Top tips for investing in ASX-listed biotechs
Health & Biotech
Health & Biotech
We may be the land down under, but we’re punching well above our weight when it comes to biotechs, says expert David Langsam of Biotech Daily.
The ASX is increasingly luring international biotechs, is this a good thing for the local industry?
It can be a double-edged sword to have more foreign companies in our market.
On the plus side, it is a handy way to see how other countries are approaching similar problem, such as US-based Visioneering (ASX:VTI) who are making multi-focal contact lenses. There are subtleties in the way that the company’s approach is very different to Australia but the learning opportunities are tremendous.
That being said, overseas management often makes transparency and communication more complex when time differences and regulatory changes need to be taken into account.
I think Australia punches so far above its weight in the biotechnology sector it’s not funny.
Last month alone the cumulative market cap for the top 40 biotechs was $7.5 billion, and growth of that group has surpassed that of the ASX200.
What has always worked in their favour is their ability to innovate, and to adapt their product if it doesn’t work. I think biotechs do that better than most listed ASX-listed companies.
How has the sector changed in the past decades?
The sector is maturing now, from the growth that began after the increases in investment during the early 2000s. We have seen a huge inflow of capital, along with the establishment of infrastructure by Queensland’s Peter Beattie and Victoria’s Steve Bracks and the John Brumby Government, and those investments are making their way to Phase 3 trials and registration.
Former CSL chief Brian McNamee once referred to the pace of biotechnology development as “glacial” – that “it only took 17 short years to take Gardasil from the lab bench to a $1 billion blockbuster” and that largely hasn’t changed in the industry.
There has been a dramatic rise in the number of listed biotechnology companies as the ASX continues to sell itself as a good place to raise money. The ASX is targeting those that want to raise between $100 million to $200 million.
What we’re seeing is small biotechs becoming successful and being bought up by the big international pharmaceutical companies.
Many are aiming to be bought in Phase 2 trials, but someone like ChemGenex (ASX:CXS) went all the way to FDA approval for its late stage cancer drug while remaining Australian-owned.
What are your tips for investors getting into biotechs?
As mentioned, things don’t happen quickly in the industry. We have investors who put their money in and get impatient when they don’t have an increase in a couple of weeks. But any investment in early stage products takes time.
I was once a day trader but now refer to myself as a decade trader and I have been vocal in advocating for the Federal Government to give serious tax concessions for those willing to put money into certified biotechs, for the longer term.
In the same way that 150 per cent tax deductibility for film investments under the Whitlam government buoyed that industry, there should be tax concessions for leaving money in biotechs to drive innovation. Perhaps a 150 per cent deduction for leaving funds in a company for five years rising to 200 per cent for 10 years.
When it comes down to it, there are two real measures for biotechs – trial results and cash flow.
We need to see large randomised controlled trials and revenue in the Appendix 4Cs. You can say anything you like but when those two things come through they speak for themselves.
For a company like RhinoMed (ASX:RNO) it comes down to positive revenues. They have reported solid revenues back to December 2015 and to me that is hard to dispute.
But most importantly, investors need to understand what the company does.
Far too many people invest in companies because someone told them to. A taxi driver, a financial planner or a stock-broker – and often they don’t know anything about the company or the sector.
You need to do your own research and feel comfortable that you have at least a general idea of what the company does for a living. Is there foreign competition? Is the drug, device or diagnostic actually useful for human health or was it just a good idea at the time?
Research, large randomised controlled trials and Appendix 4Cs are the rule of thumb.
This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.