HBM Healthcare Investments reports a loss of CHF 78 million for the 2021/2022 financial year, for the first time in ten years and after a cumulative increase in value of 550 percent. The net asset value per share (NAV) fell by 3.6 percent and the share price by 13.2 percent due to globally declining market valuations of public companies, especially in the first quarter of 2022, triggered by rising inflation, interest rate hikes and increasing geopolitical uncertainty. The increase in value of the private companies? portfolio totalling CHF 129 million was unable to entirely compensate for this.
However, the healthcare market continues to offer an attractive investment universe
and the prospects for HBM Healthcare?s carefully constructed portfolio remain intact. The Company?s solid financial position allows to continue its proven investment strategy and distribution policy.
The Board of Directors proposes to the Shareholders? Meeting a slight increase in the cash distribution of 20 cents to CHF 9.70 per share in the form of a par value repayment free of withholding tax.
Annual loss of CHF 78 million due to declining market valuations
HBM Healthcare Investments reports an annual loss of CHF 78 million for the 2021/2022 financial year. This is the first negative result in ten years, following the previous year?s record profit.
In an increasingly challenging market environment, HBM Healthcare Investments initially performed very well. In January 2022, the Company reported a strong profit of CHF 275 million for the first nine months. Increases in the value of private companies and the rise in the share price of its largest investment ? Cathay Biotech in China ? offset the market-driven decline in the share prices of the other public investments. However, valuations of growth companies on the stock market came under increasing pressure against the backdrop of rising inflation and a first interest rate hike in the United States. The geopolitical events in Ukraine and the renewed flare-up of the Covid-19 pandemic in China further accentuated the price decline in public holdings in the final quarter of the financial year while the share price of Cathay Biotech also gave back some of its previous gains, which ultimately pushed our result into negative territory.
The individual components of the portfolio contributed as follows to the annual loss:
The value of the portfolio of private companies increased by a total of CHF 129 million. Financing rounds with external investors enabled an increase in the valuations of the investments in Swixx Biopharma by CHF 75 million and ConnectRN by CHF 38 million. Both companies are operationally successful and experience strong sales growth. Furthermore, the acquisition of Bioshin by Biohaven resulted in a profit contribution of CHF 12 million. The value of the other investments combined increased by a total of CHF 4 million, net of higher valuations due to financing rounds as well as some value adjustments.
The fund portfolio decreased by CHF 35 million, mainly due to lower market prices of public companies held by these funds. Of this, CHF 12 million was attributable to HBM Genomics, CHF 10 million to WuXi Healthcare Ventures, and CHF 13 million to the other funds. Repayments totalling CHF 36 million were offset by capital calls of CHF 31 million. In total, CHF 5 million in liquidity flowed back from the funds. No new investment commitments were made to funds in the reporting year.
Public companies originating from the portfolio of private companies recorded market-related losses of CHF 82 million. Positive performers were Cathay Biotech (CHF 128 million, including dividend income of CHF 3 million and net of an increase in the provision for deferred tax on capital gain of CHF 14 million) and Harmony Biosciences (CHF 58 million). Both companies are profitable and report growing sales. The result was negatively impacted primarily by oncology companies with clinical development candidates, some of which had appreciated strongly in earlier years: BioAtla (CHF 62 million), ALX Oncology (CHF 32 million), Y-mAbs Therapeutics (CHF 28 million), Turning Point Therapeutics (CHF 27 million), Ambrx (CHF 20 million), Longboard Pharmaceuticals (CHF 20 million), Instil Bio (CHF 18 million), Connect Biopharma (CHF 13 million), IO Biotech (CHF 10 million) and other companies (CHF 38 million net). HBM Healthcare Investments had already realised substantial profits from most of these investments in the financial year just ended or in previous financial years. Clinical development is proceeding according to plan at most of these companies.
The portfolio of other public companies impaired the result by CHF 65 million. The investment in Biohaven developed positively, increasing by CHF 25 million. The result was burdened by the share price developments of Zymeworks (CHF 24 million), Esperion Therapeutics (CHF 12 million), Rocket Pharmaceuticals (CHF 11 million), ChemoCentryx (CHF 10 million) and various smaller investments (CHF 33 million net).
