July 13, 2023
In this blog post, Bloom Burton’s equity research team summarizes the performance of the Canadian healthcare sector during 2Q-2023 and provides commentary on select stock movements and overall market trends.
The analysis includes all Canadian publicly listed healthcare companies, defined as companies that are Canadian headquartered and/or listed on Canadian exchanges, with either a market cap (MC) or enterprise value (EV) of C$10M or greater at June 30 (or were acquired for greater than that amount during the quarter). 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 143 companies.
We classify companies as “Tier 1” and “Tier 2” based on their MC – Tier 1 companies are those with MC of >C$100M and Tier 2 are those with MC of <C$100M (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).
As a group, the 143 Canadian healthcare companies included in Bloom Burton’s 2Q-2023 blog universe were down an average 2.6% in the quarter, underperforming the S&P/TSX Composite Index (+0.3%), but in line with the S&P/TSX Venture Composite Index (-2.2%). This marks a return to negative territory for the group, after two consecutive positive quarters.
U.S. biotech stocks, which normally lead Canadian stocks, had a similarly weak performance in 2Q-2023 – the NASDAQ Biotechnology Index (NBI) lost 1.2% in the quarter, underperforming the broader U.S. market (S&P 500 Index was up 8.3%; NASDAQ Composite was up 12.8%). However, the market cap-weighted S&P 500 and the tech-focused NASDAQ indices were heavily skewed by the very strong performance of a handful of AI-focused large tech companies (the equally weighted Dow Jones index was up a more modest 4.7%). The biotech sector in particular, continues to be weighed down by the dismal financing environment, with many smaller companies trading with negative EVs, due to the general risk-off sentiment and as investors have been digesting the impacts of the Inflation Reduction Act (IRA) on drug pricing. M&A activity has been a bright spot, with the most attractive companies being those with validated late-stage assets, and which are typically well capitalized. Greater scrutiny from the Federal Trade Commission (FTC) on pharma mergers is another overhang on the sector, but it does not appear to have negatively impacted M&A to date, although this could change if the FTC successfully blocks Amgen’s acquisition of Horizon.
The NYSE Pharmaceutical Index (DRG), which consists of large, well-capitalized, pharma companies, performed better in 2Q-2023 (up 3.9% vs the NBI’s 1.2% loss), despite lingering concerns over the IRA and FTC.
Among Canadian healthcare companies, there was again a divergence in the performance of the group, with larger Tier 1 companies, which are typically better capitalized and less risky, performing significantly better than smaller Tier 2 companies in 2Q-2023 (+10.8% vs -7.9%, respectively), consistent with the trend seen in previous quarters.
Among the healthcare subsectors in Bloom Burton’s Canadian tracking universe, the best performing subsectors were: commercial therapeutics (9 companies: +9.1%), which was boosted by the strong performance of DRI Healthcare Trust (+53.4%), followed by therapeutics R&D (60 companies: +6.8%), which also benefitted from several takeouts (BELLUS +96.8%; Chinook +96.8%) and clinical readouts (Oncolytics +114.1%; Eupraxia +108.4%), as well as medical supplies (5 companies: +6.5%). All other subsectors had a negative return this quarter, including medical devices (15 companies: -7.8%), consumer health (10 companies: -10.4%), healthcare services (19 companies: -19.1%) and digital health (14 companies: -22.2%).
Overall, we included 41 companies in our Tier 1 analysis with MC of $100M or greater, which collectively had a 2Q-2023 return of 10.8%.
The number of Tier 1 advancers (22) was higher than the number of decliners (17) this quarter.
Notable Tier 1 advancers in the quarter were:
There were no Tier 1 companies with share price declines ≥50% this quarter.
2Q-2023 Performance of Tier 1 Companies:
Overall, we included 102 companies in our Tier 2 analysis (with MC of less than $100M), which as a group had a 2Q-2023 return of -7.9%.
The number of advancers (37) was lower than the number of decliners (61).
Notable advancers in the quarter include:
Notable decliners in the quarter include:
2Q-2023 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.