Local biotechs unhappy with ASIC report

A number of listed biotechs named by the Australian Securities and Investments Commission (ASIC) as facing potential solvency problems are crying foul.

Half a dozen biotechs appear among 160 ASX-listed companies which ASIC lumps under the heading of companies with statements in their audit reports relating to "significant uncertainty about solvency."

The government watchdog spent three months culling the full-year financials of more than 1000 ASX-listed companies in search of the type of misleading reporting seen in the failures of energy company Enron and other US corporate high-flyers.

Its review focused on possible accounting abuses in three risk-prone areas: capitalised and deferred expenses, recognition of revenue and recognition of controlled entities and assets.

The surveillance project found no reason to believe those areas pose material risks for Australian investors.

But it uncovered a "reasonably high incidence" of auditors highlighting risks by drawing attention to the ability of companies to continue as a going concern or to matters of solvency.

The report listed seven biotechs among 160 companies with statements in their audit reports related to "significant uncertainty about solvency."

One was Q-Vis, a Perth biotech struggling to commercialise its medical laser technology which went into administration and had trading in its shares suspended days before the report was released.

Others were biosensor company Ambri, biodiversity miner BioProspect, medical technology company Medical Monitors, drug discovery company Antisense Therapeutics and immunotherapy specialist Virax Holdings.

Lumping all those companies in the same category is a mistake, according to David Blake, co-editor of the independent biotechnology investment report Bioshares.

"All companies are not the same and to try and lump all these companies in the same basket verges on the irresponsible," Blake said.

"On the basis of traditional accounting rules, which are basically backward looking and don't take the dynamics of wealth creation into account, you could list the entire biotech sector as insolvent."

The ASIC list "shows they are missing the point about biotech investments or for that matter investments in any emerging or discovery-based technology."

Ambri CEO Joe Shaw said ASIC's "uncertain solvency" label could be applied to any developing company that had yet to establish a positive cash flow.

With $20 million in the bank, the recent injection of millions of dollars in equity funding by two multinationals and a just-signed research contract with the US military, Ambri was "a long way from being insolvent," he said.

It would have been better if ASIC had differentiated more between companies with true insolvency issues, such as Q-Vis and those who didn't, he suggested.

Ambri CFO Fiona Dring said any diligent investor who had probed the company's background would not find anything new in the ASIC report.

"But it could have negative impact on investors who didn't know our background." Echoing Bioshare's Blake, BioProspect CEO Selwyn Snell said the ASIC list was too simplistic and failed to present a true picture.

"They look at the cash reserves and how long a company can sustain itself but they don't take into account the capital raising and other forward activities a company is engaged in," Snell said.

"We are all about creating new opportunities and we know it will take a considerable period to commercialise our products. But we can fund our business in the future and we believe our corporate governance and reporting is well above the standard required."