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HBM Healthcare Investments Ltd

Overview

HBM Healthcare Investments actively invests in the human medicine, biotechnology, medical technology and diagnostics sectors and related areas. The company holds and manages an international portfolio of promising companies.

Many of these companies have their lead products already available on the market or at an advanced stage of development. The portfolio companies are closely tracked and actively guided on their strategic directions. This is what makes HBM Healthcare Investments an interesting alternative to investing in big pharma and biotech companies. HBM Healthcare Investments has an international shareholder base and is listed on SIX Swiss Exchange (ticker: HBMN).

  • SIX Swiss Exchange-listed
  • Investment focus: Healthcare
  • Deal focus: Companies with revenues or in later stage of clinical development
  • Market cap: CHF 1'098 million

Key financials

"When making new investments in private companies, our focus is also on the fast-growing regions of Asia, where we want to further increase our exposure."

Dr. Andreas Wicki, CEO HBM Healthcare Investments

Manager Overview

The role of the investment advisor is performed by 

HBM Partners is a Swiss healthcare investor with over $1.7 billion assets under management

HBM Partners was founded in 2001 with the goal to invest in private and public emerging biopharma and other healthcare-related companies.

HBM Partners has a team of experienced professionals to source, analyse and engage in investments in biopharma, medical devices and diagnostics industries. HBM Partners has a track-record of over 100 investments that resulted so far in significant value creation by more than 60 trade sales and IPOs since inception.

HBM Partners is regulated by FINMA and advises SIX listed HBM Healthcare Investments and further specialised public and private equity investment products.

HBM Partners was founded in 2001 with the goal to invest in private and public emerging biopharma and other healthcare-related companies.

Market commentary

In the financial year just ended HBM Healthcare Investments continued along its successful path. The Company closed the 2017/2018 reporting period with a profit for the sixth successive year. The CHF 116 million surplus will be used for a number of new investments, as well as for an attractive cash dividend of CHF 7.00 per share (+ 20 percent). The long-term commitment to reducing the discount has also paid off, with the difference between share price and net asset value having contracted to just over ten percent. With its strong innovative drive, the healthcare market continues to offer appealing investment opportunities. During the reporting year, HBM Healthcare Investments’ engaged in three larger investments in companies with attractive risk profiles (Amicus, Harmony Biosciences, and Y-mAbs), rounded out by ten smaller investments in companies with promising clinical development programmes. The major holdings in the portfolio of private companies are developing positively, and HBM Healthcare Investments expects to realise significant added value from these investments in the coming years as a result of IPOs or trade sales.
 
Review of the 2017/2018 financial year
Net asset value (NAV) per share rose by 11 percent, while the share price advanced by 34 percent, thus significantly reducing the discount. It now stands at a little over ten percent. The investment portfolio generated an increase in value of CHF 152.6 million net in the reporting period. This was held back to some extent by negative currency trends (CHF – 29 million), and the partial hedge of exchange-listed securities (CHF – 28 million). In the portfolio of private companies, the valuation of Cathay Industrial Biotech was increased by CHF 43.3 million on the strength of its business performance and the resulting growth in revenue and profits. The takeovers of TandemLife (also known as Cardiac Assist) by LivaNova (CHF 28 million) and of True North Therapeutics by Bioverativ/Sanofi (CHF 9.5 million) also contributed substantially to profits. In addition, two IPOs – ARMO BioSciences (CHF 34.7 million) and Homology Medicines (CHF 6.5 million) resulted in significant increases in value. Meanwhile, private company Vitaeris entered into a strategic partnership with CSL to develop the clazakizumab antibody. CSL is financing clinical trials, and in return received the option to purchase Vitaeris at a later point in time. In line with the prudent valuation policy of HBM Healthcare Investments, this deal had no immediate effect on the carrying value of this holding. However, there might be a significant increase in Vitaeris’s valuation if the clinical trials are completed successfully and CLS exercises its purchase option. Among the public companies, the holding in Advanced Accelerator Applications generated the largest single profit contribution, of CHF 105.2 million. The company was acquired by Novartis for USD 3.9 billion during the year under review. Other major contributions were generated by investments in AnaptysBio (CHF 33.4 million), Argenx (CHF 26.0 million), Esperion Therapeutics (CHF 19.6 million) and Neurocrine Biosciences (CHF 15.5 million). Not everything went to plan, however. At Vectura Group there was a delay in approval for the generic version of Advair in the USA. The FDA is requesting additional study data from development partner Hikma; Hikma and Vectura now expect an approval in 2020. The news cut the value of the holding in Vectura by CHF 54.0 million during the reporting year. Meanwhile, the Pacira Pharmaceuticals share price came under pressure owing to mixed results from the phase III studies aimed at extending approval for its Exparel® pain relief drug to a further indication, nerve blockage. The value of the holding fell by CHF 17.6 million as a result. In February, the majority of an FDA Advisory Committee rejected extended approval, before the FDA granted it nonetheless in early April 2018, after which the share price recovered somewhat. The holdings in Tesaro (CHF – 19.9 million) and Nabriva Therapeutics (CHF – 18.0 million) also proved a drain on the annual result. Management fees (CHF 14.2 million), the performance fee paid to the Investment Advisor (CHF 15.9 million) and the variable compensation for the Board of Directors (CHF 1.0 million) are in line with the increase in net assets and value growth that have been achieved. 
 
