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re: positive mention in afr for pharmaxis Thanks to SpookyOZ on share_scene for posting this -

Australian Financial Review

23 March 2005

Biotech juniors struggle to find cure-all

Investors looking for a profitable biotechnology company to add to their portfolio do not have much to choose from. To many the sector looks more like a roulette game than an industry, as only one in a thousand companies is likely to find the next big drug breakthrough.

The sector consists of big players such as CSL, Cochlear and ResMed that have delivered profits and dividends, but at the smaller end of the market there is a lot of red ink.

Biopharmaceutical GroPep is one of the few juniors to make a profit, turning in a $1.5 million interim result.

Some others are signalling that they too could soon post an after-tax profit. Analysts are tipping Pharmaxis will start increasing sales from its portfolio of human therapeutic products for chronic respiratory and auto-immune diseases.

Karen Dado, author of PricewaterhouseCooper's BioForum Report, said profitability was one of the key questions investors still had about biotechs.

Her latest report on the market shows that while the sector continued to provide positive share price returns in the second quarter of 2004-05, it underperformed compared with local and US markets. The composite PwC Life Sciences Index rose only 3.5 per cent over the quarter against a backdrop of rocketing share prices.

Ms Dado warned to be wary of biotechs that might have listed too early in their life cycle.

"There are so many of these biotechs that were actually formed to access [government] grant money that then had to go to IPO [initial public offering] to raise more money. When you look at their portfolios they are too early, so with the risk profile you'd have to say most of them are going to fail," she said.

Traditionally, investors have been able to rely on bouncing share prices, or capital appreciation, as a substitute for a dividend stream. Biotech stocks often rise as they announce a clinical trial result or publish positive lab findings. But many Australian biotechs went backwards in February.

The Intersuisse Biotechnology Index, a benchmark for the sector, last month dropped to its lowest level in 18 months, missing the 33 per cent rise in the All Ordinaries.

Jonathan Buckley, a director of Intersuisse, said: "Shareholders have a limited tolerance of flat prices. . . The window of biotech cap raisings will slow unless share prices begin to go up again."

Indeed, during the second quarter there was a decline in stockmarket listings, with only two companies Mesoblast and IMD Group floating in December, raising a total of $26 million.

Giving some comfort to investors is the fact that the sector has been quietly advancing a number of products closer to commercialisation, Mr Buckley said. "GroPep, Pharmaxis and Medec are three leaders in calendar 2005 and all have late-stage products."

Medec (up 129 per cent in February) announced cash-flow positive performance. Pharmaxis (up 38 per cent in February) applied for Therapeutic Goods Administration approval to market its bronchial testing drug Aridol and is slated to start a Phase II trial in the UK on Bronchitol used for cystic fibrosis.

It has also gained orphan drug status for Bronchitol from the US Food and Drug Administration, a category that gives manufacturers certain financial incentives to develop medications used to treat rare diseases and conditions.