Biotech sector looking OK, say analysts

ASX-listed biotechs released a flurry of final results last week, with most companies meeting expectations for expenditure, revenues and losses.

Among the companies who submitted their preliminary final results to the ASX were Biota, Chemeq, Medica Holdings, Peplin, Prima Biomed, Prana Biotechnology, Genetic Technologies and Optiscan.

"I didn't notice anything that particularly surprised me," said Intersuisse analyst Peter Russell.

He noted that while there was a lot of "red ink," the sector was looking very promising, with companies trying to become commercial rather than research oriented.

"There's a lot of upside potential," Russell said. "There is a list of companies on the verge of doing things."

He cited Chemeq, Biota, Peptech, and Metabolic Pharmaceuticals, among others, as having a lot of future potential.

"For most biotech companies, you're looking for research information rather than financial information," Russell noted.

His comments were echoed by Salomon Smith Barney analyst Rosemary Cummins, who said that for most companies in the sector, the results were not the main driver, and that the most important information was the cash position of the company and the predictions for the following year.

Biota Holdings was one company that finished the year in a strong position, with over $30 million in cash and $9 million consolidated revenues despite decreased sales of Relenza. Of the $8.6 million loss, $6.4 million was due to the acquisition and establishment of their US subsidiary Biota Inc.

"It's a cashed-up, well-led biotech drug research firm. It has the money, and is one of the well-placed healthy companies," said Bioshares analyst David Blake. He pointed out that Biota should no longer be thought of as a revenue earner, but as an R&D company.

Blake also commented that while Axon Instruments' results were disappointing, the market had been aware of the declining revenues for about six months.

He said that the results were more an indicator for the companies involved in the first stage of the "genomics revolution," which turned out to be more difficult than expected. "It's not just Axon, but who they sell to as well," he said.

Blake said he was cautious of Genetic Technologies and Chemeq because of questions about whether their market capitalisation matched their earnings.

He noted that Medica Holdings would have to raise money in the coming year to pay for Cytopia's pre-clinical and clinical studies for its prostate cancer therapeutic.

"It will be interesting to see how they go about that," Blake said. "They are in a bit of a holding pattern, waiting for the market to settle."