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SECTOR SCAN: Why Some Biotechs Are Soaring

SECTOR SCAN: Why Some Biotechs Are Soaring

By Anthony Black 19.06.2011


Stocks are on the rise in the biotechnology sector. A sector renowned for its high-risk plays is delivering the rewards – and some.

Investors are increasingly turning their attention to the sector in response to positive results from clinical trials. Biotechnology companies that struggled through the lean years on top of the global financial crisis have emerged stronger and further down the path to commercialisation. 

Biotechnology stocks will always attract risk takers.

Steven Hing, of Zodiac Securities, says the potential rewards from a successful biotech are simply too great for some investors to resist. He says no one wants to miss the potentially next CSL or Cochlear. “A successful new drug can lead to a profitable and long-lasting revenue stream,” he says.

Hing offers his choice biotechnology stocks for investors to consider. Some have already done remarkably well in the past 12 months, with their share prices soaring. But Hing says there’s potentially much more upside on the back of good results, particularly at later stages of development.

However, as Hing also warns, it remains a highly speculative sector with heightened risk.

Biotechnology companies sit within the broader health care sector, which also contains its fair share of defensive stocks. The health care sector consists of almost 150 companies for a market capitalisation of about $49 billion.

According to Standard & Poor’s, the health care sector delivered an annualised price return of 7.6 per cent for the past 12 months to May 31, 2011 and 6.39 per cent over five years. In contrast, the S&P/ASX 200 posted an annualised price return of 6.29 per cent for the 12 months to May 31, 2011 and a negative 1.2 per cent over five years. Hing’s choice list includes the following for consideration.           

MESOBLAST (MSB)
MARKET CAPITALISATION: $2.4 billion
SHARE PRICE: $8.42

CHART 

Chart: Share price over the year to 17/06/2011 versus ASX200 (XJO)

Capturing investor imaginations is Mesoblast, a biological products developer in regenerative medicine. Investors have driven the share price from a 12-month low of $1.72 to a record high of almost $10. On June 15, 2011, the shares rose 22 cents to close at $8.75. Among others, its key products target lung and heart conditions, eye diseases, bone marrow cancers, fractures and cartilage degeneration.

Investors responded favourably to a partnering deal with US company and NASDAQ-listed Cephalon, which assists in funding Mesoblast’s trials and programs.

Hing says the company is establishing a solid track record of success in trials. “The company continues to chalk up milestones, and its stem cell technologies could bring several new drugs to market,” he says.

PHOSPHAGENICS (POH)
MARKET CAPITALISATION: $111 million
SHARE PRICE: 13.5 cents

CHART 

Chart: Share price over the year to 17/06/2011 versus ASX200 (XJO) 

Targeted Penetration Matrix  (TPM) technology is the driver for Phosphagenics. Its objective is to continue commericalising drug delivery applications administered via the skin.  A product to relieve chronic pain is advancing through clinical trials. Products to treat diabetes and acne are in development. Anti-ageing creams under its ELIXIA range are already on the market.

As the company’s patches are said to work efficiently without causing skin irritation, Hing says there’s huge potential upside if products under development prove a success. And there’s big overseas markets to generate demand for its products.    

BIONOMICS (BNO)
MARKET CAPITALISATION: $214 million
SHARE PRICE: 56 cents

CHART 

Chart: Share price over the year to 17/06/2011 versus ASX200 (XJO) 

The anti-anxiety and depression compound BNC210 recently delivered positive clinical results for Bionomics and its share price. The compound was found to significantly reduce panic symptoms in the absence of notable side effects associated with other drugs.

Hing says the compound is generating much interest given the number of people suffering from depression and anxiety. “The company’s share price is trading just below its all time high of 63 cents,” he says. “The recent announcement by Merck to extend research into its multiple sclerosis program underpins the stock’s recent rally.” Hing says the company’s multi drug candidates also target cancer and epilepsy.

Hing says Bionomics appeals as it could potentially deliver on a number of fronts in a world hungry for more effective treatments. It’s well managed, good at generating value and attracting investor interest.

PRIMA BIOMED (PRR)
MARKET CAPITALISATION: $275 million
SHARE PRICE: 27.5 cents

CHART 

Chart: Share price over the year to 17/06/2011 versus ASX200 (XJO) 

Prima BioMed is progressing with its ovarian cancer vaccine, Cvac. On June 14, 2011, it announced that a potency assay for Cvac had been successfully developed.  The company says the assay is a key component in the process to establish CVac as a pharmaceutical grade product. Phase III trails are expected to start soon, and Hing believes Prima BioMed is well on the way to bringing this vaccine to market by 2015. From a 12-month low of 8 cents, the stock reached a year high of 42 cents before retreating to close at 30 cents on June 15, 2011. “The latest announcement paints a bright outlook,” Hing says.   

PRANA BIOTECHNOLOGY (PBT)
MARKET CAPITALISATION: $51 million
SHARE PRICE: 18 cents

CHART 

Chart: Share price over the year to 17/06/2011 versus ASX200 (XJO) 

Hing says Prana Biotechnology should be considered in terms of product development and share price. Its goal is to effectively treat Alzheimer’s Disease and its PBT-2 compound is showing promise at trials. The company recently announced it had secured a key PBT-2 patent in Japan. Prana’s MPAC (metal protein attenuating compound) library has expanded and matured to generate leads in Parkinson’s Disease, Huntington’s Disease and brain cancer. Hing says Prana offers significant upside if its compound continues to deliver results. Success could result in a lucrative licensing deal.        

>>Back to the newsletter to view other articles - June 19th 2011

Share prices and market capitalisation taken at June 15, 2011

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