Buying Opportunities Beckon Amid Biotech Bloodbath
By Tim Boreham - February 23, 2022
The sharp retreat in global biotech valuations is creating rare buying opportunities as investors flee ‘riskier’ sectors on the back of rising interest rates, dwindling liquidity and heightened geopolitical tensions.
In some cases, the sell-down has been so severe that promising drug and device developers are trading below cash backing – in some cases by more than 40 per cent
US business publication Barrons lists eight such biotechs, including the Nasdaq listed Altea Therapeutics (transdermal patches), bluebird bio (gene therapies) and Allakos (therapeutic antibodies).
“It’s the opportunity of the decade to start adding to these opportunities,” says Dr Bianca Ogden, who runs Platinum Asset Management’s $570 million healthcare fund.
The CEO of the ASX and Nasdaq listed immune-oncology house Immutep, Dr Marc Voigt says the valuation decline of both the tech and biotech sectors looks like a “typical reaction” to increasing inflation, uncertainties and the geopolitical situation.
“However, in some cases the valuation of some biotechs might have been (significantly) too high and were more financially driven than fundamentally driven,” he says.
“So overall it is a mix of different reasons.”
Other industry leaders caution the more austere environment is likely to result in an industry shake-out, with early pre-clinical stage plays in danger of not being able to raise the capital they need.
“There are about 30-40 ASX biotechs that are going to need capital in the next six months and they are not going to get it,” says Dr Chris Behrenbruch, CEO of the emerging radiotherapeutics and diagnostics play Telix Pharmaceuticals.
“Frankly, capital markets have had a pretty long party. Eventually the music has to stop and that will impact on investor sentiment which we are seeing now.”
The bellwether of the US sector, the Nasdaq biotech index has lost 28 per cent of its value since peaking in early September last year. Consisting of 213 stocks, the index remains slightly above pre-pandemic levels.
Locally, the S&P ASX300 pharmaceuticals and biotechnology index has fallen around 8 per cent from its mid November peak and is flat on pre-pandemic levels.
Some of the more substantive home-grown biotechs have lost 50 per cent or more of their value over the last 12 months, including Mesoblast, Polynovo, Avita Medical, Starpharma and Paradigm Biopharmaceuticals.
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It also doesn’t help that most pre-revenue life sciences companies rely on retail investors who tend to be more skittish than their institutional counterparts.
Platinum Asset Management’s Ogden says “the dynamic is unravelling” after a heady period marked by a rush of initial public offers.
But she says that investors shouldn’t lose sight of a company’s technology, purpose and progress.
“Biotechs are at an extreme level and that offers opportunities,” she says.
“Just because the drawdown has happened, it doesn’t change the fundamentals of why we are investing in that sector. Innovation is the same, we just get it cheaper.”
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For instance, Telix shares are about 40 per cent higher year on year but have dipped 20 per cent over the last month, despite a good news patch that most of its peers could only dream of.
In December 2021 Telix won FDA approval for its isotope prostate imaging tool Illuccix., having sealed local Therapeutics Goods Administration assent in early November.
On February 10 the company was elevated into the ASX 200 index, replacing the acquired Sydney Airport.In January the company pushed the button on a $175 million institutional placement and $25m share purchase plan.
“We were very lucky about the timing of our capital raising but there was a real sense of urgency to get it done,” Behrenbruch says.
As a result, the company has a three-year cash runway – more than enough to pay the bill before first earnings flow.
“These market conditions will separate the wheat from the chaff. We are seeing that in the US now,” he says.[...]
Telix’s Behrenbruch says: “for tenacious and patient investors there will be some real bargain to be picked up and we would put ourselves at the top of the list.”
Kazia’s Garner says biotech valuations ultimately are determined by how many people get a disease and how well the drug works.
“To some extent, everything else is noise.”
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