HBM Healthcare Investments : Short Report 2023/2024

ANNUAL REPORT 2023/2024

SHORT REPORT

About HBM Healthcare Investments

HBM Healthcare Investments actively invests in the

­human medicine, biotechnology, medical technology and diagnostics sectors and related areas. The company holds and manages an international portfolio of promising companies.

Many of these companies have their lead products

­already available on the market or at an advanced stage of development. The portfolio companies are closely tracked and actively guided on their strategic directions.

This is what makes HBM Healthcare Investments an interesting alternative to investing in big pharma

and biotech companies. HBM Healthcare Investments has an international shareholder base and is listed on SIX Swiss Exchange (ticker: HBMN).

342°

Chameleons have a horizontal field of vision of up to 342 degrees.

But these lizards are best known for their ability to change colour, making some masters of camouflage. In the human body, we also find amazing examples of mimicry, such as tumours masquerading as healthy cells. Understanding these mechanisms is often a promising starting point for drug development.

Chameleons can move each eye independently and can see up to a thousand metres. Their tongue is sometimes longer than the entire animal and can move at split-second speeds. But chameleons are most famous for their ability to change colour. This effect is caused by the arrangement of nanocrystals in the lizards' skin. The bright colours are used for communication between conspecifics. Their ability to perfectly mimic their surroundings also makes some species masters of ­camouflage. Camouflage and mimicry also occur in the human body: mutations in viruses fool the immune system; cancer cells mimic the surface of a healthy cell to evade the immune response. Research into these mechanisms often provides targets for the development of new drugs and therapies. Promising examples - for example in immunotherapy - can also be found among the companies in the HBM Healthcare Investments portfolio.

Global portfolio

Investments by regions 1)

Global portfolio with focus on North America.

Europe 21%

Americas 48%	Asia 31%

1. Total investments as at 31.3.2024: CHF 1 578 million.

HBM Healthcare Investments holds a well-balanced global portfolio. Geographical focus is on the world's leading research and development hubs of the

healthcare industry in the United States (East and West Coast), Western Europe and Asia (China and India).

At a glance

Currency allocation of assets 1)

Emphasis on US dollar investments.

63% US dollar (USD)

13% Renminbi (CNY)

13% Euro (EUR)

5% Indian rupee (INR)

3% Swiss franc (CHF)

3% Other currencies

(CAD, DKK, GBP, HKD, SEK)

Allocation of assets 1)

Mainly invested in private companies or in companies originating from the private companies' portfolio.

		35%	Private companies
		22%	Public (from private)
			companies
		20%	Public companies
		10%	Funds
		11%	Cash and cash equivalents
		2%	Other assets

Development phase of portfolio companies 2) Mainly invested in revenue generating companies or in companies with products at an advanced stage of development.

Therapeutic area of the lead product of portfolio companies 2)

Broadly diversified areas of activity.

		38%	Profitable			26%	Others
		25%	Products on the market			19%	Oncology
		4%	Phase III			13%	Central nervous system
		16%	Phase II			12%	Synthetic biology
		9%	Phase I			9%	Digital health
		8%	Preclinical			8%	Orphan diseases
						7%	Immunology / inflammation
						6%	Medical technology /
								diagnostics

1. Total consolidated assets as at 31.3.2024: CHF 1 823 million.
2. Total investments as at 31.3.2024: CHF 1 578 million.

Letter from the Chairman

of the Board of Directors and the Management

HBM Healthcare Investments almost broke even in the 2023/2024 financial year with a slight loss of CHF 1 million. By contrast, the net asset value per share (NAV), including distribution, rose by 0.3 percent. The portfolio of public companies made a ­positive contribution to earnings - not least thanks to five ­acquisitions - while the performance of private companies and funds declined overall. Currency effects reduced the annual result by a total of around 2.5 percent despite the positive development in the final quarter. The market environment was mixed: while the biotech sector in the United States and to some extent in Europe recovered, the markets in China continued to decline. Only India remained consistently strong. The private portfolio

was supplemented by two new investments. In addition, a distribution to shareholders similar to the previous year will be proposed and the share buy-backs will be continued. Given the fundamentally positive performance of the biotech ­sector and many portfolio companies, HBM Healthcare is confident about the future.

Dear Shareholders

As expected, the market environment for our portfolio companies was challenging and uneven in the reporting year. While the biotechnology sector in the USA

and to some extent in Europe recovered, the markets in China continued to decline. India, on the other hand, was in consistently strong shape.

The US biotechnology sector recovered from the lows of the previous year and rose in local currency by 8.3 percent (Nasdaq Biotechnology Index) and 24.5 percent (SPDR S&P Biotech ETF) in a volatile environment. However, the development was by no means linear and was strongly influenced by market participants' assessments of inflation and interest rate trends in the United States. The increase in takeover­ activity in the second half of 2023 had a supporting effect. Most of our public investments in the United States benefited from the overall positive development.

In China, on the other hand, the market environment remained difficult. This was against the backdrop of a weakening economy, a crisis-ridden property sector and increasing tensions between the major powers. The Shanghai Shenzhen CSI 300 Index, which includes our investment Cathay Biotech, lost 10.9 percent in the reporting year.

One bright spot was the Indian healthcare market, which remained consistently strong. The relevant BSE Healthcare Index rose by 61.3 percent, which benefited our Indian stocks too.

The performance of our private equity portfolio was also mixed. Many of our companies are performing well and offer significant value potential for the future. At the same time, we have had to take some painful write-downs on some investments. Overall, however, we continue to assess the quality and value potential of our private equity portfolio as very good.

