MoneyTalks: Two reasons why today's Aussie biotech sector is like the '90s scramble for beachside property

MoneyTalks is Stockhead’s regular drill down into what stocks investors are looking at right now. We’ll tap our extensive list of experts to hear what’s hot, their top picks, and what they’re looking out for.

Today we hear from Alto Capital investment manager Tony Locantro.

What’s hot?

Australian biotech companies follow their US counterparts and in similar fashion to the Nasdaq Biotech Index, share prices have taken a hit across the sector in 2022.

With higher interest rates comes lower tech valuations and as long as inflation remains front and centre, the sector will continue to underperform.

As a result, Locantro says ASX biotech stocks are “massively undervalued”.

“The hot money is chasing the EV thematic, and all the while, the fundamentals of the biotech sector aren’t reflected in their share price,” he says.

“I liken it to buying beachside property in the early ’90s – it is an extreme value proposition with multiple upside potential.

“The sector has been in a bear market for more than a year, in fact since November 2021 the NASDAQ biotech index has dropped about 21 per cent.

“It is that unloved, it’s ridiculous.”

But Locantro is certain that if these companies continue to get on with the job by working on various trials or diagnostics, the re-rates will certainly follow.

Top picks

Radiopharm Theranostics (ASX:RAD)

“Radiopharm have just announced positive Phase 2 data from patients with brain metastases, which showed significant tumour uptake that was consistent and independent from the tumour origin,” he says.

“It is a huge market – between 20 to 40 per cent of patients with cancer end up developing metastatic cancer to the brain during the course of their illness.

“Now the company is fast-tracking development and are about to enter five Phase 1 trials in prostate cancer, pancreatic cancer, breast and gastric cancer. RAD has one of the richest clinical pipelines of any ASX biotech junior.”

From Locantro’s view, the stock is a buy with its share price currently sitting at 0.12c after peaking at 0.24c in July.

“Recent share price weakness is associated with a 1 for 3.55 rights issue at 14c with an attaching option that has seen some selling pressure. Once this clears the market can again focus on the fundamentals.”

Exopharm (ASX:EX1)

Exopharm have two lead programs in the pipeline in the area of genetic medicine.

The first one is focused on treating cystic fibrosis using exosome-based additive gene therapy to the lungs for treatment while the second revolves around elastin deficiency.

There is potential for more than one product per program with the company focused on validation studies in CY 2023 before commencing clinical trials.

“The share price is at 10.5c – an all-time low, and again, like Radiopharm, the market is massive,” Locantro says.

“There are huge commercial opportunities in additive gene therapy.

“The exosomes are designed to assist in the delivery of scare prevention and treatment but interestingly there is no cure for cystic fibrosis, the median age of death is 32.”

Proteomics (ASX:PIQ)

“The company has developed a blood test called ‘Promarker D’ which detects kidney function decline in type 2 diabetics up to four years before it takes place,” Locantro explains.

Diabetic kidney disease (DKD) is a major complication arising from diabetes, and PromarkerD is the only available test capable of predicting the onset of the disease in patients with diabetes and no existing DKD.

“A letter of intent has been signed with Sonic Healthcare in the US to assist with the distribution of it, which is the gold standard of detection in diabetic kidney disease.

“They are gearing up for milestones now with Sonic Healthcare to look at a US rollout as it heads towards revenue.

“PIQ also have a pipeline of diagnostics with early encouraging results in oesophageal cancer and endometriosis with significant market opportunities.”

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