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Why picking ASX biotechs is mostly for the crazy brave

It’s a space with a reputation for rollercoaster returns and outlandish sales pitches, but some investors get lucky.

Tom RichardsonJournalist

Apr 3, 2024 – 6.00am

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7 min

The Australian biotechnology sector has produced massive winners such as the $140 billion blood products giant, CSL, but is also notorious for its unnerving volatility and costly clinical trials.

The ASX has 171 companies in the healthcare sub-sector, 85 in the pharmaceuticals sub-sector and 39 in a biotech sub-sector. Aside from gems like CSL, it is a space with a reputation for rollercoaster returns and outlandish claims about “breakthroughs” that never materialise.

Hugh Dive says speculative biotechs are risky. Louie Douvis

Hugh Dive, the chief investment officer at Atlas Funds Management, says picking biotech winners is tricky because each company is underpinned by inherently complex science.

“So much rests on understanding the science, so you get a very binary outcome – either it works fabulously, or it goes to zero,” he says. “Unless you have extreme specialisation in an area, it’s hard.”

Dive points to CSL’s recent setback with a drug known as CSL112 to treat heart attacks, as an example of how failure can occur despite positive market expectations and a $1 billion investment by an already wildly successful company.

On the other hand, one of the sector’s biggest recent winners is $4.1 billion cancer diagnostic radiotherapy group Telix Pharmaceuticals. The stock is up 1453 per cent over the past five years and has added 1880 per cent since its November 2017 initial public offer price of 65¢. It was trading at around $12 on Tuesday.

Biotech investor David Williams, who runs corporate advisory firm Kidder Williams, says Telix’s success shows Australia’s radio pharmaceuticals sector is “hot as Hades” in producing huge winners like Telix and Sirtex. Sirtex, which is best known for its technology to fight last-stage colorectal liver cancer, soared on the ASX before snaring a $1.9 billion takeover bid in 2018.

David Williams Arsineh Houspian

“I got China Grande [China Grand Pharmaceutica] to take 8 per cent of Telix about a year-and-a-half ago when it was worth $300 million, and now it’s worth more than $3.5 billion,” says Williams.