we had a third of the fund in Asia so remember that episode well!

On the surface, the move looks hyper-aggressive.

However, Didi was apparently warned by the Chinese regulators and chose to push ahead anyway. If I was a Chinese CEO listing a company … I’d listen to the regulator. Of course, if I was listing an Australian company I’d listen to the Australian regulator too!

In that context, the move isn’t quite as startling as it first appeared.

Ride-sharing is particularly sensitive as it can show all kinds of important information: movements of key people, the true use of certain buildings, etc.

Third party data for Pinduoduo continues to impress. Pinduoduo is now the largest e-commerce provider in the world with a market cap of $135 billion. The stock has almost halved since February:

Managed fund exposure to foreign-listed Chinese firms has been falling for some time. Goldman Sachs put out some interesting charts:


We’ve made a few new additions and changes to the team. Joel Tomaino joined us a year ago from Alium and is now portfolio manager. Carolyn Kiffin joined us as Operations Manager after many years at Airlie Funds Management, Treasury Group, and other funds management firms. Costa Kyriacou joined as an analyst and accountant after 7 years at HLB Mann Judd’s fund management business. And Irene de Leon has joined us to provide client and operational support. Dr Robert Stretch has provided invaluable support in the life sciences – and some piercing anecdotes around treating COVID patients in US ICUs at the height of the epidemic. Anna Satouris, whom many of you will have spoken to over the years, recently gave birth to her third child, Christamaria, and we are looking forward to her return!

We are planning on launching our life sciences strategy as a stand-alone fund, if you’re interested in that please let me know. We are also likely to launch a retail fund in the next year or so, so if you’d like to be kept up-to-date on that please let me know as well.


This is now my fifth year running a fund, the last three of which were marked by sharp volatility, multiple periods of rising and falling interest rates, trade wars, left and right wing Governments, and all kinds of twists and turns. We seemed to do better as things got more volatile, even though the strategy steadily simplified over the years.

The real money was made by those who held onto their assets and ignored the noise, and looking back there were extraordinary opportunities in technology.

If I had to guess, I’d expect the two salient features of 2021 to continue: falling multiples and explosive growth in our portfolio companies.

But the next five years will likely tell a similar tale: many twists and turns, all kinds of interest rates moves, perhaps a surprise macro shock or two (hopefully not a new epidemic), but companies that add users and double in size every 1-2 years will be worth many multiples more then than they are now, and that’s the core of our strategy.

It has never been clearer where growth will come from and what kind of companies will deliver outstanding long term returns.

A sincere thank you for your support


SALT interview with Rachel Pether

SALT interview with Rachel Pether

Hello all,

I recorded the interview above with Rachel Pether from SALT (the alternative investment conference/forum founded by Anthony Scaramucci).

Yilan Yu at the Australian National University, who interns with us focusing on our life sciences investments, wrote a blog post summarizing recent articles (referenced below) regarding the development of mRNA vaccines. This is well-worn ground and borrows heavily from the sources, but still worth a read if you’re interested in this kind of thing.

Best wishes

mRNA therapeutics (Part I)

The following is Part I in a series of posts about mRNA therapeutics where we review its origins, why they’re better than conventional therapeutics in certain applications, and the challenges that they have historically faced in being used clinically. In this post, I review its role in the Covid pandemic, and look back to its roots 30 years ago, on the lab bench of Hungarian immigrant and biochemist Katalin Karikó.


As little as a year and a half ago, mRNA vaccines and the broader applications of mRNA as a class of drugs garnered scant attention. The technology had flown under the radar of both academia and the general public, whilst being developed and refined by a handful of ambitious biotech companies and laboratories.

Covid-19 changed all this. And it demonstrated some important advantages to mRNA technology:

1. mRNA vaccine development can be fast, really fast

Moderna’s first clinical batch was made on February 7th 2020, 25 days after they selected the target sequence for the coronavirus spike protein (which took 2 days). After the relevant regulatory approvals, the company administered the vaccine to a human in its first clinical trial, a total of 63 days after target selection. In contrast, a typical flu vaccine takes 9 months to make a batch, and overall development for novel disease targets can take years, up to a decade.

2. mRNA vaccines can work well

Phase III trials in Moderna and BioNTech’s candidates showed over 90% reductions in symptomatic Covid compared to control. This level of efficacy against a respiratory virus is practically unheard of. To put this in perspective, typical flu vaccines struggle to have efficacies over 50%.

3. mRNA vaccines are quickly adaptable

As new variants emerge (named after exotic Greek letters), the protection offered by the first generation of vaccines are being challenged – it’s like continuously firing at a target that’s slowly moving, without adjusting your aim. By sequencing the genome of new variants, mRNA vaccines can be readily reprogrammed to provide better targeted protection.

Out of all this, the leading companies behind mRNA vaccines – Moderna and BioNTech – have become multi-bagger wins for investors. Forecasted 2021 sales are $19.6 billion for Moderna and $21.5 billion for BioNTech (which would be split 50:50 with Pfizer).[2] This is roughly equal to AbbVie’s Humira (an antirheumatic antibody), which until this point in time, had the largest annual peak sales of any drug.[3]

The speed, ease and adaptability of mRNA as a vaccine is only a small part of mRNA’s potential – we will go into more detail about both vaccines and other indications in a future post. For now, I want to wind the clock back 30 years and look at where the seeds for these innovations were planted.

