2018 – failed to meet expectations

The Hardman & Co Healthcare Index (HHI) has been running since 2009. Its main function is to highlight the attractions of life sciences investments over the long term. 2018 was a difficult year; however, the index still outperformed its comparative London indices, falling 10.0% to 393.2, compared with -13.0& and -18.2% for the Allshare index and the AIM index, respectively. Furthermore, several (17) companies in our index increased their capital base – 15 of our 50 constituents raised new funds, two issued shares as part consideration for acquisitions, and two had share buybacks – all factors that influence the performance of the index. Even allowing for both capital increases and share buybacks, the -12.5% fall in the index still represented a modest outperformance compared to the decline in the Allshare index. With active industry consolidation, shareholder returns remain attractive.

• Since inauguration, the CAGR for the HHI has been 16.6%, compared with 3.2% for the London Allshare Index and 3.1% for the AIM index, highlighting the attractiveness of the healthcare sector as a long-term investment, even though it is capital-intensive.
• Of the 50 companies included in the HHI, only 11 saw an increase in their share prices in 2018, whereas 39 fell, with no company simply marking time.
• The variance between the best- and worst-performing stocks was lower than usual, at 213% – Bioquell (BQE) rising 120% and Immupharma (IMM) falling 93% – the median share price change was -23%.
• Interestingly in relative terms, only 16 stocks outperformed the index during 2018, with the other 34 underperforming.
• Industry consolidation remains very much to the fore. Three companies included in our index were taken over in 2018, and the takeovers of two others (BTG and BQE) will complete early in 2019. Moreover, Bristol Myers Squibb has just agreed to pay $74bn for Celgene and Eli Lilly has proposed the acquisition of Loxo Oncology for $7.1bn