PwC gives the nod to a biotech bounce

A just-released BioForum report by business watchers PricewaterhouseCoopers has talked up the life sciences sector, based on a strong Q4 performance and positive investor sentiment thanks to better than average results compared to the five previous quarters.

"I guess you could say the current state of the market is one of cautious optimism," said Dr Lisa Springer, author of the PwC report. "I think one of the most significant things I have heard in the last few months is from the biotech companies themselves.

They have told me they have seen much more broker interest than previously; in fact brokers had started calling them direct to get information."

Springer noted that although interest was high and the market relatively strong, she believed there would be a lag between now and a full-blown recovery/IPO phase.

"There has not been a large amount of capital raised in the sector, but there may well be more small raisings. However, I don't think we will see a sudden large surge in placements, even though we are again seeing companies going to market like CancerVax in the US, but general sentiment seems to be expecting an "IPO window" to open," she said.

According to the report, the Australian PwC Biotech Index rose 34.3 per cent in Q4, the PwC Medical Devices Index rose 7.4 per cent, and the PwC Pharma Index rose 3.8 per cent. These compare to an ASX All Ordinaries rise of 8.6 per cent.

Yet despite these good performances, and the return of positive sentiment, company valuations in the sector remained low, making raising equity capital relatively expensive for the companies involved.

"The IPO and capital raising environments continue to be weak. We have yet to see this sentiment shift translate into funding flows to life sciences companies," asserted Springer.

One other aspect highlighted by the report was the relative lack of M&A activity amongst local firms, despite the promising environment for such activity amongst many start-ups biotech. The report notes "few significant M&A deals in Q4", and makes mention of Sirtex's failed tie-up with US-based Cephalon.

Speaking after the release of the report, Springer again advised cautious optimism, advising would-be listers to be wary of the benefits of an IPO. She asserted those companies that were close to revenue would see an advantage, but that if the market was flooded with "lots of small companies" going for an IPO, it would spoil the sector as a whole.

"The market just can't bear a lot of large raisings, so I'd say it is likely we will see just a few of $10 million or more, plus a lot of tiny ones. If push comes to shove, the market simply won't place companies," she said.

"But if we get lots and lots of small raisings it won't get the industry anywhere."