Lost in translation – mRNA’s origin story

Kariko’s mRNA obsession

Katalin Karikó was born in 1955 in Hungary, the daughter of a butcher. Despite not having met one, Katalin wanted to be a scientist from a young age. Karikó earned her PhD at the University of Szeged and worked as a postdoctoral fellow there. In 1985, the university’s research program ran out of money and Karikó, then in her 20s, moved to the US with her husband and a two-year-old daughter. After studying as a post-doctoral student at Temple University in Philadelphia, Karikó landed a low-level position in 1989 as a research assistant to cardiologist Elliot Barnathan at the University of Pennsylvania. There she became interested in messenger RNA.

Science Interlude: What is messenger RNA?

Messenger RNA (mRNA) is the intermediary (or messenger) between our genomes (which contains instructions for proteins) and the ribosome (where proteins are made).

Every protein in our body is coded for by deoxyribonucleic acids (DNA), a 4 letter code (A,T,G,C) stored in the nucleus of all our cells. It consists of two complementary strands that makes the iconic double helix and is wound and compacted onto chromosomes.

When our cells want to make a protein, the DNA sequence must be unwound and one strand is copied as ribonucleic acid (RNA). This strand then leaves the nucleus, and enters the cytoplasm where it is ‘translated’ into an amino acid sequence by the ribosome. This amino acid chain then folds into the right shape either independently or with help from proteins called chaperones. The cell can then modify the protein as needed and deliver it to where it has to do its job.

So mRNA is essentially a transcript that gets passed around. Once it does its job, it gets destroyed by enzymes called RNAses.

Now, theoretically if you wanted to get a cell to make a protein of interest, say the coronavirus spike protein, you could intercept the pathway at several points:

First, you could edit the genome to insert the spike gene into your DNA. The gene would make mRNA that would make the spike protein. This was next to impossible before CRISPR was discovered in the 2010s, but it’s also a bad idea because it means you would be permanently generating spike proteins. There’s also little to no control over the levels of protein you would generate. For a vaccine, you want something transient and dose-controlled.

So instead, you could go one step down and feed cells mRNA directly, and you could use it to make virtually any protein you want, harnessing the power of the cell’s native machinery.

Back to the story…

This was the focus of Karikó’s career and initially, things were promising. In one of her early experiments with Dr. Barnathan, the pair inserted mRNA into cells to make a protein called a urokinase receptor. Since urokinase receptors binds specifically to urokinase, the experiment involved using a radioactive version of urokinase and then measuring how much of the molecule stuck to the cells with a gamma counter.

It was a success – the detector indicated these cells were making proteins that they weren’t able supposedly to make. The pair dreamt of using mRNA to improve blood vessels for heart bypass surgery or extend the lifespan of human cells.

“I felt like a god,” Dr. Karikó recalled.

However, Dr. Barnathan was soon offered a place at a biotech firm and Karikó was left without a lab. At the time, mRNA as a drug was such a nascent concept that almost nobody took it seriously or was willing to fund it.

“Most people laughed at us,” Dr. Barnathan said.

Katalin Kariko (middle) with her husband Bela and two-year-old daughter, Susan.

It didn’t help that Dr. Kariko “was not a great grant writer,” with an immigrant background.

Neurosurgeon Dr. David Langer, who knew Dr. Karikó from his years as a medical resident at Dr. Barnathan’s lab, urged the head of the neurosurgery department to keep Dr. Karikó. With Katalin (‘Kate’), Dr. Langer hoped to use mRNA to treat patients who developed blood clots following brain surgery, often resulting in strokes. His idea was to get cells in blood vessels to make nitric oxide, a substance that dilates blood vessels. Doctors couldn’t just inject nitrous oxide because it had a half-life of milliseconds – the effect was too short-lived.

Unfortunately, their experiments with mRNA had little success. Later on, David Langer would reflect that Dr. Karikó taught him that one key to real scientific understanding is to design experiments that always tell you something, even if it is something you don’t want to hear.

“There’s a tendency when scientists are looking at data to try to validate their own idea,” Dr. Langer said. “The best scientists try to prove themselves wrong. Kate’s genius was a willingness to accept failure and keep trying, and her ability to answer questions people were not smart enough to ask.”

Throughout her career, Dr. Karikó had clung to the fringes of academia, migrating from lab to lab and never making more than $60,000 per year. After a few years, Dr. Langer left the university as well, and again Dr. Karikó was without a lab or funds.

“Every night I was working: grant, grant, grant,” Karikó remembered, referring to her efforts to obtain funding. “And it came back always no, no, no.”

But 1995 was a particularly tough year for Dr. Karikó – after 6 years at the University of Pennsylvania, Karikó was demoted, diagnosed with cancer and her husband was stuck in Hungary sorting out a visa issue. She had been on the path to full professorship, but with no money coming in to support her work on mRNA, her bosses saw no point in pressing on. Fortunately, the cancer diagnosis was just a scare – a false positive – but the work she had devoted her career to was again at stake.

“I thought of going somewhere else, or doing something else,” Karikó said. “I also thought maybe I’m not good enough, not smart enough. I tried to imagine: Everything is here, and I just have to do better experiments.”

A meeting at a photocopying machine threw a lifeline. Immunologist Dr. Drew Weissman happened by, and she struck up a conversation. “I said, ‘I am an RNA scientist — I can make anything with mRNA,’” Dr. Kariko recalled.

