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May 11, 2022

Q1 2022 Share Price Performance

Healthcare Stocks Continue Their Slide

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.

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 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).

1Q-2022 Performance

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. 

* 4Q-2021 values were based on an analysis of 115 companies that fit the inclusion criteria (47 Tier 1 and 68 Tier 2)

1Q-2022 Healthcare Stock Performance By Subsector:

Tier 1 Company Performance

  • Overall, we included 44 companies in our Tier 1 analysis with EV of $100 MM or greater, which collectively had a 1Q-2022 return of -9.6%.

  • The number of Tier 1 advancers (11) was lower than the number of decliners (33) this quarter.

  • Notable Tier 1 advancers in the quarter were:
    • Fusion Pharmaceuticals Inc. – The stock gained 86.3% during 1Q-2022, rising from near-cash levels after the company announced the nomination of its first targeted alpha therapy candidate, in collaboration with AstraZeneca, and in anticipation of the FDA approval of Novartis’ 177Lu-PSMA-617 (Pluctivo) on March 23 – the first targeted radiotherapy approval since Xofigo in 2013 and Lutathera in 2018.
    • Sierra Oncology Inc. – The stock appreciated 47.4% in the quarter, following news that its lead drug, momelotinib, demonstrated a statistically significant benefit in its pivotal myelofibrosis trial.

  • Notable Tier 1 decliners in the quarter were:
    • Zymeworks Inc. – The stock declined 60.0% during 1Q-2022, after the company provided an update on its key strategic priorities and outlook for 2022, including reductions of its workforce, and announced a $100M public offering.
    • ESSA Pharma Inc. – The stock depreciated 56.5% in the quarter, still suffering investor backlash after delaying the next update of its EPI-7386 phase 1 dose escalation and expansion trial from 2H-2021 to 1H-2022.  
    • Aurinia Pharmaceuticals Inc. – The stock declined 45.9% during 1Q-2022, with much of the decline happening following 4Q-2021 financial results, with 2022 guidance well below consensus.

1Q-2022 Performance of Tier 1 Companies:

Tier 2 Company Performance

  • Overall, we included 66 companies in our Tier 2 analysis (with EV of less than $100 MM), which as a group had a 1Q-2022 return of -14.1%.

  • The number of advancers (16) was lower than the number of decliners (49).

  • Notable advancers in the quarter include:
    • Cipher Pharmaceuticals Inc. – The stock was up 28.2% in the quarter, after the company announced an extension of its distribution and supply agreement with Sun Pharmaceuticals.
    • Acerus Pharmaceuticals Corp. and Spectral Medical Inc. posted strong gains during 1Q-2022 (+80% and +36%, respectively) – both with news flow, but both also penny stocks with high volatility.  

  • Notable decliners in the quarter include:
    • Nurosene Health Inc.  – The stock declined 53.6% in the quarter, following the reporting of 4Q-2021 results and provided a corporate update, as well as a change of leadership.
    • Kovo HealthTech Corp.  – The stock declined 52.6% in the quarter, after initial 2022 revenue guidance was announced.
    • Therma Bright Inc. – The stock was down 48.8% in 1Q-2022, after the company reported the results of a clinical performance study for its smart-enabled AcuVidCOVID-19 rapid antigen saliva test.
    • Ocumetrics Technology Corp. – The stock depreciated 48.2% in the quarter, after an update on preclinical studies for its Bionic Lens product.
    • Carebook Technologies Inc. – The stock was down 47.4% in 1Q-2022, after it was announced that the company was working with LifeLabs to deliver personalized, digital healthcare insights.
    • Edesa Biotech Inc. – The stock was down 47.2% in 1Q-2022, after the company announced that it had received Canadian approval to test its COVID-19 drug as a rescue therapy, reported 1Q-2022 financial results and announced a $10M direct offering.
    • Ortho Regenerative Technologies Inc. – The stock declined 47.0% in the quarter, after the company entered into a material transfer agreement for its Ortho-R rotator cuff tear repair phase 1/2 trial, a $3M private placement and executive leadership changes.
    • Field Trip Health Ltd. – The stock was down 46.1% in 1Q-2022, following 3Q-2022 financial results.
    • Revive Therapeutics Ltd. – The stock was down 45.6% in 1Q-2022 after an update on the company’s phase 3 clinical trial for bucillamine in COVID-19.
    • Tetra Bio-Pharma Inc. – The stock depreciated 44.0% in the quarter, after the company announced it was entering into a strategic partnership with Avicanna and provided a management update.
    • Rapid Dose Therapeutics Corp. – The stock was down 43.3% in the quarter, following a management change.
    • StageZero Life Science Ltd. – The stock was down 42.4% in the quarter, after the company announced a $1.9M private placement and that the Care Oncology Clinic service and COC Protocol were available to patients living in Europe.

1Q-2022 Performance of Tier 2 Companies:

Appendix 1:

Disclaimer:

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.