Biota investors sweat on hot result for flu drugDAVID...

Biota investors sweat on hot result for flu drug
DAVID SYMONS
February 4, 2010

At least a handful of Biota shareholders will set the alarm clock for 1am tomorrow in readiness for the quarterly GlaxoSmithKline earnings webcast.

Biota's only commercialised product, the flu anti-viral Relenza, is marketed by Glaxo, with the Australian company picking up a 7 per cent royalty on sales. Glaxo investor calls are the only source of commentary on Relenza's commercial performance and mentions of the product are like gold dust for the Biota faithful.

Strong positive guidance from Glaxo will be needed if Biota's share price is to break with its historic tendency to wax and wane along with media mentions of a flu pandemic. Bird and swine flu hysteria set Biota running as punters salivated at the prospect of a sales explosion, only to see the share price fall when flu left the front pages.

This time round the Biota share price has declined about 40 per cent from its swine flu highs. Recent reports that big flu vaccine orders are being cut in light of low demand have been bad for sentiment, despite there being no direct relationship between vaccine demand and anti-viral demand.

A research note from Taylor Collison last month says ''unlike a vaccine, which must be consumed within one year or less, anti-virals (Relenza, Tamiflu), which have a shelf life of 5-7 years, are effectively a sound hedge for the unpredictable nature of influenza''.

In fact, the positive impact of swine flu on Biota's financial performance could outlast media focus on the issue by several years. Health authorities in more than 60 countries are believed to have increased their Relenza orders as Relenza has fewer resistance issues than Tamiflu.

A rebalancing of government stockpiles, which have typically been about 80 per cent Tamiflu and just 20 per cent Relenza, would see Biota receiving bumper royalty cheques for years.

Analysts expect that Biota's royalty for the December quarter could be in the $30 million to $35 million range, about 10 per cent of the company's $360 million market capitalisation and the largest royalty in the company's history.

The prospect of continued bonanza performances is supported by comments from Glaxo, at the height of swine flu anxieties, that the company was looking to increase production capacity to a possible 190 million Relenza courses a year. Analysts from RBS Morgans see production increases supporting Biota royalties as high as $166 million in 2011, although the market will be looking for Glaxo to confirm that the demand pipeline is full before re-rating Biota to reflect this outlook.