In the second quarter of 2026, all of our portfolio transactions occurred within the healthcare sector.

We sold our position in Amgen (tkr: AMGN) due to a significant regulatory overhang. The FDA issued a safety alert regarding cases of serious liver injury in patients taking Tavneos (avacopan) for severe active anti-neutrophil cytoplasmic autoantibody (ANCA)-associated vasculitis. More importantly, the FDA has proposed withdrawing approval for Tavneos, with a hearing scheduled for July 29, 2026. Until there is greater clarity regarding the outcome, we believe this represents a meaningful regulatory headwind for the stock.

Amgen is also investing heavily to compete in the rapidly growing obesity market through the development of MariTide, its next-generation weight-loss therapy. MariTide is a long-acting injectable GLP-1/GIP agonist designed for monthly or potentially less frequent dosing and is currently in Phase 3 clinical trials. While the program remains promising, the data released thus far suggest efficacy that appears less competitive than leading therapies, while side effects have been relatively more pronounced. Given the uncertainty surrounding both Tavneos and MariTide, we decided to exit our position in Amgen and redeploy a portion of the proceeds into Eli Lilly (tkr: LLY).

We believe Eli Lilly is better positioned to capitalize on the long-term growth opportunity in diabetes and obesity. The company recently received approval for its once-daily oral GLP-1 therapy, orforglipron (Foundayo), and continues to report encouraging clinical data for Retatrutide, its weekly injectable triple agonist currently in development. Beyond its obesity franchise, Lilly has continued to strengthen its broader pipeline through strategic tuck-in acquisitions, including its approximately $3.8 billion acquisition of three vaccine companies focused on shingles, Staphylococcus aureus infections, and Epstein-Barr virus. We believe Lilly’s innovation pipeline and execution position the company well for continued long-term growth.

Additionally, we sold our position in Boston Scientific (tkr: BSX). Boston Scientific’s stock price declined over 50% year-to-date through the end of June, driven primarily by market rotation rather than any deterioration in the company’s underlying fundamentals. While we remain constructive on Boston Scientific’s long-term outlook, we believe it may take time for the stock to recover to its previous highs. As a result, we elected to realize a tax loss in taxable accounts by selling our position and replacing it with Penumbra (tkr: PEN).

Penumbra is a medical device company focused on minimally invasive therapies, including mechanical thrombectomy systems for removing blood clots and embolization technologies used to treat aneurysms and vascular malformations.

In January 2026, Boston Scientific and Penumbra announced a definitive merger agreement in a cash-and-stock transaction valued at approximately $14.5 billion. The acquisition expands Boston Scientific’s presence in the fast-growing mechanical thrombectomy market while creating meaningful cross-selling opportunities across the combined portfolio. The transaction is expected to close during the second half of 2026 and, based on the companies’ complementary product portfolios and limited competitive overlap, is not expected to face significant regulatory hurdles.

We have a high degree of confidence that the acquisition will be completed. Management appears to have proactively addressed potential regulatory considerations throughout the transaction process, and we believe the strategic rationale for the combination is compelling. At the same time, Penumbra has continued to trade at a meaningful discount to the implied transaction value, creating an attractive merger arbitrage opportunity. By replacing our Boston Scientific position with Penumbra, we believe we can maintain exposure to Boston Scientific’s long-term growth prospects while potentially benefiting from the narrowing of the merger spread as the transaction progresses toward closing.

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