Money flows back into Australian biotech stocks: Intersuisse

Cash is finally flowing towards biotechnology and medical device stocks after a long and sustained drought, according to Intersuisse biotechnology index for the quarter ended September 2005.

Biotech stocks jumped 17.2 per cent for the quarter, out performing the All Ordinaries and the NASDAQ biotech index, which grew 8.6 per cent and 13.7 per cent respectively.

"It was a pleasing change to have a good solid quarter, because it's been a pretty difficult time for the sector," said Intersuisse director Jonathan Buckley. "The weight of money has been elsewhere, and this shows that there is a momentum back in the sector."

Of the 81 companies on the Intersuisse biotechnology index, 47 companies rose, 6 were static, while 28 fell.

"Over the last perhaps 12 months, the weight of money in the high growth speculative end of the market has been in the resources sector. That's topped out a little," said Buckley. "There has therefore been people looking around in the biotech sector and recognition that the better quality companies have looked undervalued."

Another main driver for growth in the sector, has been a transfer of cash into US pharmaceutical companies.

The five best performing companies for the quarter were Biota, Occupational and Medical Innovations, Solagran, Alchemia, and Life Therapeutics.

The main positive driver for Biota has been the "media's coverage of the bird flu issue," said Buckley, "which perhaps goes beyond the fundamentals of the story".

The other top performing companies have completed or are anticipating completion of major milestones, according to Intersuisse. For example, an application for registration of Alchemia's synthetic heparin is anticipated in December 2006; Life Therapeutics has recently acquired Pyramid Biological Corporation and is restructuring, and Occupation and Medical Innovations has obtained 71,000 safety syringes from its Chinese manufacturer for its Australian distribution partner, Teruma Australia, which will be used for safety trials.

The worst performing companies were Avantogen, Sunshine Heart, PanBio, Chemgenex Pharmaceuticals and Compumedics.

According to Buckley, the companies in the "long tail of small Australian biotech companies" are stuck between a rock and a hard place.

"They're being told that they lack critical mass, but they are restricted in being able to achieve that critical mass" such as proving balance of their portfolio and getting projects into the clinic, said Buckley.

However, Buckley is optimistic about the future of the sector.

"Although there remain issues across the sector, the better quality end of the life science market in Australia has a good outlook over the next six to twelve months," said Buckley. "We'll see again that everybody has an opportunity to raise money in some shape or form, which one could argue is a good thing or not a good thing for the sector."