July, 2017

By clicking on bold third-party links, you will be leaving the Jacob Fund Website and will be entering a third-party website. The Fund is not responsible for, nor can guarantee the accuracy of, any information contained on a third-party website. Please cut and paste the non-bold links into your browser.

Posted by Ryan Jacob on July 10, 2017 at 8:00 AM

Dear Investors,

Although there has been a notable pickup in volatility during the last several weeks, the equity markets have generally moved higher, with large-cap technology companies leading the way. With more uncertainty regarding fiscal policy, investors are looking for additional signs that the overall economy is improving on its own. Earnings have generally been supportive of this view, and it is likely to be further confirmed when companies report their second-quarter results. Somewhat surprisingly, interest rates remain subdued, but we believe this could be more indicative of inflation expectations, rather than as a predictor of future economic growth. Obviously, if rates stay at these relatively low levels, this could help drive further earnings growth and increase investor interest toward investments with higher return potential. Our belief remains that this should eventually result in a move toward smaller capitalization companies, lifting valuations and translating to potentially higher stock prices. All of our funds today reflect this view by maintaining a diversified posture across market caps of all sizes within their respective benchmarks.

Jacob Internet Fund

The Jacob Internet Fund added one new position in the quarter: Twilio. Twilio operates a best-in-class platform that allows companies to integrate various voice and messaging functionalities into their mobile apps. This platform can help companies deploy and scale these services quickly and without a significant upfront expense. With more than 1.5 million active developers working on its platform, Twilio has rapidly introduced new products - such as user authentication and video capabilities - to help meet evolving customer needs, giving the company a distinct advantage versus its competitors. With the explosive growth in secure communication services within apps, Twilio should be able to expand and grow alongside its impressive customer base for years to come.

Jacob Small Cap Growth Fund

In addition to Twilio, The Jacob Small Cap Growth Fund purchased two new positions in the quarter: Ignyta and Chemocentryx. Ignyta is developing new drugs for cancer patients and its latest-stage product, a tyrosine kinase inhibitor (TKI) called entrectinib, is generating a fair amount of buzz for the high degree of response rates it has seen in early clinical trials. Entrectinib has been granted a breakthrough therapy designation by the FDA, and company will be able to test - and hopefully eventually market - its drug on any TRK-positive tumor, no matter where in the body it is located. A competitive product from a company called Loxo Oncology has seen similarly strong results and is a bit further ahead in development, but entrectinib has some important differentiations - such as the ability to cross the blood-brain barrier - that could eventually make it the preferential form of treatment in certain cases. Ignyta’s valuation is also less than a quarter of Loxo's, which we believe creates a compelling opportunity as the technology continues to be proven out in the clinic.

Chemocentryx is developing new small molecule drugs focused on inhibiting chemokine receptors, which play a key role in a body's inflammation response. Though the company has had a couple of missteps earlier in its history, its late-stage drug candidate avacopan, a C5a receptor inhibitor, has shown a positive impact in early clinical trials on a number of somewhat rare autoimmune conditions, such as C3 glomerulopathy and auto-antibody-associated vasculitis. Chemocentryx recently entered into an impressive marketing agreement with Vifor Pharma, which has paid more than $100 million in upfront fees to be able to market avacopan and another of the company's late-stage assets - a CCR2 inhibitor - in all markets outside of the U.S. and China.

Jacob Micro Cap Growth Fund

In addition to Ignyta and Chemocentryx, The Jacob Micro Cap Growth Fund added one additional position in the latest quarter: Chromadex, a developer of chemical ingredients, primarily for the food and beverage industries. A proprietary Vitamin B compound called nicotinamide riboside (NR), sold as a supplement under the Niagen brand, is easily the company's most promising product. NR has been proven to raise the levels of the coenzyme nicotinamide adenine dinucleotide (NAD+) in a person's body, which is a critical component of healthy cell activity. Numerous clinical studies are now being run or have recently been completed by Chromadex and its partners - which include well-respected medical institutions like the Mayo Clinic and the National Heart, Lung and Blood Institute and commercial organizations like Procter & Gamble and Elysium. We expect a slew of data from some of these trials to be released shortly, and while we remain highly skeptical that Niagen will have all the anti-aging properties claimed by its most diehard proponents, we are hopeful that data is likely to show some health benefits and could lead to higher Chromadex sales over the next 12-18 months.

Ryan Jacob
Portfolio Manager
Jacob Internet Fund
Jacob Small Cap Growth Fund

Darren Chervitz
Portfolio Manager
Jacob Micro Cap Growth Fund

Mutual fund investing involves risk. Principal loss is possible. There are specific risks inherent in investing in the Internet area, particularly with respect to smaller capitalized companies and the high volatility of internet stocks. All four funds may invest in foreign securities, which involve greater volatility and political, economic and currency risks, and differences in accounting methods. These risks are greater in emerging markets. The Small Cap Fund, Internet Fund and Wisdom Fund will invest in smaller companies, which involve additional risks, such as limited liquidity and greater volatility.

Topics: Fund Commentary, Management Commentary, Shareholder Communication