Dr. Weissman told her he wanted to make a vaccine against H.I.V. “I said, ‘Yeah, yeah, I can do it,’” Dr. Kariko said.

At Weissman’s lab, Karikó worked on the problem that had been a stumbling block of mRNA, which Karikó’s many grant rejections pointed out – it could work in cell cultures, but in a living system, synthetic RNA was notoriously vulnerable to the body’s natural defenses, meaning it would likely be destroyed before reaching its target cells.

“Nobody knew why,” Dr. Weissman said. “All we knew was that the mice got sick. Their fur got ruffled, they hunched up, they stopped eating, they stopped running.”

As would later become apparent, the immune system thought that synthetic mRNA looked enough like something from a virus for it to mount an inflammatory response.

But with that answer came another puzzle. Every cell in every person’s body makes mRNA, and the immune system turns a blind eye. “Why is the mRNA I made different?” Dr. Kariko wondered.

A control in an experiment finally provided a clue. Dr. Kariko and Dr. Weissman noticed their mRNA caused an immune overreaction. But the control molecules, another form of RNA in the human body — so-called transfer RNA, or tRNA — did not.

A molecule called pseudouridine in tRNA allowed it to evade the immune response. As it turned out, naturally occurring human mRNA also contains the molecule. The solution, Karikó and Weissman discovered, was the biological equivalent of swapping out a tire.

Added to the mRNA made by Dr. Kariko and Dr. Weissman, their synthetic mRNA not only evaded the immune system, but it also made a lot more protein – 10 times as much protein in each cell.

“That was a key discovery,” said Norbert Pardi, an assistant professor of medicine at Penn and frequent collaborator. “Karikó and Weissman figured out that if you incorporate modified nucleosides into mRNA, you can kill two birds with one stone.”

“We both started writing grants,” Dr. Weissman said. “We didn’t get most of them. People were not interested in mRNA. The people who reviewed the grants said mRNA will not be a good therapeutic, so don’t bother.’”

After a series of rejections from leading scientific journals, their research was finally published[4] in Immunity, but received little attention.

Dr. Weissman and Dr. Kariko then showed they could induce an animal — a monkey — to make a protein they had selected. In this case, they injected monkeys with mRNA for erythropoietin, a protein that stimulates the body to make red blood cells. The animals’ red blood cell counts soared.

The scientists thought the same method could be used to prompt the body to make any protein drug, like insulin or other hormones or some of the new diabetes drugs. Crucially, mRNA also could be used to make vaccines unlike any seen before. Instead of injecting a piece of a virus into the body, doctors could inject mRNA that would instruct cells to briefly make that part of the virus.

“We talked to pharmaceutical companies and venture capitalists. No one cared,” Dr. Weissman said. “We were screaming a lot, but no one would listen.”
However, Karikó and Weissman’s work wasn’t totally ignored. It caught the attention of two key scientists — one in the United States, another abroad — who would later help found Moderna and BioNTech.

Derrick Rossi, future co-founder of Moderna, was a 39-year-old postdoctoral fellow in stem cell biology at Stanford University in 2005 when he read the first paper. Not only did he recognize it as groundbreaking, he now says Karikó and Weissman deserve the Nobel Prize in chemistry.

But Rossi didn’t have vaccines on his mind when he set out to build on their findings in 2007 as a new assistant professor at Harvard Medical School running his own lab. Instead, he was interested in using modified mRNA to reprogram adult cells to act like embryonic stem cells – these are cells that can turn into any cell in the body. However, procuring these cells for research had set off an ethical firestorm because they were normally harvested from discarded embryos. Rossi wanted to use mRNA to produce a new source of embryonic stem cells that would be cheaper and side step this controversy.

He asked a postdoctoral fellow in his lab to explore the idea. In 2009, after more than a year of work, the postdoc waved Rossi over to a microscope. Rossi peered through the lens and saw something extraordinary: a plate full of the very cells he had hoped to create.

The founding of Moderna

Rossi excitedly informed his colleague Timothy Springer, another professor at Harvard Medical School and a biotech entrepreneur. Recognizing the commercial potential, Springer contacted Robert Langer, the prolific inventor and biomedical engineering professor at the Massachusetts Institute of Technology.

On a May afternoon in 2010, Rossi and Springer visited Langer at his laboratory in Cambridge. What happened at the two-hour meeting and in the days that followed has become the stuff of legend — and an ego-bruising squabble.

Langer is a towering figure in biotechnology and an expert on drug-delivery technology. At least 400 drug and medical device companies have licensed his patents. His office walls display many of his 250 major awards, including the Charles Stark Draper Prize, considered the equivalent of the Nobel Prize for engineers.

As he listened to Rossi describe his use of modified mRNA, Langer recalled, he realized the young professor had discovered something far bigger than a novel way to create stem cells. Cloaking mRNA so it could slip into cells to produce proteins had a staggering number of applications, Langer thought, and might even save millions of lives.

“I think you can do a lot better than that,” Langer recalled telling Rossi, referring to stem cells. “I think you could make new drugs, new vaccines — everything.”
Langer could barely contain his excitement when he got home to his wife.

“This could be the most successful company in history,” he remembered telling her, even though no company existed yet.

