Last bit is interesting re AHZ
After largely bypassing Australia, the global biotech boom briefly touched down locally over the past year with a handful of high-priced acquisitions but wary foreign investors left some local biotech valuations under pressure.
The flood of global money buoyed a handful of privately owned outfits such as head-lice group Hatchtech, which was sold overseas for $277 million, with $US200 million paid for local drug developer Spinifex, which could rise to $US700 million over time, and privately owned Link sold for £100 million.
Others such as Pharmaxis signed deals worth up to $US750 million for one of its drugs under development, while global pharmaceutical major Merck moved closer to Bionomics, taking a 5 per cent stake, which adds to their drug development partnerships.
Sharemarket returns for biotech investors remain hard to come by.
Sharemarket returns for biotech investors remain hard to come by.
The implosion of the resources sector saw some funds flow into the biotech sector, with more than $1.1 billion raised in 2015, more than double the annual average of about $500 million. But investing in the sector is not for the faint-hearted.
Earlier in the year, QRx Pharma collapsed as Osprey Medical and GI Dynamics all-but blew themselves up, while one-time biotech darling Mesoblast ended the year one of the badly wounded after a dud float in the US pushed its shares back to long-term lows, mimicking the mid-year dive at Benitec, which left both trading well below their US issue price.
On the plus side, Sirtex emerged as a darling of the sector, notwithstanding ambiguous research results in the first half of the year, which saw its shares dumped but with most of these losses recovered by year end, as analysts pencilled in share price targets of more than $44 on bullishness for ongoing robust sales growth, which could lift its market capitalisation to over $2.5 billion and ensconce it well within the top 100 ASX stocks.
The changing fortunes within the sector were mirrored by Mayne Pharma as well with its worth now closing in on $1.25 billion as the investors look to a pay-off from its heavy spending of the past few years on acquisitions, while revived optimism for Reva Medical saw it recoup losses.
"The Australian market is about 60 per cent devices and 40 per cent pharma, whereas in the US it is about 90 per cent pharma and 10 per cent devices," one longstanding sector analyst said.
"Devices are lower risk whereas pharma carries 'binary' risk. If you have only one investment, you will be wiped out. Spread it around and you can do OK."
As a result, analysts typically favour medical device developers over drug developers, which usually have only a small number of products under development with a high risk of research failure.
For Canaccord Genuity analyst Matthijs Smith, stocks such as AirXpanders, which it floated, Impedimed and Nanosonics are its preferred investments in the sector while a research trial setback at Osprey has put its near-term prospects under a cloud.
"Osprey needs to prove itself," he said. "It had data which was not what people thought it would be. There were flaws in the way the trial was done and most people misinterpreted some of it.
"The results have not affected adoption in the US. [Users] can see they use less dye. If it can sell more units, the shares will move back to 50¢/60¢. It is one to watch – carefully. It is far from dead."
AirXpanders, which assists in breast tissue expansion following a mastectomy has already snared a 20 per cent market share, and is now preparing for a US launch, which could trigger a re-rating.
"If it replicates this [share] in the US" it could do very well, Canaccord's Smith said. "It has to invest in manufacturing, for example it would cost about $US4.5 million to gear up to produce 100,000 units but that would generate $200m in revenue."
Canaccord has a target price of $1.25 on the shares "but there is plenty of upside from there", Smith said.
Impedimed has flagged potential new markets for its device, such as monitoring a build up of heart fluid.
"This is a much larger potential market, therefore 2016 could be transformational for Impedimed," Smith said, where he has a $1.90 price target.
Along with changes to the business model, renewed hospital focus on sterilisation underlies much of the analyst optimism for Nanosonics.
"The thing that is exciting is we're seeing regulatory changes to refocus medical equipment [on sterilisation] and Nanosonics has the only equipment to sterilise," Smith said, pointing to the role of sterilisation to also stem the spread of human papillomavirus as being another potential driver.
Among drug developers, Bell Potter has "buy" recommendations on both Neuren and Viralytics while it was critical of the deep discount of a December placement with attached warrants by Bionomics to selected US investors, which put the share price under pressure.
"We are mystified as to both the deep discount and the need to issue warrants as a deal sweetener," Bell Potter analyst Tanushree Jain told clients in a recent note. "It raises questions about the direction of Bionomics' Board. In our view, Bionomics could have raised straight equity at better terms."
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