October 14, 2014

Q3 2014 Share Price Performance (Part 1)



Quiet, no momentum, but Therapeutics – Commercial companies still moved ahead

There was renewed interest in the Canadian healthcare sector in the first half of 2014. The institutional interest was focused on the Therapeutics – Commercial group where there were revenues, profitability and tax-inversion potential. In Q1, there was also broader sector momentum but these Q1 gains were largely reversed in Q2. Q3 has normally been the quiet summer holiday quarter and 2014 was no exception.

In this blog, I am going to comment on the Q3 and 9-month performance of the group of 39 companies with share prices of $1.00 or more to start 2014.

Q3 2014 performance

  • Decliners barely outnumbered advancers by 19 to 18 (excludes Nordion which was acquired and Vansen Pharma which is a trading anomaly)Image_border_October
  • Average and median share price changes were -3% and -4%, respectively
  • Four companies had share price increases of 40% or more in Q3.
    •  Tekmira Pharmaceuticals (+71%) – primarily an Ebola bounce
    •  Nuvo Research (+64%) –the expectation and announcement of a settlement with Mallinckrodt Pharmaceuticals, with a US $10 million payment to Nuvo
    •  BioSyent (+44%) – signed a licensing agreement for a new product and announced improved financial results
    •  Stellar Biotechnologies (+40%) – bounce from a bottom with no substantial news
  • Three companies had share price decreases of 40% or more in Q3
    •  Aurora Spine (-43%) – no negative news but drifted lower on low trading volumes
    •  IMRIS (-44%) – financial concerns as cash declines and profitability is not in sight
    •  Oncolytics Biotech (-53%) – market uncertainty about the importance of new Phase 2 clinical data and the path to regulatory approval for REOLYSIN



9-Month 2014 Performance

  • Decliners barely outnumbered advancers by 19 to 18
  • Average and median share price increases were +19% and -1%, respectively
  • Nine companies had share price increases of 40% or more and six companies had share price decreases of 40% or more in Q2.

The highlighted line in the following table shows what is driving the sector.

  • All 8 remaining companies in the Therapeutics – Commercial subsector were advancers
  • The average increase was 102%, ranging from 11% for Merus Labs to 362% for Concordia Healthcare
  • The list does not include the performance of Knight Therapeutics, headed by former Paladin Labs CEO Jonathan Goodman, which went public during 2014



What factors could impact the performance of the sector in Q4 and moving forward into 2015?

  • Volatility in the broad markets impacted the sector share prices in the last few days of Q3 and this has continued in the early part of Q4. Continued volatility could drive some retail money to the sidelines and cause generalist institutions to exit their more risky investments.
  • The outcome of the Valeant – Allergan battle should have no impact on the Canadian sector.
  • Threats from U.S. regulators relating to tax-inversion acquisitions may slow down the number of transactions. Acquirers are also potential targets – while Auxilium originally proposed to acquire QLT, Auxilium has now terminated that transaction and will instead be acquired by Endo. If the tax-inversion premium is removed, Therapeutics – Commercial companies will revert to normal P/E and P/Sales valuations.
  • Unexpectedly positive clinical data might give some momentum to the Therapeutics – Development group of companies. However, there is no Phase 3 clinical data expected from any companies in this group in Q4 and the impact of Phase 1 and 2 data is limited.

My personal perspective is that Q4 will be quiet with limited momentum in either direction for this group of senior companies in the Canadian healthcare sector.


 [The author and his immediate family members may have long or short positions in the shares of some companies mentioned in or assessed during the preparation of this blog. Past share price performance may not be an indicator of future share price performance. This blog does not consider the investment objectives, financial situation or particular needs of any particular person. Investors should obtain professional advice based on their own individual circumstances before making an investment decision.]

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