The NDF Life Sciences Index |
The NDF Life Sciences Index - Tracking the performance of the ASX's Life Sciences sector
Introducing the NDF Life Sciences Index. As with any sector of Australia's equities market, the local Life Sciences sector has its bull and bear phases as well as periods in between. However, market watchers have historically found the sector difficult to track from a performance perspective. That's because the existing indices such as the S&P/ASX 200 Health Care Index tend to reflect the movement of only a handful of blue chip stocks, most notably the major pharma company CSL Ltd, market capitalisation ~A$57bn, and the ear implant maker Cochlear, market cap A$9bn. We set out to create an Index that would more accurately represent the share price progress of our emerging Life Sciences sector.
The methodology behind our equally-weighted Index. We took a broad selection of Life Science companies where those companies are publicly traded on the Australian Securities Exchange, converted their historic share prices to US dollars, and constructed from the resulting time series an equally weighted index. We used US dollars because we believe the global benchmark for the Life Sciences sector is the Nasdaq Biotechnology Index and we wanted to have some comparability. We tracked our index back to 29 June 2007 with a base level of 100 points. The constituents in our Index, which range from CSL down to 'nanocaps' under A$10m in size, are listed at the bottom of this page. We feel they represent the lion's share of the Life Sciences sector Down Under. Our thinking was that equal weighting would better reflect overall sentiment towards biotech and medical devices in Australia and New Zealand by market participants, particularly those with a speculative bent.
The methodology behind our equally-weighted Index. We took a broad selection of Life Science companies where those companies are publicly traded on the Australian Securities Exchange, converted their historic share prices to US dollars, and constructed from the resulting time series an equally weighted index. We used US dollars because we believe the global benchmark for the Life Sciences sector is the Nasdaq Biotechnology Index and we wanted to have some comparability. We tracked our index back to 29 June 2007 with a base level of 100 points. The constituents in our Index, which range from CSL down to 'nanocaps' under A$10m in size, are listed at the bottom of this page. We feel they represent the lion's share of the Life Sciences sector Down Under. Our thinking was that equal weighting would better reflect overall sentiment towards biotech and medical devices in Australia and New Zealand by market participants, particularly those with a speculative bent.
The performance of the NDF Life Sciences Index since 2007
Down in the GFC, back up for a year, sideways between 2009 and 2015, significantly up in 2016, then down again. The NDF Life Sciences Index peaked shortly after inception at 112 points in July 2007. It was still 110 points in late October 2007 just prior to the Global Financial Crisis, but bottomed during that panic in November 2008 at around 35 points, for a loss of nearly 70%. The post GFC rally took the Index back up close to 100 points by November 2009. From that time until September 2015 the Index tracked sideways, ranging between 65 and 115 points, although we would say the trend was generally positive. A notable rally between September 2015 and October 2016 took the Index from 80 points to 180 points, driven by companies like ResApp Health (ASX: RAP) and Innate Immunotherapeutics (ASX: IIL) which were perceived to be reaching important clinical data. Alas, a bear market took hold of the sector from October last year which has taken the Index down to its current level of around 125 points. The clinical failures of ResApp and Innate have been major reasons for this change in the sector's fortunes.
Outperforming against the general market in Australia. We compared the NDF Life Sciences Index against the S&P/ASX 200, the index generally recognised as Australia's benchmark when it comes to institutional investment. In order to improve the comparability we adjusted the ASX 200 to US dollar terms. What this analysis shows is our Index outperforming the ASX 200 about 75% of the time between June 2007 and August 2017. Of course, the ASX 200 is a benchmark of established, mostly blue chip companies whereas our index has a range of companies from CSL down to nanocaps with no notable interest from institutional investors. That said, the outperformance our Index suggests that a portfolio of well-selected Life Science companies can do better than the general market, other things being equal.
Underperforming against the American Life Science sector. When we laid the NDF Life Sciences Index against the Nasdaq Biotechnology Index, the comparison showed that the same kind of market trends impacting US Life Science stocks tend to impact their ASX-listed comparables. The difference is that between August 2011 and July 2015 the US biotech sector experienced a major bull market which the Australian-listed sector by-and-large missed. There are various reasons for this US bull market, including historically low US interest rates and the passage of Obamacare in 2010 (which included patent extension for biological drugs). We argue, however, that the primary reason for the bullish sentiment in America was that many of the successful companies in this period had first gone public during the biotech bull run of 1991. Twenty years later they were reaching their long-awaited payday. For the ASX, the dot.com boom of 1999-2000 seeded many new Life Science companies. If history is any guide, we see potential for some kind of 2011-2015-style bull run for the sector in Australia and New Zealand from about 2019. We speculated on how such a bull run may happen in an article written in July 2016 entitled The Coming Boom in Life Sciences, Down Under.
Index composition
These are the 91 companies represented in our Index: Acrux (ASX Code ACR); Actinogen Medical (ACW); Adherium (ADR); Admedus (AHZ); AirXpanders (AXP); Alchemia (ACL); Alcidion (ALC); Allegra Orthopaedics (AMT); Analytica (ALT); Anatara Lifesciences (ANR); Anteo Diagnostics (ADO); Antisense Therapeutics (ANP); AtCor Medical (ACG); Avita Medical (AVH); Benitec Biopharma (BLT); Bionomics (BNO); Biotron (BIT); Bioxyne (BXN); Botanix Pharmaceuticals (BOT); Brain Resource (BRC); Cellmid (CDY); Clinuvel Pharmaceuticals (CUV); Clover Corporation (CLV); Cochlear (COH); Cogstate (CGS); Compumedics (CMP); CSL Ltd (CSL); Cyclopharm (CYC); Cynata (CYP); Dimerix (DXB); dorsaVi (DVL); Ellex Medical Lasers (ELX); Factor Therapeutics (FTT); Genera Biosystems (GBI); Genetic Signatures (GSS); Genetic Technologies (GTG); GI Dynamics (GID); Holista CollTech (HCT); IDT Australia (IDT); Immuron (IMC); Impedimed (IPD); Imugene (IMU); Innate Immunotherapeutics (IIL); Invion (IVX); LBT Innovations (LBT); Lifehealthcare (LHC); Living Cell Technologies (LCT); Mayne Pharma (MYX); Medibio (MEB); Medical Developments (MVP); Medlab Clinical (MDC); Mesoblast (MSB); Nanosonics (NAN); Neuren Pharmaceuticals (NEU); Novita Healthcare (NHL); Novogen (NRT); Noxopharm (NOX); Nuheara (NUH); OBJ Ltd (OBJ); OncoSil Medical (OSL); Opthea (OPT); Orthocell (OCC); Osprey Medical (OSP); Paradigm Biopharma (PAR); Patrys (PAB); PharmAust (PAA); Pharmaxis (PXS); Phosphagenics (POH); Phylogica (PYC); Polynovo (PNV); Prana Biotechnology (PBT); Prescient Therapeutics (PTX); Probiotec (PBP); Proteomics International (PIQ); RACE Oncology (RAC); Recce (RCE); Regeneus (RGS); Reproductive Health Sciences (RHS); ResApp Health (RAP); Respiri (RSH); REVA Medical (RVA); Rhinomed (RNO); Sirtex Medical (SRX); SomnoMed (SOM); Starpharma (SPL); SUDA Ltd (SUD); TBG Diagnostics (TDL); Universal Biosensors (UBI); Uscom (UCM); Viralytics (VLA) and Volpara Solutions (VHT).
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