Biotechs left trampled by herd mentality

The share market's habit of batting listed biotech companies around like ping pong balls can leave senior management shell-shocked. Share prices of companies in the drug development, healthcare, diagnostics and medical devices soar on the updraft of a promising licensing agreement or plunge at the twitch of a regulator's eyebrow.

"You see it on a nearly continuous basis," says Mel Bridges, a veteran observer of the market traumas that can beset listed biotechs.

Bridges is chairman of listed drug developer Peptech and a founding director of diagnostics company Panbio. He also established the Queensland company Pacific Diagnostics, founded medical device company, Impedimed and is a director of the Cooperative Research Centre for Diagnostics and its commercial arm, Diatech.

On closer analysis, the news that triggers large price swings is often commonplace "but nevertheless it seems to stampede the market, whose herd mentality continues to amaze me, and enormous volumes change hands," Bridges says.

Upper management that devotes too much time and energy on damage control for volatile share prices isn't doing itself any favours, Bridges says. "My advice to senior management would be to focus on business and ignore what the share price is doing."

The share market's rough handling of Peptech in recent months has given Bridges plenty of opportunity to practice what he preaches.

The company's skills are concentrated on peptides and proteins, where it holds patents on antibodies against TNF Alpha, an inflammatory molecule of the immune system.

This week Peptech's share price tumbled more than 13 per cent overnight on news that the US Food and Drug Administration has raised the possibility of links between TNF and lymphona, a cancer of the white blood cells. TNF, or tumour necrosis factor, plays a role in killing tumour cells and decreasing the amount of TNF in the body could increase the risk of lymphona for patients.

Peptech has stakes in two of the drugs -- Remicade and Humira -- for which the FDA has requested additional safety data.

The market fallout from that linkage is only the latest in a series of swoops and dips for Peptech's price in recent months.

It zipped up earlier in January when Abbott Laboratories, a licensing partner of the 30 per cent Peptech-owned Domantis Ltd, received FDA approval for Humira.

That mimicked a similar jump last year when Peptech's price surged eight per cent to hit $AUD2.45 after another pharma partner, Johnson & Johnson, announced it had US approval to sell Remicade as a treatment for Crohn's disease, an inflammatory bowel disorder.

Then its price slumped in October when Johnson & Johnson subsidiary Centocor Inc disputed whether Remicade fell under Peptech's anti-TNF patents and said it would discontinue royalty payments.

Bridges' advice to divorce the zig-zag progress of share prices from daily management concerns isn't a blanket admonition.

Institutional investors are one group which has to be kept abreast of management views on share price movements, he says. "You tend to stay close to institutions who have come on board so they understand what is happening."

To illustrate his point, this week's FDA-induced market stumble, which drove Peptech's share price down to $AUD1.64, could have proved awkward if the news had broken a few weeks earlier when Peptech was in the middle of a 6.6 million share placement to institutions.

Peptech's current share value is still above the placement price but no doubt the company's senior executives have been addressing the issue with the institutions involved.

Their discussions may have been helped by the reaction among market analysts to the FDA announcement. One advisory group that follows Peptech closely, eG Capital, has put out a note which characterises the FDA action as unlikely to produce a significant impact on the $US5 billion combined annual sales of the drugs involved and has placed a buy recommendation on Peptech stock.