FYI | Sep 06 2006
Nearly a year ago today I attended a conference on biotechnology in Sydney. I noticed how many of the people who worked in the industry, or were closely following developments as an investor in the sector, had become much less optimistic than in the year before.
The story I wrote following the conference opened with the sentence: “Biotechnology stocks are the pariah in today’s financial industry”. I explained it was my view that at a time when China had awoken and India would soon follow there was little or no room left in the world of finance for what I described as “Big Dreams with no revenues, and even less money”.
Little did I know how right I was at the time, I came to realise this week. First there was the announcement by Standard and Poor’s regarding the latest changes to the major stock indices in Australia. I have seen nobody else picking it up yet, but with the removal of Novogen (NRT) from the S&P/ASX200 index also disappears the last biotech stock from Australia’s leading share index.
I checked today, and the S&P/ASX300 index still has a handful biotechs including Biota (BTA), Cellestis (CST), Metabolic Pharmaceuticals (MBP) and Pharmaxis (PXS), but that’s about it from now on.
The news about a biotech-less S&P/ASX200 had hardly sunk in or an email entered my inbox announcing the silent death of the weekly Biotech Buzz, one of the most highly appreciated email newsletters on the industry.
I spoke to the author, Southern Cross Equities analyst Stuart Roberts, on Monday. He explained the decision with a healthy dose of humour: “the sector can continue languishing without me”. Stuart, as I am allowed to call him, was also the enthusiastic initiator behind the annual conference in Sydney, which, needless to say, has died in an even more silent manner.
I forgot to ask him but I am pretty certain I am the only journalist who attended the two Southern Cross Equities conferences held over the past two years. Even though, as I already wrote, investors and analysts had mostly abandoned the sector, I nevertheless always found it a great opportunity to expand my knowledge and insights. Something that, who knows, one day might come in very handy.
When it comes to hard cold cash the world can be a very hard place to be, especially in and around the stock market. I still remember the air of near desperation that surrounded last year’s conference. Imagine what it would have been like this year…
Stuart says he received about 120 emails following the announcement he quit spending his time on researching biotechnology hopefuls. As it happens, Biotech Buzz had already gone from weekly to bi-weekly. Anyone interested in trading volumes, indices, the last gossip and insights or –science beware!- a fundamental investment opinion on the likes of Progen (PGL) or Peptech (PTD) will now have to turn to Taylor Collison or ABN Amro Morgans, or some part time efforts at Intersuisse and Shaw Stockbroking.
As far as my knowledge goes, that’s all that’s left now, apart from magazine Bioshares, which enjoys a respectable reputation in both the biotech and financial sector. A few weeks ago Bioshares zoomed in on the fact that, regardless of all the previous paragraphs, the global biotech industry had been caught by a wave of merger and acquisitions as well. The magazine commented all targets were revenue generating, even profitable businesses “that have arguably been trading at significant discounts to their inherent value".
Bioshares believes two local companies stand out as potential takeover targets: Optiscan
Imaging (OIL) and Clinical Cell Culture (CCE). ABN Amro Morgans analysts Scott Power and Tanya Solomon responded with saying they would add SDI Ltd (SDI) to make it a threesome.
Bioshares noted that Acrux (ACR), Cytopia (CYT), Alchemia (ACL) and Avexa (AVX) might also appear on the radars of “aggressive international buyers”. In other words, it’s all not just about Coles (CML), Colorado (CDO) or S8 (SEL) -or Rinker (RIN) or Repco (RCL) or Terramin (TZN) or Jubilee Mines (JBM)- but just as much about those that have landed, as I wrote a year ago, “in the darkest corner of the stock market”.
Whatever happens to the local biotech industry, from now on it will have to do so without the contagious enthusiasm of Stuart Roberts who has moved on to become a healthcare analyst.
Today ‘Southern Cross Equities Healthcare Digest’ entered my inbox stating the typical Australian healthcare stock is currently trading on an FY07 P/E of 20 times. Stuart however believes the market may be underpricing Healthscope (HSP), Ramsay (RHC) and ResMed (RMD) while placing too high a value on Ansell (ANN) and Symbion (SYB). He says the jury still seems to be out on Sonic (SHL) while Cochlear (COH) and Mayne (MYP) represent “good sectoral bets”.
A year ago I titled my story ‘Is It Bye-Bye Or Buy For Biotechnology Stocks?”
As far as Stuart is concerned it’s Bye-Bye Biotechs, Hello Healthcare.
He thinks that Healthscope should be trading at $5.95 in twelve months from now. That’s more than 20% higher than where it is today.
Till next week!
Your continuously Buy-o-technology oriented editor,
Rudi Filapek-Vandyck
(as always supported by the Healthy Four: Terry, Rob, Chris and Greg)