Volatility of investment currencies

Our investment currencies were subject to strong exchange rate fluctuations in the reporting year. The Swiss National Bank's unexpectedly early interest rate cut towards the end of the first quarter of 2024 corrected the strong appreciation of the Swiss franc somewhat. Nevertheless, all investment currencies lost ground against the Swiss franc in the reporting year (US dollar - 1.5 percent, Chinese yuan - 6.3 percent, euro - 2.0 percent and Indian rupee - 3.0 percent). Overall, the currency effects weighed on our performance by around 2.5 percent.

Balanced annual result

In this challenging market environment, HBM Healthcare Investments achieved a balanced annual result in the 2023/2024 financial year, with a slight loss of CHF 1 million. Net asset value per share (NAV) rose by 0.3 percent, as the number of shares outstanding was reduced by share buy-backs.

The following investments contributed the most to the NAV development:

Winner	NAV %	Loser	NAV %
Y-mAbs Therapeutics	1.9	Cathay Biotech	- 5.6
Biohaven	1.2	Farmalatam (private)	- 1.5
Longboard Pharmaceuticals	1.1	ConnectRN (private)	- 1.4
ImmunoGen	1.1	Travere	- 0.5
Cytokinetics	0.8	Mineralys Therapeutics	- 0.5

The portfolio of public companies made the largest positive contribution to earnings with a total increase in value of CHF 69 million or 3.9 percent. This was despite negative currency effects ­totalling CHF - 32 million.

The public companies originating from the private portfolio depressed the result by

a total of CHF - 44 million despite the positive contributions from Y-mAbs Therapeutics (CHF 33 million), Longboard Pharmaceuticals (CHF 19 million) and Ambrx Pharma­ ceuticals (CHF 10 million), the latter due to the acquisition by Johnson & Johnson for USD 2 billion.

"The financing environment and M&A activity in the healthcare sector are becoming increasingly favourable."

Hans Peter Hasler

Chairman of the Board of Directors

Cathay Biotech's share price fell by 28 percent in a persistently difficult market environment in China, resulting in a book loss on our investment of CHF - 98 million. The company's key ­operating metrics weakened in 2023 compared to the previous year, but rebounded significantly in the first quarter of 2024. In addition, the implementation of the strategic partnership with the China Merchants Group is progressing more slowly than planned. As a leader in the field of synthetic biology, Cathay's positioning for the future remains excellent.

Other companies reduced the result by CHF - 8 million.

The investments in the portfolio of other public companies, which were built up directly on the market, contributed a total of CHF 113 million to the annual result. Four acquisitions - ImmunoGen, CymaBay, Chinook Therapeutics and Prometheus Biosciences - took centre stage, contributing CHF 39 million to the result. Biohaven (CHF 21 million), Cytokinetics (CHF 15 million), Merus (CHF 14 million) and various Indian companies (totalling CHF 24 million) also developed positively.

The private companies recorded a net reduction in value of CHF - 60 million (of which CHF - 10 million was due to unfavourable currency developments), which corresponds to a ­negative contribution to earnings of 3.4 percent.

Upstream Bio (CHF 12 million) and Swixx BioPharma (CHF 11 million) were revalued upwards. At Upstream, a financing round with new investors led to a higher valuation, while at Swixx, the positive development of operating profit and net liquidity was the main driver.

Major impairments were necessary at Farmalatam (CHF - 26 million) and ConnectRN (CHF - 24 million). At Farmalatam, a digital health platform in Latin America, previous efforts to finance growth were not successful. The company therefore had to undergo a comprehensive restructuring. ConnectRN, a platform for the placement of nursing staff in the United States, recorded declining sales after strong growth in the pandemic years, which also necessitated adjustments to the company's cost structure. Our valuation was reduced in view of a necessary financing round this year. However, we assume that the operating business will stabilise this year and grow again.

"We continue to assess the quality and value potential of our portfolio as very good."

Dr Andreas Wicki

Chief Executive Officer

Value adjustments totalling CHF - 33 million were made to thirteen other private companies due to financing rounds or disappointing operating performance.

The funds' portfolio reported an impairment loss of CHF - 10 million (of which CHF - 2 million was due to currency movements).

Other assets and liabilities made a positive contribution to earnings totalling CHF 24 million. In addition to the reversal of the provision for capital gains tax in China totalling CHF 10 million, the revaluation of receivables from previous company sales contributed CHF 12 million.

Administrative expenses fell to CHF 26 million in the reporting year. The financial result showed income of CHF 2 million net.

Private equity portfolio selectively expanded

The private portfolio was selectively expanded with two new investments in the report-

ing year. An investment­ of USD 5 million was committed to the US company Alumis, of which USD 2.5 million has already been paid in. Alumis is developing oral therapies for the treatment of immune disorders. Its lead candidate, ESK-001, is a highly selective and potentially best-in-class allosteric TYK2 inhibitor currently being tested for the treatment of patients with moderate to severe plaque psoriasis, systemic lupus ­erythematosus (SLE) and non-infectious uveitis.

HBM Healthcare also invested USD 4 million in ADARx Pharmaceuticals, based in San Diego. The company is developing a promising siRNA platform. The most advanced programme, ADX-324 for the treatment of hereditary angioedema (HAE), is in phase I of clinical development. HAE is a rare genetic disease that causes painful and life-­ threatening attacks of swelling.

A further CHF 29 million was invested in existing private companies as part of follow- up financing.