Analysts offer up biotech's good, bad and ugly for '04

Biotechnology industry observers have given the sector a mixed report card for 2004, pointing to highlights like a lively capital market and low points like failed mergers.

At an annual pre-Christmas biobusiness forum in Sydney this week, arranged by industry consultant Innovation Dynamics, three prominent analysts offered their views on the biotech sector's good, bad and ugly, and made a few hopes and predictions for 2005.

Bioshares co-editor and analyst David Blake said that among the year's disappointments were the failed Peptech/Agenix merger, Peptech's decision to hand shareholders a dividend, and Serono's decision to halt development of Amrad's molecule emfilermin.

But the bad and the ugly were outweighed by a list of positive events in the sector in 2004, Blake said, topped by the fact that 23 new biotechs listed on the Australian Stock Exchange during the year. "Is there an IPO window? I think the wall has been taken away," he quipped.

Other high points included healthy capital raisings, such as Biota's raising of $20 million through a share purchase plan from 40 per cent of its shareholders, and a range of big-dollar offerings from companies like Proteome Systems, Acrux, Stirling and Mesoblast. Some firms, including Psivida and Prima Biomed, had successfully raised cash outside Australia. "Is there anything more important for a biotech than to have cash?" Blake said.

Peptech made the list of highlights for the year too, Blake said, pointing to the company's resolution of its royalty issues with Abbott Laboratories and Centocor.

Australian biotech companies had become more mature, Blake said -- they knew what to do with the money they raised, and also displayed greater depth and skill in management.

But Blake's prediction of "a merger of significance built on sense and humility" in 2005 was tempered a warning by Australian Graduate School of Management professor Mike Vitale that corporate governance issues continued to hold the sector back.

Some CEOs' reward packages were far too high for small-cap companies, Vitale said. "It's one of the reasons we haven't had more mergers -- there's no incentive to merge."

Vitale said his other big wish for biotech was that there would be more awareness of the need to focus on resources.

Referring to the oft-cited comparison between Australia's sporting and scientific endeavours, Vitale reminded the forum that most of the nation's gold medal haul in the last Olympics had come from just two sports.

In the Olympics, "we focussed," Vitale said. But on the other hand, "some [biotech companies] have about as much chance of success as a one-legged man at a butt-kicking contest."

Similarly, universities should be under more pressure to make a "good faith" effort on commercialisation, and stakeholders increasingly had a right to ask, "Where's the drug?" given the amount of money invested in biotech in the last year, Vitale said.

Southern Cross Equities' biotechnology analyst Stuart Roberts made favourable comparisons between the biotech sector today and the mining sector of the 1960s. "We've got our North-West Shelf, our Bass Strait and our Mount Tom Price," Roberts said.

But he tempered his normally bullish outlook towards the sector with a few observations about how it could do better. The industry had "too many spivs", he warned.

Looking forward to 2005, Blake tipped a greater emphasis on product development, and "an extinction of significance" -- not necessarily that of a big firm. "Hopefully we'll see some more outdoor advertising companies emerge next year," he said, referring to former biotech Pai2's reinvention a couple of years back.