IF THERE is one thing that investors in any company instinctively understand, it is the effect the arrival of a big chunk of cash can have on the bottom line.
That is not normally a problem for biotechnology companies - they are usually better at spending money than earning it, particularly in the early years.
Phylogica is a very different sort of biotechnology company because its aim is to provide compounds that help large pharmaceutical companies develop better drugs and then live off the progress payments and royalties.
It has performed well in that assistant role so far with three development deals with top 10 pharma companies in Pfizer, Roche and AstraZeneca, with another potentially multi-target deal with a large pharma company in the pipeline.
With most large pharma groups working on a calendar year basis, that could see a significant payment land in Phylogica's bank account before Christmas should that deal get across the line soon.
The reason the large pharma groups are beating a path to Phylogica's door is its specialist library of peptides, protein fragments that it has garnered from a range of "extremophiles" - lifeforms that survive extreme temperatures in geysers and volcanoes.
The key to the library is not just the peptides within it but the way they can be quickly analysed to come up with a number of candidates that might do just what a drug company wants - for example, carrying a drug payload into a cell or across the blood/brain barrier.
The holy grail for Phylogica is for one of those peptides to be used in a blockbuster drug, earning it low single-figure royalties that would see its revenue rise significantly.
In the process though, it already gets progress payments as each drug candidate reaches clinical milestones.
Chief financial officer Nick Woolf said Phylogica was aiming to reach cash sustainability this financial year and further discovery alliances could see revenue potential rise very sharply.
Phylogica retains its speculative buy for its prospective rapidly rising revenue and also its takeover potential should one of its large partners find it more attractive to own the library than borrow from it.
LAST week seems like a very long time ago as shown by the share price of rubber glove and condom maker Ansell.
During the worst of the share market ructions last Tuesday, Ansell shares were trading as low as $11.82.
Fast forward to yesterday after newbie chief executive Magnus Nicolin bravely forecast an increase of 6 to 12 per cent in earnings per share and the shares flew as high as $13.98, an 18.2 per cent rise in less than a week for anyone fast and brave enough to grab the opportunity.
It is not hard to see why investors might have felt a bit bearish about Ansell given that prices for its natural rubber latex raw materials have been rising sharply and it is exposed to the struggling US and European economies.
That only tells part of the story for Ansell though, with its leverage to fast-growing Asian markets, particularly by its quaintly named sexual wellness division.
The picture was not quite as positive in the medical gloves part of the business, but Ansell seems to be kicking a lot of goals in simplifying its product range, reducing its reliance on natural latex and diversifying into other markets through the recent acquisition of Sandel.
With its global reach, Ansell should be able to turn Sandel's range of sharps kits and safety and specimen handling products into another growth engine and its balance sheet has plenty of flexibility to pursue other growth options.
Ansell was obviously a better buy in the depths of last Tuesday than it is now, but defensive growth stocks are rare enough for it to earn a buy on the dips.
The Herald Sun accepts no responsibility for stock recommendations. Readers should contact a licensed financial adviser.
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