Q1 2019 Share Price Performance

Analysis: Stocks Rebound

In this blog post, the Bloom Burton equity research team summarizes the performance of the Canadian healthcare sector during 1Q-2019, and provides commentary on select stock movements and overall market trends.

Inclusion Criteria

Our analysis includes all Canadian publicly-listed healthcare companies, defined as companies that are Canadian headquartered and/or listed on Canadian exchanges, with an enterprise value (EV)of C$10 MM or greater. Our definition of healthcare includes companies operating in the following areas: therapeutic R&D; commercial therapeutics; healthcare services; healthcare IT; medical devices; medical supplies; diagnostics; neutraceuticals/consumer health and veterinary. We do not include medical cannabis producers (unless they are developing cannabis-based products under the traditional drug development regulatory process) or companies that operate long term care facilities. Based on these criteria we identified 91 companies.

We classify companies as “Tier 1” and “Tier 2” based on their EV – Tier 1 companies are those with EV of >C$100 MM and Tier 2 are those with EV of <C$100 MM (for a complete listing of companies included in Tiers 1 and 2 of Bloom Burton’s “blog universe”, please see Appendix 1 at the end of the blog).

1Q-2019 Performance

• The 91 Canadian healthcare companies included in Bloom Burton’s 1Q-2019 blog were collectively up +18.4% in 1Q-2019, outperforming the S&P/TSX Composite Index (+12.4%) and the S&P/TSX Venture Composite Index (+12.5%). Following a crushing 4Q-2018 for the broader markets (S&P/TSX Composite Index down -10.9%; S&P/TSX Venture Composite Index down -21.4%), stocks have rebounded in 1Q-2019 due to lower concerns over interest rate hikes and trade tensions. High-risk sectors like technology and biotech (which is a large component of our healthcare blog universe) were the most affected by the 4Q-2018 downturn (NASDAQ composite down -17.5%; NASDAQ Biotechnology Index (NBI) down -20.7%; Canadian healthcare stocks in Bloom Burton’s blog universe, down -21.6%) but have shown a strong rebound in 1Q-2019 (NASDAQ Composite up +16.5%; NBI up +15.4%; as mentioned, Bloom Burton blog stocks up +18.4%).
• Among Canadian healthcare companies, smaller Tier 2 companies outperformed the larger Tier 1 companies (+20.4% vs +14.3% respectively), demonstrating a reversal from 4Q-2018 (Tier 2 down -23.8% vs Tier 1 down -17.2%) and the general higher risk-reward nature of smaller, earlier stage healthcare companies compared to their larger, more established peers.
• The performance of Canadian healthcare stocks largely follows that of healthcare stocks south of the border where the NBI performed better than the NYSE Pharmaceutical Index (DRG) in 1Q-2019 (+15.4% vs +5.9% respectively), reversing the trend from 4Q-2018 (NBI down -20.7% vs DRG down -4.2%). Aside from macroeconomic trends that result in market fluctuations, the large cap biopharmas continue to face headwinds related to identifying new sources of growth to replace aging blockbuster drugs, while facing increased scrutiny around drug pricing. Nonetheless, demographic trends and innovation continue to push the healthcare industry forward.
• While all healthcare subsectors in Bloom Burton’s Canadian tracking universe were up in 1Q-2019, the best performing subsectors were diagnostics (6 companies – see Appendix 1: +50.2%) and medical supplies (5 companies: +26.9%), both contained few companies, followed by therapeutics R&D (34 companies: +19.2%), healthcare services (7 companies: +15.9%), consumer health (6 companies: +14.4%), commercial therapeutics (15 companies: +13.9%), medical devices (16 companies: +10.1%) and veterinary (2 companies: +8.7%).

*4Q-2018 and FY 2018 values were based on an analysis of 85 companies (28 Tier 1 and 57 Tier 2) that fit the inclusion criteria.

1Q-2019 Healthcare Stock Performance (%) By Sector

Best performing healthcare subsection: Diagnostics
Worst performing healthcare subsection: Veterinary

Tier 1 Company Performance

• Overall, we included 30 companies in our Tier 1 analysis with EV of $100 MM or greater, which collectively had a 1Q-2019 return of +14.3%.
• The number of Tier 1 advancers (19) was higher than the number of decliners (10) this quarter.

The top three advancers in the quarter were Bloom Burton Top Idea (biotechnology) stocks:

• Clementia Pharmaceuticals – The stock rose +121.9% in 1Q-2019 after the company announced it was being acquired by French pharma company, Ipsen, for US$1.3 B (a 77% premium to Clementia’s 30-day volume-weighted average stock price).
• Xenon Pharmaceuticals – The stock appreciated +61.0% during 1Q-2019, building on its gains from 2018, as the company provides clinical updates on its epilepsy pipeline.
• BELLUS Health – The stock finished 1Q-2019 up +58.8%, following the closing of a $35 MM public offering (on December 18) to advance its lead chronic cough drug, BLU-5937, and the company providing a corporate update on February 21.
• Novelion Therapeutics – The stock finished 1Q-2019 up +46.4% after the company announced it was selling Japanese rights to its orphan cholesterol-lowering drug, Juxtapid, to Recordati for US$30 MM and a 17% net royalty.

