Australian biotechs significantly outperforming ASX and Nasdaq

The Australian life science index is known for its volatility, but over the past decade it has outperformed the All Ordinaries and the Nasdaq by considerable margins.

Moreover, it consistently outperformed both exchanges throughout the global financial crisis, with particularly the three majors – CSL, RedMed and Cochlear – barely dipping during the economic tumult.

“Anyone who has backed life sciences over the long term has come out ahead but the journey has not been without its challenges including lack of recognition from capital markets and the public and its failure to attract funding easily,” said Manoj Santiago, PricewaterhouseCoopers Life Sciences partner.

“The resilience of the sector should be encouragement to investors and Governments alike to work on effecting important structural change to promote continued growth,” he said.

An investor with a broad portfolio of life science stocks acquired in 2002 would now be enjoying around 150% returns, or up to 200% if they only invested in smaller biotechs, compared to a less than 50% return from the broader All Ordinaries.

“The Australian Life Sciences sector has delivered superior returns over the last decade for investors who have had the patience to ride out the storm and stuck with the sector through good times and bad,” said Santiago.

The S&P/ASX 200 Health Care index, which includes medical technology and services, has increased over 220% over the past 10 years compared to the All Ordinaries, which has risen 52.9% over a similar period.

However, the life science index is characterised by high volatility, with smaller biotechs suffering a substantial hit during the GFC, only to bounce back, dip, surge and wobble to arrive where we are today.

It is such volatility that is off-putting to many investors, particularly those who wish to see a rapid return on investment or pick winners in a relatively high risk industry.

According to the latest BioForum Report from PricewaterhouseCoopers – the 10th annual report on the performance of the life science industry – the sector has suffered some challenges in securing funding, but it maintains strong overall growth and is driven by the perpetual demand for better health technology.

“There’s no doubt that the past decade has been a bumpy ride for some, but reflecting upon the industry and a number of longer-term trends has been a very encouraging exercise,” it states.

“Long-term, the return on the Life Science index is positive but not without its challenges, as it experiences tremendous volatility.

“Whereas the All Ordinaries index has dipped during the global financial crisis (GFC), its peaks and troughs are not nearly as substantial as the Life Science index. Within the space of two years the index has hit both its lowest and highest points.”

However, it is the global demand for health and medical technology that continues to drive the sector.

“Health issues are a global play and present a global opportunity. There are long-term positive fundamentals: ballooning needs and expenditure, an ageing population, and globalisation of solutions – particularly in the developing markets.”