Australia's biotech wallflowers

Lovers of market volatility will be no stranger to the biotech industry, which last year suffered an annus horribilis with shock collapses in the share prices of QRxPharma, Alchemia and Prana Biotechnology.

This has made life tougher still for the likes of Benitec Biopharma and Antisense Therapeutics, Australian-listed developers of cutting edge gene silencing technology, which disables the ability of a cell to express a certain gene.

Benitec, with a market cap of $89 million, has seen its stock drop from a high of $2.38 to 77c even as clinical trials stride ahead. Antisense is valued at $17m despite the promise for its products to treat acromegaly (a hormonal disorder) and MS. Antisense won US regulatory approval for an advanced MS trial, but ironically its valuation has dropped since then.

Benitec has clinical-stage trials for hepatitis C as well as other disease treatments and has attracted over $30m in funding after three days of investor meetings from US based institutional healthcare investors.

To rub salt into the wound, over in the United States, biotech stocks happily outpaced S&P 500 returns last year. Firms like Alnylam and Isis Pharmaceuticals are market darlings.

Alnylam, which has a market cap over $US7 billion, recently raised $450m in a secondary offering of shares. The stock rose as high as $US111 in 2014 from below $US50, to now sit at around $US90.

California-based Isis has 30 drugs in development and is valued at $US8bn, with the shares rising from near $US22 to over $US75.

Executives at rival local biotechs complain their companies are undervalued and ignored by investors, and that there is not sufficient analyst expertise to get their messages of enthusiasm across to fund managers and potential backers.

Disasters such as QRxPharma's failure to receive approval for its MoxDuo painkiller from the US Food and Drug Administration decimated the stock, which hasn't not helped the sales pitch. QRxPharma's share price fell a full 97 per cent in 2014 to be the worst performer in the All Ordinaries index.

Queensland's Alchemia is reducing staff and considering selling key assets following a failed anti-cancer drug trial, while Prana's trials failed to show promise in treating Alzheimer's disease, sending its market capitalisation sliding from $90m to $44m.

“Despite the large number of failures and set-backs none were obviously predictable, even with hindsight,” says Biotech Daily editor David Langsam.

These falls from grace won't make it easier for Australian biotechnology companies to raise funds this year, with capital raised in 2014 already down to $458m from 2013's $749m.

Source: Biotech Daily

The US market is undoubtedly the holy grail for global medical products. While China has a billion people, the wealthy often go abroad for treatment. On a per capita income, it holds less allure than the US, which is around five times wealthier on a purchasing power parity basis.

The opportunity presented by the US' medical industry is unparalleled and, with over $US50,000 per capita income, it is the best place to sell expensive, high-end medical technology.

The World Health Organisation calculates the global pharmaceuticals market is worth $US300bn a year, and that is expected to rise to $US400bn within three years. The US, Canada, Europe and Japan will continue to account for 85 per cent of the global pharmaceuticals market well into the 21st century, WHO says.

The 10 largest drugs companies -- six of which are based in the US and four in Europe -- control over a third of the market, several with sales of more than $US10bn a year and profit margins of about 30 per cent. A third of sales revenue is spent on marketing, roughly twice the research and development spend.

That is a tough arena for Australian biotechs to compete. But for bold investors, the rewards are mighty when you back the right horse.

Impedimed rallied after it unexpectedly won a full-fee US reimbursement code in the US, and has almost quadrupled its market capitalisation. Impedimed launches its product to monitor water retention in cancer patients this month.

Shares in Sirtex Medical, which has developed a liver cancer therapy with potential to be extended to other cancers, soared 136 per cent in 2014, making it Australia's best performing healthcare stock to have a market capitalisation of $1bn. Trial results are due in March.

And if you don't want to sit out the wait for positive findings, there is always the growing likelihood that the weak Australian dollar -- underpinned on Tuesday by the Reserve Bank's resumption of cuts to record low rates -- may spur a series of takeovers by foreign buyers.

Despite the gulf in valuations between Australia and the US, takeover activity is almost non-existent.

Analysts say top of the list to kickstart that activity is Impedimed should its early sales go well.