JULY RECAP & BEYOND

Healthcare gains on strong start to Q2 earnings as tech giants weigh on broader S&P.
The Healthcare sector was up 6.5% in July, outperforming the broader market (3.6%) and the Medtech universe (3.8%) on the back of a broader shift to more defensive sectors, strong Q2 prints from large-caps and major declines in information technology giants in tail-end of the month. Within the sector, outperformance was broad-based and driven by Tools and Services (12.0%) surging back after the Q1 selloff on broad strength in end markets across biopharma, academic and industrial. Pharma, up 9.2%, benefitted from strong Q2 earnings reports and upbeat updates to guidance from Eli Lilly (LLY) and Biogen (BIIB), to break out of a year of middling performance.

MARKET COMMENTARY

Large-Cap Tools & Diagnostics companies comment on Chinese tariffs.
Overall, the effect of anticipated tariffs on the bottom-line of large-cap companies was ($0.01) to ($0.03), among those who broke it out from general FX guidance. This figure would largely negate the effects of tax-benefits enacted early this year.

Genomic sequencing demand drives public market interest.
Lifesciences and Biotech gained on Genomic sequencing with Illumina’s stellar quarter showing the breadth and depth of pharma and clinical demand for sequencing, up 12.1% following the Q2 print. In M&A, Roche’s acquisition of Foundation Medical (FMI) demonstrated the appetite for the acquisition of companies addressing large opportunities in cancer.

IPO Pricings.
July saw nine healthcare deals price, representing 45% of all deals completed. There was one Medtech IPO completed (Establishment Labs) which priced $1 above its initial filing range and gained 45% by month end. Overall performance for the healthcare deals has been solid, with an average return of 23% from pricing to the end of the month. As typical, we expect August to be quiet, however there are three healthcare deals expected to price.

Source: Thompson Reuters and FactSet