If you have an account, enter your email to login.
Remember Me
Customer Area
Welcome back and thank you
for logging in to Under the Radar.
This message is to confirm your
membership and access to Under the Radar.
If you have any queries, please
call us on 02 9331 1999 or email

Log Out
Go to Customer Area

Your small cap stocks market wrap

Volatile royalties often bitter pills for biotechs
PASSIONS run high in the biotech world.

This much was clear in the wake of last week's column focusing on the market's valuation of cancer therapy developer Prima BioMed (ASX: PRR).

It's understandable. Australians have been awarded no fewer than 11 Nobel prizes in science, kicking off with Howard Florey, the discoverer of penicillin, in 1945. And when an investor gets behind a story with the potential to help so many and to make so much money, he doesn't want to hear anything that might say otherwise.

This column had the temerity to suggest that Prima's market cap of $256 million might be overdoing it for a company that hasn't got much in the way of clinical evidence and even if everything goes to plan, will not make a profit for at least another four years.

It's worth looking at a couple of other biotechs that have had recent announcements. Both have products that are approved in various markets, but both have been massive disappointments to investors in the past five years.

At 82.5¢ Biota's (ASX: BTA) share price is a far cry from its $3.33 high in October 2009.

The biotech has had a lot of promise for a long time because of its flu drug Relenza, marketed by GlaxoSmithKline.

The fall reflects the realisation that royalties from this product are very volatile.

Last week it said that it received $1.5 million in royalties for the March quarter.

In the December quarter of 2009, when there was a flu epidemic, it received $32.6 million.

This isn't to say Biota's intended Nasdaq listing won't be a success, but it will need much more than Relenza to wet US investors' appetite. The US government seems to realise this.

It's providing it with a $US231 million ($A223 million) grant to conduct trials for its Japanese-approved flu treatment. RBS Morgans has a price target of $1.12.

Pharmaxis (ASX: PXS) has a well-regarded treatment called Bronchitol for the lung condition cystic fibrosis, and late last month received approval to market its product in Europe.

After an $80 million equity capital raising late last year, it now has enough money to stay afloat until it is profitable, which is forecast for fiscal 2013.

Such an outcome wasn't always a formality. Its stock is $1.30, but this time last year it was almost $3 and then promptly fell about 80 per cent in two days. The decline reflects uncertainty of the regulatory process.

In this case the European regulators rejected the drug, but this has been successfully appealed.

The stock still hasn't recovered, chief executive Alan Robertson tells Radar: ''The convoluted regulatory process delayed our ability to launch the product. For a developmental company, when there are these unexpected delays, they do have consequences.''

Shaw Stockbroking forecasts revenue from the product to climb from $1.7 million in the current year to $470 million in eight years.

If you are a believer, it's a no-brainer. But in the past year, it has been a rollercoaster ride. Such is the life of a biotech investor.

« Back

Start your 30 days Free access now Subscribe NOW
"It's great to see one of the sector's best commentators in action. "
David Paradice
Founder of Paradice Investment Mangement
"I've noted some of Richard's stock picks in the Sydney Morning Herald. He is someone both investors and companies should listen to. "
Gary Weiss
Under The Radar Blog
8% yield, strong earnings and big growth prospects Where else but Under the Radar could you find a stock which has a big yield, underpinned by existing earnings and big growth prospects. But  ..

Read More
An investment analyst and
financial journalist and small cap specialist.
Richard is the editor for
'Under the Radar Report'.