Positive performance for Australian life sciences sector

The Australian life sciences sector has picked up with small cap stocks seeing positive growth in the last quarter, according to the November edition of PricewaterhouseCoopers' quarterly BioForum report.

The PwC Life Sciences Index (with ResMed, CSL and Cochlear excluded) gained 10.8 per cent in the first quarter of the new financial year, outperforming the ASX All Ordinaries which gained 8.7 per cent.

With a small number of larger capitalised life sciences companies (such as Pharmaxis, Biota, Alchemia, Life Therapeutics and Norwood Abbey) performing exceptionally well in the last quarter, the life sciences sector also posted an increase in line with the broader Australian market and with that of the US biotech market, where the NASDAQ Biotechnology Index gained 13.6 per cent.

"The American market is still booming," said PricewaterhouseCoopers partner Andrew Sneddon. "In the last quarter there were nine IPOs which raised AUD$747 million, compared to three in Australia which raised $27 million. But if you look beyond that, placements in the secondary market in the US raised AUD$8.5 billion. The US market is really solid, and I think that will reflect back here a little bit."

While Australian IPOs were up from the previous quarter in which there was one IPO raising of $9.5 million, secondary financing was down substantially with 19 companies raising a total of $230 million in the previous quarter compared with 24 companies raising a total of $47 million in the most recent quarter.

"If you look at the quarter that's gone, IPO and secondary market was quite flat," said Sneddon. "But both of those markets are looking a lot more solid at the moment. I think this quarter that we're in at the moment there is going to be reasonable turnaround. The secondary market at the end of last year was going gangbusters, and historically it does bounce around a little bit."

The sector's positive performance is largely attributable to the strength of the pharmaceutical and biotechnology sub-sectors which increased by 13.3 per cent, compared with medical devices which decreased by 1.5 per cent.

"I think the reason why the device market is fairly slow, is because it's a lot easier to sell on the global scale if you've got something quite revolutionary, a stent or a cardiovascular device," said Sneddon. "A number of good devices are actually going directly to the US and avoiding the Australian life sciences market."

For the bottom ten performers which included Apollo Life Sciences, Cryptome Pharmaceuticals, Dia-B Tech, Sunshine Heart and Avantogen, Sneddon said that they "are nearly all minnows".

"Some of them need to amalgamate. If they're in diagnostics they need to try and come together with a couple of other diagnostic companies so they have a reasonable platform," he said.

Partnership activity remained strong in the sector with 40 partnerships formed in the last quarter.

"If you look at a lot of the real success stories with the top ten, a lot of them have had some really significant partnerships," said Sneddon. "If you look at the clinical trial results, there were only two failures. The clinical trial results are very solid."

Sneddon said that looking to the future, in the short term there will be an improvement in the capital raising market, and in the longer term, the sector will see some Asian listings on the ASX.

"I still think it's a few years away, but the Australian life sciences market as a regional market is going to have some amazing success stories," he said.