In this blog post, the Bloom Burton equity research team summarizes the performance of the Canadian healthcare sector during 4Q-2019, 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. Our definition of healthcare includes companies operating in the following areas: therapeutic R&D; commercial therapeutics; healthcare services; healthcare IT; medical devices; medical supplies; diagnostics; and consumer health. We do not include medical cannabis producers (unless they are developing cannabis-based products under the traditional drug development regulatory process) or companies that operate long term care facilities. Based on these criteria we identified 98 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 97 Canadian healthcare companies included in Bloom Burton’s 4Q-2019 blog were collectively up +16.5% in 4Q-2019, outperforming the S&P/TSX Composite Index (+2.4%) and the S&P/TSX Venture Composite Index (+3.4%). The strong quarter for Canadian healthcare stocks is a reversal of the weakness we saw in 3Q-2019 and 2Q-2019 (Bloom Burton’s blog companies were collectively down -5.7% and -5.6% in 3Q-2019 and 2Q-2019 respectively; S&P/TSX Composite Index up +1.7% in 3Q-2019 and 2Q-2019; S&P/TSX Venture Composite Index down -4.6% and -6.6% in 3Q-2019 and 2Q-2019 respectively).
Canadian healthcare stocks generally follow the performance of healthcare stocks south of the border and 4Q-2019 was no exception, where the NASDAQ Biotechnology Index (NBI) was up +21.1% and the NYSE Pharmaceutical Index (DRG) was up +11.4%. As in Canada, the NBI outperformed the broader U.S. markets (S&P 500 Index up +8.5%; NASDAQ Composite up +11.4%).
While much of 2019 was volatile for biotech stocks, which bottomed in October, the final two months of 2019 saw a surge in the sector due to some significant M&A announcements (Astellas acquiring Audentes for $3 B), positive clinical and regulatory catalysts (aducanumab revival; positive Vascepa AdCom) and general sentiment that drug pricing regulation will not be realized in the lead up to the 2020 U.S. election, as well as a more positive macro backdrop (progress on the U.S.-China trade dispute).
Among Canadian healthcare companies, larger Tier 1 companies performed better than smaller Tier 2 companies this quarter (up +28.0% vs +11.3% respectively). This was mostly due to the particularly strong performance of a few Tier 1 companies in response to favourable clinical (Aurinia up +316.6% after it reported positive phase 3 data for Voclosporin; Aptose up +182.7% after it reported positive phase 1 data for CG-806) and regulatory (HLS up +74.3% following Health Canada approval of Vascepa) events, demonstrating the event-driven nature and volatility of the sector.
Among the healthcare subsectors in Bloom Burton’s Canadian tracking universe, the best performing subsector was therapeutic R&D (38 companies: mean +37.0%; median +11.0%) due to the particularly strong performance of certain individual stocks following positive clinical and regulatory events (e.g. Aurinia, Aptose, Medicenna). However, most subsectors were positive this quarter, including healthcare services (10 companies: mean +18.9%), diagnostics (7 companies: mean +8.7%), medical supplies (4 companies: mean +8.2%), veterinary (2 companies: mean +4.0%), medical devices (12 companies: mean +1.7%) and commercial therapeutics (16 companies: mean +1.4%). The exceptions were healthcare IT (1 company: -3.9%) and consumer health (7 companies: mean -19.3%), which contain a small number of companies.
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*3Q-2019 values were based on an analysis of 87 companies that fit the inclusion criteria (30 Tier 1 and 57 Tier 2), while 2Q-2019, 1Q-2019 and FY 2018 values were based on an analysis of 93 companies (30 Tier 1 and 63 Tier 2).
4Q-2019 Healthcare Stock Performance By Subsector:
Tier 1 Company Performance
Overall, we included 30 companies in our Tier 1 analysis with EV of $100 MM or greater, which collectively had a 3Q-2019 return of +28.0%.
The number of Tier 1 advancers (21) was higher than the number of decliners (9) this quarter.
