May 11, 2022
In this blog post, Bloom Burton’s equity research team summarizes the performance of the Canadian healthcare sector during 1Q-2022 and provides commentary on select stock movements and overall market trends.
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 at March 31. Our definition of healthcare includes companies operating in the following areas: therapeutic R&D; commercial therapeutics; healthcare services; digital health; medical devices; medical supplies; diagnostics; and consumer health. We do not include medical cannabis or psychedelic medicine companies (unless they are developing cannabis or psychedelic-based products under the traditional drug development regulatory process) or companies that operate long-term care facilities. Based on these criteria we identified 110 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).
The 110 Canadian healthcare companies included in Bloom Burton’s 1Q-2022 blog universe were collectively down 12.2% in the quarter, underperforming the S&P/TSX Composite Index (+3.4%) and the S&P/TSX Venture Composite Index (-5.1%). The rising interest rate environment is particularly challenging for riskier high growth companies with significant cash needs, which includes many of those in our Canadian healthcare universe, mirroring trends south of the border (discussed below).
Canadian healthcare stocks typically perform in line with healthcare stocks south of the border, where biotech stocks have been hit by a broad risk-off sentiment, that has also led to a slide in the tech sector. The risk-off sentiment has been fueled by inflationary, geopolitical and drug pricing concerns. At the same time, the sector continues a reset following the COVID-19 vaccine/drug euphoria that seemed to lift valuations of almost all “boats” in the sector, peaking in early 2021, and culminating in a tidal wave of IPOs. A dearth of M&A and an overweighting of clinical setbacks in the gene therapy and CAR-T spaces has not helped the situation – the NASDAQ Biotechnology Index (NBI) was down 11.9% in 1Q-2022, underperforming the NYSE Pharmaceutical Index (DRG) and the broader U.S. market (S&P 500 Index down 5.0%; NASDAQ Composite down 9.1%).
Among Canadian healthcare companies, larger Tier 1 companies, which are typically less risky, performed moderately better than smaller Tier 2 companies in 1Q-2022 (-9.6% vs -14.1% respectively).
Among the healthcare subsectors in Bloom Burton’s Canadian tracking universe, the best performing, and only positively performing, subsector was commercial therapeutics (10 companies: +12.6%), with contributions both from the Tier 1 (e.g., Medexus +23%) and Tier 2 (e.g., Cipher +28%) groups, again, likely due to relatively low risk. All other subsectors had negative returns in 1Q-2022, including healthcare services (15 companies: -6.6%), therapeutics R&D (41 companies: -11.9%), diagnostics (8 companies: -15.7%), medical devices (14 companies: -17.2%), medical supplies (3 companies: -17.3%), consumer health (7 companies: -17.6%). The worst performing subsector was digital health (12 companies: -28.7%), due to higher interest rates undermining valuations of growth companies, particularly those burning cash, and the negative sentiment to telehealth as the pandemic wanes.
1Q-2022 Healthcare Stock Performance By Subsector:
Tier 1 Company Performance
1Q-2022 Performance of Tier 1 Companies:
Tier 2 Company Performance
1Q-2022 Performance of Tier 2 Companies:
Information included in this blog post has been sourced from publicly available sources. No representation or warranty, express or implied, is made with respect to the accuracy, correctness or completeness of the information contained herein. The commentary in this blog post represents the views and opinions of Bloom Burton only and should not be relied upon as investment advice. Bloom Burton accepts no liability whatsoever for any direct or consequential loss arising from any use or reliance on the information contained herein. The blog is published on a quarterly basis.