The hedging positions for currency and market risks resulted in a profit contribution of CHF 29 million. Other financial assets and financial instruments reduced the result by CHF 13 million, mainly due to currency effects.
Management fees, which depend on average net assets and market capitalisation, amounted to CHF 35 million. As the NAV did not exceed the high water mark at the end of the financial year, no performance-related compensation was due to the investment advisor or the Board of Directors. Other administrative costs and financial expenses were stable at less than CHF 6 million.
Attractive portfolio with private and public companies
Taking into account the reported loss for the year and the par value repayment to shareholders last September, net assets decreased by CHF 0.17 billion to just under CHF 2 billion in the reporting year. As of 31 March 2022, total invested assets of CHF 2.2 billion were grouped as follows: private companies 28 percent, public companies 52 percent (public companies originating from the private companies? portfolio 37 percent), funds 8 percent, other assets 1 percent and cash and cash equivalents 11 percent. At less than 7 percent, the level of financial liabilities remains low.
On the balance sheet date, there were no hedges for currency or market risks.
CHF 162 million invested in private companies
HBM Healthcare Investments invested CHF 93 million in eleven new private companies during the year under review. Of this amount, CHF 67 million has been paid in and CHF 26 million has been recognised as investment commitments. A further CHF 69 million was transferred to existing private companies as follow-on financings.
New investments made during the year are mentioned in the respective quarterly reports. No new investments were made in the reporting year?s final quarter ended 31 March 2022. The three largest new investments in the 2021/2022 financial year are:
- The US company Upstream Bio received an investment commitment of USD 20 million (USD 11 million paid in). Upstream is developing an antibody to treat severe asthma.
- CHF 17 million went to the Swiss company Numab Therapeutics. Numab develops novel cancer immunotherapies based on its multispecific antibody discovery technology platform and has several partnerships with international pharmaceutical companies.
- USD 10 million was invested in Odyssey Therapeutics. The US-based company develops novel antibodies (V-bodies) for the treatment of cancer and for autoimmune therapies.
In addition to new investments in private companies, selective buying opportunities were also taken in new or existing public companies. For example, the sharp decline in the share price of Y-mAbs Therapeutics at the beginning of 2022 was used to double the position back to the original ownership stake. The investment in Sierra Oncology was significantly increased following positive phase III trial results for Momelotinib for the treatment of myelofibrosis patients. This decision was rewarded shortly after the balance sheet date, when GlaxoSmithKline announced the acquisition of Sierra Oncology for a total of USD 1.9 billion in mid-April.
Increase of cash distribution to CHF 9.70 per share
HBM Healthcare?s large increase in value in recent years, the positive outlook for its portfolio, and its solid financial position allow the Company to continue its distribution policy unchanged. Accordingly, over the long term, a portion of the increase in value achieved is to be returned to shareholders with a target yield ranging from 3 to 5 percent on the closing share price.
The Board of Directors proposes to the Shareholders? Meeting a slight increase in the cash distribution of 20 cents to CHF 9.70 per share in the form of a par value repayment free of withholding tax. Based on the share price of 31 March 2022, this corresponds to a yield of 3.5 percent.
Furthermore, the Board of Directors intends to propose a new share buy-back programme to the Shareholders? Meeting.
With inflation, rising interest rates and geopolitical uncertainty, the macroeconomic market environment has become more challenging in recent months. Nevertheless, HBM Healthcare Investments continues to rate the growth prospects for the healthcare sector and the factors central to its investment strategy as good.
The carefully compiled portfolio remains attractive in its composition and was supplemented with some interesting new investments in the reporting year. Many private companies are operationally successful and hold considerable added value potential. After the significant share price decline of the past twelve months, the segment of small and mid cap public companies is valued reasonably and will benefit from a market recovery. In addition, the progress of clinical development at these companies in the form of positive study results or market approvals should once again attract investor attention. Finally, Cathay Biotech, our largest holding, maintains its excellent position as one of the leading companies in the promising growth area of synthetic biology.
The current market environment offers increasingly interesting investment opportunities in the area of public companies, which we intend to exploit selectively. In addition, it can be assumed that strategic buyers will also follow this market development closely and ? as demonstrated by GSK?s recent acquisition of Sierra Oncology ? this will again lead to an increase in acquisitions and strategic partnerships.
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 18 May 2022 and will be available on the Company's website from that date onwards.