Biotechs close to the bone

The majority of listed life science companies are required to file cash flow statements with the ASX on a quarterly basis. This provides investors with a means to monitor the financial health of cash-depleting biotech firms on more timely basis than is available through half-yearly and annual reporting requirements.

A key analytical measure we present is the Survival Index (SI), which is derived by dividing a company’s annual or annualised net operational cash into the company’s cash balance. The index measures how many years those cash reserves will last, based on the company’s recent spending patterns. It is limited because it does not account for companies that may ramp up spending in the next period of activity.

As a rule of thumb, companies that present with an SI of less than one are likely to be raising funds to support their activities, or are in the process of doing so. A healthy SI is either two or more. Companies with an SI of less than 0.5 may be in positions of funding stress and should therefore be investigated cautiously by investors.

For the June quarter 2006, we have tabulated the cash positions of 88 listed life science companies. One company, Panbio, has moved out of this list as it has satisfied the ASX requirement of posting four consecutive quarters of positive operational cash flows. One other company, Denx, has been excluded because it is in the process of transferring its principal asset to a US company, Actuality Systems, in exchange for a shareholding. In our last analysis of company cash positions (Bioshares 165) we calculated a Survival Index for Denx of 0.2, or a little more than two months of cash to cover net operational spending based on recent spending patterns. It therefore comes as no surprise that the company has opted to sell its dental implant technology to another party, after exhausting other funding avenues.

Of the 88 companies, 41 recorded an SI of less than one, with 18 having less than six months’ cash at hand. A year ago the figure was 24 out of 81 companies with an SI of less than one.

Receipts

Several companies are worth noting for the income they have been generating. (Please note that cash flow statements do not distinguish sales from other revenue). Sirtex Medical tops the list with annual cash receipts for the year of $21 million. Genetic Technologies had receipts of $8.9 million. Medec, Cygenics, and Eastland Medical Systems posted receipts of $8.5 million, $8 million and $7.4 million respectively. These full results will be worth examining when released.

Also worth noting are two companies with what appear to be very low SI figures, Pharmaust and Bresagen. Cash-generating companies such as these can often run much lower cash balances, so their SI figures are not necessarily reliable indicators of their financial health.

Stressed Companies

There are a number of companies that, according to our Survival Index calculations, are facing either very difficult or uncertain futures. Rockeby biomed and Norwood Abbey had, as of June 30, effectively run out of cash, with both companies registering SI figures of zero. Rockeby has informed the market that it has access to a $S600,000 banking facility. Norwood Abbey plans to sell off or licence its eyecare division, sell part of its holding in Norwood Immunology, “aggressively” commercialise its needle-free drug delivery technology and to finalise a funding package.

Probiomics, with an SI of 0.1 has, since June 30, raised $850,000. Benitec, also with an SI of 0.1, has announced a share purchase plan to raise a minimum of $500,000. The directors of RiTract (SI: 0.2) have announced plans to issue convertible notes for up to $2.5 million, to be partially underwritten by the directors. Resonance Health (SI: 0.2) launched a rights issue to raise $1.5 million, but this has subjected to a stop order by ASIC. Bone Medical (SI: 0.2) plans to raise $2 million through a placement. Another convertible note was issued by Living Cell Technologies (SI: 0.5) to raise $1.2 million, with a further $800,000 raised through a placement.

Other companies to raise funds since June 30 include Mesoblast , which raised $15 million through a placement, Psivida (SI: 0.7), which issued $8.5 million in subordinated convertible debentures, and Premier Bionics (SI: 0.2), which raised $1.1 million through a placement in the UK.

Note: Small cap life science companies that are not required to comply with the 4.7B Rule include: Agenix, Anadis, Biota, Circadian, Clovercorp, Compumedics, Chemgenex Pharmaceuticals, Cytopia, Eiffel Technologies, Ellex Medical Lasers, Gropep, IDT Australia, ITL Corp, Life Therapeutics, Metabolic Pharmaceuticals, Meditech Research, Medical Developments International, Novogen, Optiscan Imaging, Panbio, Progen Industries, Polartechnics, Phosphagenics, Peptech, Ventracor, Virax Holdings and Zenyth Therapeutics.

