Article sent to me today from an investment website. I have cut and pasted sections relevant to POH. Fairly balanced article. POH is 1 of 5 recommended stocks.
It was the year 2005 and investors had started warming to the prospect of a new era of stronger commodity prices. This was reigniting interest in everything related to commodities, from the large and the known to the small, the long forgotten and the exotic. On the other end of the spectrum were biotech stocks of which many had shown lots of promise and excitement, but most had proved disappointing for both investors and for traders.
Combining one with the other, I predicted biotech stocks were about to be ignored and forgotten by traders, journalists and investors alike. Upcoming miners were offering more potential, more tangible prospects and an all-encompassing concept that was yet to conquer the minds of everyone close to the Australian share market: the Commodities Super Cycle.
Though my view at the time was vilified and fiercely rejected via investor blogs and through online chatrooms, it didn't take long before stockbrokers ceased coverage on the sector, former biotech darlings were dropped from major stock indices and both mainstream journalists and investors lost interest overall. One of the leading analysts at the time, Southern Cross Equities' Stuart Roberts, soon stopped publishing his weekly newsletter and proprietary biotech index. He remained at the brokerage but took on a wider, healthcare research role. Just before he did, he dropped me an email: "that was very prescient, Rudi".
The biotech industry in Australia had entered its "nuclear winter".
Apart from a half-baked comeback for Biota's ((BTA)) flu vaccine Relenza, not much seems to have happened in the sector over the past six years. Other than falling share prices, numerous product flops and corporate failures, there has been the occasional foreign takeover and more than one well-intended IPO or capital raising has been cancelled due to an acute lack of investor interest. There has been no major new product development and certainly there has been no corporate follow-up on the success stories from the previous ten years.
Today, Cochlear ((COH)), CSL ((CSL)), ResMed ((RMD)) and to a lesser degree Ansell ((ANN)) are still among investors' favourite choices outside the mining sector, but they are all mature profit generators that originate from a previous era, when 'biotech" and "early healthcare" were considered cool and full of promise, instead of synonymous to "eternal promise" and "money eaters". Yet, what doesn't kill us makes us stronger and the principle also applies this time.
While under the radar for most investors and market observers, the life sciences sector in Australia (as the old biotechs have now been relabelled) has built a new future. From my angle, this new future looks like a bright and promising one. The new generation of tomorrow's sector leaders not only offers tangible results and revenues (or is very close to), but also strong management, proven business nous and acumen and flexible and adaptable business models. At the same time, investor euphoria from 2005-2007 related to the Commodities Super Cycle has evaporated and investors have come to realise China's hunger for energy and base materials is not an easy and one-way street to super investment profits.
This now, I believe, is creating fertile ground for a "return of the living dead". Life sciences companies are able to generate sales and profits and this next generation will increasingly put investor scepticism and journalist scrutiny successfully to the test in the months and years ahead. But don't just take my word for it. One of the leaders in this new breed of high-tech companies, Mesoblast ((MSB)) recently made its way into the ASX200 index. The above mentioned Stuart Roberts last week returned with a day-long Life Sciences conference in Sydney. Above all, share prices for many of these new leaders have outperformed the broader market, including small and large cap resources, over the months past.
While an unexpected European rejection caused a mini-crash in the share price of Pharmaxis ((PXS)) in May, highlighting this sector does not come without risks, overall confidence inside the sector hasn't been this high for many, many years. I believe that in five years from now daily interest from media, investors and market experts will be exponentially higher, and there will be more talk about the "new Cochlear" than any of us can bear. If we look back in 2016, we will conclude that 2010-2011 provided us with the early signals of a sector-wide turnaround.
Take it from the guy who years ago predicted biotechs were out and miners were in: it's time to start paying attention again. Those corpses, left for dead in the shadow of the Big Commodities Revival, are coming to life and their legs will become stronger and stronger over the next few years. To assist readers in their early catch-up research on the sector, I have lined up my five personal favourites below.
Phosphagenics ((POH))
Is it a biotech? Or is it a new developer of consumer beauty products? Management at Phosphagenics will be hearing the question a lot in the months and years ahead. This is a platform company, which in essence means the company has created and developed a technology that lends itself to the development of a multitude of applications and other technologies. The company's core technology allows delivery through the human skin (without irritation or damage) which opens up alternatives for pills, injections and even medical operations. Last year, the company decided to use its core technology for consumer products and the result has been new anti-ageing products in high-end consumer channels in the US, and the best selling new brand at Myer's. (Check it out at www.elixia.com.au)
The world of "skincare" is currently dominated by the likes of L'Oreal and consists predominantly of expensive creams, rubs, gels and sprays with a little scientific flavour, sustained by millions of dollars in marketing and promotion. Phosphagenics' products are making a difference in that they actually do have the scientific credence and, apparently, the (better) results attached to it. Already, commercial revenues thus far have exceeded everyone's expectations, including the US partner's, and new products are in the pipeline or about to be launched. Acne for teenagers should be a no brainer, as is an anti-cellulite cream. Soon the company will move into US hair care products.
In the background of early promise and successes in the consumer markets, Phosphagenics continues to develop new products and applications for its initial target market, therapeutic drugs and treatments. Major partner 3M is enthusiastic about trialling and developing the world's first patches for analgesic drug oxycodone, but that's just the tip of the iceberg of what tomorrow can possibly deliver. Despite incoming revenues from cosmetics, Phosphagenics is still burning cash on the medical side of the business. Further capital raisings cannot be excluded at this stage.
Chawkey ___________________________________________________________ It is not the destination we reach that is most rewarding. It is the journey along the way.
POH Price at posting:
14.5¢ Sentiment: Buy Disclosure: Held
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