Three days later Rossi made another presentation, to the leaders of Flagship Ventures. Founded and run by Noubar Afeyan, a swaggering entrepreneur, the Cambridge venture capital firm has created dozens of biotech startups. Afeyan had the same enthusiastic reaction as Langer, saying in a 2015 article in Nature that Rossi’s innovation “was intriguing instantaneously.”

Within several months, Rossi, Langer, Afeyan, and another physician-researcher at Harvard formed the firm Moderna — a new word combining modified and RNA.
Springer was the first investor to pledge money, Rossi said. In a 2012 Moderna news release, Afeyan said the firm’s “promise rivals that of the earliest biotechnology companies over 30 years ago — adding an entirely new drug category to the pharmaceutical arsenal.”

The Founding of BioNTech

In Mainz, Germany, situated on the left bank of the Rhine, another new company was being formed by a married team of researchers who would also see the vast potential for the technology, though vaccines for infectious diseases weren’t on top of their list then.

A native of Turkey, Ugur Sahin moved to Germany after his father got a job at a Ford factory in Cologne. His wife, Özlem Türeci had, as a child, followed her father, a surgeon, on his rounds at a Catholic hospital. She and Sahin are physicians who met in 1990 working at a hospital in Saarland.
The couple have long been interested in immunotherapy, which harnesses the immune system to fight cancer and has become one of the most exciting innovations in medicine in recent decades. In particular, they were tantalized by the possibility of creating personalized vaccines that teach the immune system to eliminate cancer cells.

Both see themselves as scientists first and foremost. But they are also formidable entrepreneurs. After they co-founded another biotech, the couple persuaded twin brothers who had invested in that firm, Thomas and Andreas Strungmann, to spin out a new company that would develop cancer vaccines that relied on mRNA.

That became BioNTech, another blended name, derived from Biopharmaceutical New Technologies. Its U.S. headquarters is in Cambridge. Sahin is the CEO, Türeci the chief medical officer.

Like Moderna, BioNTech licensed technology developed by the Pennsylvania scientist whose work was long ignored, Karikó, and her collaborator, Weissman. In fact, in 2013, the company hired Karikó as senior vice president to help oversee its mRNA work.

Two is company

In 2011, Moderna hired CEO Stéphane Bancel, a rising star in the life sciences, a chemical engineer with a Harvard MBA who was known as a businessman, not a scientist. At just 34, he became CEO of the French diagnostics firm BioMérieux in 2007 but was wooed away to Moderna four years later by Afeyan.

Moderna made a splash in 2012 with the announcement that it had raised $40 million from venture capitalists despite being years away from testing its science in humans. Four months later, the British pharmaceutical giant AstraZeneca agreed to pay Moderna a staggering $240 million for the rights to dozens of mRNA drugs that did not yet exist.

Moderna’s promise — and the more than $2 billion it raised before going public in 2018 — hinged on creating a fleet of mRNA medicines that could be safely dosed over and over. But behind the scenes the company’s scientists were running into a familiar problem. In animal studies, the ideal dose of their leading mRNA therapy was triggering dangerous immune reactions — the kind for which Karikó had improvised a major workaround under some conditions — but a lower dose had proved too weak to show any benefits.

Moderna had to pivot. If repeated doses of mRNA were too toxic to test in human beings, the company would have to rely on something that takes only one or two injections to show an effect. Gradually, biotech’s self-proclaimed disruptor became a vaccines company, putting its experimental drugs on the back burner and talking up the potential of a field long considered a loss-leader by the drug industry. Soon clinical trials of an mRNA flu vaccine were underway, and there were efforts to build new vaccines against cytomegalovirus and the Zika virus, among others.

Meanwhile, BioNTech initially lay low and garnered little attention. Unlike Moderna, BioNTech took to mRNA more from an academic approach, publishing research from the start – about 150 scientific papers in the past 8 years.

In 2013, the firm began disclosing its ambitions to transform the treatment of cancer and soon announced a series of eight partnerships with major drug makers. BioNTech has 13 compounds in clinical trials for a variety of illnesses but, like Moderna, has yet to get a product approved.

When BioNTech went public last October, it raised $150 million, and closed with a market value of $3.4 billion — less than half of Moderna’s when it went public in 2018.

Despite his role as CEO, Sahin has largely maintained the air of an academic. He still uses his university email address and rides a 20-year-old mountain bicycle from his home to the office because he doesn’t have a driver’s license.

New year’s 2019

Shortly before midnight, on December 30th, the International Society for Infectious Diseases, a Massachusetts-based nonprofit, posted an alarming report online. A number of people in Wuhan, a city of more than 11 million people in central China, had been diagnosed with “unexplained pneumonia.”

Chinese researchers soon identified 41 hospitalized patients with the disease. Most had visited the Wuhan South China Seafood Market. Vendors sold live wild animals, from bamboo rats to ostriches, in crowded stalls. That raised concerns that the virus might have leaped from an animal, possibly a bat, to humans.

