Biotech stocks will keep falling... but not too far

Australian biotechnology companies may be heading for a further tumble, delegates at the Financing Biotechnology meeting in Sydney this week were told.

Dr Sally Warneford, investment manager at Credit Suisse Asset Management, said that Australia's biotechnology market was following global downward trends.

Over the past 12 months the overseas biotechnology sector performed poorly, she said. It has been on a steady slide down, with the Nasdaq biotechnology sector falling up to 40 per cent.

On a positive note, the Australian biotechnology market has remained quite steady, until the beginning of the year, when it began to fall.

Warneford said that if Australia was to follow the same path of the international biotechnology market, it could potentially still have a long way to fall.

Optimistically, she said that Australia biotechnology stocks couldn't have far to fall, because they were much smaller than stocks overseas.

She one reason the Australian biotechnology sector was lagging behind was its lack of liquidity.

"Institutional investors in smaller Australian biotechnology stocks cannot exit easily because the stocks don't trade as much," she said. Smaller capital stocks do not have as many announcements as they take longer to reach their milestones she explained.

By contrast, US listed biotechnology companies were larger with more liquidity.

Warneford said it was not a peak time for Australian biotechs looking for investment dollars, but the situation could improve shortly.

There was a range of reasons why investors are not willing to put in the dollars, she said. For instance, investors had been disappointed by negative clinical trial results from companies such as Melbourne-based Amrad, and this had impacted on their psychology.

Also, there was a lack of new products in the pipeline, she said. Many of the new drugs were actually old ones wrapped up with a different name and dosage.

Small to mid-cap sized companies also had disproportionate pressures to bring in revenue and were relying on their small cash flows to drive their valuations, she said.

Finally, the plummeting fortunes of high-risk technology companies like Enron had affected the entire technology market.

Warneford said that over the past three years there had been a peak in the number of biotechnology companies listing on the Australian stock market, with up to 22 new listings since 2000.

Money began pouring into the biotechnology sector when the technology bubble burst a few years ago and many companies listed. Recently, the money started to slow down and public companies were starting to feel the downturn, she said.

"Focus on reaching your milestones," Warneford advised delegates, who included the CEOs of listed Australian biotechs. "Don't focus on the share prices, the market will decide them for you."