Biotechs undo gains from last quarter

The Australian life sciences industry continues to be wracked by volatility and unpredictable performances, resulting in mixed results across the sector in the most recent quarter, according to PwC.

The performance of the sector was driven by the three “majors” – CSL (ASX:CSL), Cochlear (ASX:COH) and Resmed (ASX:RMD) – with all three seeing gains over the last quarter.

However, many smaller cap biotechs, what PwC calls “ex-majors”, have seen their share prices drop over the quarter, leading to mixed overall results for the sector.

“It’s a quarter of mixed results,” said Manoj Santiago, PwC life Science partner. “Compared to the overall market, the Australian life sciences sector finished strong on the back of strong performances by the three majors while the ex-majors performed poorly with weak returns from the larger caps in the Index,”

Because of the influence of the majors, the sector managed to outperform the broader All Ordinaries Index, with a gain of 2.4% compared to a decline of 6.4% by the All Ords over the quarter.

However, the ex-majors tracked by PwC saw a decline of 11.2% over the quarter, which is a reversal of the strong performance by ex-majors in the previous quarter, where they saw a 14.2% gain.

The weak results are largely due to flagging share prices of some of the mid-tier firms, including Mesoblast (ASX:MSB), Pharmaxis (ASX:PXS), Prima Biomed (ASX:PRR) and QRxPharma, which recently saw its share price tumble after a knockback from the FDA.

The flagging pharma/biotech ex-majors was the weakest of all indices tracked by PwC, with it seeing a loss of 18.8% in Q4 2012, eliminating the gain of 19% experienced last quarter.

In comparison to the biopharma sector, medical devices companies performed better, seeing a 7.7% gain over the quarter, slightly outperforming the broader life sciences index as a whole.

IPOs were also limp, with only a single IPO occurring during the quarter for Osprey Medical (ASX:OSP), raising $20m.

“This quarter the IPO market was slightly more buoyant but confidence is still shaky,” said Santiago. “Weak confidence also contributed to the significant disparity in performance between the majors and the ex majors.”

“Overall, there is still a lot of uncertainty in the market. But the volatility is an opportunity for businesses, particularly the ex majors, to take stock and look at how well they are communicating their objectives and strategy to the market. It’s time to focus on core mission and deliver value to shareholders through key plans.”

The full PwC BioForum report is due for release soon.