October 13, 2022
In this blog post, Bloom Burton’s equity research team summarizes the performance of the Canadian healthcare sector during 3Q-2022 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 September 30. 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 118 companies.
We classify companies as “Tier 1” and “Tier 2” based on their MC (previously based on EV) – 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 118 Canadian healthcare companies included in Bloom Burton’s 3Q-2022 blog universe were down an average 3.8% in the quarter, modestly underperforming the S&P/TSX Composite Index (-2.2%) and generally in line with the S&P/TSX Venture Composite Index (-4.1%).
In the U.S., biotech stocks rose slightly during 3Q-2022 – the NASDAQ Biotechnology Index (NBI) gained 0.5% in the quarter, outperforming the broader U.S. market (S&P 500 Index down 5.3%; NASDAQ Composite down 4.1%).
The tepid performance across all major indices has been driven by geopolitical tension which has contributed to both investor uncertainty and inflation (with energy prices spiking) along with COVID-related supply chain issues. That the NBI did comparatively well in 3Q-2022 is likely due to the sector’s dismal performance since 3Q-2021, with the index underperforming all other major indices – losing 30% from its high on August 30, 2021, heading into third quarter 2022. The underperformance over that period, in turn, can be blamed partly on the 70%+ positive move the sector made between March 2020, when COVID uncertainty was at its peak, and August 2021, when biopharma was loved – having “saved the world” with COVID treatments and vaccines. This was followed by a period of concern over drug pricing which culminated in the passing of The Inflation Reduction Act in August.
Despite factors weighing on biotech, the sector, as mentioned above, did modestly outperform the broader markets in the third quarter. This included beating pharma, with the NYSE Pharmaceutical Index (DRG) down 11.3% (vs the NBI’s 0.5% gain) – perhaps a sign that The Inflation Reduction Act’s drug pricing controls are expected to have a bigger impact on pharma companies. More likely, however, pharma had further to fall, with the DRG up 7% between August 2021 and July 2022 (vs the NBI’s 30% drop).
Among Canadian healthcare companies, larger Tier 1 companies, which are typically better capitalized and less risky, performed better than smaller Tier 2 companies in 3Q-2022 (+6.8% vs -9.5%, respectively).
Among the healthcare subsectors in Bloom Burton’s Canadian tracking universe, the best performing subsectors were healthcare services (17 companies: +14.2%) and medical supplies (4 companies: +7.2%), which benefitted from the rebound in procedure volumes following COVID-19 restrictions. At the opposite end of the spectrum, the worst performing subsector was diagnostics (5 companies: -18.7%), with all other subsectors also posting negative returns, including digital health (13 companies: -3.1%), therapeutics R&D (46 companies: -6.9%), consumer health (7 companies: -7.2%), commercial therapeutics (11 companies: -7.6%), medical devices (15 companies: -9.0%) and diagnostics (5 companies: -18.7%).
3Q-2022 Healthcare Stock Performance By Subsector:
Tier 1 Company Performance
Overall, we included 41 companies in our Tier 1 analysis with MC of $100M or greater, which collectively had a 3Q-2022 return of 6.8%.
The number of Tier 1 advancers (21) just edged out the number of decliners (20) this quarter.
Notable Tier 1 advancers in the quarter were:
Notable Tier 1 decliners in the quarter were:
3Q-2022 Performance of Tier 1 Companies:
Tier 2 Company Performance
Overall, we included 77 companies in our Tier 2 analysis (with MC of less than $100M), which as a group had a 3Q-2022 return of -9.5%.
The number of advancers (19) was lower than the number of decliners (55).
Notable advancers in the quarter include:
Notable decliners in the quarter include:
3Q-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.