Biota makes some mistakes

The reason for this is that Relenza sales have been disappointing. Total revenue for Biota in December's half-yearly report was down $1.3m to $7.6m from the previous period. Revenue includes poorly performing Relenza sales as well as Flu Oia sales, a test kit that helps diagnose influenza rapidly.

Market leader

Flu Oia is a market leader in the United States and Japan but Relenza has seen a significant decline in sales this year as the market share for Biota declined in the US. Biota has also had to deal with the lowest incidence of influenza in the northern hemisphere for 10 years.

The last time we reviewed Biota was in issue 74 (Hold - $2.67). The stock is 12% down on that and the price reflects the profit warning for the full year results as Relenza's performance impacts the company's revenue.

The big - and alarming- question is why Biota, a good biotechnology company with a patented product to combat an important virus, has underachieved.

There are four main reasons. First, there is a limited time in which to act once a new drug is discovered and we believe Biota missed the boat. Although there are no competing influenza antiviral drugs in Europe, the United States has four approved antiviral agents for preventing or treating influenza.

Second, Biota has very few global alliances. One major alliance is the giant drug distributor Glaxo Wellcome in Europe, but that is about it. A biotechnology company needs to form strategic alliances with more medical associations, science groups and distributors in order to succeed. Biota recognises this and has told shareholders that this is now a priority for the company.

Third, the company has marketed Relenza poorly. Aggressive marketing and educational campaigns should have taken place as soon as the antiviral drug hit the markets around the world. Doctors as well as the wider community need to be aware that Relenza exists and that it works.

Global share

Finally, Relenza may be approved as an antiviral agent to treat influenza in 51 nations but it is only recognised as a prophylactic in eight countries. Once the drug is approved as a preventing drug for influenza in more markets then Biota's market share will increase considerably, especially in the United States.

But don't count on the share price moving upwards any time soon. Profit in the half-year report was $1.5m compared to $5m for the same period last year. The company has $41.4m in cash and spent $4.85m in R&D.

Profit will continue to come mainly from royalties arising from the sales of Relenza and we believe that the only way it will increase profit is by having the influenza drug approved as a prophylaxis in more countries.

Presently influenza-specific antiviral drugs are an important adjunct to vaccines but they are not yet a substitute. In issue 74 with a share price of $2.67 we told you to Hold. The share price is $2.34, but continue to HOLD FOR THE UPSIDE.