HBM Healthcare Investments year-end results 2022/2023

HBM Healthcare Investments reports a loss of CHF 146 million for the 2022/2023 financial year. Inflation and rising interest rates led to declining valuations for technology and growth stocks around the globe. Four profitable acquisitions, two IPOs, and the value increase of several operationally successful portfolio companies did not compensate for the decline.

• Net asset value per share (NAV) -7.4 percent, share price -18.9 percent
• Healthcare sector remains attractive and HBM Healthcare Investments a predestined investment instrument
• Continuation of distribution policy with a yield of 3.5 percent

Declining valuations for growth stocks

The market environment with inflation and rising interest rates had a negative impact on the valuations of technology and growth stocks. The biotechnology sector was no  exception and the segment of small and medium-sized companies in particular – the main focus of HBM Healthcare's investment strategy – underwent a significant valuation correction.

In addition, the slowdown in economic growth and the prolonged restrictive policy in dealing with the Covid-19 pandemic in China affected the valuation of HBM’s largest holding, Cathay Biotech. Listed on the Shanghai stock exchange, Cathay lost some of the value growth it had achieved in previous years. However, replacing chemical products with bio-based input made from renewable raw materials remains a major trend for the future. As a global leader in synthetic biology, Cathay Biotech has a strong position in this growth market thanks to its technology and its production capacities.

The decision by the US Food and Drug Administration (FDA) to deny the portfolio company Y-mAbs Therapeutics marketing approval for its cancer therapy omburtamab on the grounds of inconclusive evidence of efficacy was unexpected.

In the past financial year, positive contributions to earnings came from the increase in value of various operationally successful private companies as well as from two IPOs and four acquisitions. However, this did not fully compensate for the negative performance.

The portfolio components contributed to the annual result as follows:

The portfolio components contributed to the annual result as follows:The portfolio of private companies closed positively, adding a total of CHF 32 million in value. The IPOs of Mineralys Therapeutics and Acrivon Therapeutics were responsible for a value increase of CHF 24 million. Fangzhou, operator of the digital healthcare platform Jianke.com in China, completed financing rounds in preparation for an IPO in Hong Kong, which increased the value of the investment by CHF 33 million. Swixx BioPharma, the largest position in the private companies portfolio, strongly increased sales and profit in the 2022 financial year, which allowed the company to return some of its excess capital to shareholders. In addition to the dividend received, the investment thus was appreciated by CHF 20 million. Value adjustments totalling CHF 45 million were necessary for companies that did not develop according to plan or had raised capital at lower valuations.

The funds' portfolio recorded a decline in value of CHF 5 million. Distributions of CHF 16 million were offset by capital calls of CHF 20 million.

The portfolio of public companies shows a total decrease in valuation of CHF 164 million. Significant profit contributions resulted from the four acquisitions of Turning Point Therapeutics (CHF 41 million), ChemoCentryx (CHF 21 million), Biohaven Pharmaceuticals (CHF 20 million) and Sierra Oncology (CHF 16 million). The main impairments were in Cathay Biotech (CHF 98 million), Y-mAbs Therapeutics (CHF 24 million), Harmony Biosciences (CHF 16 million), Pacira Biosciences (CHF 15 million) and Monte Rosa Therapeutics (CHF 10 million). The remaining public companies closed net CHF 99 million lower.

Other assets, which includes dividend income and profit contributions from foreign currency hedges, increased the result by CHF 20 million. 

The management fee, which depends on the Company’s average net assets and market capitalisation, as well as administration cost decreased to CHF 30 million compared to the previous year. The financial result was positive at CHF 1 million due to the interest income received.

Selective additions to the portfolio

HBM Healthcare Investments made a new investment of USD 12 million in the private company ArriVent Biopharma in the final quarter of the reporting year. The US-based company is testing the compound furmonertinib in a pivotal phase III trial for the treatment of patients with EGFRmutated (Epidermal Growth Factor Receptor) non-small cell lung cancer. The compound is already approved as a cancer therapy in China. A further CHF 69 million were invested as follow-on financing to nineteen existing private companies.

In the portfolio of public companies, the proceeds from the four acquisitions were used to  build up and expand various new and existing holdings.

Overall, the portfolio remains well balanced. Of the total assets of just under CHF 2 billion, 35 percent are invested in private companies. 43 percent are in public companies (thereof 26 percent formerly private companies), 9 percent in funds and 1 percent in other assets. The share of cash and cash equivalents stands at 12 percent. The latter will serve, among other things, the repayment of the CHF 50 million bond due in July and the proposed par value repayment.

Attractive distribution yield of 3.5 percent

Its strong financial position allows HBM Healthcare Investments to continue its distribution policy. The Board of Directors proposes to the Shareholders’ Meeting a par  value repayment of CHF 7.50 per share, free of withholding tax. The dividend yield thus remains at the previous year’s level of 3.5 percent.

Outlook

Various private portfolio companies are developing very well operationally and hold the potential for higher valuations, which are likely to materialise in future financing rounds, IPOs or takeovers. Value adjustments were made for the less performing companies. Overall, HBM’s portfolio of private companies should continue to make a positive value contribution in the coming years.

If, as expected, the cycle of rising interest rates comes to an end in the foreseeable future, this would ease the pressure on valuations of public companies, and investors would once again increasingly focus on the companies’ successes in clinical development and their operating results. HBM Healthcare will use the current favourable valuation level to selectively expand its portfolio of public companies.

Avid takeover activity in recent months at handsome premiums confirms the attractiveness  of the biotechnology sector as an investment universe. High medical need, scientific and technological advances, and demographic change remain strong drivers of long-term growth in the healthcare sector. This is not likely to change in the immediate future, and HBM Healthcare's portfolio is well positioned to benefit from this.

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 2023 and will be available on the Company's website from that date onwards.

Contact
For further information, please contact Dr Andreas Wicki on +41 41 710 75 77, or at andreas.wicki@hbmhealthcare.com.