Biotechnology stocks ASX
It has been a horrid year for the leading medium-cap biotech stocks in Australia: Pharmaxis, once the emerging sector's flagship biotech, Acrux, QrxPharma, Universal Biosensors, Alchemia, and the list goes on.
However, in the US, biotech stocks continue to enjoy a stunning run, with more than 100 initial public offerings (IPOs) in 2014. Fortunately, this US sentiment towards biotechnology has had positive effects on the Australian sector, particularly with capital inflow, one of the largest challenges for cash-hungry biotech companies.
After more than a decade of commercialisation, this was supposed to be a period of deliverance for Australian biotechs. Yet it has been a year in which the leading mid-cap companies have stumbled.
Pharmaxis, which at its peak had a market value in excess of $900 million, is now valued at $15 million, below its cash holding of $25 million. The stock has fallen by more than 50 per cent in the past year as the company's lead product for the treatment of cystic fibrosis failed to gain substantial market traction in Europe.
Acrux's share price has fallen by 55 per cent amid concerns emerging about the use of testosterone products and the inability of the company's product to secure a more substantial market share in the US through its partner, Eli Lilly.
QrxPharma received a red light once again from the US Food and Drug Administration for its pain combination therapy. Its share price has plummeted by 98 per cent. Universal Biosensors' share price fell 61 per cent after the company finally disclosed the disappointing buy-out clause with its partner, Lifescan.
Alchemia's shares fell 85 per cent after its Phase III cancer trial showed no benefit over placebo. And Prana Biotechnology's shares fell by more than 70 per cent after a failure with its Phase II Alzheimer's disease trial.
Investors chasing growth
Over the past five years the US biotech sector has powered ahead with a sustained record bull run. The Nasdaq Biotech Index has steadily increased from 750 points in October 2009 to its current 3, 240 points, a rise of 330 per cent.
Driving this interest is a combination of low interest rates, investors chasing growth rather than yield, and broad drug development success, such as that being enjoyed by Gilead Sciences, which now has a market value of $157 billion.
In the first 11 months of 2014 there were 101 biotech IPOs in the US, up from 49 in the same period in 2013, according to Burrill Media. Those companies raised US$8.7 billion and were up an average 13.5 per cent from their issue price at the end of November.
The positive sentiment in the US has resulted in improved capital market conditions in Australia from the perspective of access to capital for Australian companies. Although biotechs here have largely performed poorly, many companies have been able to raise substantial funds, which positions them well for the next 24 months.
For investors, there is the potential for strong upside if clinical and commercial milestones can be achieved, now that funding risk has been removed.
Biotechnology analyst report: Undervalued biotechnology stock with potential to double: Pick 1 (Biotechnology analyst report: Undervalued biotechnology stocks with potential to double)
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