Life Sciences sector outlook: AIM Healthcare Index continues to outperform

Apr 28, 2021 / News

The latest research from our Life Sciences desk reveals that the AIM Healthcare index rose by 15% in 2021, significantly outperforming the larger-cap FT All Share Health and World Health indices, which have risen by 2% and 3%, respectively, as it has for the last 10 years.

Of the finnLife 50 Index stocks, 26 have exhibited double-digit percentage increases in 2021, and a further five have exhibited tripledigit percentage increases. The highest performers include: Futura Medical (+228%), ANGLE* (+139%), Destiny Pharma* (+126%), Avacta* (+112%), Cambridge Cognition* (+109%), ReNeuron Group (+76%), Scancell Holdings (+64%), SDI Group* (+56%), Open Orphan* (+55%) and ECO Animal Health (+53%). Given some of the catalysts expected over the rest of the year, we expect the sector to continue to perform strongly.

Sector outlook

The AIM Healthcare Index has outperformed all comparator indices over the past seven years, rising by a CAGR of 13.6%, compared with 5.7% for the AIM All Share, 1.4% for the FT All Share and 6.7% for the World Pharma/Biotech Index.

The AIM healthcare index has grown by 4.2% in Q2 thus far and continues to benefit from the COVID-19 boom, with the world focused on tests, treatments and vaccines. This compares to 5.5% for the AIM All Share Index, 2.0% for the World Health Index and 5.4% for the larger-cap FT All Share Health.

Indeed, Healthcare AIM was one of the best performing sectors of the AIM market in 2020, and this strong performance has continued into 2021. For the entirety of 2021 thus far, the index has remained at a higher level than at any point in 2020.

We believe Healthcare AIM will continue to grow in 2021 given the continuation of the COVID-19 crisis (especially internationally) and the increased focus on, and funding for, healthcare that this crisis has created.

Large-cap healthcare sector performance

In 2021 thus far, the Large-Cap Healthcare index (as defined by finnCap) has risen 1.5%, which compares with increases of 8.4% for the FTSE All Share index, 2.6% for the World Pharma/Biotech index and 4.6% for NASDAQ Biotech. Key performances within the Large-Cap index included Indivior (+31%) and Spire Healthcare Group (+22%). However, the overall performance of the index was hampered by constituents Smith & Nephew (- 3%) and Hikma Pharmaceuticals (-3%).

Industry indicators

FDA approvals

In 2021 thus far, there have been 15 new drug approvals, comprised of 14 NDAs and one BLA. This represents a good few months for approvals, especially when considering the disruption caused by COVID-19 to the FDA’s work and to the companies themselves. There were 14 approvals during the same period in 2020 and 11 in 2019. In 2021 thus far, 7% of drugs approved were biologics; 29% and 39% of drugs approved in 2020 and 2019, respectively, were biologics. We expect that at least 25% of approvals in 2021 will be BLAs.

Capital market indicators

Secondary Healthcare fundraises

In Q1 2021, a total of £304m was raised in the healthcare sector for companies listed on AIM, representing 23% of total AIM secondary fund raises. This compares with £195m during the same period in 2020 (25% of total AIM). Key secondary fund raises in Q1 2021 included MaxCyte (£38m), Silence Therapeutics (£33m), Shield Therapeutics* (£29m), 4D Pharma (£18m), Faron Pharma (£13m) and Kromek (£13m).

Primary Healthcare IPOs

In Q1 2021, there were nine IPOs on the AIM market, compared to six and five during the same period in 2020 and 2019, respectively. Of these, one was in the healthcare sector – introduction of 4basebio* to the market (no money raised). This compares to one IPO in the healthcare sector in Q1 2020 (a reverse takeover of hVIVO by Open Orphan*, no new money raised) and two in Q1 2019 (Circassia, no new money raised and Diaceutics – £17m). The healthcare market accounted for £65.5m of the £316.5m raised at IPO, year to date, on the AIM market (17%). IPOs on the AIM market in Q1 2021 raised £41.7m.

Three companies primed for growth

The latest Rude Health | finnCap Life Sciences quarterly sector note (Q2 2021 | Issue 16) outlines the investment case for three companies that we believe are primed for growth and we consider to be undervalued. In each company section we explore the company’s current position, the existing challenges within its industry and the solutions that the company provides to these, and its growth potential. We also discuss its share price performance, present historical financial metrics (with consensus forecasts where available) and provide our overall view on the company.

The companies covered are:

Diurnal (AIM:DNL) – a commercial-stage specialty pharma company, focused on disorders in the field of endocrinology. Its first product, Alkindi®, is currently being rolled out throughout Europe and the US. EU launch for its second product, Efmody® is expected in Q3 2021. Diurnal also has an earlier stage pipeline of products.

Kromek (AIM:KMK) – a technology company that provides radiation detection products to three markets: medical imaging, nuclear detection and security screening. It has also been developing technology for a new market segment, biosecurity, for the detection of airborne bacteria and viruses, including COVID-19.

Oxford Biodynamics (AIM:OBD) – focused on developing precision medicine tests for personalised healthcare based on its proprietary 3D genomic biomarker platform, EpiSwitch™. OBD’s first two EpiSwitch tests are COVID-19 Severity and Universal IO (immuno-oncology) Response. The former was launched in the US in March 2021, and the latter is targeted for launch in H2 2021.

 

This coverage is available to read in full to institutional subscribers to our Research Portal.

 

* Corporate stock