Healthcare stocks around the world are attracting heavy investor interest for many reasons, chief among them the expanding ageing population and longer life spans. Within the ASX Healthcare sector, the Pharmaceuticals, Biotechnology & Life Sciences subsector is especially attractive to risk tolerant investors looking for explosive gains.
The most attractive typically are micro or mid-cap clinical stage start-ups with an appealing story to tell of treatments or drugs with untold potential. Unfortunately, the massive gains these stocks can post based on positive developments can quickly evaporate into losses on negative news.
The website Biotechdaily.com.au is a source of valuable information on the progress of more than 140 biotechs listed on the ASX as well as information from research institutes and on government policy. Although subscription based, the website has paywall-free information, including the performance of the BDI-40 – the Biotech Daily Top 40 Index, created and tracked by the website operators.
For the decade ending on 30 June 2017, the BDI-40 posted an impressive gain of 79.6%, dramatically outperforming the ASX 200, which fell 8.8% over the same period.
In the opinion of the website operators, a 2% drop in March of 2018 was due to the “Trump effect”. Despite the one-month decline, we found four biotechs posting double digit year to date gains and one with a 20% rise in the month of March.
Although the reputation of this sub-sector is marked by high volatility, all of these stocks have Beta values under 1.0, indicating below average volatility when compared to the overall market. The following table lists the companies by market cap.
Clinuvel Pharmaceuticals (CUV) is the only stock in the table generating both revenue and profit. The company has an analyst consensus rating of Outperform, and yet has a three-month average trading volume of only 35,000 shares per day, in stark contrast to the 842,000 three-month average shares per day for the second largest stock – Bionomics Limited (BN0), a company that has posted revenue increases in each of the last three Fiscal Years, while reporting losses in each.
Both companies have been on the ASX for more than a decade, but Clinuvel has outperformed Bionomics over the last five years.
The difference may be due to the perceived market potential of treatments under development at Bionomics – cancer, anxiety, depression, and Alzheimer’s – versus skin disease treatments in place at Clinuvel.
Apparently, treatments for protecting the skin lack the growth potential of cancer treatments, at least in the eyes of some investors. Clinuvel’s lead product is SCENESSE®, a compound implanted under the skin to increase the level of melanin in the skin, providing protection against UV radiation and sunlight.
Photoxicity is a skin irritation reaching severe levels in adults, usually light skinned, suffering from the rare disease of Erythropoietic Protoporphyria (EPP). The treatment has been approved as an orphan drug (diseases rare enough to inhibit development of treatments) in Europe and is awaiting approval in the US. The company has other treatments for severe skin conditions in pre-clinical and clinical trials. Half Year 2018 Financial Results showed a 28% increase in sales of SCENESSE®, with overall revenues increasing 3%. Profit dropped 44% due to expenses associated with rolling out SCENESSE® in Europe.
Bionomics has operations here and in the US in San Diego with a wholly owned subsidiary in France. The company’s business model calls for strategic partnering with large pharmaceutical companies to push drug candidates through later stages of development to commercialisation. Notable amongst the company’s current partners is global leader US based Merck & Company (NYSE: MRK).
Many start-up biotechs boast of some proprietary technology sure to propel the company to the head of the pack. Bionomics has three proprietary drug discovery and development technologies -- MULTICORE®; IONX®; and CSC RX DISCOVERY PLATFORM™. The company has shown three consecutive years of profit losses, but analysts expect the company to report a positive EPS by 2019.
Shares of Cynata Therapeutics (CYP) shot up 68% over four days following the release of positive news regarding the clinical trials of the company’s first mesenchymal stem cell (MSC) product -- CYP-001 -- for treating steroid-resistant acute graft-versus-host disease (GvHD). Positive announcements since have kept the stock pricing moving upward.
Cynata has its own unique and proprietary technology for stem cell development -- Cymerus™ -- originally developed at the University of Wisconsin/Madison in the US. This technology is said to be a major improvement over other methods of developing Mesenchymal stem cells (MSC) as it enables commercial, large-scale manufacture of MSCs from a single donor and a single donation. Mesenchymal stem cells are multipotent (cells capable of dividing and developing into multiple specialised cells) cells that can develop into bone cells, marrow cells, and fat cells.
Stem cell biotechs were once the “holy grail” sought by investors everywhere, but development of this potentially revolutionary breakthrough in medicine has been long on promise and short on delivery. Share prices sky-rocketed in 2009 following regulatory changes in the US enabling expanding stem cell research, but the euphoria began to evaporate quickly. Long suffering investors in Cynata can bear witness. Here is a ten-year price chart for CYP.
Telix Pharmaceuticals (TLX) listed to great fanfare back in November of 2017, hailed as the biggest IPO of a drug development company since the debut of CSL back in 1994. Breathless articles shouted the dramatic 20% first day increase in share price. Newcomers might have been fooled, but long-time investors know those “breathless” claims more often than not use the IPO price – not the opening day trading price – as a baseline – a price not always available to ordinary investors.
The Telix share price has been staggering downward, plunging close to 40%, until 16 March. On the 15th the company announced a clinical collaboration with renowned Netherlands-based research institution, Radboud University Medical Center.
Telix is developing treatments for unmet clinical needs in prostrate, renal, and brain cancer treatments using molecular targeted radiation (MTR) therapy. MTR kills cancer cells and shrinks tumour growth, with minimal side effects. The technology can also be used to improve existing diagnostic imaging equipment. However, Telix has no intellectual property rights to MTR and there are other players in the field, including Germany’s global giant Bayer HealthCare Pharmaceuticals.
The stock price rose from the dead and kept going in the face of more positive announcements, including a manufacturing partnership with Japan’s JFE Engineering Corporation (“JFE”), and opening offices and operations centres in Japan and Europe.
Telix has clinical trials in progress, with Radboud planning to collaborate on the most advanced – a treatment for renal cancer.
Botanix Pharmaceuticals (BOT) has multiple products under development for the treatment of skin diseases using extracts from natural plants to create a synthetic compound. The company’s goal is to develop treatments for unmet needs in the treatment of acne, psoriasis and atopic dermatitis, including elimination of side-effects associated with other forms of treatment.
The company’s treatments are delivered transdermally – directly through the skin -- using a licensed technology called Permetrex™. Although the Botanix website does not describe the company as a medical marijuana developer, the company is collaborating with other companies on treatments including cannabidiol derived from hemp and developing other treatments independently using a synthetic form. The company’s lead product for acne treatment is BTX1503, with clinical trials in progress, with successful results from a Phase 1b study already reported and a Phase 2 study to begin in the second quarter of 2018. Clinical trials for BTX1503 – a treatment for atopic dermatitis – have completed enrollment.
The target market for improved acne treatments is substantial and a recent Botanix presentation reminds investors no new treatments for severe acne have been introduced in 20 years. Use of a synthetic compound eliminates potential regulatory hurdles accompanying hemp-based treatments.
BOT Price at posting:
12.5¢ Sentiment: Buy Disclosure: Held
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