Secondary raisings up last quarter

Nick Evans - BioTechnologyNews.net - 16 April 2009

Secondary capital raisings were up in the sector last quarter, according to PricewaterhouseCoopers life science analysts, indicating that there has been a significant return to support for existing listed companies. PwC life sciences partner Craig Lawn said that listed companies raised $39 million in secondary market raisings, a 225% lift on the December quarter total of $12 million.

Lawn said this was driven by a four-fold increase in average amounts per raising and followed the US lead, where secondary capital raisings went up from $US240 million in the second quarter of the financial year to $694 million last quarter.

"This increase was led by the biotech/pharma sector where $34 million was raised," Lawn said. "Both institutions and venture capitalists are cautiously showing interest in the market and supporting capital raisings, which can be illustrated through Telstra Super's recent support of Mesoblast."

According PwC, the recovery in the capital markets for the sector was mirrored by a broader share recovery, with a solid performance from the "ex-majors" index, which outperformed the All Ordinaries index by 21.8%. The life science index (which includes CSL, ResMed and Cochlear) fell 1.5% during the quarter, in line with the All Ordinaries index (down 3.5%).

"The biotech sector's performance [ex-majors] this quarter could be viewed as a rebound rather than a recovery after last quarter's heavy losses," Lawn said. "The annual performance, however, indicates that the ex-majors have performed better than the overall market over the longer term."

The ex-majors quarterly increase of 18.3% reflected a large turnaround from last quarter when the index experienced a fall of 26%, in comparison to a 10% decrease for the overall life science index. On an annual basis, both life science indices outperformed the All Ordinaries, which was down 34.6% (ex-majors decreased 26% while the life science index was down 4%), according to PwC.

"Biotechs have responded to the volatile time in the market by sticking to their strategy and not diverging from this course. Despite the strong current sector performance, nothing has changed other than providing some positive news and confidence for biotechs to focus on," Lawn said.

"The messages are the same – stick to your strategy, get back to core fundamentals and remember that cash is king in this market. "We have seen several positive plays on the M&A front, which have been driven by interest from the US. While it is reassuring to see support for Australian biotechs from overseas, we would expect further activity to come from consolidation locally."

Lawn said the message for those in the biotech industry was that, despite the strong results, nothing had changed. "Focus on the positives and the signs that give you confidence. The current quarter's results shouldn't change your fundamental strategy. Continue to have clarity around where you are going, look for opportunities to collaborate internally and externally and continue to be cautious especially around costs," he said.

"Biotechs should actively re-engage with stockbrokers, shareholders and venture capitalists and continue to build on their strategy of stabilise, adapt and thrive. CEOs must have a very clear vision and intent of what the company is going to do with money raised as accountability is paramount."