Bad to worse Author: By Beth Quinlivan Date: 25/08/2005 Words: 744 Source: BRW Publication: BRW Section: News and Features Page: 24 Despite some cautious optimism about the future for biotechnology companies,
the latest figures tell a grim story.
It was news that Australia's struggling biotechnology sector could have done without: its biggest institutional support, the Queensland Investment Corporation (QIC), had quit its holdings in more than a dozen biotech companies.
The head of equities at QIC, John Geffen-Jones, says the fund's biotech portfolio has been reduced to about 10 stocks. A year ago it held shares in as many as 25 small companies and was the only one of the big investment groups to have an extensive biotech exposure. Other fund managers such as AMP and Hunter Hall make occasional forays into biotechnology but have never had anything like the range of investments of QIC. Among stocks QIC has sold down or out of are obesity drug developer Metabolic Pharmaceuticals, genetics companies Bionomics and Benitec, influenza company Biodiem, and psychological test group Cogstate.
The effect of QIC's sell-down was evident in the latest report on the sector.
The August issue of Bioforum, published by PricewaterhouseCoopers, reported that excluding the three majors (CSL, Cochlear and ResMed), the life science stocks fell 10.3% in the June quarter this year. The All Ordinaries index rose 2.4% over the three months; small biotechs underperformed the broader market by 12.7%.
But there is cautious optimism that the worst is over. "We don't expect to see much immediate improvement, although it is possible there will be some good one-off performances," says a PwC partner, Andrew Sneddon. "We think it will probably be flat for 12 to 18 months. But the United States has rebounded, and when you look at what has happened at some of the individual companies, you see that there has been a lot of activity and a number with positive results. Companies such as Life Therapeutics and Pharmaxis have done well despite the conditions; others have formed major alliances, had good clinical results and are closer to positive cashflow."
The broader issues facing the sector remain, Sneddon says. "There are far too many companies, many went to the market too early and don't have the range and depth of products or skills to succeed."
QIC's Geffen-Jones agrees: "We are reasonably confident the worst is behind us
and expect some consolidation within six to 12 months." He says the fund will concentrate on a smaller number of bigger capitalised stocks. It still holds Progen Industries, ChemGenex Pharmaceuticals, Sirtex Medical, Acrux, Amrad and Circadian Technologies. It has also retained its holding in Proteome Systems, one of the worst performing floats of recent years. The opportunity would have to be "very special", he says, for the fund to again put money into one of the micro-cap companies.
Despite the gloomy investment market, on the partnership, clinical trial and acquisition front, the latest quarter was busy for biotechnology companies. PwC says 40 partnerships were formed in the three months. The largest was between ChemGenex and European company Stragen Pharma, to manufacture and distribute in some countries a cancer drug called Ceflatonin that ChemGenex has in clinical trials.
There were three acquisitions in the quarter, the largest being ResMed's purchase of a complementary sleep device company, Saime, for $142 million. Others included Bionomics' $9-million purchase of Illiad Chemicals. From clinical and laboratory trials, there were also 37 positive results and one negative (by Avastra) in the period. One of the most important trials was Ventracor's implants of its heart-assist device. During the quarter it began European trials of its device and preparations for US trials are on schedule.
As a reminder of how early-stage the Australian biotechnology sector is, only 10 of the 37 trials that reported results in the quarter had been done on humans; all other data reported came from laboratory or animal tests. Only two of those 10 were in phase-two trials, the remaining eight in phase one.
Sirtex reported on a phase one/two trial where its radioactive SIR-Spheres were used in conjunction with chemotherapy in treating cancer, and produced encouraging response rates. Progen released favourable phase-two trial results for its lead drug, PI-88, which has been tested as a first-line treatment against melanoma.
Three cancer drug developers, Solbec Pharmaceuticals, Meditech Research and Australian Cancer Technology (now Avant-ogen) all successfully completed phase-one trials.
Avastra's clinical trial of its BioWeld tube, an alternative to suturing of blood vessels, was delayed because of post-operative problems with the first patient. The complications were not directly related to the Bioweld tube but surgical procedures are being reviewed.
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