Portfolio and new investments in private companies
A total of CHF 121 million was dedicated to new investments and follow-on financing rounds during the reporting year. Swiss company Amicus Ltd, which specialises in the sale of pharmaceutical products and medical devices in central and eastern Europe, received EUR 20 million. USD 30 million was invested in US company Harmony Biosciences. Harmony acquired the US rights to Pitolisant for the treatment of narcolepsy in adults which has already been approved in Europe. The aim is to secure approval for the drug on the US market. Finally, USD 23 million went to Y-mAbs Therapeutics, which is developing a promising pipeline of immunotherapies to treat cancer in children. In addition to these three major investments in companies with attractive risk profiles, HBM Healthcare Investments made ten smaller-scale investments of between CHF 2 million and CHF 8 million each in companies with promising clinical development programmes. It is to be expected that these companies will require further capital over time, and that the investment holdings will grow in line with the progress they make. The portfolio of funds recorded a high level of return cash flows, totalling CHF 52 million. Capital payments into investment funds came to a total of CHF 23 million. Part of this liquidity was allocated to investment teams with a focus on China, via new investment commitments of USD 25 million to 6 Dimension Capital and of USD 5 million to BioVeda China IV. This further increases the proportion of the portfolio invested in this growing healthcare market. All in all, the HBM Healthcare Investments portfolio remains well balanced: private companies (including funds and milestone payments) accounted for 38 percent of net assets, and public companies 65 percent (around one fifth of which is subject to a market hedge).   Cash dividend boosted by 20 percent The Board of Directors is proposing to the Shareholders’ Meeting that the cash dividend from the capital reserve be increased by CHF 1.20 per share (+ 20 percent) to a total of CHF 7.00 per share. Based on the share price at the end of the financial year, this corresponds to a distribution yield of 4.9 percent. Should the shareholders adopt the Board’s proposals, CHF 5.50 per share will be paid out from the available capital reserve after the Shareholders’ Meeting, before the end of June. This payment will almost exhaust the capital reserve. The Board of Directors is thus also proposing a reduction of CHF 30 in par value per share, in other words from CHF 58.50 to CHF 28.50 per share, in order to replenish this reserve. This will ensure that, providing the business does well, HBM Healthcare Investments can continue to pursue its distribution policy of withholding tax-exempt cash dividends in the years to come. The remaining amount of CHF 1.50 per share will then be paid once the par value reduction has been completed, before the end of September 2018, from the newly increased capital reserve.
 
Outlook
The innovative drive and long-term growth prospects of the healthcare sector remain positive. HBM Healthcare Investments thus believes that mergers and acquisitions activity in the sector will continue at a high level. Tax reforms in the USA are likely to provide additional support for this.  The major holdings in the portfolio of private companies are developing positively, and the realisation of significant added value from these investments in the coming years as a result of IPOs or trade sales is expected. HBM Healthcare Investments will make further new investments in private companies within the framework defined by the investment strategy. The focus is also on the fast-growing regions of Asia, where HBM Healthcare Investments will further increase its exposure.  A number of events that will have a bearing on the value of HBM Healthcare Investments – such as clinical study data and approval decisions – are expected for the portfolio of public companies. Volatility in the sector is expected to remain high and HBM Healthcare Investments will thus continue to hedge part of its market risk for the time being.
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