Notable Tier 1 advancers in the quarter were:
Aurinia Pharmaceuticals – The stock rose +316.6% during 4Q-2019, after the company reported positive results from its pivotal phase 3 study for Voclosporin in lupus nephritis on December 4.
Arbutus Biopharma – The stock finished 4Q-2019 up +199.4%, corresponding with the company reporting 3Q-2019 financial results and providing a corporate update on November 6.
Aptose Biosciences – The stock rose +182.7% following reporting of positive preliminary phase 1 data for the company’s anticancer drug, CG-806, in chronic lymphocytic leukemia patients on December 7.
HLS Therapeutics – The stock finished 4Q-2019 up +74.3%, after partner, Amarin, had a favourable FDA AdCom meeting (on November 14) for its cardiovascular drug, Vascepa, (HLS owns Canadian commercial for Vascepa), and after the drugs was approved by Health Canada (on December 31).
Notable Tier 1 decliners in the quarter were:
Correvio Pharma – The stock was down -79.9% during 4Q-2019, following the December 10 AdCom meeting for Brinavess during which the committee recommended that Brinavess not be approved by the FDA.
Advanz Pharma – The stock finished 4Q-2019 down -77.5% on low volume trading (average 19,000 shares traded daily), continuing the stock price weakness from 3Q-2019 which accelerated after the company announced on November 27 plans to re-domicile from Canada to Europe followed by the pro-BREXIT conservative election victory in mid-December.
Tier 2 Company Performance
Overall, we included 67 companies in our Tier 2 analysis (with EV of less than $100 MM), which as a group had a 4Q-2019 return of +11.3%.
The number of advancers (31) was just lower than the number of decliners (34) this quarter.
Notable advancers in the quarter include:
Trillium Therapeutics – TRIL stock was up +247.3% in 4Q-2019, after competitor, Forty Seven Inc., presented positive clinical data for magrolimab at ASH 2019 which put immuno-oncology target CD47 back on bioinvestors’ radar screens. On December 19, Bloom Burton added TRIL to its Top Idea list for 2020 (biotech runner-up). The stock has increased an additional 230% (subject to final pricing date) since 2020 started, on the back of the company providing updated safety and efficacy data for TTI-621 and TTI-622 (on January 7).
Medicenna Therapeutics – The stock was up +183.3% in 4Q-2019, after the company presented a series of clinical readouts for its phase 2b study of recurrent glioblastoma drug, MDNA55.
Novoheart Holdings – The stock was up +127.5% in 4Q-2019 after the company reported 1Q-2020 financial results (on November 19), announced the development of a novel heart model (on November 26) and provided a corporate update (on November 30).
Kneat.com – The stock finished 4Q-2019 up +95.7% after the company announced a big pharma client for its SaaS platform (on November 25), reported 3Q-2019 results (on November 26) and announced the signing of another big pharma client (on December 11).
Notable decliners in the quarter include:
Hemostemix – The stock finished 4Q-2019 down -73.3%, after the company announced results from a phase 2 trial of ACP-01 in critical limb ischemia (on October 21), but the stock generally exhibits large fluctuations in price due to low trading volume.
StageZero Life Sciences – The stock was down -50.0% in 4Q-2019, after the company announced that its licensing partner, Oncore Pharma, for prostate cancer detection test, ColonSentry, had signed a multi-year agreement with BodyCheck NL for distribution and sale of ColonSentry in the Netherlands, Belgium and Luxembourg (on October 10).
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1. Bloom Burton & Co. or its affiliates have provided investment banking services for HLS Therapeutics Inc., Medexus Pharmaceuticals Inc., Nuvo Pharmaceuticals Inc. and Xenon Pharmaceuticals Inc. during the 12 months preceding the date of issuance of the research report or recommendation.
2. Bloom Burton has managed an offering of Antibe Therapeutics Inc., Avivagen Inc., Bellus Health Inc., ESSA Pharma Inc., Greenbrook TMS Inc., Hamilton Thorne Ltd., HLS Therapeutics Inc., Medicenna Therapeutics Corp., Resverlogix Corp. and Titan Medical Inc. during the 12 preceding the date of issuance of the research report or recommendation.
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