Lifescience looks a sector to target in 2014

Freelancer Ltd’s soaring sharemarket debut has sparked predictions of a rush of information technology floats and further gains in small tech stocks in 2014. Less considered has been stunning rallies in several small lifescience stocks and the prospect of a breakout year for biotech.

ASX-listed biotech stocks gained an average 53 per cent last year, according to research released this week by BioScience Managers. The S&P/ASX 200 healthcare index rose 23 per cent and is up almost 80 per cent over two years, thanks to demand for defensive stocks. The table below shows 10 of the biggest biotech gainers in 2013.

For traders and active investors, lifescience looks a sector to target in 2014 as investor sentiment improves, stock turnover lifts, and capital-raising conditions improve for biotech companies. Stronger interest in small IT stocks – and poor sentiment towards junior exploration companies – could also lift demand for speculative lifescience companies.  

Yes, care is needed with headlines based on share-price averages. Many of the 94 stocks included in BioScience’s analysis have low market capitalisations, meaning small share-price changes can amplify percentage changes. A market-weighted index would likely produce lower gains, but the analysis still confirms the strong year for lifescience stocks.

“Speculation is always there at this time of year regarding the potential for a breakout in the biotech sector,” says BioScience Managers chief investment officer Matt McNamara. “2013 might go down as the year it turned the corner as we expect a strong year again for the sector in 2014 with product pipelines moving closer to commercialisation and a number of big pharma licensing deals.”

The booming US biotech sector is also boosting local investor sentiment. The US lifescience sector is in the biggest bull market in at least 13 years. The US NASDAQ Biotechnology soared to record highs last year, and its bull run unleased more than 40 biotech floats in 2013. Most have produced solid post-listing share-price gains.

“We’ve seen a surge of new listings in the US biotech scene with large price premiums and this sentiment is shared more among professional investors in Australia,” says McNamara.

The contrast with the Australian IPO market is stark. Only one lifescience company, Osprey Medical, managed to float in 2012, raising $20 million. Ventus Medical, Vibrant and Kai Medical abandoned possible IPOs amid a dearth of investor interest in speculative companies.

The lifescience sector’s small IPO presence continued in 2013 in an improved float market. DorsaVi raised $18 million through an IPO to stgelop motion analysis stgice technologies, and its 40-cent issued shares rose to 43 cents after listing in early December. The well-performing Biotech Select Fund rates DorsaVi’s technology in medical, sporting and occupational health and safety markets.

Stem-cell researcher Regenus raised $10.5 through an IPO and listed in September. It is involved in the fast-growing field of regenerative medicine, which enhances the body’s natural ability to replace tissue damaged or destroyed by disease or injury. Regenus has quickly emerged as one of the best-performing IPOs, its 25-cent issued shares rallying to 51 cents, and is a stock to watch.

OncoSil Medical, stgeloping a radiation therapy stgice for pancreatic cancer, has been another standout, up 420 per cent over 2013. It came to ASX via a so-called “backdoor listing” – and seems to have attracted rising interest for professional biotech investors.

New Zealand-based Innate Immunotherapeutics, stgeloping a drug candidate to treat secondary progressive multiple sclerosis, listed on ASX in late December after seeking $10 million. Its 20-cent share have eased to 19 cents.

Medical-stgice maker Simavita said in December it expected to list on ASX in the New Year through a $1.1 million offer that is effectively a compliance listing. Simavita raised $13.9 million in an IPO on the Toronto Stock Exchange in November. Its urinary incontinence technology is targeted at the elderly and residential aged-care facilities that stgelop incontinence management care plans.

Among healthcare stocks, Virtus Health has soared from a $5.68 issue price in June to $8.70, after raising $338 million. The In Vitro Fertilisation (IVF) services provider was one of last year’s standout IPOs, despite a full exit by its private-equity investor.

Biotech/healthcare highest percentage increases on ASX in CY2013

Calculated using average share price percentage change across 94 companies within the Australian listed life sciences sector. Source: BioScience Managers.

Tony Featherstone is a former managing editor of BRW and Shares magazines. The column does not imply any stock recommendations. Readers should do further research of their own or talk to their adviser before acting on themes in this article. All prices and analysis at January 8.,  2013.