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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 813 million

Key financials

"Investors benefit from a strong share price, increasing cash distributions and ongoing share buy-back programmes"

Dr. Andreas Wicki, CEO HBM Healthcare Investments

Manager Overview

The role of investment advisor is performed by

HBM Partners Ltd is a Swiss healthcare investor with over $1.5 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 50 trade sales and IPOs since inception.

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

Market commentary

HBM Healthcare Investments generated a profit of CHF 136.8 million for the 2016/2017 financial year and increased net asset value per share by 15.2 percent. Board of Directors proposing an increase in the cash dividend of 30 centimes, to CHF 5.80 per share Taking the cash dividend into account, the HBMN share generated a return of 17.5 percent. Public companies account for around two-thirds of the carefully diversified portfolio. The allocation of private companies has been strengthened by new and follow-on investments. The Company will continue to make shareholder-friendly distributions and share buy-backs: The Board of Directors is proposing an increase in the cash dividend of 30 centimes, to CHF 5.80 per share. A change to the International Financial Reporting Standards (IFRS) has necessitated an adjustment to the Company's financial reporting. Comprehensive disclosures and reconciliation accounts create transparency in this regard.
 
Review of the 2016/2017 financial year

The strategy and portfolio composition proved themselves once again during the year under review, with both private and public companies contributing significantly to performance.  Including funds and milestone payments (contractual claims on the sale proceeds of former private portfolio companies that are tied to the achievement of predefined objectives), the portfolio of private companies increased in value by CHF 32.6 million in net terms. The IPOs of portfolio companies AnaptysBio and ObsEva alone contributed CHF 26.8 million. In addition, Interventional Spine's sale of its Expandable Cage technology to DePuy Synthes enabled this holding to be revalued upward by CHF 9.2 million, following a previous valuation adjustment. The revaluation on our holdings of Tensys and Iconic Therapeutics held performance down by CHF 22.3 million. 
 
The milestone payments received amounted to CHF 18.4 million. Thereof, the major part stems from a final milestone payment related to the sale of ESBATech to Alcon in 2009. In addition, the revaluation of such entitlements for milestone payments increased the net assets by CHF 20.2 million. The former shareholders of Nereus Pharmaceuticals had previously gained a holding in the Chinese company BeyondSpring Pharmaceuticals. The latter's IPO on the US Nasdaq technology exchange at the beginning of March resulted in a transparent market value for the first time, permitting the upward revaluation of claims from the liquidation of Nereus. The target revenue that had been defined when Ellipse was sold to NuVasive was achieved in 2016 and resulted in an additional milestone payment of about CHF 17 million after the balance sheet date. The fund portfolio held the overall result down by CHF 7.1 million (net) over the financial year. The portfolio of public companies, including financial instruments and market and foreign currency hedges, contributed net CHF 143.7 million to the Company's profits. The holdings in Relypsa, Anacor and Medivation, all of which were taken over during the year under review, contributed CHF 27.4 million. The following holdings were also major positive factors in performance for the 2016/2017 financial year: Incyte (CHF +24.9m), Advanced Accelerator Applications (CHF +21.3m), Genmab (CHF +16.4m) and Esperion (CHF +13.2m). By contrast, the participation in Vectura proved a drain on results (CHF –20.4m). Remaining participations in the two previously private portfolio companies Ophthotech (CHF –1.7m) and PTC Therapeutics (CHF +2.9m) were sold in the wake of disappointing study data. These companies nonetheless generated substantial gains, of CHF 105 million and CHF 30 million respectively over the entire investment period. As at the balance sheet date of 31 March 2017, just over two-thirds of the Company's total assets were invested in public companies, with 16 percent of the market risk hedged by a short sale of the S&P Biotech ETF. Private companies (including funds and milestone payments) accounted for around 27 percent of the portfolio. The remaining six percent was held as liquidity.  Fixed management fees and other administration costs were slightly below the prior-year level. The increase in NAV achieved during the reporting period will trigger performance fees to the Investment Advisor of CHF 22.1 million and of CHF 1.4 million to the Board of Directors.  

New investments

A total of CHF 20.3 million was invested in four new private companies during the 2016/2017 financial year. Another new investment in the Swiss company Amicus was completed at the end of April 2017. A total of CHF 15.1 million was spent on follow-on financing for private companies already in the portfolio, including capital invested as part of the IPOs of AnaptysBio and ObsEva. New investments during the period under review were as follows: 
 
> True North Therapeutics, based in South San Francisco, is testing an antibody to treat cold agglutinin disease, a rare autoimmune disorder. HBM Healthcare Investments invested USD 10.0 million.

> San Diego-based Neurelis is developing a formulation for the nasal administration of diazepam to treat acute epileptic seizures. A total of USD 8.2 million has been committed, with the first tranche of USD 5.5 million paid to date. 

> Vitaeris, headquartered in Vancouver, is running clinical trials of an antibody to treat chronic inflammatory diseases. HBM Healthcare Investments invested USD 3.0 million in the company's foundation.

> 1mg is currently developing a wide-ranging e-commerce platform in India to serve the fast-growing Indian healthcare market. HBM Healthcare Investments has taken a USD 2.0 million stake in the company.

Within the portfolio of public companies, we also made a number of investments in more mature companies which are likely future takeover candidates. Furthermore, we took the opportunity presented by capital increases to expand our holdings in several small-cap companies with promising product pipelines.
 
Higher cash dividend

In view of the Company's good performance over the past year, its sound financial basis and the fact that portfolio prospects remain positive, the Board of Directors is proposing to the Ordinary Shareholders' Meeting that the cash dividend paid from the capital reserve be increased by 30 centimes to CHF 5.80 per share. Relative to the share price as at 31 March 2017, the dividend yield will thus remain at over five percent. In addition to the proposed cash dividend, CHF 35.8 million was used to repurchase 357,500 of the Company's own shares during the year under review.
 
Changes in the accounting policy

An amendment to the International Financial Reporting Standards (IFRS) for investment companies means that HBM Healthcare Investments is no longer able to consolidate the holding in its subsidiary. Instead, it must be carried individually in the balance sheet at fair value through profit and loss. The appendix to this media release is including the balance sheet and comprehensive income of the Group Annual Financial Statements IFRS, Portfolio details as well as an overview of the Consolidated Financials including translation to IFRS Group Financial Statements.

Outlook

In fundamental terms, the prospects for the healthcare sector remain very positive. New technologies result in further expansion in global research and development projects. In total, there are more than 6,000 molecules in clinical development around the world at present – meaning high capital expenditure, but also opportunities to generate significant value. We continue to believe that volatility on the financial markets will remain high. We are monitoring these developments closely and, where necessary, will take action to mitigate risk. The new financial year got off to a pleasing start for a number of our portfolio companies. In April  2017, Paratek Pharmaceuticals reported positive results from its second phase-III trial of its broadspectrum antibiotic omadacycline, which is used to treat community-acquired pneumonia. Hence, conditions have been met to file the applications for regulatory approval in the USA and Europe. We expect approvals to follow in 2018. Also in April, Neurocrine Biosciences received approval from the US Food and Drug Administration (FDA) for its IngrezzaTM drug to treat patients with tardive dyskinesia. This neurological disease causes involuntary movements, often in the facial area. Key clinical data or approval decisions are expected for other portfolio companies in the course of the coming year. For example, in the middle of the year our largest portfolio holding, Advanced Accelerator Applications, will submit the revised study data requested by the FDA. We expect the Lutathera® cancer drug to be approved towards the end of 2017. From the portfolio of private companies, we expect trade sales or IPOs to make additional contributions to the Company's earnings over the years to come.

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