Life Sciences sector down for Q4 but ahead of wider market: PWC

PricewaterhouseCoopers has released its BioForum report for the fourth quarter FY10 showing a fall of 9.5 per cent for the local Life Sciences Index, which performed slightly better than the broader market.

CSL’s fall of 11 per cent provided the biggest drag as the inverse fortunes of the two ex-major subsectors of biotech and medical devices balanced each other out.

The biotech ex-majors provided the bad news, falling 22.7 per cent with only 8 per cent of companies posting a return compared with 37 per cent in the previous quarter.

In contrast the medical devices ex-majors increased 21.5 per cent, boosted largely by a 78 per cent gain for Heartwave International. The Medical Device sector as a whole increased only 6.5 per cent following only modest gains by the majors Cochlear and ResMed.

“Since June 09 there has been a clear gap developing between the performance of the Medical Device sector both ex majors and inclusive,” said PWC Life Sciences Partner Craig Lawn.

“This may point, in this sector, to less volatility, shorter commercial timeframes and smaller risk profiles."

Looking at IPOs, well, there weren’t any for the quarter. In fact last month’s listing by arthritis drug developer CBio is the only one to have taken place in the last year, with the company raising just half of the $14 million it had expected.

To put this in perspective, IPOs during the 2008/09 financial year totalled 41, which was well down on the average number of listings for previous years of around 100.

The past financial year has also seen a number of companies being removed from the Life Sciences Index as a result of suspension or divestment. In the two years to June 2010 the total number of companies on the index fell from 126 to 106.

On a brighter note, secondary capital raisings increased during Q4 compared to Q3 if last quarter’s $71 million raising by Heartwave is excluded. The biotech sector provided the main driver with secondary raisings increasing from $22 million to $38 million, with the average amount raised increasing from $1.2 to $1.5 million. While the overall sector’s performance was disappointing, it nevertheless managed to outperform the ASX All Ordinaries which fell 11.6 per cent during the fourth quarter. The U.S Nasdaq Biotech Index by contrast performed below the rest of the tech-heavy bourse.

Year-on-year the Australian Life Sciences Sector increased 11.8 per cent, compared to 9.5 per cent for the All Ordinaries.

PWC’s Lawn said that while the fourth quarter report indicated strong long-term fundamentals for the sector, there remain many short term challenges.

“From this quarter’s results it appears that the message stays the same - the long term fundamentals for the Life Sciences sector are positive including the continuing growth in the long term from the ageing population and increasing demands on the health sector, but the short term economic landscape of the markets is challenging.”