First Quarter 2014
Market Commentary
CI Global Health Sciences Corporate Class
The fund outperformed its relevant benchmark during the first quarter of 2014. By far, the biggest contributor to
performance was Intercept Pharmaceuticals. Intercept was running a phase III clinical trial in primary biliary
cirrhosis (PBC) using a modified bile acid. While investors were focused on this trial, a phase II trial in nonalcoholic steatohepatitis (NASH) was stopped early because of efficacy. This is an even larger opportunity than
PBC and took the market by surprise. We also saw outperformance across a variety of sub-sectors, in companies
including Rite Aid (retail pharmacies), Nuvasive (minimally invasive spine procedures), NxStage (dialysis), and
China Animal Healthcare (vaccines and antibiotics for production animals).
Those stocks detracting from performance were TearLab and Brasil Pharma. TearLab is a manufacturer and seller
of equipment that optometrists use to measure dry eye. The previous method for measuring dry eye was very timeconsuming, resulting in optometrists losing money on each procedure (in the United States). TearLab’s approach is
faster, simpler, and more accurate. This turns dry eye testing into a source of profit for the optometrist. Despite this,
market penetration is taking a bit longer than expected, resulting in poor performance. Brasil Pharma is an operator
of retail pharmacies in Brazil. Its business model is in flux as it changes from a “consolidator” to an “operator.”
This transition has been slow at best. However, the underlying assets are unimpaired and can offer good financial
returns to the right management team.
January 1, 2014 saw the rollout of major tenets of the Affordable Care Act (ACA – also known as Obamacare). So
far, the law has been characterized by technological glitches, slow enrolment, and delays. Despite this, the ACA
will have dramatic, longer-term implications for the U.S. health care value chain. It will accelerate shifting the cost
burden to the individual. As this happens, the individual will be much more particular about how his or her money
will be spent. In this cost-conscious environment it becomes more imperative to offer something of value. Thus, we
will continue to see the fund focus on innovative, cost-saving drugs, devices, and services.
The first quarter of 2014 was also characterized by increased volatility in biotechnology. Three years of
outperformance has led to some lofty valuations. While many scientific advances have been made (RNA drugs,
gene therapy, $1,000 genome), investors are questioning what they should pay for these advances today. The fund
is concentrated in two types of companies within the classical biotechnology space: those companies that offer a
platform technology for drug discovery (Isis, Sarepta) and those that offer a lower drug development risk
(BioMarin, Intercept, Gilead Sciences, and NPS Pharmaceuticals).
Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund
investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change
frequently and past performance may not be repeated. This commentary is published by CI Investments Inc. It is
provided as a general source of information and should not be considered personal investment advice or an offer
or solicitation to buy or sell securities. ®CI Investments and the CI Investments design are registered trademarks
of CI Investments Inc. Published April 2014.
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