• There were no notable decliners in the quarter, as no Tier 1 stock declined more than 30%.

Tier 2 Company Performance

• Overall, we included 61 companies in our Tier 2 analysis (with EV of less than $100 MM), which as a group had a 1Q-2019 return of +20.4%.
• The number of advancers (34) outnumbered the number of decliners (24) this quarter.

Notable advancers in the quarter include:

• GeneNews – The stock increased +277.8% in 1Q-2019 after the company published data for its colon cancer screening test, ColonSentry, demonstrating validity in non-compliant patient populations.
• Sirona Biochem – The stock finished 1Q-2019 up +125.0% after the company announced it had signed a right of first refusal letter for its skin lightener, TFC-1067, and the closing of a $1.8 MM private placement.
• Titan Medical – The stock increased +121.3% in 1Q-2019 after the company provided an update on timelines for U.S. and EU regulatory submissions for its SPORT surgical system and announced the closing of a US$25 MM public offering.
• Delivra – The stock finished 1Q-2019 up +112.2% after the company announced it was being acquired by Harvest One Cannabis (Delivra shareholders to receive 0.595 common shares of Harvest One for each Delivra share).
• Avivagen – The stock increased +95.0% during 1Q-2019 after the company announced a U.S. partnership with CSA to sell and distribute OxC-beta Livestock in the U.S., received a large order from the Philippines and announced the closing of a $5.3 MM private placement of debentures and shares.
• Novoheart Holdings – The stock finished 1Q-2019 up +86.0% after the company provided a corporate update on January 7 and announced 2Q-2019 financial results on March 1.
• ESSA Pharma – The stock increased +73.4% following the closing of a US$26 MM equity offering to advance its lead prostate cancer drug, EPI-7386, into clinical development.

Notable decliners in the quarter include:

• Zomedica – The stock was down -77.5% in 1Q-2019, continuing its slide since the company announced a US$10 MM private offering on November 27.
• Trillium Therapeutics – The stock decreased -63.8% in 1Q-2019 due to continued investor concerns that the company has slipped behind and has a weaker balance sheet than its competitor, Forty Seven.

Appendix

Disclosures:
This Research Report is issued and approved for distribution by Bloom Burton Securities Inc. (“Bloom Burton”), a member of the Investment Industry Regulatory Organization of Canada.
This Research Report is provided for informational purposes only and is not an offer to sell or the solicitation of an offer to buy any of the securities discussed herein in any jurisdiction where such offer or solicitation would be prohibited. The securities mentioned in this Research Report may not be suitable for all types of investors. This Research Report does not take into account the investment objectives, financial situation or specific needs of any particular investor. Recipients of this Research Report should not rely solely on the investment recommendations contained herein and should contact their own professional advisors to determine if an investment is suitable for them.
The information contained in this Research Report is prepared from sources believed to be reliable but Bloom Burton makes no representations or warranties, express or implied, with respect to the accuracy, correctness or completeness of such information. All opinions and estimates contained in this Research Report constitute Bloom Burton’s judgment as of the date of this Research Report and are subject to change without notice.  Past performance is not necessarily indicative of future results and no representation or warranty is made regarding future performance of the securities mentioned in this Research Report. Bloom Burton accepts no liability whatsoever for any direct or consequential loss arising from any use or reliance on this Research Report or the information contained herein. This Research Report may not be reproduced, distributed or published, in whole or in part, without the express permission of Bloom Burton.
Company Specific Disclosures

• Bloom Burton & Co. or its affiliates have provided investment banking services for Cipher Pharmaceuticals, Knight Therapeutics, Nuvo Pharmaceuticals, CRH Medical, BELLUS Health and Titan medical during the 12 months preceding the date of issuance of the research report or recommendation.
• Bloom Burton has managed an offering of securities by Knight Therapeutics and Titan Medical in the past 12 months.
• The research analyst responsible for this report and recommendations may hold securities discussed in the report indirectly through Bloom Burton Canadian Healthcare Fund, LP which is indirectly affiliated with Bloom Burton & Co.
• The research analyst responsible for the report or recommendation or any individuals directly involved in the preparation of the report hold or are short the securities of Trillium Therapeutics Inc., Xenon Pharmaceuticals Inc., Hamilton Thorne Ltd., Bellus Health Inc., and ESSA Pharma Inc. directly or through derivatives.