After isolating the virus from patients, Chinese scientists on Jan. 10 posted online its genetic sequence. Because companies that work with messenger RNA don’t need the virus itself to create a vaccine, just a computer that tells scientists what chemicals to put together and in what order, researchers at Moderna and BioNTech jumped into action…

A Life’s Dream

On November 8th, after positive Phase III results of the Pfizer-BioNTech study came in, Dr. Kariko turned to her husband Bela. “Oh, it works,” she said. “I thought so.” To celebrate, she ate an entire box of Goobers chocolate-covered peanuts. By herself.
Dr. Weissman celebrated with his family, ordering takeout dinner from an Italian restaurant, “with wine,” he said. Deep down, he was awed.
“My dream was always that we develop something in the lab that helps people,” Dr. Weissman said. “I’ve satisfied my life’s dream.”
Dr. Kariko and Dr. Weissman were vaccinated on Dec. 18 at the University of Pennsylvania. Their inoculations turned into a press event, and as the cameras flashed, she began to feel uncharacteristically overwhelmed.
A senior administrator told the doctors and nurses rolling up their sleeves for shots that the scientists whose research made the vaccine possible were present, and they all clapped. Dr. Kariko wept.
Things could have gone so differently, for the scientists and for the world, Dr. Langer said. “There are probably many people like her who failed,” he said.

 June 2021 Investment Update

 June 2021 Investment Update

Dear investors and well-wishers,

The fund contracted -4.0% in May taking us to +1.5% for the calendar year-to-date and a net IRR of 26% per annum. While we are well off our peak in February, we have had a strong start to June and are ahead of where we were at the start of May. Our stocks are almost 50% away from their 52-week highs.


One metric we track carefully is the organic growth rate of our portfolio companies. After the latest reporting season, and adjusting for things like acquisitions, this is now running at 150%, which is higher than it has ever been.

The increase was due to three factors:

1) the fundamentals of many of our companies accelerated,
2) we added to those performing best and winning the largest share of wallet, and
3) we sold out of a small number who were spending too much to grow or missed their numbers.

Positioning has also swung nicely in our favour. We have shown these charts before but they are worth repeating as the situation is rare:
1) Professionals have swung from overallocated to technology to underallocated:

2) This is clear in fund flows as well:

untitled image

3) Fund managers are now overexposed to late cyclicals:

4) Mutual funds are also now chronically underweight technology.

It was this sharp swing in sentiment and positioning that caused the recent sell-off in growth.

Pulling all that together we now have:
1) accelerating company fundamentals,
2) stocks well off their recent highs,
3) surprisingly negative positioning and sentiment.

I’m often asked to give a heads up when I think it’s a good time to allocate. I usually try and dodge the question, but this looks like a decent setup. It’s rare that investing in technology is a contrarian thing to do, and these moments can pass quickly.



This keeps coming up so I’d like to expand on it. It affects our portfolio companies in two ways: valuations and fundamentals.

Valuations are likely to compress, but this is trivial relative to long term growth rates. In fact, stocks can suffer a material 75% multiple contraction and still post exceptional long term returns:

When modelling each portfolio company, we assume a substantial multiple contraction and slow-down in growth.

The most recent US inflation number and suggestion from the Fed that rate rises would be pulled forward was met with a rally in growth stocks, giving a price action read on what the charts above already told us: the market is crowded on the other side of the trade (whatever ‘crowded’ means).

On fundamentals, the first (positive) effect is simply through higher prices. An advantage of focusing on companies with customer love is they all have exceptional pricing power, as seen in some of the blowout results of the late reporting season.

E-commerce platforms obviously transfer price increases through directly. But there’s something more interesting going on.


The coronavirus e-commerce boom of 2020 has morphed into a broader consumer boom.

This can be seen everywhere from real estate to autos. In the United States, people are selling second-hand cars for more than they bought them new. I can’t remember even reading about a situation like that.

A second (negative) effect is through higher input prices, which can squeeze mid-supply chain manufacturers in unpredictable and uneven ways. Fortunately, commodity inputs are small cost components for technology companies. The raw ingredients purchased by a pharmaceutical enterprise are trivial relative to its IP, for example. So we are protected there.

A third effect is the impact of higher interest rates on cash flows – particularly relevant for leveraged sectors. Given most of our companies hold net cash, they are actually minor beneficiaries of higher interest rates.

Fourthly, wage costs can be expected to rise, and there are all kinds of data and anecdotes that suggest this is the case today. Staff costs are very relevant for technology companies, but the high cost of each employee is more than matched by efficiency. A salesperson or software engineer can generate very significant revenue compared to say, a retail or factory worker.

Think of a heavily leveraged factory employing thousands of workers, that converts steel and raw materials into widgets for other factories higher in the supply chain. That is where inflation hurts. Ironically it is precisely those kinds of companies that have outperformed recently. 


Inflation fears have resulted in a sell-off in rockstar technology companies and a rally in old school industrials. Long term, we know where we want to be.

Over the last few days inflation has surprised to the upside and the Fed has talked about lifting rates. In a welcome reversal of recent form, this coincided with a strong rally in growth stocks, which shows the dangers of blindly following market narratives, and supports the message in the charts above: positioning is facing the other way.

Our team has done a lot of work on Alzheimer’s lately. If you’d like to see it, please send me a message and I’d be happy to share some of our longer pieces. If there’s enough interest, I’ll send it out to the mailing list.

Finally, I know many of you joined us in mid-February before the recent sell-off. Rest assured we are working hard to set the portfolio for the next leg up, ruthlessly culling companies that aren’t performing, and allocating carefully to those that are.

My best guess is the combination of ~150% growth, bearish professional positioning in technology, and a 30% sell-off in growth bodes well for returns from here.

I’ll host a webinar with a colleague next Thursday 10.30am Sydney time, please send in any questions or ask live, and register here.

