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 with the decline in the Allshare index. With active industry consolidation, shareholder returns remain attractive.
The HHI was established in 2009. Its main function is to monitor the performance and to highlight the attractiveness of life sciences investments over the long term, and to try to identify those stocks that have disruptive technologies that consistently allow them to outperform the index and the markets. Many of the 50 constituents of the index are high risk, still being in the development stage, with micro-capitalisations and a long way from sales and profitability. Despite this, some companies can still make extremely attractive returns for investors, as evidenced by the top-performing stock in 2018, Bioquell (BQE), which saw its shares rise 120%.
During 2018, the HHI fell by 10.0%, which was a better performance than both the London Allshare index (-13.0%) and the AIM index (-18.2%). Even allowing for capital increases and share buybacks, the HHI, at -12.5%, still performed better than these London indices.
In order to put the share price movement of our – generally – small market capitalisation index constituent companies into perspective, the following table shows the performance of the four major UK healthcare companies over the same period. Defensive qualities during uncertain economic times, coupled with some specific factors, meant that the majors performed very strongly during 2018, all of them seeing share price appreciation in the teens. Shire was the best performer, as a consequence of it being the target of a takeover by Takeda, which is about to complete.