Biotech outshines in stocks review

Biotechnology emerged as the star performer in a Pricewaterhouse Coopers review of the life sciences sector.

The quarterly BioForum report revealed a 65.5 per cent increase in the value of the biotechnology stocks, outperforming the All Ordinaries index.

Even when high cap stocks such as CSL and ResMed were excluded from the index, biotech companies still shone, increasing by 63.1 per cent.

Report author Dr Lisa Springer said that while the sector had been affected by the September 11 fallout, it had experienced a dramatic rebound.

"While the Australian life sciences industry, which includes pharmaceutical and medical devices companies, increased in value by 17 per cent quarter on quarter to $19.8 billion from $16.9 billion last quarter, it is especially significant to note that biotechnology companies, (which account for) only 14 per cent of the PwC Life Sciences Composite Index, accounted for $1.1 billion of this value over the three month period," Springer said.

"Biotechnology is definitely in favour."

The idea of biotech stocks as flavour of the month was also reflected in the fact that private equity in the sector was at an all time high while industry consolidation was on the rise.

Overall, venture capital investment in the life sciences rose to $104 million in 2001 up from $71.6 million in 2000, suggesting new investment is emerging for a sector renowned for its cash burn.

The report also noted that the Australian market was following in the footsteps of the US in terms of consolidation, with $4 billion in merger and acquisition deals done in the second quarter compared with $300 million in the first quarter.

Springer said this was true despite the fact most of that figure could be attributed to the acquisition of FH Faulding.

"The sector has been crying out for consolidation for some time because the whole global atmosphere of life sciences requires a certain critical mass, not just from a partnership and globalisation point of view but also a pure investment point of view," Springer said.

She said many smaller companies, too, were becoming aware of the R&D and resource possibilities that consolidation could bring.

"Overall, there is just a general feeling of the sentiment being quite positive towards the sector," Springer said.

"The sector is largely disassociated with poor economic situations and people are seeing that it is an emerging sector that is not cyclical and which has appealing valuations."

Despite the healthy market activity, Springer said IPOs and secondary capital raisings had "dried up" in the latest quarter when compared with the corresponding period.

"Only one company, Antisense Therapeutics conducted an IPO this quarter, and given that the total amount of IPO capital raised for the first six months of FY2002 was only A$53 million, it is hard to imagine that the A$239 million raised through IPOs in FY2001 will be matched," she said.

She also said that while secondary capital raisings in the past six months had already exceeded by 60 per cent the $239 million raised last financial year, it was mostly attributable to CSL's $330 million raising in the first quarter.

With the effects of this raising excluded, the true figure for the first half of the current financial year was $51 million.

"In general the typical average size of secondary raisings has decreased from last year possibly reflecting the difficult market conditions or the fact that most companies are sufficiently cashed up to avoid raising capital in a tight market," Springer said.