Best wishes


May 2021 Investment Update

May 2021 Investment Update

Dear investors and well-wishers,

The fund advanced +1.2% in April taking us to +5.7% net for the calendar year-to-date and a net IRR since inception of 29% per annum, and +75% net for the financial year-to-date.

I recorded a podcast with Dr Robert Stretch. Rob graduated from Yale Medical School and conducted research at UCLA and BIDMC, one of Harvard’s teaching hospitals.

In May there was a further sell-off in growth stocks that seems to have stabilised. Multiples are down ~50% from the start of the year, using estimates for 2021. Ofcourse, given the growth of these companies the year-to-date change is much less, as is the move in the portfolio:

Source: Sentieo. We made some adjustments to estimate current organic growth rate. EV/Sales multiples are taken using market data from CY20 and average estimates for CY21.

We were buyers of many of the stocks above over the last two weeks.

Software has also been hit, and we made some small purchases over the last week or so.

Source: Sentieo. We made some adjustments to estimate current organic growth rate. EV/Sales multiples are taken using market data from CY20 and average estimates for CY21. Inflation

The latest fall was triggered by a US Inflation print of 4%. So why is the Fed so seemingly relaxed?

One reason is that the year-on-year number is flattered by being compared to the same time last year, when consumer prices actually fell (our own 12 month number shows a similar effect). Another is that there has been a clear change in policy preference towards full employment – and this is a very welcome change.

One of the hangovers of 2008/2009 was stagnant wages. Full employment disproportionally benefits all kinds of disadvantaged members of society, who are far more likely to find work when labour markets are tight.

The SPAC bust up continued and rightly so. CEOs that published financial forecasts out to CY25 are already beginning to downgrade expectations for CY21, in some cases barely weeks since marketing those same forecasts to new investors.

Furthermore, the many retail investors who bought their first shares in March or April last year are experiencing their first sell-off. Some have accumulated hundred of thousands of followers since, so watching this all play out on twitter is quite a sight.

Our view is that inflation is likely to benefit our companies, as they all have extensive pricing power. This was seen in their ability to grow during the short-lived contraction of 2020. Having said that, we think multiples are past their highs of this cycle, so returns from here will be driven by fundamentals. Through this reporting season we’ve had an opportunity to glimpse under the hood and see how companies are tracking, and make sure we own a portfolio of winners only.

As with the sharp sell-offs of 2015, 2016, and late 2018, we see rate-induced sell-offs as rare opportunities to buy into rockstar companies, with the caveat that we expect the more speculative end of the market to continue to suffer.

Here is a selection of portfolio companies showing how well they are currently performing, and how far they have fallen from recent heights.

MercadoLibre (down 32% from recent highs) is the largest online ecommerce and payments ecosystem in Latin America. They reported net revenues in the first quarter of 2021 of $1.4b, a year-over-year increase of 158%. They have now experienced three consecutive quarters of sales growth over 140%.

On an EV/Sales basis, this is as cheap as the company has traded in a year.

Estimates have also been steadily increasing:

We added to MercadoLibre over the past week and it is now one of our largest positions at ~6%.

Negative price momentum but positive operational momentum is something of a sweet spot for us.

Roblox (down 10% from recent highs) is a recent IPO we invested in, and in a sharp contrast to first-time SPAC reporters, smashed expectations recording $387m in first quarter revenue, an increase of 140% year on year.

Bookings were up 160% and free cash flow was up over 4x year-on-year. These kind of growth rates in a US$40 billion dollar company are precisely where we focus our fund.

Daily active users are growing at 79%, but more impressively, spend per customer grew at 48%, showing the firm is getting better and better at monetising their enormous user base and justifying their serious free cash flow investment in user acquisition.

Square (down 27% from recent highs) reported over 200% growth, but this includes bitcoin, so perhaps a better metric is growth in gross profit, which grew 79% year-on-year.

Our thesis here is that Square is one of only a handful of players that can create a closed payment loop between merchant and customer networks.

Square, ofcourse, started with merchants, but has invested heavily in their consumer offering. There are now over 36 million people transacting through Square’s app:

Source: Square Investor Relations

This is precisely the return on investment and profile we look for in portfolio companies:

Source: Square Investor Relations

Square continues to get exceptional gross profit dollar returns on acquisition spend:

Source: Square Investor Relations

Another way of looking at this is by cohort. In five more years, there will be five more cohorts adding to this chart:

Source: Square Investor Relations

We are in these companies for the long term.

Moderna (down 19%) finally reaped the rare financial rewards of years of hard scientific work and risk, recording quarterly revenue of $1.9 billion and net income of $1.2 billion. 102 million doses were shipped, suggesting a ~$19 average dose price. The firm expects to ship 1 billion doses this year, and 2 billion doses next year.

Multiply those numbers by the average selling price and you can see why we think the current $60 billion market cap still represents good value.

The real value of course, is that $15-20 can vaccinate against a disease that resulted in trillions of dollars of spending. It was great to see the Australian Government finally spending up and purchasing 20 million doses from Moderna, a trivial amount relative to the fortunes spent on JobKeeper and JobSeeker, and equivalent programs around the world.

The company has signed Advance Purchase Agreements for $19.2 billion over the next twelve months, and has $8.2 billion cash already on its balance sheet. So far the vaccine seems to work against new variants from around the world, and in any case, can easily be amended.

