By Philip van Doorn, MarketWatch
Zhang said she began buying shares of CareDX late in 2017 after the company had reached an “inflection point.” This was the beginning of Medicare reimbursements for AlloSure, which were effective as of Oct. 9, 2017. “We invested after that because Medicare covers 80% of kidney-transplant costs, regardless of the age of the patient,” she said.
“I was confident they were in the process of cleaning up their balance sheet. Fast forward, they become debt-free in 2018. That is a transformation,” Zhang said. She estimates that kidney-transplant-rejection testing is a “$2.7 billion-plus total addressable [annual] market.” CareDX estimated that its 2018 sales totaled between $76.2 million and $76.5 million .
“So there is a large runway for growth — they are definitely the market leader,” Zhang said, especially because CareDX is the only company receiving Medicare reimbursement for kidney-transplant testing.
Veeva Systems /zigman2/quotes/202850210/composite VEEV +1.74% was the largest holding of the Alger Small Cap Focus Fund when we interviewed Zhang in April, and it was the fund’s sixth-largest holding as of Dec. 31.
Zhang first bought shares of Veeva in 2015 on the strength of its Vault content-management software for the life-sciences industry, which she says has been growing as expected, while the company’s traditional CRM [customer relationship management] software acts as “a cash cow.”
“In calendar year 2015, Vault was 22% of Veeva’s total revenue. Now it is 45% of total revenue. They are still growing over 50% [a year] so there is a very positive product mix,” she said.
Meanwhile, Veeva’s gross margin (sales, less the cost of goods sold, divided by sales) has continued to expand, Zhang said. [According to FactSet, the company’s gross margin for the most recently reported quarter was 72.7%, expanding from 69.9% a year earlier.] One reason for the company’s overall margin expansion is that Vault has a higher margin than Veeva’s traditional CRM software, “which requires a sales force,” she said.
“We still think Vault is at an early stage of growth,” Zhang said, in part because Veeva is expanding it beyond the life-sciences industry, as it can be used for “any regulated content solution.” These might include consumer-packaged goods, chemicals, cosmetics and industrials/manufacturing, she said.
Looking ahead, Veeva expects to roll out Vault Safety this year to replace legacy systems, including those used in the pharmaceutical industry, and two more software products: Nitro, a commercial cloud application meant to help life-sciences companies meld incompatible data from legacy systems, and Andi, which will use artificial intelligence (AI) to help manage sales teams.
“Veeva is an extremely innovative company that spends a lot on R&D. On top of that, they still have the highest GAAP operating margin of all SaaS [software as a service] companies,” Zhang said.
Here are the top nine holdings of the Alger Small Cap Focus Fund (leaving out Apptio, which was acquired in January), as of Dec. 31:
|Company||Ticker||Share of portfolio||Total return - 2019||Total return - 2018|
|Tandem Diabetes Care Inc.||/zigman2/quotes/208680527/composite TNDM||4.4%||11%||1,509%|
|CareDx Inc.||/zigman2/quotes/200138382/composite CDNA||4.1%||-3%||243%|
|Abiomed Inc.||/zigman2/quotes/202106417/composite ABMD||4.1%||5%||73%|
|Cantel Medical Corp.||/zigman2/quotes/208355023/composite CMD||3.5%||8%||-28%|
|Veeva Systems Inc. Class A||/zigman2/quotes/202850210/composite VEEV||3.3%||29%||62%|
|Bio-Techne Corp.||/zigman2/quotes/203973516/composite TECH||3.1%||27%||13%|
|Inogen Inc.||/zigman2/quotes/208161856/composite INGN||2.9%||10%||4%|
|Shopify Inc. Class A||/zigman2/quotes/209033712/composite SHOP||2.7%||27%||37%|
|Medidata Solutions Inc.||2.7%||9%||6%|
|Sources: Alger, FactSet|
The Alger Small Cap Focus Fund has five share classes, most of which are distributed through brokers and investment advisers. Minimum investment amounts among share classes can change, depending on the relationship between your broker or adviser and Alger. The class A shares have a 5.25% sales charge but the sales charges can be reduced depending on the amount of money you invest. The Class C shares have a 1% deferred sales charge on shares that are sold.
It is important to look into all the fees, charges and account minimums for every share class when considering an investment. You can find this information about any mutual fund in its prospectus and if you are working with an adviser, take the adviser’s own fees into consideration.
Here are the annual expense ratios for each share class of the Alger Small Cap Focus Fund:
|Fund share class||Ticker||Annual expense ratio||Basic initial account minimum|
Some expenses are waived for extended periods but the waivers can end.
Here’s how the five share classes have performed against the Russell 2000 Growth Index and the fund’s Morningstar category. The performance figures are net of expenses but exclude sales charges. They also don’t reflect any additional annual fees you pay your adviser:
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