Biotech bucks the trend

This is one of the findings of an ASX sponsored study conducted by Professor Michael Vitale and Associate Professor David Sparling of the Australian Graduate School of Management (AGSM). The study tracked the share price performance of the 24 Biotech stocks listed on ASX between 1998 and 2002, the most active period to date for biotech listings, and found that contrary to common perceptions, the Biotech sector had performed better than the rest of the market - even before the recent upsurge of interest in the sector.

According to the report, "the share market performance of the group as a whole continues to outpace both the All Ordinaries Index and the performance of a matched set of non-Biotech IPOs".

The report also compared these companies to samples of US Biotech IPOs and Australian non-Biotech IPOs in the same period, which showed that the Australian Biotechs significantly outperformed the non-Biotech ASX IPOs and the US Biotech IPOs (see table).

As would be expected, the gains were not uniform across the companies tracked, and by number, there were more losers than winners, but the results nevertheless indicate the potential for significant returns to an investor with a portfolio approach to the sector.

Reflecting on the financial performance of the companies, their R&D expenditure commitments and available financial resources, Vitale and Sparling conclude "while the fate of these relatively young companies remains uncertain, there is reason to be optimistic about the Australian Biotech sector as a whole". The main cause for uncertainty for the 24 Biotechs was identified as their ability to raise capital.

Many participants in the market share AGSM's optimism with substantial interest in the sector of late. The capital-raising environment for Biotechs has improved since the report was written. Ten of the 24 IPOs have raised capital since the beginning of this financial year, along with capital raisings by another ten Biotechs bringing the total raised since June 30 2003 to $148 million. The environment has also presented the opportunity for new entrants to the market and a number of Biotech IPOs are expected in coming months.

Australia boasts low-cost research capability and institutions of world renown and has a proud history of achievements in the life sciences, yet successful commercialisation of scientific discoveries is dependent on the continued availability of capital. ASX initiatives are aimed at fostering an environment that meets the capital needs of companies within the sector and include promoting awareness and understanding of the industry among investors and exploring options for enhancing the depth and liquidity of markets in the sector.

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