The red dots below mark the changes of different variants in the spike protein (B117 is a UK variant, B1351 is a South African variant, and P1 seems to have come from Brazil – usual caveats apply).

Coronavirus spike protein with mutations by variant. Source: Moderna Investor Relations

Moderna plans to target mutations in three ways: by developing vaccines for specific variants, by delivering a multivalent vaccine, and by offering third booster shots of their existing vaccine or the second generation equivalent.

As we have discussed at length, Moderna’s approach is likely to be effective for a variety of other viruses from herpes to influenza, and a host of otherwise untreatable rare genetic diseases.

Moderna’s pipeline. Source: Moderna Investor Relations

Lower respiratory infections still consist of one of the leading causes of death globally, far ahead of most cancers.

Current influenza viruses are manufactured in eggs, and accumulate mutations adapting to egg life that reduce their effectiveness. mRNA vaccines are a far more elegant approach to diseases that are particularly nasty for those young and old:

Source: Moderna Investor Relations

Endemic coronaviruses from past epidemics are still causing serious trouble, and over the coming years Moderna will be able to offer regular injections targeting multiple indications, perhaps even with a single vaccine protecting from new coronavirus strains, influenza, and other respiratory diseases.

This isn’t speculation: the principles have all been decisively proven and it would be far more surprising if this wasn’t possible.

This line of thinking is what made us so optimistic about vaccine approvals last year, when Moderna was a fraction of the price. Given the success of their early safety and immunological studies, it would have been more surprising if it didn’t work, though this was a time when it was taboo for any policymaker to be so optimistic.

Source: Moderna Investor Relations

Other compelling late stage targets include CMV from the Herpes family, which affects one in 200 babies, causing congenital defects and, with age, immune dysfunction. Epstein-Barr Virus, which increases risk of multiple sclerosis by 10x-15x, is another worthy target, as, ofcourse, is HIV, which while tamed, can still have frightening long term health consequences.

Moderna has promised not to enforce IP protections during the pandemic, but retains significant manufacturing know-how around mRNA and the proprietary lipid nanoparticles that proved the breakthrough technology.

Those working at Moderna and firms like it are the true heroes of the modern era, despite being under fairly vicious attack in 2020 from short sellers, and today from politicians and various celebrities.

We first wrote about Carvana (down 30% from recent highs) in early 2019. The company has advanced over 6x since then.

Return since initial purchase

Carvana is an online dealership where cars can be bought on an app and delivered days later. The firm can handle every part of the process from insurance, to trading in your old vehicle.

In addition to convenience, the customer experience is vastly ahead of that of visiting a dealership. Carvana offers a nationwide inventory rather than the several hundred vehicles that just so happen to be on the lot, and by saving on sales commissions they underprice the market by ~$1,000/car. Customers can return the car after a week for no cost – effectively a 7 day test-drive, and receive a 100 day warranty.

This quarter they recorded $2.2b in revenue, an increase of 104%, with gross profit increasing 145% to $338m year-on-year. Things remain on track, and despite all their progress, the firm has a miniscule market share.

Source: Carvana Investor Relations

Alnylam (down 25% from recent highs) has much in common with Moderna. It has proven platform technology, only instead of mRNA they own key technology around RNAi – the i standing for interference. Like Moderna, they’ve generated an extensive pipeline across genetic medicines, cardio-metabolic diseases, infectious diseases, and those of the eye and central nervous system.

And like Moderna, the company has already proved it can execute. Net product revenues for Q1 2021 were $136m, a 89% increase year-on-year. They have forecast 40% revenue growth to 2025, which unlike less scrupulous management forecasts, we think they can easily achieve.

The firm is targeting over 4 Investigational New Drug applications each per year.


Feels strange to write this but today marks the best environment we’ve seen in a long time for over-leveraged, old economy industrial stocks. Supply chains are stretched and an industrial recovery is in full swing, fully supported by policymakers.

Nevertheless, irrespective of the growth-vs-value debate, the value of our portfolio companies will be driven by fundamentals,as they increase their user base, gross profit dollars, and in the case of the life sciences, bring additional treatments to market.

The beauty of ultra-growth companies is that you don’t have to wait long for them to improve fundamentally. As we move into the second half of 2021, many are 30-50% larger than they were at the start of the year, and will do the same again over the next six months.

Situations when stock prices are down, but fundamentals higher make for good buying opportunities (in funds as well as stocks!) in our view. We will post an update focused entirely on the work we have been doing in the life sciences next Monday morning at 10.30am Sydney time, please register here.



March 2021 Investment Update

March 2021 Investment Update

Dear investors and well-wishers,

The fund contracted -9.1% in March taking us to +4% net for calendar 2021, +74% net for the financial year-to-date and +188% net over the last 12 months.

Returns to 31 March 2021

While writing this I came across our note from last year. It’s hard to tell if this feels recent, or a very long time ago indeed:

Excerpt from our investment update this time last year:

March in 2021 was far less dramatic than 2020, but about a third has been knocked off multiples across some of our key holdings:

Summary statistics for a selection of fund holdings. Price movements and EV/Sales for 2020 and 2021 are taken from Sentieo. We have made adjustments to account for organic growth.

There are a few points of note in the table above.

