Courier Mail report today on Aust biotechs. Very relevant to us. Cheers Phil
BARRAGE OF BIOTECHNOLOGY DEALS AFTER GLOBAL FINANCIAL CRISIS BLUES.
"A NUCLEAR winter" is how biotechnology industry veteran Greg Brown recalls the worst days of the global financial crisis. People were flinching from any perceived risky investment, new funds became scarce for a sector making everything from cancer drugs to retractable needles, and some biotechs collapsed.
Mr Brown recalls investors were still shell-shocked. They had no idea what the future held.
"This was especially true in the US at the time," he says. "Australia was bad but not as bad."
Mr Brown is chief executive of medical device maker Impedimed, which still managed to pull off $2 million in fundraising in January, 2009. But Brisbane-based Impedimed's shares would soon dip hard, like others in the often speculative sector.
Impedimed kept working on plans during this time to market a device for detecting painful swelling ailments linked to cancer surgery. Shares see-sawed but have steadily risen over the past five months.
Start of sidebar. Skip to end of sidebar. .End of sidebar. Return to start of sidebar. That move reflects a resurgence in many advanced biotechnology companies after their shares hit lows in late 2008 and early 2009. Some are still struggling, or collapsed.
But some analysts believe a barrage of recent historic local deals and potential product approvals is heralding a threshold for the industry.
"It's been validated. It has investment class," says Bioshares analyst Mark Pachacz.
"What the broader market has been slow to realise is that it's no longer a sector that's based on hype or blue sky. It's now a sector that's based on very significant commercial outcomes."
Last year's deals provide some evidence. Melbourne-based Acrux in March announced a deal worth up to $US335 million ($336 million) with US giant Eli Lilly. The product? Its Axiron testosterone-delivery drug, which can be applied underneath men's armpits. Acrux now is even flagging paying a 60 dividend, a rarity in the sector.
Then last month, stem-cell researcher Mesoblast secured an upfront payment and investment of $US350 million from Pennsylvania-based Cephalon. There's an added kicker of potentially $US1.7 billion in royalty payments.
Bioshares described it as "one of the biggest" deals for a biotechnology product in middle-stage trials what the industry refers to as Phase II.
An Australian committee last month recommended approval of Pharmaxis's proposed treatment of cystic fibrosis. Brisbane-based Alchemia is also hoping its long-delayed anti-clotting drug will get the green light from US regulators soon.
Progress has been reflected by an overall share price recovery. Bioshares' index of stocks hit a trough in 2008's last quarter and recovered 75 per cent by 2010's third quarter. This support was marked by a comeback in late 2009, setbacks earlier in 2010, and a subsequent boost.
This growth has been concentrated in later-stage companies, Mr Pachacz notes. That mimics the US, with life-science specialists Burrill & Co saying the gains of 11 per cent in the year have been in the second half and have "not been distributed evenly across the board". Floats have gone badly overseas. Burrill notes they are typically down 13.2 per cent.
Impedimed's Mr Brown reckons that being listed in Australia had advantages during the GFC.
"The US market at the time was no-man's land for biotech and few investors were looking at investing without severe discounts for risk," he says.
Still, for all the local enthusiasm, setbacks have also struck. It could be delays from regulators, a bad result from a trial or a company just proclaiming unrealistic timelines.
That can burn investors, such as when needle-maker Occupational & Medical Innovations went belly up on New Year's Eve 2009. Or there was the case of Ventracor, a heart-pump maker that raised almost $199 million from investors before going bust in March 2009.
"That was really just bad management," Bioshares' Mr Pachacz says of Ventracor. "That company had money on the table to get it through the GFC, and it elected to pass it by."
Funding was the critical lesson from the GFC, according to analyst Graeme Wald, of Wilson HTM.
"Raise money when you can, not raise money when you need it . . . when the markets are good and investors are willing to take the risk," Wald says.
He cites the likes of Acrux, which reaped $23 million in July 2007 after completing middle-round trials. Its shares would plummet in the GFC, and chief executive Richard Treagus says, "we were fortunate in that we had sufficient cash on hand; we had a clear strategy and a plan".
If anything, Mr Treagus says the low price of stock forced them to focus on the fundamentals of a business that looks at delivering drugs through the skin. That was because the broader macroeconomic issues were beyond management's control, he says.
Mr Wald says many gains in company share prices are recognition of progress.
"The market is not as negative as it was, but there is still a degree of lack of risk appetite," he says.
As to the future, Mr Pachacz says Australia is moving to a time when the sector will be characterised by companies generating "in excess of $30 million to $50 million revenue a year from new products". "That'll create more interest," he says.
"Barring any significant failures . . . this positive sentiment should continue for another 12-18 months."
That would be better for the scientists and executives than a nuclear winter.
Impedimed's Mr Brown has noticed confidence is building. It's in a "far better position today than in 2008", he says as he tries to drum up business from the US west coast.
"Shell shock and fear of the unknown has subsided."
ADO Price at posting:
9.4¢ Sentiment: Buy Disclosure: Held
