Biotech stocks hit as sell-off continues

Biotechnology stocks have been hit hard in calendar 2005 with the Intersuisse biotechnology index showing a fall of 23 per cent, including a 10 per cent fall in April.

"The whole of the market has been under pressure," said Intersuisse analyst Peter Russell.

The Southern Cross Equities Australian Biotechnology Index has also shown a large fall, dropping by a third since November 2004.

"When the broader market gets panicky, biotechs are the first to go. It's the least understood industry," said Southern Cross biotech analyst Stuart Roberts. "There has been selling off in biotechs since November last year, which should have been an indication to the broader market."

Russell believes that the fall in biotech investment is a reflection of the mining industry, with investors switching to biotechnology when mining is underperforming. "When the resource sector is looking good, investors switch back," said Russell.

According to Russell there has also been a pattern of biotech companies being overpriced in the market. "Most biotechs are not going to be a massive success," he said.

The fall in biotech stock purchasing will result in lower funding levels for companies. "Prices at which deals will be done will be considerably lower," said Roberts.

Russell agrees. "It has been difficult to raise money for some months," he said.

The downturn may see biotechnology companies exploring possibilities for raising money internationally. "When the Australian company is a bit strapped for cash but has good science it makes them more amenable to an overseas deal," said Russell. "It allows people in similar industries to work together, without cannibalising other people's projects".

Russell also believes that the lack of funds may force biotechs to become more commercial.

Intersuisse warns that biotechnology stocks are notoriously volatile and that experienced investors will probably benefit from a future upswing.

"Biotech investment is a long term business. The potential for recovery is very strong. You just have to be aggressive or clever with your crystal ball to know exactly when," said Russell.

The stand out performer since 1 January 2005 was Pharmaxis with a 63 per cent gain, followed by GroPep at 32 per cent and ResMed and Cochlear both at 22 per cent.

The worst performer was Prana Biotechnology with a 72 per cent loss, with Benitec, Antisense Therapeutics, Polartechnics and Meditech Research all seeing losses of 57 per cent or more.