Biotech sector continues strong recovery: PwC

The biotechnology sector has seen another quarter of strong growth, with the majors - CSL, ResMed and Cochlear - putting in healthy performances, according to PricewaterhouseCoopers' latest BioForum report.

The sector saw growth of 9.2 per cent over the quarter, largely driven by a 12.1 per cent bump in CSL's stock as the pharmaceutical and blood plasma giant experienced a recovery in February.

Contrasting this performance was the ex-majors - everyone but the Big Three - who shrunk by nearly 1 per cent, the first decline posted by the ex-majors since the onset of the global financial crisis (GFC).

This puts this quarter in stark contrast with the back end of 2009, when the majors were floundering but small to medium cap biotechs were putting in stellar performances.

Overall, the life sciences sector outperformed the broader All Ordinaries for yet another quarter, which mirrors the US biotech industry's outperforming the Nasdaq over the same period.

Year on year, the sector also continues to recover strongly from the GFC, with it growing by 23.6 per cent, which is double last quarter's yearly growth rate.

There were some disappointments in the quarter, however.

One was the IPO of CBio, which failed to raise the target amount and ended up less than half the issue price.

ChemGenex was also hit hard by its knock back from the Food and Drug Administration for its anti-leukaemia drug, OmaPro.

Secondary financing was also deflated over the quarter, at only $92 million, down from last quarters $201 million.

Medical device companies did offer some good news, with Heartwave gaining 35 per cent and ResMed and Cochlear both also putting in strong performances.

Craig Lawn, Life Sciences partner at PricewaterhouseCoopers provided a commentary of the performance of the biotech sector in the last quarter:

“In many respects this has been a mixed start to the year for the life sciences sector. The majors have made a come-back while the ex-majors index has managed to stay on par with the broader market and continue its strong yearly growth, up 82.8 per cent year on year.

“In the past 12 months there has been a lot of heat in the market anticipating a rise in valuations and on the back of this many capital raising have occurred. The current quarter reflects that these valuations are continuing to be supported with profit taking not eventuating this quarter.

“The start of 2010 has resulted in low overall activity but the effect of a few big ticket stocks has impacted on the life sciences index. Neither good or bad news has been received in Q3FY10 which has resulted in equilibrium being maintained.

“The local sector is eagerly awaiting the final changes to the R&D tax concession legislation which is due to be finalised in the coming months. This will provide some certainty in the life sciences sector with the sector hopeful that it will create an opportunity for additional funds to channel in. Companies will have to adopt a 'wait and see' approach until the final outcome is known.

“What next for life sciences? Based on this quarter’s performance it is anticipated that the market will continue to monitor companies closely with both small and mid cap companies alike needing to meet market expectations in order to maintain current valuations.

“We are seeing more cases of poor performance being punished (e.g. Chemgenex) than of good performance being rewarded (e.g. Acrux). This is due to expectations that good news stories have already been factored into current pricing on the back of an optimistic last few quarters.”