Queensland Life Sciences Industry Report 2012 (PDF, 3.5MB)

By David Blake, Editor of BioShares
INDUSTRY COMMENTARY
THE LISTED LIFE SCIENCES SECTOR IN AUSTRALIA
— NOT ONE SIZE FITS ALL
A neat one size fits all description of the
state of Australia’s listed life sciences
sector has become an impossibility
since the GFC in 2008 began a process of
constant damage to some companies but
left others merely bruised and even some
others unscathed. A high Australian dollar
has not helped sales focused life science
firms and healthcare system budgets
and some export markets have weakened
company earnings of late.
What is known is that the number of listed
life science companies has declined from
a peak of 134 in 2008 to 100 in 2012, with
a contraction more likely to continue for
as long as global economic conditions
remain poor.
The hundred or so life science companies
listed on the ASX are a diverse group of
companies in terms of market value,
scale of operations, scope of business and
market focus. There are 29 companies
capitalised at less than $10 million, 49 are
capitalised at less than $20 million and 18
capitalised at less than $100 million. There
are five companies capitalised at greater
than $1 billion.
The activities of ASX listed life science
firms range from medical device
manufacture and sales, vaccines and
immune therapy product manufacture, cell
therapy and wound healing development,
assessment and diagnostic technologies
including molecular, bio-sensor and
algorithmic approaches, biological storage
technologies, sleep apnoea management
products and many more.
Roughly 7-8% of ASX-listed life science
companies are foreign firms lacking direct
links to Australia. Biotech identity is a
tricky classification issue given that quite
a number of listed companies are US
entities, which own operating subsidiaries
in Australia.
Investment in biotech stocks has been a
stock picking activity for quite some time,
a strategy which is a function of the time it
takes for medical technology businesses to
arrive at valuation inflection points,
leaving many companies without vital
news flow to attract investor interest.
The Bioshares Index for example was down
23.5% between June 2012 and June 2011.
However, 22 stocks posted share price
gains of greater than 20% for the same
period. That’s not such bad going in
dismal times.
Ongoing key issues for investors in
life science stocks include execution
risk, otherwise known as financing
risk, reflecting a company’s capacity to
support the business objectives it has
set itself. Investment flows have been
biased towards later stage companies in
the past few years, with companies such
as Mesoblast, Alchemia, QRxPharma,
Starpharma, Prima Biomed and
Phosphagenics raising sizable tranches of
capital to support pivotal clinical studies.
New listings (the IPO market) have all but
dried up with only one, Osprey Medical
completed in 2012, following three in 2011,
and two in 2010.
One risk that has recently been elevated
in importance is regulatory risk. Several
submissions to drug regulators from
Australian firms, e.g. Pharmaxis, Mayne
Pharma and QRxPharma, have been
knocked back at the first round leaving
both investors and the companies
concerned in a state of shock. These
first-cycle requests for more data can be
expected to have a negative impact on
investment in the sector
The highlight for Australian life science
investors in the last two years was the
payment of a $100 million dividend by
Acrux in April 2011, following the receipt
of license-based payments from Eli Lilly
for the testosterone drug Axiron. Rather
than retaining the cash for another stage
of business development, by paying
shareholders a dividend, the board of
Acrux elected to send a clear signal that
investment decisions are ultimately the
prerogative of shareholders.
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