Reproduced by permission from Bioshares newsletter, number 178

mReporting Companies – Cash Balances June 30, 2006
	Code	Company	Cash at June 30, 06 ($m)	Survival Index
1	NDL	NeuroDiscovery	2.8	Not App
2	EMS	Eastland Medical Systems	0.9	Not App
3	SRX	Sirtex Medical	10.8	Not App
4	PXS	Pharmaxis	97.8	7.1
5	CTE	Cryosite	1.3	6.4
6	BZI	Brainz**	9.0	5.4
7	MAA	Medec	5.7	5.2
8	CST	Cellestis	13.9	4.9
9	BOD	BioMD	2.7	4.8
10	CXD	CathRx	10.4	4.6
11	BOS	Biosignal	4.9	4.4
12	HTW	Heartware	34.3	3.7
13	GAA	Genepharm	15.0	3.3
14	GIA	Giaconda	4.3	3.1
15	BPH	Biopharmica	2.7	3.1
16	PEP	Peplin	31.2	2.6
17	ACG	Atcor	11.8	2.6
18	BIT	Biotron	4.6	2.6
19	NLS	Narhex Life Sciences	4.8	2.6
20	BRC	Brain Resource Corp	3.9	2.6
21	MSB	Mesoblast	7.9	2.5
22	BPO	BioProspect	1.8	2.4
23	ACR	Acrux	19.7	2.4
24	AVX	Avexa	20.2	2.3
25	DIA	Dia-B Tech	2.8	2.3
26	UCM	USCOM	7.2	2.3
27	ANP	Antisense Therap.	8.2	2.1
28	NEU	Neuren Pharmaceuticals	7.4	2.0
29	XBL	Xceed Biotech	5.2	2.0
30	GTG	Genetic Technologies	11.9	2.0
31	AVS	Avastra	3.7	1.9
32	SPL	Starpharma	14.3	1.9
33	CGS	Cogstate	2.7	1.8
34	GBL	Genesis Biomedical	2.2	1.8
35	TIS	Tissue Therapies	3.9	1.6
36	IMU	Imugene	2.7	1.6
37	ACL	Alchemia	26.2	1.6
38	CMQ	Chemeq	28.8	1.5
39	EGX	Evogenix	5.8	1.4
40	SLT	Select Vaccines	0.9	1.4
41	PLD	Portland Orthopaedics	4.6	1.4
42	ABI	Ambri	6.2	1.3
43	CYN	Cygenics	5.7	1.1
44	IMI	IM Medical	2.4	1.1
45	BNO	Bionomics	4.7	1.1
46	BDM	Biodiem	2.9	1.0
47	CAU	Colltech	1.7	1.0
48	PYC	Phylogica	2.6	0.9
49	SBP	Solbec Pharm.	1.3	0.9
50	MTY	Medical Therapies	2.4	0.9
51	CCE	Clinical Cell Culture	8.6	0.9
52	PBT	Prana Biotechnology	10.1	0.9
53	AOP	Apollo Life Sciences	5.0	0.8
54	STI	Stirling Products	1.8	0.8
55	AOS	Advanced Ocular Systems	1.7	0.8
56	CUV	Clinuvel Pharmaceuticals	8.6	0.8
57	PRR	Prima Biomed	3.2	0.7
58	PSD	pSiVida	15.5	0.7
59	HTX	Healthlinx	1.4	0.7
60	SHC	Sunshine Heart	4.5	0.7
61	SIE	Scigen	5.7	0.7
62	PXL	Proteome Systems	6.1	0.7
63	SLA	Solagran	1.1	0.7
64	OBJ	OBJ	0.6	0.7
65	AVP	Acuron	1.5	0.6
66	UNI	Unilife	4.0	0.6
67	PSX	Psiron	3.4	0.6
68	SAH	Salus Technologies	0.4	0.6
69	SOM	Somnomed	2.3	0.6
70	OMI	Occup.& Medical Innov.	1.2	0.6
71	BLS	Biolayer	1.3	0.5
72	VSG	Visiomed	0.9	0.5
73	LCT	Living Cell	3.0	0.5
74	EQX	Eqitx	0.7	0.4
75	ACU	Avantogen	2.1	0.2
76	PBI	Premier Bionics	0.8	0.2
77	BNE	Bone Medical	0.5	0.2
78	RHT	Resonance Health	0.6	0.2
79	MGZ	Medigard	0.1	0.2
80	RTL	RiTract	0.4	0.2
81	BGN	Bresagen	0.2	0.1
82	MDM	Medical Monitors	0.1	0.1
83	BLT	Benitec	0.9	0.1
84	PAA	Pharmaust	0.3	0.1
85	PCC	Probiomics	0.2	0.1
86	ALT	Analytica	0.1	0.1
87	NAL	Norwood Abbey	0.7	0.0
88	RBY	Rockeby Biomed	0.042	0.0
Total			590.9
Average			6.7	1.6