Understand Bios in Australia..Anp will survive the Turmoil in the sharemarket now...
By overlooking biotech stocks, Australian investors are missing out on big returns, says Jason Kolbert, the US head of healthcare research at Maxim Group.
"Australian institutional investors look at biotech as voodoo, when in reality it has outperformed every other sector in the [US] marketplace over the last five years," says Kolbert, whose investment banking colleagues assisted Benitec on its initial public offering this week.
The Nasdaq biotech index has surged more than 350 per cent in the past five years, even allowing for a 11 per cent correction in recent weeks and a big sell-off on Thursday in the US.
Last year, the top 40 Australian biotech shares on the ASX declined 4 per cent.
MLV & Co senior equities analyst for life sciences, Vernon Bernardino, says smaller American biotech firms on the Nasdaq have "really performed like crazy".
"So Australian biotechs are internationally cheaper than American and European biotechs," Bernardino says.
This difference in valuation has created an arbitrage opportunity that's been seized on by US investment funds. They take a stake in a listed Australian firm and punt that it will eventually seek a secondary listing on the Nasdaq and command a higher price, or get taken over by bargain-hunting drug giants.
It's a new take on the familiar brain drain problem that sees many of the country's clever ideas get commercialised offshore.
What's driving the sky high valuations of biotech stocks in the US?
As well as growing confidence in possible life-changing treatment breakthroughs, low global interest rates have increased the attractiveness of riskier biotechs stocks because of the possible high returns.
In 2014, the 79 biotech IPOs raising $US5.8 billion, returned 73 per cent on average, Renaissance Capital calculates.
On July 28, the shares of US cancer therapy NantKwest firm soared 39 per cent on their first day of trading, even though the firm is yet to have any drugs approved by regulators
While the pay-offs can be handsome, biotechs are often speculative. Many firms are years away from generating real revenue, let alone profits.
About one-third of US biotech initial public offerings (IPOs) since January 2014 are trading below their IPO price.
"While US investors have a love affair with many biotech IPOs thanks to the strong returns, not all biotech IPOs are successful," says Renaissance Capital principal Kathleen Smith.
