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bta news Biota shares concern
Fleur Leyden
12oct05

THREATS of a bird flu pandemic have helped Biota shares skyrocket, but some analysts are concerned the Melbourne biotech's scrip is overvalued.

Biota shares shot to four-year highs on Monday, up 32 per cent to $2.39 on heavy turnover through online brokers CommSec and Westpac. The scrip pulled back 4 yesterday to $2.35.
In August, Biota chief executive Peter Malloy said a worldwide stockpile of avian influenza or "bird flu" remedies would generate $4 billion in global sales.

Based on this assumption, Biota's shares may be worth as little as 55, according to one analyst.

Treatments for bird flu consist of Biota's Relenza drug, and a pill called Tamiflu, a pill which belongs to drug company Roche.









Analysts estimate that Tamiflu holds 98 per cent of the market while Relenza holds 2 per cent.

"Assuming that Relenza could secure one-third of sales generated by stockpiling -- a generous assumption considering it only holds 2 per cent of the market -- and Tamiflu secured the remaining 67 per cent, Relenza would make $1.33 billion in sales," said the biotech analyst who didn't wish to be named.

Relenza is owned by drug giant GlaxoSmithKline, so Biota's share of the windfall would amount to a 7 per cent royalty.

Essentially, Biota would stand to gain about $90 million from a worldwide stockpiling scenario of Relenza, which could be a one-off event.

The patents on Relenza expire in 2011 in Europe and three years later in the US, after which time generic versions of the drug can be produced.

Biota looks set to have at least an additional 25 million shares on its register after raising $18 million in a share purchase plan.

The analyst said if worldwide stockpiling only occurred once before the expiration of Relenza's patents, Biota shares should be worth 55 each.

Bioshares analyst Mark Pachacz said the upside to Biota from bird flu would depend upon the scale and replenishing of stockpiling before Biota's patents run out.

ABN Amro Morgans analyst Scott Power agreed it was difficult to predict the extent of stockpiling.

Based on a $50 per pack selling price, Mr Power says Biota would yield about $7 million in royalties from two million packs of Relenza that have been ordered by customers in US, Europe and Asia.

He estimated that GSK had the capacity to produce 40 million doses which would generate $140 million in revenue for Biota.

Some analysts said some share price appreciation was coming from the expectation that Biota would receive between $308 million and $430 million in damages from a claim against GlaxoSmithKline.

Biota is suing GSK for failing to market Relenza adequately and has spent about $4.6 million on legal costs since May last year, according to its 2005 annual report.