In the financial year 2019/2020, HBM Healthcare Investments achieved consistently high value creation, with profit of CHF 183 million and a 14 percent increase in net asset value. The share price rose more strongly than this, climbing 17 percent.
Thanks to a well-balanced portfolio and strategic market hedging, the company survived the market turmoil after the onset of the COVID-19 pandemic almost unscathed. With a solid balance sheet, a highly selective portfolio and an experienced team, the company is also well positioned for the future.
The Board of Directors and the Investment Advisor are keeping a constant eye on the changed circumstances. From today's perspective, however, there is no fundamental need to rethink the business model or investment strategy. As a company that invests in innovations in the healthcare sector, HBM Healthcare is ideally positioned. According to current estimates, the majority of the portfolio companies are only selectively affected by the effects of the pandemic and in some cases may even benefit from it.
Private companies turned out to be the most important earning drivers in the year under review. To complement the portfolio, CHF 65 million was invested in six new private companies, and a further CHF 58 million in existing positions.
Various companies expect important study results and market approvals in the current financial year. Acquisitions and IPOs are likely to continue to play an important role in the healthcare sector and bring added value.
Profit of CHF 183 million despite negative market and currency trends
HBM Healthcare Investments achieved a profit of CHF 183 million and a 14 percent increase in net asset value (NAV) per share in the 2019/2020 financial year. This came despite negative market and currency trends. The investment currencies depreciated against the Swiss franc by between 3 and 12 percent, reducing performance by around 5 percent, while all relevant sector indices fell (MSCI World Health Care Index – 1.6 percent, Nasdaq Biotechnology Index – 5.8 percent, S&P Biotech ETF – 17.0 percent).
This strong result was mainly down to the increase in value in the portfolio of private companies and contributions from market and currency hedging transactions.
The portfolio of private companies and funds generated a net increase in value of CHF 203 million. The key contributors were the five IPOs in the year under review, namely: Viela Bio (profit contribution of CHF 35 million), Turning Point Therapeutics (CHF 34 million), Arcutis (CHF 26 million), SpringWorks Therapeutics (CHF 22 million) and Galera Therapeutics (CHF – 1 million). Other significant changes in value resulted from revaluations due to financing rounds with third parties at Cathay Biotech (CHF 64 million net, taking into account the CHF 17 million provision for deferred capital gains taxes), Harmony Biosciences (CHF 24 million) and ConnectRN (CHF – 6 million), and due to operational developments at Swixx Biopharma (CHF 15 million) and Vascular Dynamics (CHF – 8 million).
The portfolio of public companies and other assets contributed a net CHF 32 million to profit. Net losses in value of CHF 7 million for public companies and CHF 9 million for other assets were more than offset by gains of CHF 48 million from market and currency hedging transactions.
The management fees of CHF 21 million reflect the increase in net assets and the company's higher market capitalisation. Based on the increase in value achieved during the financial year, performance-related fees of CHF 24.7 million for the investment advisor and CHF 1.6 million for the Board of Directors also apply. Other administrative costs and financial expenses are unchanged versus previous years at around CHF 3 million and CHF 2 million respectively.
CHF 65 million for six new investments in private companies
In the year under review, HBM Healthcare Investments invested a total of CHF 65 million in six new private companies. CHF 55 million of this total has already been paid in; CHF 10 million is booked as an investment commitment. In addition, CHF 58 million was invested in existing private companies as follow-up investments.
HBM Healthcare made two new investments in the first calendar quarter of 2020.
- USD 15 million (USD 5 million paid up) is going to the diagnostics company Karius, based in Redwood City, California. Karius is marketing a blood test based on novel sequencing of cell-free DNA that can identify and quantify over 1,000 clinically relevant pathogens including bacteria, DNA viruses, fungi and parasites. Applications include complicated pneumonia, infections in immunocompromised patients and endocarditis.
- ALX Oncology in Burlingame, California received USD 5 million. This company is developing therapies that block the CD47 checkpoint mechanism, which is exploited by cancer cells to evade the immune system.
The other four new investments made during the year were in Viela Bio (USD 20 million, antibodies for the treatment of neuromyelitis optica spectrum disorder), Arcutis (USD 15 million, active ingredient for the treatment of psoriasis), Arrakis Therapeutics (USD 7 million, research platform for the discovery of small molecule RNA-binding drugs) and MicroOptx (USD 3 million, development of an implant for the treatment of patients with elevated intraocular pressure).
Cash distribution increased by CHF 0.20 to CHF 7.70 per share
The good business results, the solid balance sheet and the continued positive assessment of the portfolio enable the existing dividend policy to be continued. The Board of Directors is proposing a cash distribution of CHF 7.70 per share to the Annual General Meeting, an increase of CHF 0.20. The distribution will again take the form of a par value repayment that is exempt from withholding tax. Based on the share price at the end of the financial year, the distribution yield is 4.1 percent, which is in the middle of the defined range of 3 to 5 percent.
HBM Healthcare Investments has a very solid balance sheet with low debt and a sizeable cash holding. The company is thus well positioned for the current market environment, which is fraught with uncertainties. Thanks to the experience gained in previous difficult periods for the markets, HBM Healthcare has the knowledge to navigate the pandemic situation and is exercising appropriate caution. For example, it is paying particular attention to guiding and supporting the private portfolio companies. At the same time, HBM Healthcare is looking to seize opportunities as well as surmounting all the challenges that arise.
The three portfolio categories – private companies, funds and public companies – remain well balanced. The partial market hedging of public companies was fully unwound in mid-March. Trends on the financial markets are closely monitored and continuously reassessed with a view to restoring partial hedging.
The currency profile is also very balanced, thanks to a currency hedge of USD 600 million against Swiss francs created through forward sales in March.
HBM Healthcare remains confident about the operational performance of its portfolio companies. Various companies expect important study results and market approvals in the current financial year. Acquisitions and IPOs are likely to continue to play an important role in the healthcare sector and bring added value.
In the appendix to this media release you will find the balance sheet and income statement in accordance with IFRS, the portfolio details and an overview of the consolidated financials including a translation to the IFRS Financial Statements. The detailed Annual Report will be published on 26 May 2020 and will be available on the Company's website from that date onwards.
For further information, please contact Dr Andreas Wicki on +41 41 710 75 77, or at [email protected].