Biotech risky, but promises big returns for savvy investors
Last year it was Sirtex's turn, if you put to one side market heavyweight CSL. Sirtex's share price trebled as it ran from $4 to $13, which was crowned last month by its elevation into the S&P/ASX 200 Index and the sell-down of part of the holdings of its three main shareholders, which has helped to boost liquidity.
Overall returns from the biotech sector can be patchy, but for the savvy investor it promises big returns.
The potential for heady gains has prompted a number of private client brokers to encourage clients to look at committing some funds to biotechs for speculative gains.
But it depends on your risk appetite.
"There are stocks to take a look at - depending on your risk profile," said a research analyst at one private client broker, who did not wish to be named.
"Mesoblast will have data coming in the next few months which may rekindle interest.
"Then there is Starpharma and Phosphagenics which are also worth a look."
Macquarie Equities recently highlighted Phosphagenics to its clients, pointing to an approaching key clinical trial for its pain relief therapies, with Nomura Australia recently slapping a "buy" recommendation on the stock.
Similarly, Starpharma recently won support from CIMB Australia, which placed a "buy" on the stock following its recent selloff amid caution on drug trial results.
Elsewhere in the sector, the weakness in Prima Biomed's share price has attracted some analyst interest, and optimism continues with Clinuvel, but its progress has been a long time coming.
Small cap fund managers are often willing to play among mining hopefuls but refuse to touch biotechs, with a paucity of specialist analysts able to interpret clinical data and keep abreast of industry developments.
The difficulty, and high cost, of progressing drugs through the lengthy clinical trial process has encouraged many companies to focus on areas promising quicker cashflows and easier entry such as biomarkers.
Frequently Asked Questions about this Article…
Biotech stocks can deliver big returns for savvy investors — the article notes dramatic moves like Mesoblast's fivefold rise and Sirtex's trebling — but returns are patchy and depend on your risk appetite, so they tend to suit investors willing to accept higher volatility for potential upside.
The article highlights Mesoblast, Sirtex, Starpharma, Phosphagenics, Prima Biomed and Clinuvel, and mentions CSL as a market heavyweight — these were singled out for recent performance, upcoming data or analyst interest.
Two examples from the article: Mesoblast produced a fivefold share-price rise two years ago, and Sirtex’s share price ran from about $4 to $13 and was elevated into the S&P/ASX 200, with a shareholder sell‑down helping liquidity — illustrating how quickly biotech fortunes can change.
Very important — the article emphasises that upcoming clinical data can rekindle interest (it specifically mentions Mesoblast has data coming in the next few months), and that Phosphagenics has a key clinical trial approaching for its pain-relief therapies.
Some analysts are: the article notes Nomura Australia gave Phosphagenics a 'buy' and Macquarie Equities highlighted Phosphagenics, while CIMB Australia placed a 'buy' on Starpharma after a selloff. Other names like Prima Biomed have attracted analyst interest amid weakness.
The article points to several risks: returns can be patchy, progressing drugs through long, costly clinical trials is difficult and expensive, and many small-cap fund managers avoid biotechs because there are few specialist analysts able to interpret clinical data and industry developments.
According to the article, private client brokers encourage committing some funds to biotechs for speculative gains but stress it depends on your risk profile — that implies keeping biotech exposure limited to an amount you can tolerate losing and aligning any allocation with your overall risk appetite.
The article explains that the high cost and difficulty of moving drugs through lengthy clinical trials has led many companies to focus on areas promising quicker cashflows and easier entry, such as biomarkers.
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