Firstly, the ‘Change in multiple’ over those dates is much larger than the ‘YTD price change’, mostly due to the exceptional growth rates of the stocks themselves. A company growing at 100% can weather a multiple contraction far easier than one growing at 10%.

Secondly, the fund itself performed better than the stocks above, which was partly due to some fortunately timed exits of richly valued companies, but mostly due to new positions which shielded the blow.

Perhaps more interestingly, growth stocks are well off recent highs: the examples above are 28% down. From here, the relevant number is actually the inverse of this, the distance to the recent 52 week high, which is 39%.

We track this number across our portfolio and this number is as high as it’s been since this time last year.

Fundamentals first

Since 30 June 2020, US 10 year interest rates have risen around 100 basis points. Over this period the fund has netted 74%, including this steep sell-off in growth. This is largely because their fundamental performance trumped macro concerns.

There is something relieving about seeing valuations return to a more normal state. We appreciate that many investors joined us in February (we were also investing throughout February), this bodes well for future returns.

In the past, investors have joined us on the eve of the COVID crash, and right before the steep interest-induced sell-off in 2018. In both cases, subsequent performance was strong irrespective of timing.

Particularly in companies that are growing as fast as ours, the most important thing is generally to get the company analysis correct, not the timing.

We wish we could go back to 2016 and pay the 52 week high for Shopify, Afterpay, Tesla, or any of a number of stocks displaying explosive growth and true customer love at the time.


The sell-off was particularly sharp in software, which has had a charmed run over the past five years.

We were fortunate to have reduced our exposure to the sector significantly, from one of our larger weightings down to <3%.

Summary statistics for a selection of fund holdings. Price movements and EV/Sales for 2020 and 2021 are taken from Sentieo. We have made adjustments to account for organic growth.

We think it unlikely anyone will get rich buying Snowflake at 133x sales.

Best-in-class, long-term category winners in the software space are still quite expensive on absolute terms, but are at least now back to levels that will likely reward >5 year holders. If multiples contract another 30% from here, forward returns will start to become very interesting, so we are watching closely.

Fortunately, there are still companies growing at over 100% organically, trading at single-digit EV/Sales multiples, two orders of magnitude less than Snowflake. This is where we are spending our time and capital.

We didn’t reduce our software holdings because we thought the stocks would crash, rather that they would move sideways for an extended period of time, with volatility, while the fundamentals caught up with the multiples. So far that seems to be holding out.


I was recently asked what we think of Chinese regulatory risk, specifically the difficulty of pinning down what you actually own when you buy a US-listed American Depositary Receipt (ADR) of a Chinese company. It turns out you own a Variable Interest Entity, or VIE, that the Chinese Government has never explicitly approved.

This scares people and there are countless essays on the internet on the creatively opaque ownership structure of these companies, whose authors presumably were smart enough to untangle the legals, but missed the exceptional returns on offer.

If push-came-to-shove, China could indeed cut the ownership link between the domestic company and the foreign shares, but we think that extraordinarily unlikely.

The reason is simple: these structures are incredibly lucrative. Chinese companies raise US dollars and rarely pay dividends. Money flows in one direction – to China – and the Chinese retain full control.

It’s strange looking back now, but about a decade ago the BRICs were the cool thing in markets. Western managers flocked to China and most were quickly humbled. (Second acts don’t seem to work so well with funds. The managers who string together historic track records tend to do it in a single vehicle.)

As it turned out, there were in fact phenomenal returns on offer, just not in the ‘cheap’ industrials and conglomerates that were fashionable at the time. Instead, as it turned out elsewhere, the real money was made in fast-growing, widely- loved tech companies that grew bigger and stronger every year.

There’s increasing risk on the US side that these structures come under legal scrutiny, perhaps justifiably so. But the VIEs could relist or dual-list in Hong Kong quite easily. And the Americans care about money too.


There is a lot going on under the surface. The regime shift that began in April 2020 may have come to an end in February. The sharp change in spending patterns triggered last year when travel and dining budgets were cut to zero and consumer spending exploded will at least partly reverse.

It will soon be cooler to be seen in Japan or Mykonos than Byron Bay.

When it comes to technology, however, we are not going back to 2019. Many of the positive developments are here to stay.

Inflation has also arrived, as seen in official statistics, inflation markets, and certainly by anecdote. Looking at real estate sales in Sydney (and this is by no means local) it’s clear that one million dollars today is not the same as one million dollars five years ago.

The Mannheim US used vehicle index – another indication of inflation
This will have unpredictable consequences.

The traditional play in inflationary environments is to borrow and buy real assets. Real estate works particularly well, as adult humans will work twenty years to buy a house, irrespective of what’s happening to the currency.

The traditional cautionary counter-argument is that high inflation is generally accompanied by higher rates, making this strategy expensive and risky. Which is why today is so very strange.

Inflation statistics are flattered by a healthy year-on-year comparison with last March (as was, we have to admit, our own 12 month number), but if we had to guess we would say the circa forty year trend of lower interest rates and lower inflation has now reversed. Then again, people have been making that call for nearly forty years!

We find this kind of macro speculation interesting, but having spent the last few years watching companies grow users, revenues and gross profit dollars by 10x, 20x or more, we are more convinced than ever that the smart play in the equity market is to focus on fundamentals and weather the volatility. Our best current investment idea is to hold a portfolio of ~50 brilliantly loved companies growing at over 100%.

Thank you for all your support,