Diagnosis positive for medical advances
Barry Henderson, a one-time high-flying small-cap fund manager for Colonial First State, now invests for himself. He says biotechs are a standout for those looking to take a little risk.
"Biotechs are a natural place to invest," he says. "These stocks can go up, even if the market is going south."
Henderson owns shares in a number of biotechs, including Nanosonics (NAN), a medical-device company whose "Trophon EPR" disinfects ultrasound probes used for pregnancies. Its product is distributed exclusively by GE Healthcare in the US and its stock has climbed as sales accelerate.
The sector has been a big beneficiary of increasing expenditure on health by the ageing population. Many of the best-performing companies have a big research capability, but they also have earnings and, in some cases, pay dividends.
Among the biotechs that have doubled in the past 12 months is Sirtex Medical (SRX), whose "SIR-Spheres" treatment for liver cancer uses radioactive isotopes to target liver tumours that are inoperable. Its sales mainly come from the US and have been growing quickly as the treatment goes from being a last line of defence to the first for oncologists.
The recent performance of Prana (PBT), which is researching a cure for Alzheimer's disease, has taken many market watchers by surprise. In late September last year, it was at 26¢; in the past month, after a couple of announcements, it has shot up as high as 42¢, and it has a market cap of $145 million.
It has two early-stage clinical trials in progress, one for Alzheimer's and another for Huntington's, which is also a neuro-degenerative disease. Its stock has climbed on news that equates to high levels of patient interest, but not definitive results. The Huntington's results are due in October, and the Alzheimer's in March next year.
With Prana there is an element of the "Bradbury" effect as it is one of the last standing in the hunt for a cure for Alzheimer's. In August last year, industry giants Pfizer, Johnson & Johnson and Eli Lilly all but threw in the towel after spending billions of dollars on research.
There is a big unmet medical need. The Alzheimer's Organisation estimates dementia costs about $600 billion a year globally. "We're hoping to make a dent in that," Prana's chairman and chief executive, Geoffrey Kempler, says, "but our market cap is still very low, even after the steep increase."
Its cash levels are also low - about $16 million - and it has no pharmaceutical partner with deep pockets to fund trials.
Richard Hemming edits the fortnightly newsletter Under the Radar Report: Small Caps.
Prana forces the pace
Frequently Asked Questions about this Article…
Investors are attracted to biotechs because the sector can deliver big gains driven by medical breakthroughs and rising healthcare spending from an ageing population. The article notes examples such as Prana Biotechnology surging about 50% in a month and Nanosonics jumping about 85% over three months. Commentators say biotechs can outperform even when broader markets are weak, but they also carry higher risk and volatility.
Nanosonics is a medical-device company best known for its Trophon EPR system, which disinfects ultrasound probes used in pregnancy and other procedures. Its Trophon product is distributed exclusively by GE Healthcare in the US, and accelerating sales of that product have helped lift Nanosonics' share price.
Sirtex Medical sells SIR‑Spheres, a liver cancer treatment that uses radioactive isotopes to target inoperable tumours. The company’s US-driven sales have been growing quickly as oncologists increasingly use SIR‑Spheres earlier in treatment, which helped the stock roughly double over the past 12 months.
Prana’s stock climbed after announcements that generated strong patient interest in its early-stage programs. The company has two clinical trials—one for Alzheimer’s disease and one for Huntington’s—that have attracted market attention; Prana’s shares rose from about 26¢ to as high as 42¢ in the recent move, giving it a market cap around $145 million.
According to the article, Prana’s Huntington’s trial results are due in October and its Alzheimer’s trial results are expected in March next year. These are early-stage trials, so findings may be preliminary and should be interpreted cautiously by investors.
Key risks include the early-stage nature of its trials (results are not yet definitive), limited cash—about $16 million—and no major pharmaceutical partner with deep pockets to fund expensive late‑stage trials. These factors can mean high share-price volatility and potential dilution if the company needs to raise funds.
Biotech stocks can offer outsized returns but also high risk. The article suggests they may suit investors willing to take a little extra risk; some biotechs also have earnings and even pay dividends, which can reduce risk compared with pure research plays. Diversifying, sizing positions conservatively, and understanding trial timelines and cash positions are practical steps for everyday investors.
An ageing population is increasing healthcare expenditure, which benefits many biotech and medical-device companies. The article highlights large unmet needs—such as dementia, which the Alzheimer’s Organisation estimates costs about $600 billion a year globally—creating potential long-term demand for successful treatments and devices.
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