JUNE RECAP & BEYOND

The Healthcare sector was up 1.5% in June, outperforming the broader market (0.5%) and the Medtech universe (1.3%) for the first time in 2018 on the back of a broader shift to more defensive sectors. Within the sector, outperformance was driven by Equipment and Supplies (1.8%) and Providers & Services (1.8%), in part due to their relative shelter from China trade concerns.  Biotech (1.2%) and Pharma (1.4%) continue to weigh on the sector driven by concerns on drug pricing and despite strong capital markets activity. Medtech remains the YTD leader, up 15.7%.

MARKET COMMENTARY

Medtech & Diagnostics: More transformational M&A coming?
The largest and most notable transactions in June were Roche’s acquisition of Foundation Medicine and the merger of Redbrick and Virgin Pulse backed by Marlin. The middle of June was punctuated by a Wall Street Journal article speculating that Stryker (SYK) and Boston Scientific (BSX) were in discussions to merge, sending Medtech analysts into a tailspin to opine on the merits of a potential transaction, create consolidation models and publish reports on implications for the sector. While Stryker ultimately issued an 8-k quelling the rumors, speculation for continued M&A within the sector remains high as do sector valuations.

Notable Spin-offs Coming
Meanwhile, GE is set to spin off its healthcare business into a standalone company. GE’s Healthcare division had sales of roughly $19 billion in 2017 and spans medical imaging, monitoring, digital health and cell therapy.  Novartis is gearing up to spin off Alcon, its eye-care unit.  After the spin, Novartis will be entirely committed to prescription medicine.

ASCO Kicked off the Month
The annual American Society of Clinical Oncology (ASCO) meeting was the first week of June in Chicago. This year brought a mix of positive and negative developments for the sectors, with Wall Street more focused on the downside news. Investor sentiment continues to be cautious on the fundamentals of large cap biotech stocks. The small caps, however, are providing more opportunity for outperformance with event-driven news, catalysts and ongoing innovation.

IPO Pricings – Thirteen Life Sciences IPOs and two Medtech IPOs Completed in June
June was dominated by a flurry of activity for investors trying to keep up with meeting schedules of the double-digit number of IPOs on the road in the month. Ultimately, 15 IPOs priced in the month, again lead by 13 Life Sciences new issuances but with two Medtech companies also joining the mix. Importantly, early days of stock performance have been strong, giving rise to continued speculation that the capital markets window remains open

Source: Thompson Reuters and FactSet